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Lower Mortgage Rates Driving Refinancing Activities: Three Stocks to Buy
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The Mortgage & Related Services industry is gaining momentum with the decline in mortgage rates driven by optimism surrounding the Federal Reserve interest rate cuts. The decline in interest rates raises the demand for loan origination and refinancing by making the cost of borrowing comparatively less expensive.
With such positive developments, investors can consider buying stocks like Velocity Financial Inc. (VEL - Free Report) , Onity Group Inc. (ONIT - Free Report) and PennyMac Financial Services, Inc. (PFSI - Free Report) for long-term gains.
Positive Trend in the Mortgage & Related Services Industry
The optimism about the much-awaited interest rate cut in the Fed’s policy meeting dragged the yields on long-term bonds lower, leading to a drop in mortgage rates. During the Sept. 17-18 FOMC meeting, the Fed lowered the interest rate by 50 basis points after more than four years. Currently, the Fed fund rates stand in the 4.75-5% range.
The interest rate for the most popular U.S. home loan declined to its lowest level in about two years. Per the Mortgage Bankers Association (MBA) report, the average rate on a 30-year fixed-rate mortgage dropped to 6.13% in the week ended last Friday from 6.15% in the previous week. The 30-year mortgage rate hovered around 7% for most of the year, but it has begun to cool off and has fallen since late July. The latest decline marks the eighth consecutive week of declining rates.
Housing affordability challenges are declining with falling mortgage rates. With this, refinancing activities are witnessing a positive trend. This will reduce operational and financial challenges for companies and increase the gain on sale margin and new investment activity.
Refinancing Activities Showing Upward Trend
With declining mortgage rates, applications to refinance mortgages are surging as more people capitalize on the lower borrowing costs in two years.
As per the MBA report, the refinancing index jumped 20.3% in the week ended Sep. 20 to the highest level since April 2022. Mortgage applications increased to their highest level since July 2022, boosted by a 20% increase in refinance applications. As a result of lower rates, week-over-week gains for both conventional and government refinance applications increased sharply.
The refinance share of mortgage activity increased to 55.7% of total applications from 51.2% the previous week.
The decline in mortgage rates does increase prospective home buyer’s purchasing power and also allows existing homeowners to refinance. The increase in refinancing activities will support industry players' top-line growth.
3 Mortgage & Related Services Stocks to Bet on
Velocity Financial: Based in Westlake Village, CA, the company is a vertically integrated real estate finance firm that offers and manages investor loans for 1-4 unit residential rental and small commercial properties. VEL originates loans across the United States through its extensive network of independent mortgage brokers.
In second-quarter 2024, VEL’s core earnings per share of 45 cents surpassed the Zacks Consensus Estimate of 43 cents on strong net interest income. Book value per share of $14.52 as of second-quarter 2024 end increased 15.5% year over year. Also, the total loan portfolio increased by 20% to $4.5 billion as of June 30, 2024.
Robust portfolio performance and recent origination volume levels are expected to continue in the near term. This, along with a favorable outlook for book value growth and embedded gains in the investment portfolio, is a positive.
The Zacks Consensus Estimate for VEL's 2024 earnings is pegged at 1.91 per share, indicating 24% year-over-year growth. The company flaunts a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.The stock has surged 72.7% in the past year.
Image Source: Zacks Investment Research
Onity Group: Based in West Palm Beach, FL, the company operates in the United States, the U.S. Virgin Islands, India and the Philippines. It is a non-bank mortgage servicer and originator providing solutions through its primary brands, PHH Mortgage and Liberty Reverse Mortgage.
In the second quarter of 2024, ONIT’s earnings adjusted for non-recurring costs were $4.07 per share, outpacing the Zacks Consensus Estimate of $1.37. Moreover, book value per share of $56.8 as of the second-quarter 2024 end increased 9% year over year. Originations volume of $7 billion increased 51% on a sequential basis.
Increased adjusted return on equity and enhanced book value per share, along with improved debt-to-equity ratio, are expected to benefit the company in the upcoming period.
The Zacks Consensus Estimate for ONIT’s 2024 earnings is pegged at 10.21 per share. This represents an increase of 59% from the prior year's reported figure. The company also sports a Zacks Rank of 1 at present. The stock has moved up 12.3% in the past year.
Image Source: Zacks Investment Research
PennyMac Financial Services, Inc.: The company is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the origination and servicing of mortgage loans along with the management of investments related to the U.S. mortgage market. The company is based in Moorpark, CA.
In second-quarter 2024, the company reported earnings of $2.67 per share, beating the Zacks Consensus Estimate of $2.65 per share. Book value per share increased to $71.76 as of June 30, 2024, from $70.13 on Mar. 31, 2024.
PFSI’s multi-channel approach to loan production drives strong competitive advantages over peers.
The Zacks Consensus Estimate for PFSI’s 2024 earnings is pegged at 10.61 per share, indicating a 102.5% surge from the year-ago period’s levels. PFSI currently carries a Zacks Rank #2 (Buy). The stock has soared 73.1% in the past year.
