These Three Banks Are the Best Play on Housing

What do you buy when housing prices are going up but rates are stable? Do you buy Toll Brothers (TOL - commentary - Trade Now)? Lennar (LEN - commentary - Trade Now)? How about Hovnanian (HOV - commentary - Trade Now)? Who owns the most homes, isn't that what you want, someone who is the biggest homeowner?

OK, I have three of them: Wells Fargo (WFC - commentary - Trade Now) courtesy of the reckless lending of Golden West, with that ridiculous "pick and no pay" plan; Bank of America (BAC - commentary - Trade Now), courtesy of its Countrywide acquisition, which was awful and has been a huge drag to the company but is now a drag no longer; and JPMorgan (JPM - commentary - Trade Now), where it looks like Jamie Dimon bought the stupendously horrible Washington Mutual and wrote the home portfolio right about to where it was before the index bottomed.

Now these banks should trade as proxies of the house price index because of their vast repository of foreclosed properties. I knew when I called this bottom in housing we would get to a moment when OREO -- Other Real Estate Owned --would be worth more than what it's on the books for, and that moment's coming. What was a horrible drag will become a wonderful opportunity, and it is now going to be happening;

No, that does not mean a lot of the toxic residential mortgage bonds will come back to life. That's because we now know there were so much fraud in the mortgage process that the stuff's often worthless. Frankly, it's criminal. But those who own the whole mortgages -- Wells, JPMorgan and BofA -- it's a windfall going forward. And eventually people will think like that. Not yet. They will be pulled in kicking and screaming. But it will happen.

Which is why these three are not done going up. Maybe not by a long shot. You should hope the whole market comes down for a chance to buy these three before the big mark-up comes starting tomorrow.

At the time of publication, Cramer was long Wells Fargo, JPMorgan and Bank of America.

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