The Zacks REIT and Equity Trust industry is bearing the brunt of mortgage rate volatility, fueled by persistent inflation and broader economic uncertainty. With mortgage rates averaging in the mid-6% in recent weeks, industry players are likely to face continued earnings pressure in the near term.

Ongoing affordability challenges in the housing market are weighing on purchase originations and refinancing activity.  However, companies like Ellington Financial LLC (EFC Quick QuoteEFC - Free Report) , Redwood Trust Inc. (RWT Quick QuoteRWT - Free Report) and TPG Mortgage Investment Trust Inc. (MITT Quick QuoteMITT - Free Report) are well-poised to navigate industry challenges.

About the Industry

The Zacks REIT and Equity Trust industry comprises mortgage REITs, also known as mREITs. Industry participants invest in and originate mortgages and mortgage-backed securities (“MBS”), and provide mortgage credit for homeowners and businesses. Typically, these companies focus on either the residential or commercial mortgage markets. Some invest in both markets through asset-backed securities. Agency securities are backed by the federal government, making them safer bets and limiting credit risks. Such REITs raise funds in the debt and equity markets through common and preferred equity, repurchase agreements, structured financing, convertible and long-term debt, and other credit facilities. The net interest margin, the spread between interest income on mortgage assets and securities held, as well as funding costs, is a key revenue metric for mREITs.

What's Shaping the Future of the mREIT Industry?

Volatility in Mortgage Rates Keeps Buyers on Sidelines: The 30-year fixed mortgage rate has climbed in recent weeks to the mid-6% from low-6% range in the start of the 2026.

Meanwhile, the Federal Reserve has kept interest rates unchanged so far in 2026 as policymakers continue to balance rising inflation with a resilient labor market. Against this backdrop, mortgage rates are likely to remain elevated in the near term.

Higher borrowing costs, combined with affordability pressures and economic uncertainty, have discouraged many potential homebuyers from entering the market.

As a result, mortgage origination and refinancing activity are under pressure. This trend is expected to heighten operational and financial challenges for mREIT industry players, while weighing on gain-on-sale margins and limiting investment activity.
 

Industry Resorts to Dividend Cuts as Book Values Erode: Elevated interest rates, persistent mortgage market volatility, and the widening spread between 30-year Agency mortgage-backed securities (MBS) and 10-year U.S. Treasury yields have reduced the value of Agency MBS portfolios.

As such, agency mREITs are witnessing a decline in tangible book value as spreads on benchmark indices have widened. This will increase earnings pressure for highly leveraged mREITs.

To preserve capital and align payouts with sustainable earnings, many ndustry players are reducing dividends. Dividend cuts may trigger investor outflows from income-focused funds, further weighing on share prices and book values, creating near-term headwinds for the mREITs.
 

Conservative Approach to Aid Long-Term Returns: In the current volatile mortgage market environment, mREITs are adopting a more conservative approach, which could strengthen their long-term positioning.

By becoming more selective in their investments, these companies are focusing on higher-quality assets, thereby enhancing the overall resilience and stability of their portfolios.

This disciplined strategy helps reduce exposure to risky credit conditions and limits potential losses during periods of uncertainty.

Additionally, the use of higher hedge ratios to manage interest rate risks reflects prudent financial management. While this approach may restrict near-term upside, it improves earnings visibility and protects capital from sudden market fluctuations.

By prioritizing liquidity, asset quality and risk management, mREITs are better-equipped to navigate market volatility and capitalize on attractive opportunities once conditions stabilize.

Overall, this cautious stance supports sustainable performance and creates a stronger foundation for consistent long-term returns.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. The industry carries a Zacks Industry Rank #211, which places it in the bottom 15% of more than 244 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. 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.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of the discouraging earnings outlook for the constituent companies.

Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry’s current-year earnings estimate moved 9.3% down over the last year.

Before we present a few stocks that you may want to buy despite near-term challenges, let us take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags the Sector & the S&P 500

The Zacks REIT and Equity Trust industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.

