Outlook rosy for nonbank lenders in 2025, Fitch says

Largest origination companies especially poised for more market share

Outlook rosy for nonbank lenders in 2025, Fitch says

Largest origination companies especially poised for more market share
CONCEPT Magic 8-ball outlook hazy

Nonbank mortgage companies — especially those already well positioned in the market — are expected to see improved operating results in 2025, driven by higher origination volumes and stronger gain-on-sale margins.

That’s according to a new outlook from Fitch Ratings, which anticipates that lower interest and mortgage rates, along with reduced industry capacity, will benefit the largest nonbank companies, enabling them to gain market share. Consolidation within the sector will further strengthen the position of top lenders, who will leverage their established franchises and competitive advantage.

However, profitability for issuers with large mortgage servicing rights (MSR) exposures may be impacted by increased MSR amortization expenses and write-downs due to higher prepayments. The ability to recapture refinances will be crucial for these companies’ profitability, Fitch said.

The credit ratings agency noted that, per the U.S. Bureau of Labor Statistics, industry capacity has already dropped by 35% between April 2021 and September 2024, as lenders adjusted to rate hikes that severely curtailed refinancing by trimming personnel. Now, companies equipped with scalable technology, diverse revenue streams, low leverage and sufficient liquidity are well-positioned to capitalize on the recovery in volume and further withstand market fluctuations.

Fitch also noted that while the Federal Housing Finance Agency (FHFA) reports that 74% of outstanding mortgages had rates below 5% as of mid-2024, $1.9 trillion in mortgages remain with rates above 6%. This creates potential refinancing opportunities as 30-year rates near 6%. Refinance volumes surged 57% year-over-year in Q3 2024 as rates fell to 6.1%; while rising treasury yields reversed this trend in the succeeding quarter, Fannie Mae forecasts that total originations will increase by 9% in 2024 and another 18% in 2025, reaching $1.9 trillion.

Rated nonbank mortgage companies have largely managed their 2025 debt maturities, although refinancing risk remains for some firms, such as United Wholesale Mortgage (UWM) and PennyMac, Fitch said. Despite a slight rise in leverage ratios from higher origination volumes, asset quality remains strong, with delinquencies expected to rise but staying below pre-pandemic levels. Increased home equity is expected to mitigate the impact of higher unemployment and housing affordability challenges, at least for current homeowners, in 2025.

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