Uncle Sam is promoting the American dream -- again -- and wants you to own your own home. Specifically, the government is now removing the restriction on banks that says borrowers have to put down 20% as down payment in order to qualify for a good loan. That former restriction is now being replaced with a limitation on debt-to-income levels. All along, JPMorgan Chase (JPM) CEO Jamie Dimon has said most credit has loosened in the U.S. outside of mortgage credit.
The government's adjusted stance could potentially have a huge impact on housing activity, but I wouldn't be so quick to look at homebuilders as the prime beneficiaries. This restriction lift could be a big deal to those first in line -- mortgage lenders, namely the big boys.
Bank of America (BAC), which sits on more than $1 trillion in deposits, has plenty of gunpowder to make a lot of loans. While interest rates remain low, an increase in loan volume could lead to a nice jump in interest-derived income. The added bonus will come when rates do rise: At that point, the coupling of increased loans with higher rates will have a big impact on profits.
Wells Fargo (WFC), the biggest lender in the nation today, is obviously another name to consider. But Wells shares have been a huge success coming out of the recession, unlike BofA, which is finally putting the legacy past behind it. I would suspect that, over the next two to three years, the upside potential resides with Bank of America stock, which is still being valued with a lot of pessimism.
Other ideas to consider are housing-related names such as Armstrong World Industries (AWI), the largest provider of residential-flooring products in the U.S. Last week, the company announced a reduced outlook for 2014, and CEO Matt Espe cited such issues as pricing pressure and capacity utilization. Shares have fallen, but that may be a good thing. ValueAct Capital, a highly regarded investment firm, took a stake in Armstrong several months ago, and this is a very good firm to have in any investment.
USG (USG), provider of the universally known Sheetrock wallboard joint, would be another company to quietly benefit from increased housing activity. Whether it's a new build or remodel, Sheetrock is virtually always used. Your big shareholder here is none other than Berkshire Hathaway (BRK.A, BRK.B).
It certainly appears that, as time goes on, all the powers that be have incentives to see qualified people get homes. It's a political issue as much as it is an economic one -- and it is, therefore, an investable opportunity if you look carefully.