Rocket, Rithm and Dynex are BTIG's favorite mortgage stocks

Rithm, Rocket and Dynex are BTIG's favorite mortgage stocks heading into 2026 following a strong year for the industry's publicly traded companies in general, driven by an accommodative Federal Reserve policy.

That allowed industry stocks to rebound after the "Liberation Day" tariff announcements in April.

"We expect earnings and stock valuations across the mortgage sector should benefit almost universally from lower interest rates, however the common theme for our top picks is dialing into catalysts and sources of value creation which are less tethered to the direction or volatility of interest rates," said the report from Eric Hagen.

Hagen also said he is "waiting with baited breath" for Fannie Mae and Freddie Mac to relist their common stock off of the over-the-counter market, "although at this point we're anticipating a fairly low/modest impact on the non-bank lenders/servicers/REITs/mortgage insurers."

Drivers of 2026 mortgage company stock performance

Mortgage stocks, especially mortgage REITs, will have to report valuation improvement to add another 20% or more of total return next year.

"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," Hagen added.

In the analysis, he noted that the current status of outstanding mortgages is split about 65% for low-coupon borrowers and 35% of more recently originated loans with higher rates.

"We think it's created the most compelling earnings profile for scaled lender/servicers like Rocket and Pennymac given the steady mortgage servicing rights cashflows being generated from one chunk of the portfolio, coupled with significant option value to refinance the other chunk if mortgage rates fall," Hagen noted.

Industry earnings and return on equity will likely never revisit the heady days of 2020 and 2021, but investors also underappreciate "the vastly improved scale, expense control, and access to capital markets versus when the stocks entered the public fold," he continued.

Why recapture rates matter for stock prices

Hagen expects recapture to be the primary driver of stock valuations of these companies during 2026. However, "it also contextualizes why we think benchmarking to historical stock valuations has flaws," he continued.

In the report, Hagen examines recapture rates at several large servicers if interest rates were to fall 50 basis points.

For example, he expects MSR pay downs of $14.2 billion at Loandepot, with a recapture rate of 65%, the highest among the eight companies he mentions, including both iterations of Pennymac.

Tied at a 60% rate are Rocket and United Wholesale Mortgage. The difference between them, though is that BTIG estimates Rocket will have much higher payoffs, at $234 billion (inclusive of the impact of the Mr. Cooper acquisition), while for UWM it would total $43.2 billion.

How a GSE relisting will affect stocks

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

Hagen wrote that the move is mainly aimed at validating stock valuations and strengthening the capital structure, rather than changing policies that affect mortgage credit. While the government guarantee on MBS remains "effectively ironclad," wider mortgage spreads could still slow or complicate the relisting effort.

This year's non-QM success will carry into 2026

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

"We expect more of the mainstream retail originators could enter the fray in 2026, which we (objectively) think can take securitization issuance above $75 billion next year, although it will be conditioned on the capacity which shows up from both lenders and credit investors to support refis when rates fall," Hagen declared.

Rocket and UWM could expand their product offerings in this area, he said; both already are participants, with Rocket recently launching a debt service coverage ratio mortgage.

BTIG determined that about $200 billion of non-QM and prime jumbo securitizations were issued in the last three years. It estimates between $40 billion and $60 billion could pay off if mortgage rates fall 50 basis points.

What servicers should do

As for servicers, reducing operating expenses is the way for them to deliver earnings growth if rates stay high next year. But BTIG also expects the AI/tech race could limit the near-term upside for profits because it raises the ante for lenders to spend on new research and development.