Diversity-Generating Retroelements (DGRs) create rapid, targeted variation within specific genomic regions in phages and bacteria. They operate through stochastic retro-transcription of a template region (TR) into a variable region (VR), which typically encodes ligand-binding proteins. Despite their prevalence, the conditions under which maintaining such hypermutating system is favorable remain unclear. Here we introduce a two-timescale framework separating fast VR diversification from slow TR evolution, allowing the dynamics of DGR-controlled loci to be analytically understood. Combining data analysis and analytical calculations we quantity the fitness gain provided by the diversification mechanism of DGR with respect to standard mutagenesis. Our framework accounts for observed patterns of DGR activity in human-gut and clarifies when constitutive DGR activation is evolutionarily favored.