Carl Icahn has joined the bulls on Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), buying 6.8 million shares of Fannie Mae and 5.7 million shares of Freddie Mac from Bruce Berkowitz’s Fairholme Capital Management LLC back in March, adding him to a growing list of hedge fund billionaires who expect the government to eventually return the government sponsored enterprises to private shareholders.

Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA) Bove

Berkowitz wanted Icahn ‘in the game’: Bove

Icahn paid $4.03 and $4.04 apiece for the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) common shares respectively, initiating his position on March 11 after the GSEs both single-day double-digit losses, report Joe Light, David Benoit, and Nick Timiraos for The Wall Street Journal, but Fairholme was probably less concerned with hedging its bets after a tough day than it was with rallying more support for its cause.

“My belief is that Fairholme took this action to get the Icahn team in the ‘game.’ Plus, I do not believe that Fairholme has meaningfully reduced its position in either stock,” writes Rafferty Capital Management VP of equity research Richard X. Bove.

While the deal is now almost two months old (it came out as a result of Fairholme’s lawsuit against the government), Bove thinks that the revelation that Icahn is also long on Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) could be the catalyst needed to restart debate over what the government should do with the GSEs. Now that the Senate bill has stalled out (no one is even discussing whether there will be any action ahead of the mid-terms anymore), and Mel Watt  has outlined his strategic direction for the near future, the government doesn’t have any incentive to revisit GSE reform.

“Excluding this event Fannie Mae may now have entered into a state of political limbo,” writes Bove.

Icahn’s buy bolsters Bove’s long thesis on Fannie Mae, Freddie Mac

Bove’s thesis on Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), which he has been advancing for at least six months, is that the government cannot afford to wind the GSEs down and that as long as it realizes as much before irreparable harm is done to the two companies they will be recapitalized and reprivatized, creating a windfall for anyone holding onto shares. The possibility that back dividends will be repaid, either because of a change in policy or as the outcome of one of many lawsuits against the Federal government gives preferred shares even more potential upside. So far, Bove only sees more reasons to stand by his position.

“More and more savvy investors are taking positions as they understand how attractive the investment opportunity is because the government needs these companies,” Bove writes. “This stock is a Buy.”