Mortgage Rates Continue to Ease: 3 mREIT Stocks to Bet on for 2026

Industry Overview - The mortgage REIT (mREIT) industry faced volatility in 2025 due to macroeconomic uncertainty, with the average rate on a 30-year fixed-rate mortgage starting at 6.72% and remaining in the upper-6% range for most of the year [1] - By December 2025, the Fed implemented a 25-basis-point rate cut, reducing the average mortgage rate to 6.21%, down from a peak of 7.05% in January 2025 [2][9] - The mREIT industry showed signs of recovery as interest rates stabilized and economic conditions improved, with expectations for further declines in mortgage rates in 2026 [3][4] Market Dynamics - U.S. economic growth is projected to accelerate in 2026, with moderating inflation and decreasing unemployment, contributing to lower mortgage rates and favorable refinancing activity [4] - Mortgage spreads have been narrowing as volatility decreases, which is expected to improve book values for mREITs as asset prices rise [5] Investment Opportunities - Investors are encouraged to consider mREIT stocks such as Two Harbors Investments Corp (TWO), NexPoint Real Estate Finance (NREF), and Ellington Financial Inc. (EFC) for potential strong returns in 2026, given their attractive dividend yields and growth prospects [3][6] - The selection of these stocks was based on criteria including an expected earnings growth rate of over 5% for 2026 and a dividend yield exceeding 10% [7] Company Insights Two Harbors Investments Corp (TWO) - TWO's portfolio is primarily composed of residential mortgage-backed securities (RMBS) with a 71.1% exposure to Agency RMBS as of September 30, 2025 [10] - The company reported a net interest loss of $63.5 million for the nine months ended September 30, 2025, an improvement from a loss of $122.8 million in the prior year [12] - TWO's current dividend yield is 12.01%, and it has raised its dividend once in the past five years, with earnings estimates suggesting year-over-year increases of 114.5% for 2025 and 6.7% for 2026 [12][13] NexPoint Real Estate Finance (NREF) - NREF focuses on originating and investing in first mortgage loans and has seen its net interest income rise to $36.1 million in the first nine months of 2025, up from $6.4 million the previous year [18][19] - The company has a current dividend yield of 13.73% and has increased its dividend three times in the past five years, with earnings estimates indicating year-over-year increases of 2.2% for 2025 and 8.1% for 2026 [19] Ellington Financial Inc. (EFC) - EFC invests in a diverse range of financial assets, including residential and commercial mortgage loans, and has a strong momentum in its securitization platform [21] - The company maintains a disciplined approach to risk management, with a current dividend yield of 11.30% and three dividend increases in the past five years, alongside earnings estimates suggesting year-over-year increases of 25.3% for 2025 and 1.6% for 2026 [23]