Fitch: 2025 Mortgage Sector Outlook Revised From ‘deteriorating’ To ‘improving’

Fitch Ratings announced Monday that it has revised its outlook for the mortgage origination and servicing sector in 2025 from “deteriorating” to “improving,” reflecting forecasts of lower mortgage rates.

The credit rating agency sees higher origination volumes and gain-on-sale margins on the mortgage production front, leading to improved profitability for lenders. In regard to servicing portfolios, recapture opportunities through refinances may help offset losses with mortgage servicing rights (MSRs) amortizations and write-downs. 

The outlook is based on Fannie Mae’s forecast of $2.1 trillion in total originations for 2025, a 28% increase from this year. 

“Fitch expects rates to decline in 2025 given the Fed’s current easing cycle,” the report states. “Even though 74% of outstanding mortgages still carry rates below 5% as of 2Q24, according to the Federal Housing Finance Agency, an average 30-year rate approaching 6% does open up a meaningful slice of the market for refinancing.” 

The report added that recapture success through refinances will be key for companies with large MSR exposures, which are expected to have amortizations and write-downs due to increased prepayments. These companies include big names such as Mr. Cooper, Pennymac and Rithm Capital. 

The expectation for higher gain-on-sale margins is based on reduced industry capacity. The report mentions a 35% decline in employee head counts between April 2021 and July 2024, according to the U.S. Bureau of Labor Statistics. 

Macroeconomic conditions, such as higher unemployment rates and stretched housing affordability, may weaken the performance of mortgage assets and lead to more delinquencies — which are largely below pre-pandemic levels. But the report notes that high levels of home equity can help struggling borrowers. 

From a debt perspective, the sector will have $1.5 billion maturing in 2025 after companies such as Freedom Mortgage and loanDepot refinanced or extended their debts during the past 15 months. In addition, Mr. Cooper, PennyMac and others have issued $4.9 billion in debt offerings since the fourth quarter of 2024, paying down MSR lines and extending terms.