Rocket, Rithm and Dynex are BTIG’s favourite mortgage shares

Rithm, Rocket and Dynex are BTIG’s favourite mortgage shares heading into 2026 following a powerful 12 months for the trade’s publicly traded corporations generally, pushed by an accommodative Federal Reserve coverage.

That allowed trade shares to rebound after the “Liberation Day” tariff announcements in April.

“We count on earnings and inventory valuations throughout the mortgage sector ought to profit nearly universally from decrease rates of interest, nonetheless the widespread theme for our high picks is dialing into catalysts and sources of worth creation that are much less tethered to the path or volatility of rates of interest,” mentioned the report from Eric Hagen.

Hagen additionally mentioned he’s “ready with baited breath” for Fannie Mae and Freddie Mac to relist their common stock off of the over-the-counter market, “though at this level we’re anticipating a reasonably low/modest impression on the non-bank lenders/servicers/REITs/mortgage insurers.”

Drivers of 2026 mortgage firm inventory efficiency

Mortgage shares, particularly mortgage REITs, must report valuation enchancment so as to add one other 20% or extra of whole return subsequent 12 months.

“Nonetheless we’re optimistic there may very well be some earnings torque within the servicers as tech-marketing-might-inadvertently-cause-ai-hesitancy” class=”Hyperlink” goal=”_blank”>a operate of AI-driven workflow serving to trim bills, which we expect is just partly mirrored in valuations,” Hagen added.

Within the evaluation, he famous that the present standing of excellent mortgages is break up about 65% for low-coupon debtors and 35% of extra not too long ago originated loans with greater charges.

“We predict it is created essentially the most compelling earnings profile for scaled lender/servicers like Rocket and Pennymac given the regular mortgage servicing rights cashflows being generated from one chunk of the portfolio, coupled with important choice worth to refinance the opposite chunk if mortgage charges fall,” Hagen famous.

Industry earnings and return on equity will doubtless by no means revisit the heady days of 2020 and 2021, however buyers additionally underappreciate “the vastly improved scale, expense management, and entry to capital markets versus when the shares entered the general public fold,” he continued.

Why recapture charges matter for inventory costs

Hagen expects recapture to be the primary driver of inventory valuations of those corporations throughout 2026. Nonetheless, “it additionally contextualizes why we expect benchmarking to historic inventory valuations has flaws,” he continued.

Within the report, Hagen examines recapture charges at a number of massive servicers if rates of interest had been to fall 50 foundation factors.

For instance, he expects MSR pay downs of $14.2 billion at Loandepot, with a recapture fee of 65%, the very best among the many eight corporations he mentions, together with each iterations of Pennymac.

Tied at a 60% fee are Rocket and United Wholesale Mortgage. The distinction between them, although is that BTIG estimates Rocket can have a lot greater payoffs, at $234 billion (inclusive of the impression of the Mr. Cooper acquisition), whereas for UWM it could whole $43.2 billion.

How a GSE relisting will have an effect on shares

An uplisting of Fannie Mae and Freddie Mac to the New York Inventory Change was a part of a proposal recently unveiled by investor Bill Ackman.

Hagen wrote that the transfer is especially aimed toward validating inventory valuations and strengthening the capital construction, slightly than altering insurance policies that have an effect on mortgage credit score. Whereas the federal government assure on MBS stays “successfully ironclad,” wider mortgage spreads might nonetheless sluggish or complicate the relisting effort.

This 12 months’s non-QM success will carry into 2026

The non-qualified mortgage market hit its stride this year, with over $60 billion in securitizations thus far.

“We count on extra of the mainstream retail originators might enter the fray in 2026, which we (objectively) suppose can take securitization issuance above $75 billion subsequent 12 months, though it will likely be conditioned on the capability which exhibits up from each lenders and credit score buyers to assist refis when charges fall,” Hagen declared.

Rocket and UWM might increase their product choices on this space, he mentioned; each already are members, with Rocket not too long ago launching a debt service coverage ratio mortgage.

BTIG decided that about $200 billion of non-QM and prime jumbo securitizations had been issued within the final three years. It estimates between $40 billion and $60 billion might repay if mortgage charges fall 50 foundation factors.

What servicers ought to do

As for servicers, decreasing working bills is the best way for them to ship earnings development if charges keep excessive subsequent 12 months. However BTIG additionally expects the AI/tech race might restrict the near-term upside for income as a result of it raises the ante for lenders to spend on new analysis and improvement.