Rocket, Fannie and Freddie downgraded to neutral by BTIG

A trio of the mortgage industry’s biggest names — Rocket, Fannie Mae and Freddie Mac — had their stock ratings downgraded by BTIG to neutral from buy.

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On the other hand, its favored names for the last six months of the year among the publicly traded mortgage companies are Rithm and UWM Holdings, the report authored by Doug Harter said.

The downgrades were announced in Harter’s second half outlook, which started by pointing out the interest rate environment so far this year has been more challenging than initially expected by industry observers.

This shows “the importance of having a balanced business model which can produce stable returns across the cycle,” Harter said. “From a stock perspective the expectations have certainly eased in response to the increase in rates and the push out of the achievement of ‘normalized’ earnings.”

Why BTIG downgraded Rocket

In the case of Rocket, the current valuation reflects what Harter termed its “unique platform.” Specifically, the report mentioned Rocket’s direct to consumer brand, its large servicing portfolio acquired with Mr. Cooper, the Redfin real estate business it also purchased and its technology.

“While these are clear positives we see the current valuation (both on 2027 and 2028 earnings) already reflects the premium nature of Rocket’s platform leaving less relative upside,” BTIG said. “The risk to our neutral rating would be a decline in rates, which while benefiting all the originators, would likely see Rocket’s premium valuation expand.”

The outlook on the short-term future of the GSEs

The downgrades for Fannie and Freddie are a result of Harter not having any visibility into the timing of a release from conservatorship. This includes movement towards the creation of updated capital standards, as well as resolving the status of the government’s senior preferred stock holdings.

“With other topics taking up time in Washington, we do not see the GSEs being a near-term area of focus,” Harter said. “While the stocks have already been weak on these reduced expectations, we do not see the shares being able to sustainably outperform until there is sustained momentum around a release.”

His upside for the government-sponsored enterprises is the capital requirements are lowered and the government’s senior preferreds are deemed repaid. In this case, he values Fannie at $26 per share and Freddie at $32. His current price target for both is $20.

But in the negative case, where those preferreds are converted to common stock, diluting current shareholder value, both companies are worth $4 per share.

Bullish on UWM even with the leverage situation

When it comes to UWM, Harter maintained his buy while acknowledging its outlook regarding leverage and the continuation of a dividend.

The analysts at Keefe, Bruyette and Woods, once the Two Harbors situation is resolved, expect UWM to reduce its dividend in order to alleviate the leverage pressure.

Harter has a similar view, adding a UWM dividend reduction actually creates “a buying opportunity as the improved financial position would allow investors to focus on the strength of the franchise.”

When it comes to the battle for Two Harbors, he sees a benefit in UWM growing its servicing portfolio with the lower coupon servicing rights RoundPoint has, as it will improve its balance sheet and cash flow.

“Financially an all cash deal is less attractive than the initial stock deal,” Harter said. “Resolution of the acquisition, either way, should remove an overhang for the stock and bring the dividend decision to the front.”

BTIG stock price target reductions

The leverage/dividend situation did result in Harter cutting his outlook for UWM’s stock price to $4 from $10 per share.

Harter also cut the price targets of three other companies rated as buys: Rithm to $13 from $16; PennyMac Financial Services to $105 from $150; and Onity to $50 from $60.

Meanwhile, the agency maintained its neutral rating on LoanDepot; it does not have a price target.

Starting coverage on Better with a buy

BTIG also started coverage on Better Home & Finance, also giving it a buy rating and price target of $36 per share.

“Better is well positioned from a platform/technology standpoint to grow its business from the recently added partnerships,” Harter said. “As that volume comes online we expect Better to achieve EBITDA break-even in 4Q26 and then turn profitable in 2027.”

Its partnership business model creates what Harter termed “a lower balance sheet intensity.”

Better is still not making a profit, recording a first quarter loss of $70 million, following a $40 million loss three months prior. But Harter noted “the progress towards EBITDA break-even and scaling the business as the biggest catalysts towards achieving our target price.”

BTIG’s volume outlook

BTIG’s base case forecast for volume is more conservative than the most cited outlooks. It is below the Mortgage Bankers Association’s by about 3% and Fannie Mae’s by 10%.

The BTIG analysts are looking at a $2.1 trillion market for both 2026 and 2027. But the purchase prediction is for $1.36 trillion this year and $1.43 trillion next. In turn, refinancings of $772 billion expected for this year fall to $700 billion next.