The industry has gained 1.4% in the above-mentioned period compared with the broader sector’s rise of 15.6%. Further, the S&P Index has grown 27.7% over the past year.

Price Performance

 

Industry's Current Valuation

Based on the trailing 12-month price-to-book (P/B), which is a commonly used multiple for valuing mREITs, the industry is trading at 0.93X compared with the S&P 500’s 8.02X. In the past five years, the industry has traded as high as 1.05X, as low as 0.70X and at the median of 0.91X.

Price-to-Book TTM

As finance stocks typically have a low P/B ratio, comparing REIT and Equity Trust with the S&P 500 may not make sense to many investors. A comparison of the group’s P/B ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/B came in at 4.53X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.

Price-to-Book TTM

3 mREIT Stocks to Bet On -- EFC, RWT & MITT

Ellington Financial invests in a diverse array of financial assets. These include residential and commercial mortgage loans and mortgage-backed securities, consumer loans, and asset-backed securities.

The assets are supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.

EFC is well-positioned to weather volatility in the mortgage market, supported by its diversified exposure across residential and commercial mortgage loan portfolios, and strong momentum in its securitization platform.

The company’s loan originations, especially in commercial mortgage bridge loans, proprietary reverse mortgages and closed-end second lien loans, continue to contribute to stable growth and income.

Its first-quarter 2026 growth was driven by strong performance across its diversified mortgage and credit platforms. Its subsidiary, Longbridge Financial, remained a major earnings contributor in the first quarter of 2026, benefiting from higher loan originations, securitizations, and servicing income.

To navigate market uncertainty, Ellington Financial is actively leveraging dynamic hedging strategies, maintaining a broad and balanced portfolio, securing multiple sources of financing and operating with low leverage.

These measures reflect a disciplined approach to risk management and a commitment to preserving book value while adapting to shifting market conditions.

The company’s 2026 earnings estimates have been unchanged at $1.95 per share over the past month, indicating year-over-year growth of 7.1%.

EFC flaunts a Zacks Rank #1 (Strong Buy) at present and has a market capitalization of $1.71 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.


 

Price and Consensus: EFC

Redwood Trust is a self-advised and self-managed real estate investment trust.

RWT specializes in acquiring and managing real estate mortgage assets, which may be acquired as whole loans or as mortgage securities representing interests in or obligations, backed by pools of mortgage loans.

The company has been witnessing exceptional growth in its mortgage banking platforms over the recent quarters despite a volatile interest-rate environment.

Mortgage banking production reached a record $8.5 billion in the first quarter of 2026, marking the third consecutive quarterly record, supported by strong demand for Sequoia and Aspire products, increased securitization activity and higher whole-loan sales.

In recent months, RWT undertook targeted actions to simplify its operating structure and sharpen its focus on businesses generating strong and sustainable returns. This positions the platform to realize cost savings in the future.

Redwood Trust’s 2026 earnings have been unchanged at $1.28 over the past month. It indicates a year-over-year jump of 45.5%.

The company currently carries a Zacks Rank # 2 (Buy) and a market capitalization of $659.9 million.
 

 

Price and Consensus: RWT

TPG Mortgage is a residential mREIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets principally in the U.S. mortgage market. 

Over the past few quarters, MITT’s growth has been driven by a resilient residential mortgage portfolio and disciplined capital management despite market volatility.

The company maintained an $8.1-billion investment portfolio in the first quarter of 2026, supported by $7.7 billion of financing, primarily through non-recourse borrowings, while keeping economic leverage at a conservative 1.7X. The company is also benefiting from stable net interest income and continued strength in its investment in Arc Home.

In February 2026, TPG Mortgage announced a long-term strategic investment management partnership with Jackson Financial Inc., which is expected to unlock additional avenues for growth over time.

TPG Mortgage’s 2026 earnings have been unchanged at $1.09 per share over the past month. It indicates a year-over-year rally of 26.7%.

At present, MITT has a Zacks Rank #2 and a market capitalization of $252.5 million.



 

Price and Consensus: MITT