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3 Mortgage & Related Services Stocks to Watch Amid Industry Challenges
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The Zacks Mortgage & Related Services industry continues to be hindered by volatility in mortgage rates due to macroeconomic uncertainty. With relatively higher mortgage rates, the purchase application and refinancing volumes remain subdued. This will reduce the gain on sale margin and new investment activities, hurting industry players' top-line growth.
Amid the ongoing economic headwinds, diversified business operations and encouraging scenarios for the servicing segment will help industry players like Walker & Dunlop, LLC (WD - Free Report) , Federal Agricultural Mortgage (AGM - Free Report) and Lending Tree, Inc. (TREE - Free Report) .
Industry Description
The Zacks Mortgage & Related Services industry comprises providers of mortgage-related loans, refinancing and other loan-servicing facilities. Numerous banks have been retreating from the mortgage business due to higher compliance and capital requirements. This allowed non-banks to increase their capacity to gain market share in the mortgage loans business, which accounts for the largest class of U.S. consumer debt. Players in the industry are dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers' decisions to apply for mortgages. The companies also generate investment income from several financial assets, such as residential or commercial mortgage-backed securities and asset-backed securities. The firms make equity investments in mortgage-related entities, among others.
3 Mortgage & Related Services Industry Trends to Watch
Relatively High Mortgage Rates Keep Homebuyers on the Sidelines: Despite the Fed’s aggressive monetary policy easing, the mortgage rates did not decline significantly. The 30-year fixed rate has continued to stay within a narrow range under 7%. Due to relatively higher rates and a persistent supply shortage, affordability hurdles still exist for many homebuyers, thus keeping them on the sidelines. This continues to affect mortgage demand, origination and refinancing activities.
As the Fed is expected to keep interest rates relatively higher in the near term, mortgage rates are less likely to witness a significant drop. Given this, mortgage originations and refinancing activities will likely continue to be subdued. This will increase operational and financial challenges for originators, and reduce the gain on sale margin and investment activities, hurting industry players' top-line growth.
Competition Picks Up: Per an MBA forecast, U.S. single-family mortgage debt outstanding is expected to see an increasing trend in the upcoming years. This is anticipated to be primarily driven by house price appreciation. While this typically results in growth of the single-family mortgage portfolio for industry players, the competitive landscape of the mortgage services industry is likely to be a deterrent. Numerous companies have hinted at significant declines in gain-on-sale margins across the space. With tighter margins, many originators may struggle to be profitable in the upcoming period.
Servicing Segment to Offer Support: With significant declines in gain-on-sale margins and subdued loan origination volume, industry players are likely to increase their reliance on the service segment for profitability. In a relatively high-rate environment, the servicing segment offers a natural operational hedge to the origination business. Slow prepayment speed is expected to create tailwinds related to mortgage service rights (MSR). Hence, MSR investments are poised to deliver significant value appreciation and offer attractive unleveraged yields. With the U.S. single-family mortgage debt outstanding projected to reach $14.7 trillion by 2025-end, there are massive growth opportunities for the industry players in the servicing portfolios.
Zacks Industry Rank Reflects Bleak Prospects
The Zacks Mortgage & Related Services industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #236, which places it in the bottom 4% of more than 245 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have been revised 33.8% lower over the past year.
Before we present a couple of stocks you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector & the S&P 500
The Zacks Mortgage & Related Services industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.
The industry has gained 11% in this period compared with the broader sector's growth of 21.2% and the S&P 500 composite’s rise of 18%.
Price Performance
Industry's Current Valuation
On the basis of the price-to-book ratio (P/B), which is commonly used for valuing mortgage and related services companies, the industry currently trades at 4.96X compared with the S&P 500's 8.50X. Over the last five years, the industry has traded as high as 12.94X, as low as 2.00X and at the median of 4.11X, as the chart below shows.
Price-to-Book TTM
As finance stocks typically have a lower P/B ratio, comparing mortgage and related services companies with the S&P 500 may not make sense to many investors. However, comparing the group's P/B ratio with that of its broader sector ensures that the group is trading at a premium. The Zacks Finance sector's trailing 12-month P/B of 4.27X for the same period is below the Zacks Mortgage & Related Services industry's ratio, as the chart shows below.
Price-to-Book TTM
3 Mortgage & Related Services Stocks to Watch
Walker & Dunlop: The company is engaged in providing commercial real estate financial services in the United States, with a primary focus on multifamily lending. It also offers service loans for life insurance companies, commercial banks and other institutional investors as a loan broker.
WD continues to witness improvement in transaction volumes. Management expects the pent-up demand for financing and capital deployment in commercial real estate to drive transaction volumes over the coming months and years. This is likely to boost the company’s origination fees and MSR income.
