How Mortgage Defaults Could Boost Retail

When people stop paying their mortgages, they have a lot more money to spend on everything else, Cramer told viewers Monday. And the beneficiaries appear to be retailers.

Think about it. Borrowers are living in houses they are not paying for, and they are staying until they are thrown out. But it can take a year before the eviction process really takes hold. Now think about all the money they are not spending on mortgage payments during that time. And those numbers will only increase if the housing market does not recover, banks acquire more properties and more homeowners stop paying their mortgages.

Cramer said it is resulting in a “miraculous” transfer of wealth from banks to borrowers.

The only bank not losing is Capital One Financial , because it is mostly a credit card company when it comes to earnings. Defaults are running low on credit cards because paying down that debt is more important to defaulting borrowers than paying mortgage debt.

So how should home gamers play it?

Dollar stores like Family Dollar Stores and Dollar Tree are doing well, as well as lower-end discounters, with the exception of Wal-Mart and Target . But the “Mad Money” host thinks Costco Wholesale and Macy’s are the retailers most benefiting from this “housing-consumer” miracle. Costco reports this week, and Cramer would wait until after the quarter to let profit-taking occur before home gamers buy. He also believes Macy’s has had a huge run, and needs to cool off.

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