“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.”