Image Source: Zacks Investment Research
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Lower Mortgage Rates Driving Refinancing Activities: Three Stocks to Buy
The Mortgage & Related Services industry is gaining momentum with the decline in mortgage rates driven by optimism surrounding the Federal Reserve interest rate cuts. The decline in interest rates raises the demand for loan origination and refinancing by making the cost of borrowing comparatively less expensive.
With such positive developments, investors can consider buying stocks like Velocity Financial Inc. (VEL - Free Report) , Onity Group Inc. (ONIT - Free Report) and PennyMac Financial Services, Inc. (PFSI - Free Report) for long-term gains.
Positive Trend in the Mortgage & Related Services Industry
The optimism about the much-awaited interest rate cut in the Fed’s policy meeting dragged the yields on long-term bonds lower, leading to a drop in mortgage rates. During the Sept. 17-18 FOMC meeting, the Fed lowered the interest rate by 50 basis points after more than four years. Currently, the Fed fund rates stand in the 4.75-5% range.
The interest rate for the most popular U.S. home loan declined to its lowest level in about two years. Per the Mortgage Bankers Association (MBA) report, the average rate on a 30-year fixed-rate mortgage dropped to 6.13% in the week ended last Friday from 6.15% in the previous week. The 30-year mortgage rate hovered around 7% for most of the year, but it has begun to cool off and has fallen since late July. The latest decline marks the eighth consecutive week of declining rates.
Housing affordability challenges are declining with falling mortgage rates. With this, refinancing activities are witnessing a positive trend. This will reduce operational and financial challenges for companies and increase the gain on sale margin and new investment activity.
Refinancing Activities Showing Upward Trend
With declining mortgage rates, applications to refinance mortgages are surging as more people capitalize on the lower borrowing costs in two years.
As per the MBA report, the refinancing index jumped 20.3% in the week ended Sep. 20 to the highest level since April 2022. Mortgage applications increased to their highest level since July 2022, boosted by a 20% increase in refinance applications. As a result of lower rates, week-over-week gains for both conventional and government refinance applications increased sharply.
The refinance share of mortgage activity increased to 55.7% of total applications from 51.2% the previous week.
The decline in mortgage rates does increase prospective home buyer’s purchasing power and also allows existing homeowners to refinance. The increase in refinancing activities will support industry players' top-line growth.
3 Mortgage & Related Services Stocks to Bet on
Velocity Financial: Based in Westlake Village, CA, the company is a vertically integrated real estate finance firm that offers and manages investor loans for 1-4 unit residential rental and small commercial properties. VEL originates loans across the United States through its extensive network of independent mortgage brokers.
In second-quarter 2024, VEL’s core earnings per share of 45 cents surpassed the Zacks Consensus Estimate of 43 cents on strong net interest income. Book value per share of $14.52 as of second-quarter 2024 end increased 15.5% year over year. Also, the total loan portfolio increased by 20% to $4.5 billion as of June 30, 2024.
Robust portfolio performance and recent origination volume levels are expected to continue in the near term. This, along with a favorable outlook for book value growth and embedded gains in the investment portfolio, is a positive.
The Zacks Consensus Estimate for VEL's 2024 earnings is pegged at 1.91 per share, indicating 24% year-over-year growth. The company flaunts a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here. The stock has surged 72.7% in the past year.
Onity Group: Based in West Palm Beach, FL, the company operates in the United States, the U.S. Virgin Islands, India and the Philippines. It is a non-bank mortgage servicer and originator providing solutions through its primary brands, PHH Mortgage and Liberty Reverse Mortgage.
In the second quarter of 2024, ONIT’s earnings adjusted for non-recurring costs were $4.07 per share, outpacing the Zacks Consensus Estimate of $1.37. Moreover, book value per share of $56.8 as of the second-quarter 2024 end increased 9% year over year. Originations volume of $7 billion increased 51% on a sequential basis.
Increased adjusted return on equity and enhanced book value per share, along with improved debt-to-equity ratio, are expected to benefit the company in the upcoming period.
The Zacks Consensus Estimate for ONIT’s 2024 earnings is pegged at 10.21 per share. This represents an increase of 59% from the prior year's reported figure. The company also sports a Zacks Rank of 1 at present. The stock has moved up 12.3% in the past year.
PennyMac Financial Services, Inc.: The company is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the origination and servicing of mortgage loans along with the management of investments related to the U.S. mortgage market. The company is based in Moorpark, CA.
In second-quarter 2024, the company reported earnings of $2.67 per share, beating the Zacks Consensus Estimate of $2.65 per share. Book value per share increased to $71.76 as of June 30, 2024, from $70.13 on Mar. 31, 2024.
PFSI’s multi-channel approach to loan production drives strong competitive advantages over peers.
The Zacks Consensus Estimate for PFSI’s 2024 earnings is pegged at 10.61 per share, indicating a 102.5% surge from the year-ago period’s levels. PFSI currently carries a Zacks Rank #2 (Buy). The stock has soared 73.1% in the past year.