"Picking up another 20%+ total return next year will likely hinge on valuation improvement for most stocks (especially the mortgage REITs), however we're optimistic there could be some earnings torque in the servicers as a function of AI-driven workflow helping trim expenses, which we think is only partly reflected in valuations, he added. BTIG covers 20 companies in the mortgage sector. As a group, they are expected to originate $750 billion in 2026, representing a 12% year-over-year increase."
"If rates decline further, nonbanks are better prepared to steal market share due to their speed and lower cost to originate, Hagen said. But if rates remain higher, companies will have to cut operational expenses to grow earnings, although these savings could be constrained by the need to invest in research and development amid an accelerating AI and technology race."
Valuation improvement is likely the key determinant of 20%+ total returns for the mortgage sector next year, with mortgage REITs most sensitive. Servicers may realize earnings upside from AI-driven workflow efficiencies that trim expenses, a benefit only partly reflected in current valuations. The covered mortgage group is expected to originate $750 billion in 2026, a 12% increase versus a $2.2 trillion market projection up 7%. Top picks include Rithm Capital, Rocket Mortgage and Dynex Capital. Nonbanks can steal share if rates fall, while persistent higher rates will force operational cuts amid needed AI and R&D investment.
Read at www.housingwire.com
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