When Fannie Mae, the government-sponsored mortgage company, recently announced a larger-than-expected quarterly loss and another planned...

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When Fannie Mae, the government-sponsored mortgage company, recently announced a larger-than-expected quarterly loss and another planned cut to its dividend, the stock immediately had a nice little pop, picking up 9 percent.

At home in Boston, Ray H., a 54-year-old investor, was wondering what people were thinking.

“The stock is way down, the housing market is in the toilet, the dividend is being cut, the loss is worse than expected, and now the stock goes up 10 percent,” he said at an investment seminar I attended. “Now I know the market is crazy.”

Perhaps, but what is more likely is Ray has identified Fannie Mae correctly, as a Stupid Investment of the Week.

Forget the quick pop — the stock pretty much gave that money back to the market within two days — Fannie Mae is the story of a stock that everyone has high hopes for, but which is too bogged down by trouble for the average investor.

Stupid Investment of the Week showcases the concerns and conditions that make a security less than ideal for the average investor.

It is written in the hope that highlighting trouble in one situation will make danger easier to root out elsewhere, and there are many other troubled stocks right now in the mortgage business.

While obviously not a purchase recommendation, neither is the column intended as an automatic sell signal, as there are times when dumping a problem security merely compounds the problem.

For Fannie Mae, the uptick came on the heels of the first-quarter loss of $2.57 per share, which dwarfed the 81-cents-per-share shortfall Thomson Reuters had called for on the stock, and reversed the 85 cents-per-share profit the company posted in the same quarter a year ago.

Still, Wall Street shrugged it off, apparently content with the feeling that the housing and mortgage sectors might have finally hit rock bottom.

Here’s where things get tricky. As Fannie Mae has fallen from its 52-week high of more than $70 per share into the high $20-range, it has repeatedly hinted the worst may be over. Each hint has nudged the market.

As analyst Paul Miller of Friedman, Billings, Ramsey & Co. told Investor’s Business Daily: “The market wants to be positive, so people listen when Fannie Mae hints that we’re in the belly of this crisis, But we caution not to listen to what Fannie says, because they’ve been saying it for a couple quarters. Their credit losses continue to go up and will continue to go up.”

In fact, Fannie Mae officials warned that they expect “severe weakness” in the housing market for the rest of the year, with increased foreclosures and mortgage defaults. The apparent sense of optimism comes from investors believing things can’t get any worse.

They can.

For an average investor, Fannie Mae is an attractive play, a company that most people understand, in a business flattened by public problems, but which has the support of the government to theoretically see it through any troubles.

It is an essential player in the proper function of the mortgage market, and people will continue to need mortgages, no matter the state of the housing market.

The buying case boils down to a simple one: Fannie Mae may be in the middle of a dark tunnel, but it presumably will come back into the light.

The issue, however, is how long that will take and how complete the darkness grows. This not a company “touched” by the mortgage crisis, this one is being smacked around.

Even if Fannie Mae’s statements signal a belief that there’s a time horizon for getting better, the whuppings at the hands of the market will continue for the foreseeable future.

Moreover, this is a stock that’s hard to value right now. Facing a variety of accounting charges and growing litigation issues from past accounting shenanigans, the professionals are having a tough time coming up with a fair-value estimate on the stock. Investors are much more likely to use gut feeling, and in this case, the value could be a financial sucker punch.

Even the good news on the stock comes with concerns. Moody’s Investors Service recently affirmed its “Aaa” senior debt rating on Fannie Mae, giving the debt a stable outlook reflecting “very high systemic support because of its central role in mortgage finance in the United States.”

That said, Moody’s downgraded its rating of Fannie Mae’s “bank financial strength,” and placed a negative outlook on both that rating and on Fannie Mae’s preferred stock rating.

Morningstar, the Chicago research firm, uses mathematical formulas to determine its “stock grades,” measuring what’s on a company’s balance sheet rather than subjectively analyzing its prospects. Fannie Mae gets an “F” for growth and a “D” for profitability, and Morningstar isn’t even trying to give it a grade for “financial health.”

“Their financial statements are extremely complex and trying to get your hands around those would be a full-time job,” says Erin Swanson, who follows the stock for Morningstar, which does not rate the company from an analytical perspective, so that it does not classify the stock as a buy or a sell. “It’s a lot to ask of anyone, let alone the average investor.”

Clearly, the perceived backing of the federal government gives Fannie Mae a competitive advantage, specifically lower cost of debt. That should, in the long run, lead to enhanced profitability.

But it won’t happen without tremendous volatility, and trauma, and Fannie Mae is likely to make investors nauseous long before it makes them rich.

Chuck Jaffe is senior columnist for MarketWatch. He does not own or hold short positions in any securities covered by Stupid Investment of the Week. If you have a suggestion for Chuck Jaffe’s Stupid Investment of the Week or a comment about this week’s column, you can reach him at jaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.