BTIG: Higher Rates To Hit Q2 Loan Originations

BTIG analysts projected that elevated mortgage rates will negatively affect second-quarter loan originations and third-quarter guidance for nonbank lenders, according to a report released Monday. Despite the headwinds, slower mortgage prepayments are expected to bolster servicing income for these institutions. The analysis comes as major banks like Wells Fargo and JPMorgan Chase are set to release their earnings, providing early insights before publicly traded nonbanks report their results.

The BTIG analysts maintained their financial estimates, noting that the "impact of rates continues to be the biggest driver of the nonbank originators in the near term." They also observed that "more balanced business models will benefit from the positive servicing impact of higher rates." For the second quarter, BTIG anticipates a roughly 3% increase in origination volume across its covered companies—loanDepot, PennyMac Financial Services, Rithm Capital, Rocket Companies, and United Wholesale Mortgage—bringing the total volume forecast to $154.5 billion, which falls short of the $159 billion consensus expectation.

Looking ahead to the third quarter of 2026, BTIG forecasts a 3% decline in origination volume for its coverage universe, contrasting with consensus expectations of a 1% increase. The analysts cautioned that "we see the risks as being skewed to the downside with 3Q guidance given the current rate environment." Profitability in the second quarter is expected to be constrained by timing discrepancies between rate locks and funded loans, with lock volumes, which generate revenue, lagging behind funded volumes, which incur expenses, due to suppressed demand from higher rates.

BTIG estimates that lock volume for its coverage list will decrease by 1% in the second quarter. Gain-on-sale (GOS) margins are projected to see a modest increase in the second quarter, primarily driven by a shift in product mix away from refinances towards second liens, which typically command higher margins. This GOS margin is used as a proxy for primary-secondary spreads.