Mortgage Rate Plunge Will Be Huge for Banks

If you ask any homebuilder, say a Bob Toll of Toll Brothers (TOL - commentary - Trade Now), or if you would ask any banker, like Ron Hermance at Hudson City (HCBK - commentary - Trade Now) or Vikram Pandit at Citigroup (C - commentary - Trade Now), they would tell you the same thing: If you get mortgage rates under 5%, you get a huge surge in homebuying. Colossal. Gigantic. People look to buy homes simply because they are too cheap not to because of the rates.

I am looking at this 30-year Treasury rally off the amazingly positive sale of new 30-year Treasuries, and I am salivating because I think banks can go under 5% for mortgages, where you will get an explosion in buying. This rally is gigantic, taking the 30-year down to 4.2%. What a win! I don't know a soul who predicted this. I think the decline in mortgages that stems from it will be so powerful that it will overwhelm the one-time tax credit writ large, so that those who think the housing bottom goes away when the credit goes away will be just plain wrong.

We are already seeing numbers right now that will surface in October and November of new-home sales that will be gigantic, particularly in the hard-hit areas in the Southwest.

And remember, I am not a recommender of the homebuilders. Mortgage rates going down are helpful for the soon-to-be-foreclosed, helpful to the first-time homebuyers, but more important, helpful to all homebuyers -- the bigger the mortgage, the better. The latter could help Toll, but most of the rate declines will benefit the sellers of existing and foreclosed homes -- the banks. I don't think this can spur new building yet, so I wouldn't play it that way.

I expect this mortgage rate move to cause a new flood of buyers, which means huge numbers for Bank of America (BAC - commentary - Trade Now) and Wells Fargo (WFC - commentary - Trade Now), the two biggest beneficiaries, and it will mean a lot to the beaten-down Citigroup, which has a large and not-so-hot mortgage portfolio..

This may be the biggest story out there, and no one is paying attention to the magic number 5!

Random musings: Congrats to Don Dion for getting the right way to play the natural gas breakout and for eschewing the wrong way.

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

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