Investing.com -- BTIG said the U.S. mortgage sector remains attractive on a medium-term risk/reward basis despite a more challenging interest-rate environment in 2026, arguing that improving operating efficiency and resilient mortgage demand could support earnings recovery once rates stabilize. The firm named Rithm Capital as its top pick for the second half of 2026 and also highlighted United Wholesale Mortgage (UWM) as a preferred idea.

The brokerage noted that higher mortgage rates have delayed expectations for a return to “normalized” earnings across the industry, prompting lower price targets and more conservative estimates. However, BTIG said confidence in the sector’s long-term earnings power has improved as mortgage lenders continue to scale operations and reduce costs through technology investments.

BTIG maintained Buy ratings on Better Mortgage, Onity Group, PennyMac Financial, Rithm Capital and UWM, while downgrading Rocket Companies, Fannie Mae and Freddie Mac to Neutral. The firm also kept LoanDepot at Neutral. Price targets were reduced by roughly 30% on average to reflect a tougher interest-rate and profitability outlook.

Among its favored names, BTIG said Rithm Capital’s balanced mix of mortgage servicing rights and origination operations should continue to generate mid-to-high teens returns on equity, while its 11% dividend yield provides investors with patience as management works to unlock value. The firm also sees UWM benefiting from improving operating leverage as prior technology investments begin to reduce expenses and support margins.

BTIG expects total U.S. mortgage originations of about $2.1 trillion in both 2026 and 2027, slightly below industry forecasts. The firm said mortgage applications have remained surprisingly resilient despite rising rates, creating greater upside potential if rates fall than downside risk if they rise further. A 50-basis-point decline in mortgage rates could lift origination volumes by more than 10%, largely driven by refinancing activity, according to its analysis.

On the government-sponsored enterprises, BTIG downgraded both Fannie Mae and Freddie Mac to Neutral, citing limited visibility on the timing of any exit from conservatorship. The firm said uncertainty surrounding capital requirements and the government's senior preferred stake is likely to keep both stocks volatile until there is clearer progress toward a resolution.