The company expects average transaction volume to be $200 million by 2025, whereas it reported $172 million in 2024.
The Zacks Consensus Estimate for WD’s 2025 earnings has been unchanged over the past month. The Zacks Rank #3 (Hold) company’s earnings for 2025 are expected to rise 11.1% year over year. Revenues for 2025 are expected to grow 3.1%. It has a market capitalization of $2.48 billion.
Price and Consensus: WD
Federal Agricultural Mortgage: The company, also known as Farmer Mac, is a federally chartered corporation that combines private capital and public sponsorship to create a secondary market for various loans made to rural borrowers.
The company’s strategic diversification across Farm & Ranch, Corporate AgFinance, and Infrastructure Finance, including key growth areas like renewable energy and broadband, positions it to navigate market volatility while capturing long-term opportunities in rural America. This multi-segment approach balances risk and growth potential. Coupled with a disciplined funds transfer pricing framework that aligns interest expenses with funding and hedging strategies, the company is well-equipped to optimize financial performance and maintain stability through economic cycles.
The Zacks Consensus Estimate for AGM’s 2025 earnings has been unchanged over the past month. The Zacks Rank #3 company’s earnings for 2025 are expected to rise 10.6% year over year. Revenues for 2025 are expected to grow 4.4% year over year. It has a market capitalization of $1.91 billion.
Price and Consensus: AGM
LendingTree: This parent company of LendingTree, LLC, is headquartered in Charlotte, NC, and has been operating solely in the United States since July 1998. Its online marketplace provides clients with access to product offerings from more than 600 partners.
LendingTree is focusing on improving purchase conversion rates while assisting in meeting its customers’ demands for home equity loans. The company’s market-leading position and flexible business model provide further diversified solutions for a wider array of lenders. This will enable it to navigate through fluctuating macroeconomic situations and a comparatively higher interest-rate environment.
TREE is committed to boosting revenues by diversifying its non-mortgage product offerings, particularly in the Consumer segment. Over the past years, the company has increased its services, such as credit cards, and widened loan offerings to personal, auto, small business, and student loans.
The Zacks Consensus Estimate for TREE’s 2025 earnings has been unchanged over the past month. The Zacks Rank #3 company’s earnings for 2025 are expected to rise 43.9% year over year. Revenues are anticipated to grow 9.2% this year. It has a market capitalization of $526.9 million.
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3 Mortgage & Related Services Stocks to Watch Amid Industry Challenges
The Zacks Mortgage & Related Services industry continues to be hindered by volatility in mortgage rates due to macroeconomic uncertainty. With relatively higher mortgage rates, the purchase application and refinancing volumes remain subdued. This will reduce the gain on sale margin and new investment activities, hurting industry players' top-line growth.
Amid the ongoing economic headwinds, diversified business operations and encouraging scenarios for the servicing segment will help industry players like Walker & Dunlop, LLC (WD - Free Report) , Federal Agricultural Mortgage (AGM - Free Report) and Lending Tree, Inc. (TREE - Free Report) .
Industry Description
The Zacks Mortgage & Related Services industry comprises providers of mortgage-related loans, refinancing and other loan-servicing facilities. Numerous banks have been retreating from the mortgage business due to higher compliance and capital requirements. This allowed non-banks to increase their capacity to gain market share in the mortgage loans business, which accounts for the largest class of U.S. consumer debt. Players in the industry are dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers' decisions to apply for mortgages. The companies also generate investment income from several financial assets, such as residential or commercial mortgage-backed securities and asset-backed securities. The firms make equity investments in mortgage-related entities, among others.
3 Mortgage & Related Services Industry Trends to Watch
Relatively High Mortgage Rates Keep Homebuyers on the Sidelines: Despite the Fed’s aggressive monetary policy easing, the mortgage rates did not decline significantly. The 30-year fixed rate has continued to stay within a narrow range under 7%. Due to relatively higher rates and a persistent supply shortage, affordability hurdles still exist for many homebuyers, thus keeping them on the sidelines. This continues to affect mortgage demand, origination and refinancing activities.
As the Fed is expected to keep interest rates relatively higher in the near term, mortgage rates are less likely to witness a significant drop. Given this, mortgage originations and refinancing activities will likely continue to be subdued. This will increase operational and financial challenges for originators, and reduce the gain on sale margin and investment activities, hurting industry players' top-line growth.
Competition Picks Up: Per an MBA forecast, U.S. single-family mortgage debt outstanding is expected to see an increasing trend in the upcoming years. This is anticipated to be primarily driven by house price appreciation. While this typically results in growth of the single-family mortgage portfolio for industry players, the competitive landscape of the mortgage services industry is likely to be a deterrent. Numerous companies have hinted at significant declines in gain-on-sale margins across the space. With tighter margins, many originators may struggle to be profitable in the upcoming period.
