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1 Top Mortgage Finance Stock to Buy, 2 to Sell

Stock MarketsNov 24, 2021 10:31AM ET
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© Reuters. 1 Top Mortgage Finance Stock to Buy, 2 to Sell

Even though the economy is returning to normality after a year and a half of hardships, fundamentally weak mortgage finance companies, such as Rocket Companies (RKT) and PennyMac Financial (NYSE:PFSI), may find it challenging to regain pre-COVID levels of growth soon. But we think Essent Group (NYSE:ESNT) is well-positioned to reap the benefits of the economic recovery and the strong housing market. Read on.COVID-19 posed a series of problems for mortgage lenders as mortgage rates fell to historic lows, and lenders were flooded with refinancing requests. Many lenders had no choice but to raise rates. And it soon became clear that without a steady flow of income, many homeowners who had lost their jobs would struggle to stay current on their mortgage payments.

Nevertheless, the housing markets had a great year despite the uncertainty as people spent heavily on new homes seeking to improve their remote lifestyles. The 30-year, 15-year, and 10-year mortgage rates have held steady for six straight days now. Furthermore, according to a CNBC report, mortgage originations to buy a home are expected to rise 9% to a record of $1.73 trillion in 2022.

Given this backdrop, we think it could be wise to bet on fundamentally strong mortgage finance company Essent Group Ltd . (ESNT). Conversely, we think Rocket Companies, Inc. (RKT) and PennyMac Financial Services, Inc. (PFSI) are not well-positioned to benefit from industry trends. So, these two stocks are best avoided now.

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1 Top Mortgage Finance Stock to Buy, 2 to Sell
 

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