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A Long List of Mortgage Stocks Grouped by Industry: Are Any Good Buys?

Wall Street bull

Let’s talk mortgage stocks for a moment, shall we?

During the early and mid 2000s, the housing market was on fire in the United States. As a result, the mortgage industry expanded at an unheard of rate, and so did the amount of players in the sector.

Alongside the big banks in the industry came a great number of specialty lenders that dealt only with originating home loans.

While these companies raked in profits during the mortgage refinance boom, many eventually saw their numbers drop tremendously, with floundering growth, massive mortgage layoffs, and eventual closures.

Many investors might have seen this as an opportunity. The low PE ratios. The fresh 52-week lows. The huge earnings just months earlier.

Just one little problem. No clear growth trajectory. And a whole lot of risk. We all know the stock market relies on growth to boost ticker prices, right?

The problem is that the market got spread too thin when every bank in town wanted a piece of the hot mortgage market. And more players chasing fewer home loans meant tighter margins and lower profits.

Once again, the housing market is hot and mortgage interest rates are low, resulting in record mortgage origination volume.

But there’s a big fear that interest rates will rise and business that is very price-sensitive will dry up. This might explain Rocket Mortgage’s P/E ratio of around 6.

Still, there are opportunities for investment in the mortgage space just like any industry, especially since it’s a very cyclical market. And one that is evolving through ancillary technology.

In terms of finding a diamond in the rough, you might be able to get a good idea of how a mortgage stock could perform simply by keeping an eye on the housing market.

But you need to get ahead of the market to pick the next winner due to the erratic nature of the business.

Anyway, let’s look at different groups of mortgage players based on what they do. From there, you can do your own research to discover possible investments, if there are any.

Publicly-Traded Mortgage Lenders

Some of the largest banks and mortgage lenders that originate mortgage loans include:

Publicly-Traded Mortgage Finance Companies

Then there are the two public/private mortgage companies that buy residential mortgage loans and securitize mortgages from mortgage lenders (also known as GSEs, or government-sponsored enterprises):

Fannie Mae (OTCBB: FNMA)
Freddie Mac (OTCBB: FMCC)

These stocks are generally regarded as worthless now that the pair have entered conservatorship, though they are still actively traded on the OTC bulletin board.

Mortgage REIT Stocks

There are also publicly traded companies that purchase mortgages and mortgage-backed securities, including those that buy agency MBS (backed by Fannie and Freddie):

American Capital Agency Corp. (NASDAQ:AGNC)
Annaly Capital Management (NYSE:NLY)
ARMOUR Residential REIT, Inc. (NYSE:ARR)
CYS Investments Inc. (NYSE:CYS)
Hatteras Financial Corp. (NYSE:HTS)

New Residential (NYSE: NRZ)

And those that purchase non-agency MBS, such as jumbo mortgages, including:

PennyMac Mortgage Investment Trust (NYSE:PMT)
Redwood Trust (NYSE:RWT)
Two Harbors (NYSE:TWO)

Mortgage REIT ETFs

iShares Mortgage Real Estate ETF (BATS: REM)
Credit Suisse X-Links Monthly Pay 2xLeveraged Mortgage REIT (NYSEARCA: REML)
VanEck Vectors Mortgage REIT Income ETF (NYSEARCA: MORT)

Publicly-Traded Mortgage Servicing Companies

Though many mortgages are sold off by the companies that originate them, they are often serviced by other companies, known as mortgage servicers. These companies collect monthly payments and handle loss mitigation activity, if necessary. Some of the largest include:

Nationstar Mortgage Holdings Inc (NYSE:NSM)
Ocwen Financial Corp. (NYSE:OCN)

Mortgage Insurance Stocks

Another important group of mortgage companies are the private mortgage insurers, which insure conventional mortgages, otherwise known as those loans the FHA does not get their hands on:

Genworth (NYSE:GNW)
Old Republic (NYSE:ORI)
Radian (NYSE:RDN)

Mortgage Tech Stocks

Then there are the mortgage tech companies, which include the following data and analytics specialists:

Blend (NYSE: BLND)
CoreLogic (NYSE:CLGX)
Ellie Mae (NYSE:ICE)
Lender Processing Services (NYSE:LPS)

LendingTree (NYSE:TREE)

Publicly-Traded Title Insurance Companies

Let’s not forget the title insurance and escrow providers, including:

Fidelity National Financial (NYSE:FNF)
First American Financial (NYSE:FAF)
Investors Title Company (NASDAQ:ITIC)
Stewart Information Services (NYSE:STC)

The key to the success of the companies that originate and service mortgage loans is that though loan origination may slow, they can fall back on the servicing of the loans.

And when production slows, loan servicing picks up speed as homeowners hold onto their mortgages longer, increasing the amount of interest earned which boosts profits.

That being said, all banks involved in mortgage are likely to suffer in a cooling housing market, but especially the originators as they have little diversification, if any at all.

And the larger banks have a variety of income streams that will offset any major losses in one sector.

So be sure to look at mortgage stocks carefully. You need to understand the complexities of the industry before diving in.

They all do different things, and will benefit or suffer accordingly. After all, there’s a reason they are at 52-week lows with minuscule PE ratios.

Note: Some of the above may now be closed mortgage companies or in bankruptcy proceedings at this point, thanks to the ongoing mortgage crisis.

3 thoughts on “A Long List of Mortgage Stocks Grouped by Industry: Are Any Good Buys?”

  1. I am a small, sole investor. I am looking to understand/buy a few mortgage lending stocks. Can you suggest the best area to get research and understand, for a layman, how the industry works?

    Thanks for any help you can provide.


  2. Hi Flori,

    The mortgage industry is notoriously cyclical, especially for loan originators (lenders) that see their loan volume spike or fall depending on whether it’s an up cycle or down cycle. At the moment they are enjoying record volumes due to very low rates, but how they sustain that is a big question mark. The same kind of goes for mortgage insurers. But there are also mortgage tech companies out there too that might be better suited as long term successes.

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