Until now, what market players have lacked is any sort of transparency as to what bad collateralized debt obligations are, Jim Cramer said on TheStreet.com TV's Wall St. Confidential Web video Thursday.
However, now people know that home-equity loans issued and purchased by
New Century Financial
American Home Mortgage
and other mortgage originators that went belly up, were bad, he said.
How to Weed Out the Bad Financial Stocks
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These companies, Cramer said, issued bad home equity between 2005 and 2007, and if people purchased it as
, which he owns for his charitable trust,
Action Alerts PLUS, did, then they're in trouble with them.
"You have to take charge and get them off your books very quickly," he advised. "We got this at Wells Fargo and that's great."
If investors can find mortgage-backed bonds that were not originated by Novastar, Fremont General, American Home Mortgage or New Century Financial, then they may be buys, Cramer said.
"We're finally getting clarity," he said. "We know that loans that were purchased from these clowns can't be owned. But it also means that we can purchase pieces of paper that may have been from 2001 to 2004 and 2007 paper beginning in July is safe, too."
Cramer said in 1989, when he was trading bonds what he looked for were pieces of paper that didn't have anything to do with the southwest. He said he'd ask if it had any California or Texas exposure and if it didn't he would buy it.
"That's where we're getting in mortgage backeds," he said. Otherwise, "you never hear if it's Novastar, New Century Financial,
etc. you can't touch it."
At the time of publication, Cramer was long Citigroup.
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