Allegations of possible mortgage fraud against financial giants GMAC, JPMorgan Chase and Bank of America read like a corporate thriller: forged documents, faked Social Security numbers, phantom titles, disappearing paper trails, "robo-signers" and mortgages sliced and diced so many times that nobody really knows who owns them.
Resurgent housing prices cannot lead the U.S. out of recession until clearing up the confused title chains of foreclosed properties clears the housing market. Banks can't lend when the collateral underpinning their home loan portfolios is of doubtful ownership. We saw this show before in September 2008 but this time the political climate won't tolerate another TARP. Thus, whatever solution emerges will not be a product of the democratic process. The foreclosure hiatus will spark the renewed credit crunch. Invest at your own risk.
Full disclosure: Long puts against IYR. No positions in bank stocks.