2025 Non-Bank Mortgage Company Outlook: Stable on Rebound in Refi Activity and Efficiency Gains While MSR Fair Values Brace for Turbulent Rates Ahead

This commentary reviews the 2025 non-bank mortgage company outlook.

Key highlights include:

-- Mortgage origination volume is expected to increase in 2025, primarily driven by growth in refinance activity while purchase origination will likely remain muted as persistently elevated affordability issues will keep prospective home buyers on the sidelines.

-- We expect higher origination volume coupled with operating efficiency gains to result in higher gain on sale margins, boosting earnings for non-bank mortgage companies.

-- A moderate decrease in interest rates is expected to drive MSR fair value losses, negatively affecting earnings, especially if those MSR changes are not hedged to limit the impact on earnings.

-- In line with higher origination volume, we expect leverage levels to increase, driven by higher utilization of warehouse funding.

"Downside risks that are not in our baseline scenario but bear watching include a notable slowdown in economic growth that leads to higher levels of unemployment and weakening demand for housing as well as deterioration in mortgage credit performance, all of which could pressure the earnings of non-bank mortgage companies," said Shaima Ahmadi, Assistant Vice President - NA Financial Institution Ratings.