Looking ahead to next year, achieving a 20%+ total return will likely depend on valuation improvements, especially for mortgage REITs. However, there is optimism for potential earnings growth in servicers due to AI-driven workflow efficiencies that could help reduce expenses, a factor not fully reflected in current valuations,” he stated.
BTIG’s coverage of 20 companies in the mortgage sector reveals expectations for a $750 billion origination in 2026, a 12% year-over-year increase. Overall market projections stand at $2.2 trillion, up 7% over the same period. Top picks include Rithm Capital, Rocket Mortgage, and Dynex Capital.
In the event of further rate declines, nonbanks are poised to capture market share with their speed and lower origination costs. Alternatively, if rates remain high, companies will need to focus on reducing operational expenses to drive earnings growth, although investments in research and development for AI and technology advancements may limit savings potential.
The adoption of technology within the mortgage industry is described as “nascent and fragmented,” with BTIG showing bullishness on agentic AI, particularly in servicing due to its operational intensity and process-driven nature.
In the secondary market, opportunities in the home equity space remain promising, with the non-QM market also seeing potential growth in securitizations from $60 billion in 2025 to over $75 billion in 2026.
Two-sided portfolio
Recapture opportunity is a key focus for 2026, with mortgage lenders and servicers seen as attractive investments given the market’s diverse borrower composition. Low-coupon borrowers from the ultra-low-rate period provide refinancing potential, while higher-rate borrowers offer steady MSR cash flows.
While earnings may not reach peak levels seen in 2020–21, companies have made improvements in scale, expense management, and capital access since going public, setting the stage for recapture conditions to drive stock valuations next year.
Debt maturity projections indicate $3.5 billion maturing through 2027, mainly addressed in 2026. Investor interest is expected to favor scaled companies, particularly if regulatory pressures on non-banks increase.
The current administration
In light of potential affordability initiatives under the Trump administration, speculation on a first-time homebuyer tax credit is welcomed, although it may not address housing supply constraints. The relisting of Fannie Mae and Freddie Mac is anticipated to have a minimal impact on the nonbank mortgage sector, aiming to validate stock valuations and pave a transparent path out of conservatorship without disruptive policy changes.
Regarding MBS guarantees, Trump’s affirmation of their strength is noted, with considerations on wider mortgage spreads potentially influencing the relisting process. Despite uncertainties, a re-listing could raise awareness for non-bank mortgage stocks, contributing to a positive osmosis effect.