BTIG: Higher rates to hit Q2 originations as nonbanks lean on MSR gains

Higher mortgage rates will weigh on second-quarter originations and third-quarter guidance for nonbank lenders, even as slower prepayments bolster servicing income, BTIG analysts said in a report issued Monday.

Earnings season will start on Tuesday with Wells Fargo and JPMorgan Chase, giving investors something to chew on before the publicly traded nonbanks deliver their results for the period. BTIG kept its estimates largely unchanged compared to a mid-June update.

“The impact of rates continues to be the biggest driver of the nonbank originators in the near term,” the BTIG analysts wrote. “The more balanced business models will benefit from the positive servicing impact of higher rates.”

Across its coverage universe — loanDepot, PennyMac Financial Services, Rithm Capital, Rocket Companies and United Wholesale Mortgage — BTIG expects second-quarter origination volume to rise about 3% from the prior quarter. The volume forecast is at $154.5 billion for its coverage list, below consensus expectations of $159 billion.

Meanwhile, for the third quarter of 2026, BTIG expects a 3% decline in origination volume for its coverage universe, compared to consensus expectations for a 1% increase. But the analysts added that “we see the risks as being skewed to the downside with 3Q guidance given the current rate environment.”

Company performance

The analysts said profitability will be pressured in the second quarter due to timing differences between rate locks and funded loans. Lock volumes, which drive revenue, are running below funded volumes, which drive expenses, as higher rates suppress new demand. BTIG estimates lock volume for its coverage list will be down 1% in the second quarter.

Gain-on-sale (GOS) margins are expected to be modestly higher in the second quarter, driven largely by a mix shift away from refinances toward second liens, which typically carry higher margins. As a proxy for primary-secondary spreads, BTIG’s coverage-wide GOS dollars as a percentage of locks is projected at 1.70% in Q2.

At a company level, BTIG analysts expect the highest GOS from loanDepot (3.45%), followed by Rocket (2.73%), UWM (1.25%), Rithm (1.04%) and PennyMac (0.79%).

Extended MSR lifespans

On the servicing side, BTIG analysts sees a rebound in second-quarter profitability driven by slower prepayment speeds and seasonally higher escrow earnings. Lower constant prepayment rates (CPRs) extend the life of mortgage servicing rights (MSR) and reduce amortization expenses.

For Q2 2026, conventional CPRs fell 90 basis points to 8.8% while government CPRs dropped 60 basis points to 11.9%, BTIG analysts said, citing Bloomberg data. Among covered originators, UWM and Onity Mortgage saw the largest declines in speeds — down 36% and 17% respectively — consistent with their higher-coupon servicing portfolios, which are more sensitive to rate moves.

BTIG also highlighted the composition of servicing books by coupon. As of June 30, portfolios show varying concentrations in 6% and higher coupons, which carry more prepayment and valuation sensitivity in volatile rate environments. Lenders with a higher share of 6% to 7% and above-7% coupons have more leverage to both rate selloffs and rallies in their MSR marks.

“Interest rates were higher in 2Q which should result in positive MSR marks; we expect more of the marks to come from the impact of higher short-term rates than slower prepay speeds, especially for the lower coupon portfolios,” the analysts wrote.

They added that volatile rates in the quarter could result in elevated hedging costs.

This article was written by Flávia Furlan Nunes and generated with the assistance of HousingWire Automation, then reviewed by a HousingWire editor before publication.