Btig Sees New Playbook For Mortgage Stock Gains In 2026

Mortgage stocks should benefit from lower interest rates in 2026, but the strongest performances will be driven by other sources of value creation, including lower expenses from artificial intelligence-driven workflows, according to BTIG analyst Eric Hagen.

“Most stocks are coming off a strong year of performance driven by accommodative Federal Reserve policy, which was necessary in order for the stocks to rebound following Liberation Day,” Hagen wrote in a report on Friday.

“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. Marketwide projections are $2.2 trillion, up 7% over the same period. Its top picks include are Rithm Capital, Rocket Mortgage and Dynex Capital.

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. 

He described tech adoption across the mortgage industry as “nascent and fragmented to bear significant fruit over the near term.” But he added that BTIG is bullish on agentic AI, largely because servicing is highly operationally intensive and process driven.

In the secondary market, BTIG continues to see opportunity in the home equity space, which has “largely avoided the scrutiny of credit investors as consumers show early and mixed signs of weakness and home prices are plateauing.”

In the nonqualified mortgage (non-QM) market, securitizations could rise from $60 billion in 2025 to more than $75 billion in 2026, with additional retail lenders expected to enter the space next year.

Two-sided portfolio

Another key thesis for 2026 is recapture opportunity. Hagen views mortgage lenders and servicers as particularly attractive given what he described as the market’s “uniquely barbelled complexion.”

Roughly 65% of low-coupon borrowers hold loans originated during the ultra-low-rate years of the COVID-19 pandemic, offering significant refinancing opportunity if rates fall. Meanwhile, about 35% hold higher-rate loans originated over the past three years, providing steady mortgage servicing rights (MSR) cash flows.

While earnings “may never revisit the peak levels from 2020–21,” Hagen noted that companies have since improved scale, expense control and access to capital markets compared to when many first went public.

“The overall setup emphasizes why we expect recapture conditions will be the primary driver of stock valuations next year,” Hagen said. 

On the debt front, Hagen projects that $3.5 billion will mature through 2027, with most of that addressed in 2026. Investor appetite is expected to remain strongest for scaled companies, “especially if speculation heats up for regulators to impose capital rule on the non-banks next year.” 

The current administration

On the Trump administration’s potential affordability initiatives, Hagen said he is encouraged by speculation around a first-time homebuyer tax credit, but he noted such a policy would not address housing supply constraints.

Regarding a potential relisting of the government-sponsored enterprises Fannie Mae and Freddie Mac, Hagen expects a low to modest impact on the nonbank mortgage sector.

He said the primary goal would be to validate stock valuations while paving a more sustainable and transparent path toward an eventual exit from conservatorship, without “sweeping policy changes that risk disrupting the cost or availability of credit.”

“Trump already reiterated that the guarantee supporting MBS is effectively ironclad,” Hagen wrote. “However, we see some odds that wider mortgage spreads along the way (even if it’s unintentional or unrelated to the rhetoric) could pause or derail the effort to re-list the companies.

“But broadly speaking, we’re most constructive around the potential osmosis effect which a re-listing could have in raising attention and awareness for the non-bank mortgage stocks, too.”