Servicing Segment to Offer Support: With significant declines in gain-on-sale margins and subdued loan origination volume, industry players are likely to increase their reliance on the service segment for profitability. In a relatively high-rate environment, the servicing segment offers a natural operational hedge to the origination business. Slow prepayment speed is expected to create tailwinds related to mortgage service rights (MSR). Hence, MSR investments are poised to deliver significant value appreciation and offer attractive unleveraged yields. With the U.S. single-family mortgage debt outstanding projected to reach $14.7 trillion by 2025-end, there are massive growth opportunities for the industry players in the servicing portfolios.
Zacks Industry Rank Reflects Bleak Prospects
The Zacks Mortgage & Related Services industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #236, which places it in the bottom 4% of more than 245 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have been revised 33.8% lower over the past year.
Before we present a couple of stocks you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector & the S&P 500
The Zacks Mortgage & Related Services industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.
The industry has gained 11% in this period compared with the broader sector's growth of 21.2% and the S&P 500 composite’s rise of 18%.
Price Performance
Industry's Current Valuation
On the basis of the price-to-book ratio (P/B), which is commonly used for valuing mortgage and related services companies, the industry currently trades at 4.96X compared with the S&P 500's 8.50X. Over the last five years, the industry has traded as high as 12.94X, as low as 2.00X and at the median of 4.11X, as the chart below shows.
Price-to-Book TTM
As finance stocks typically have a lower P/B ratio, comparing mortgage and related services companies with the S&P 500 may not make sense to many investors. However, comparing the group's P/B ratio with that of its broader sector ensures that the group is trading at a premium. The Zacks Finance sector's trailing 12-month P/B of 4.27X for the same period is below the Zacks Mortgage & Related Services industry's ratio, as the chart shows below.
Price-to-Book TTM
3 Mortgage & Related Services Stocks to Watch
Walker & Dunlop: The company is engaged in providing commercial real estate financial services in the United States, with a primary focus on multifamily lending. It also offers service loans for life insurance companies, commercial banks and other institutional investors as a loan broker.
WD continues to witness improvement in transaction volumes. Management expects the pent-up demand for financing and capital deployment in commercial real estate to drive transaction volumes over the coming months and years. This is likely to boost the company’s origination fees and MSR income.
The company expects average transaction volume to be $200 million by 2025, whereas it reported $172 million in 2024.
The Zacks Consensus Estimate for WD’s 2025 earnings has been unchanged over the past month. The Zacks Rank #3 (Hold) company’s earnings for 2025 are expected to rise 11.1% year over year. Revenues for 2025 are expected to grow 3.1%. It has a market capitalization of $2.48 billion.
Price and Consensus: WD
Federal Agricultural Mortgage: The company, also known as Farmer Mac, is a federally chartered corporation that combines private capital and public sponsorship to create a secondary market for various loans made to rural borrowers.
The company’s strategic diversification across Farm & Ranch, Corporate AgFinance, and Infrastructure Finance, including key growth areas like renewable energy and broadband, positions it to navigate market volatility while capturing long-term opportunities in rural America. This multi-segment approach balances risk and growth potential. Coupled with a disciplined funds transfer pricing framework that aligns interest expenses with funding and hedging strategies, the company is well-equipped to optimize financial performance and maintain stability through economic cycles.
The Zacks Consensus Estimate for AGM’s 2025 earnings has been unchanged over the past month. The Zacks Rank #3 company’s earnings for 2025 are expected to rise 10.6% year over year. Revenues for 2025 are expected to grow 4.4% year over year. It has a market capitalization of $1.91 billion.
Price and Consensus: AGM
LendingTree: This parent company of LendingTree, LLC, is headquartered in Charlotte, NC, and has been operating solely in the United States since July 1998. Its online marketplace provides clients with access to product offerings from more than 600 partners.
LendingTree is focusing on improving purchase conversion rates while assisting in meeting its customers’ demands for home equity loans. The company’s market-leading position and flexible business model provide further diversified solutions for a wider array of lenders. This will enable it to navigate through fluctuating macroeconomic situations and a comparatively higher interest-rate environment.
TREE is committed to boosting revenues by diversifying its non-mortgage product offerings, particularly in the Consumer segment. Over the past years, the company has increased its services, such as credit cards, and widened loan offerings to personal, auto, small business, and student loans.
The Zacks Consensus Estimate for TREE’s 2025 earnings has been unchanged over the past month. The Zacks Rank #3 company’s earnings for 2025 are expected to rise 43.9% year over year. Revenues are anticipated to grow 9.2% this year. It has a market capitalization of $526.9 million.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: TREE