The Institutional Risk Analyst

The contest to see who will acquire the mortgage REIT Two Harbors (TWO) seems to have ended in a defeat for United Wholesale Mortgage Corp (UWMC) and a win for CrossCountry Mortgage, the #2 retail lender in the US behind Rocket Companies (RKT). The TWO Board of Directors unanimously recommended a vote for the proposed transaction with CrossCountry Mortgage at the Special Meeting on June 23, 2026.

In a system where tax avoidance is a national aspiration, the currency must inflate continuously and at varying rates to accommodate the Treasury’s cash needs. Last week in "The Wrap," we noted that real gasoline prices, adjusted for inflation, are actually quite low. We also predicted that inflation could touch double digit rates later this year as a result of the US-Israeli war with Iran, but the big driver of inflation remains the federal debt.

Of course, in the muddled markets at present, there are a number of low-scoring banks which have done relatively well in recent weeks. The parent company of tiny Merchants Bank of Indiana, Merchants Bancorp (MBIN), for example, saw its stock price rise significantly in early 2026, 2x the S&P 500 over the past year, driven primarily by its inclusion in a major index and strong financial performance.

The changes proposed by Governor Bowman, if made effective, will have a significant and very positive impact on banks and non-banks operating in the residential mortgage market.

US banks and nonbanks are entering a period of increased uncertainty in terms of earnings and rising credit costs, yet another reason why financial stocks are retreating. We published a comment on the risks to banks from loans to private equity funds (“Does Private Credit Hurt Bank Stocks?”). Bank credit costs have been so low for so long that they have nowhere to go but up.

Does the Trump White House understand that the professional staff of the GSEs are preparing to roll out yet another capital increase for the residential housing market in 2025? Does Director Pulte understand that the changes are being advanced by the staffs of the GSEs in his name and with his apparent support? We suspect that the answer is no.

Some of the smaller holders of MSRs may ask themselves if selling right now is not the best strategy over a 36-48 month horizon.

The Citi decision to exit mortgage servicing perhaps made sense in 2017, but today not so much.

Axos continues to rebound after the bear raid by Hindenburg Research. AX ranked 18th in the WGA Bank Top Index in Q3 2024 vs 98th for SOFI

Ginnie Mae would rather have issuers raise the NPV of the MSR in cash today than take the price risk of holding the whole MSR through time.

The survivors in mortgage finance optimize operations around purchasing loans from brokers/ correspondents, and direct to consumer (DTC)

If the run-of-the-mill Republic First interest rate mark is 13.3% of assets that is not just wiping out one bank’s 8% capital but also FDIC

McCargo's actions and the fact that the case has not been dismissed in its entirety is very unhelpful given current market conditions.

If we are marking balance sheet assets to actual market in the age of deflation, what of the heavily modeled world of servicing assets?

Regulatory skepticism about mortgage assets could effect financing rates for lenders, which means higher mortgage rates for consumers.

We look for modest rate cuts in 2025, followed by an equally modest boom in mortgage lending

We suspect that the IMBs will be sellers of conventional assets to defend their Ginnie Mae MSRs. Banks may be buyers of conventional assets

But nothing lasts forever in mortgage land or in financials. Stay tuned and pay attention to LT rates and spreads...

The entire mortgage industry will have a single point of failure with the ICE/BKI combination

Many of the startups, investment flows and SPAC transactions that proliferated in 2020-2021 are likely to be casualties in the next several