Big mortgage lenders stay profitable, but cracks emerge as rates climb

A consistent theme emerged from the first-quarter 2026 earnings season: higher mortgage rates and macroeconomic volatility are dampening second-quarter expectations.

Several large lenders remained profitable during the quarter, benefiting from mortgage rates that were roughly 50 basis points lower than current levels while they continued to invest heavily in artificial intelligence and other technology. But other lenders are still burning cash, and the recent shift in the macro backdrop is creating fresh challenges heading into the second quarter. 

Refinance activity surged across the industry, while purchase volumes were flat or lower as elevated rates continued to weigh on affordability. Large servicing portfolios helped generate fee income, but swings in mortgage servicing rights (MSR) valuations introduced significant earnings volatility. 

HousingWire‘s analysis includes Rocket Companies, UWM Holdings, PennyMac Financial, loanDepot, Better Home & Finance, Rithm Capital (Newrez), JPMorgan Chase and Wells Fargo.

Rocket posted its strongest profit in four years and guided Q2 2026 adjusted revenue to a range of $2.7 billion to $2.9 billion. That compares to the $2.82 billion it reported in Q1, signaling a more cautious outlook despite its dominant market position.

“Obviously, what happened later in the quarter is that a major conflict in the Middle East exploded,” CEO Varun Krishna told analysts. “With the war, oil prices went up, inflation pressure increased, and then rates moved up. And that certainly changed some of the trajectory as we moved into Q2.”

According to Krishna, the industry still expects a seasonal pickup in the second quarter, but the period may ultimately resemble Q1 more closely than originally anticipated. Although the environment has shifted, it’s still healthy as underlying demand remains resilient, he said.

Brian Brown, Rocket’s chief financial officer, added that mortgage rates are now about 50 bps above their February low points. Meanwhile, homes are taking longer to sell, averaging 51 days on market — the longest stretch since 2019. “The spring homebuying season is off to a slow start,” Brown said.

Pivoting to HELOCs

To navigate the second quarter, lenders are shifting their product strategies, aggressively expanding home equity line of credit (HELOC) offerings, and prioritizing cost controls and pricing discipline over raw origination volume growth.

Better guided second-quarter loan volume to a range of $1.575 billion to $1.725 billion, similar to the $1.64 billion it reported in Q1. The company said the higher-rate environment is shifting consumer demand away from refinances and toward HELOCs. Mortgage rates offered through Better’s platform rose from about 5.75% to well above 6.5% in recent weeks.

“This is causing consumers to get stuck in the middle of the funnel, hesitating to lock in at a higher rate, particularly if they feel the rate increase is temporary due to the situation in the Middle East,” founder and CEO Vishal Garg told analysts. “With our partners’ help, we are converting some of these customers who need cash now to HELOCs.”

Garg noted that while HELOCs carry smaller balances than refinances, they generate significantly higher gain-on-sale margins — averaging 6% to 7%, compared to roughly 2.5% for direct-to-consumer mortgages. Better reaffirmed its goal of reaching adjusted EBITDA breakeven by the end of Q3 2026.

Executives at loanDepot, meanwhile, cited “geopolitically driven market volatility” as the primary headwind facing the company, with margin compression already evident in the first quarter. The lender widened its net loss to $54.9 million, and it filed a $250 million shelf registration to preserve capital flexibility.

“The geopolitical environment created a sharp increase in interest rates during the first quarter, and we originated fewer higher margin FHA, VA and HELOC loans, and originated more conventional loans, both effects compressing our margin,” CFO David Hayes told analysts. “Higher interest rates during the quarter also generated wider negative fair value marks on our mortgage servicing and trading securities, contributing to lower revenue.”

Servicing swings

Servicing — traditionally a hedge against weaker production — also weighed heavily on some earnings reports. PennyMac, for instance, recorded a $177 million increase in MSR fair values, driven primarily by interest rate changes, but that gain was offset by $221 million in hedge-related fair-value losses and costs.

PennyMac chairman and CEO David Spector said the company expects a smaller originations market as rates move higher, although he expressed confidence in generating attractive adjusted returns on equity through 2026. The California-based lender and servicer reported adjusted net income of $117.7 million for the quarter ending March 31.

At United Wholesale Mortgage, servicing strategy remains central as the company works to bring more of its portfolio in-house while battling CrossCountry Mortgage LLC to acquire Two Harbors Investment Corp.

UWM’s origination engine slowed from the prior quarter, but the company maintained margins and remained profitable, delivering what executives described as the second-best quarter in company history.

Chairman and CEO Mat Ishbia said he expects expenses to remain flat or decline even as origination volume grows. Over the next five years, UWM is targeting at least $1.3 trillion in originations. Beyond lending revenue, Ishbia projected 20% to 25% growth in “other revenue” tied to ancillary products and artificial intelligence initiatives.

Multichannel lender and servicer Newrez managed macroeconomic dynamics better than peers through hedging strategies and a diversified business model. Michael Nierenberg, CEO of parent company Rithm Capital, said the firm remains “confident the current conditions create compelling opportunities” through its diversified owner-operator model.

Newrez reported pretax operating income of $273.7 million in Q1 2026, up from $249.1 million in Q4 2025. The figure excluded a $23.1 million mark-to-market MSR loss, hedge impacts and other non-operating items.

“While market competition continues to pressure gain-on-sale margins, we maintained pricing discipline and did not chase market share,” Newrez President Baron Silverstein told analysts during the company’s earnings call.

Nonbank lenders continue to gain market share as large banks retreat further from the mortgage business.

JPMorgan Chase’s origination volume hit $13.7 billion in the first quarter, down 14% from the prior quarter and up 46% from the same period last year. Similarly, Wells Fargo originated $6.3 billion from January to March, down 16% from the prior quarter but up 43% compared to Q1 2025.

Flávia Furlan Nunes reported and wrote this article with drafting assistance from HousingWire Automation, an editorial tool that helps transform announcements and industry data into HousingWire-style news coverage.