Rising interest rates have cooled its searing refinancing business, but Rocket Mortgage says it is on track to become the nation’s top retail purchase loan originator by 2023 as it focuses on conquering more business with home buyers.
The decline in Rocket’s more profitable refinancing business has weakened third quarter revenue and profit, but the company has surpassed the purchase loan origination record it set just a quarter ago during the spring home buying season.
Rocket Cos. – the holding company of Rocket Mortgage, Rocket Homes, Amrock and Rocket Auto – posted third-quarter net income of $ 1.39 billion, down 53% from a year ago. At $ 3.11 billion, revenue was also down 32% year-over-year.
At $ 88.05 billion, Rocket Mortgage’s closed loan origination volume was virtually unchanged from a year ago when it closed $ 88.98 billion in loans. But with less profitable purchase loans making up a larger portion of the mix, the selling margin gain fell from 4.52 percent to 3.05 percent.
Rocket shares fell as much as 6.2% from Thursday’s closing price of $ 17.86, before making up for some of that loss in afternoon trading to close at 17.20 $. Over the past year, rocket actions traded as low as $ 43 and as low as $ 14.94, as investors digest the impact of rising interest rates on mortgage lenders.
On a call with investment analysts, Rocket CEO Jay Farner gave a positive review of the company’s third quarter results.
“Not only did we set a record third quarter purchasing volume with our direct-to-consumer channels and our partners reaching record levels, but by the end of September we had already generated more purchase volume than any full year. before, ”said Farner. “This rapid growth in the purchasing segment puts us on track to meet our goal of becoming the # 1 retail purchase lender by 2023.”
Although Rocket Mortgage is the nation’s largest mortgage lender, it ranked fourth among providers of purchase loans last year, behind Wells Fargo, United Wholesale Mortgage and Fairway Independent Mortgage Corp. according to data submitted by lenders to federal regulators.
To gain more business from home buyers, Rocket doesn’t put all of their eggs in one basket. He courted not only realtors – who often wield considerable influence over the lenders that homebuyers turn to for financing – but also independent mortgage brokers with deep roots in their local markets.
Rocket also offers its mortgage origination technology to banks and credit unions, and targets homebuyers more aggressively in marketing campaigns designed to bring consumers directly to its website.
RocketHomes.com has an average of 2.4 million monthly users
Rocket’s real estate brokerage subsidiary, Rocket Homes, is licensed as a real estate broker in all 50 states, allowing it to provide a property search site and recommend businesses to members of its agent referral network. .
Farner said that traffic to RocketHomes.com has grown by almost a factor of five over the past year, averaging 2.4 million users per month, helping Rocket’s real estate brokerage facilitate more than 9,000 transactions valued at $ 2.3 billion. dollars during the quarter.
In August, Rocket Homes announced it was hiring real estate agents and launching an iBuyer program, which would allow it to provide a “full suite of services,” including closing and settlement services through its Amrock subsidiary.
“Through our integrated platform, clients can find their next home on Rocket Homes’ 50-state home search platform, get an agent from the company’s agent network, get financing through Rocket Mortgage, have Amrock do the title work and assessment for them and then, after closing, have their mortgage managed by Rocket Mortgage, all from a centralized platform, ”said Farner. .
“Massive” opportunity to partner with banks and credit unions
Rocket’s partner network includes mortgage brokers, community banks and credit unions. Farner said Rocket sees a “massive” opportunity to make more loans through banks and credit unions thanks to a partnership with Salesforce announced last week.
The partnership enables Rocket to offer its mortgage technology to 10,000 banks and credit unions that generate $ 1,000 billion in mortgages annually, or nearly a third of the total US market, through Salesforce Financial Services Cloud.
“This new mortgage-as-a-service model is a game-changer for the industry and for Rocket,” said Farner. “More than just leveraging our technologies, these banks and credit unions will have Rocket built into their centralized workflow, making the process seamless and straightforward. “
Mortgage as a service, said Farner, “represents a new model for financial institutions to partner with Rocket, paving the way for an even greater opportunity to provide consumer loans as a service, including including mortgages, auto loans and personal loans “.
Court mortgage brokers
On the mortgage broker side, Rocket is in a battle with rival UWM, which has sought to limit Rocket’s growth by refusing to do business with mortgage brokers who work with Rocket or Fairway Independent Mortgage.
UWM CEO Mat Ishbia has accused “global” lenders who operate both retail and wholesale channels of trying to cut mortgage brokers when their clients are looking for their next loan.
Ishbia escalated these accusations in a March ultimatum broadcast on Facebook Live. Rocket Mortgage, he said, was not only trying to disintermediate mortgage brokers from their existing clients, but also sever ties with the real estate agents they depend on for their future business.
In addition to offering new technological tools to mortgage brokers, Rocket said he wanted to help them build relationships with realtors, not disrupt them.
If a mortgage broker working with Rocket Mortgage enters into a loan with a real estate agent, Rocket will refrain from soliciting business from that agent, the company said. Rocket Pro TPO has built a proprietary tracking engine that will be accessible through its broker portal detailing the agents each broker works with, the company said.
“We know our broker partners are working hard to build relationships with local real estate professionals and we want to protect those relationships,” said Austin Niemiec, executive vice president of Rocket Pro TPO, in a statement. “We will honor these connections, while leveraging our Rocket platform to help brokers forge new partnerships. “
In the past 12 months, Rocket estimates that 170,000 real estate agents have entered into a loan with one of Rocket Pro TPO’s partner brokers, and he wants to introduce his mortgage broker partners to a larger share of 2 million real estate agents. Americans.
Since many homebuyers who visit the Rocket Homes property search site are not working with a mortgage company, Rocket Pro TPO plans to introduce “Selected Buyers” to the top performing mortgage brokers participating in its. Apogée Partners program.
Rocket Pro TPO is also planning to host “Pro Mixers,” networking events connecting brokers and realtors in cities across the country, with the first event scheduled for this month in San Francisco.
Farner said that Rocket’s broker portal, Rocket Connect, is another benefit for mortgage brokers. Launched last year, Rocket Connect provides “a streamlined way for them to communicate directly with our operations teams,” with guaranteed response times of 2 hours, he said.
Rocket’s efforts to serve mortgage brokers are paying off, with Rocket getting “north of 50%” of loans from its broker partners. This is up from 36% 4 or 5 months ago, he said.
More profitable direct-to-consumer channel
In the first nine months of the year, Rocket made $ 108.5 billion in loans through its partner channel, up 58% from a year ago. This compares to 24% growth in the direct-to-consumer channel, with $ 163.5 billion in loans issued since the start of the year.
The gain on the selling margin, however, is much thinner in the partner channel, sliding to 0.78% in the third quarter, from 2.70% a year ago.
Because it doesn’t have to share the profits with partners, the loans Rocket makes through its direct channel to consumers – consumers who come to the company’s website – are the most profitable. The sales margin gain in the direct-to-consumer channel was 4.47% in the third quarter, down from 5.78% a year ago, when more profitable refinances accounted for a higher percentage of ready.
The higher profit margins in the direct-to-consumer channel mean it has a bigger impact on Rocket’s bottom line. After deducting directly attributable expenses, the direct-to-consumer channel generated approximately $ 1.62 billion in profit in the third quarter, compared to $ 280 million for the partner channel.
Farner said Rocket spends over $ 1 billion a year on digital and performance marketing to bring consumers to his website. During the third quarter, “we saw strong growth in our direct-to-consumer channel, where our purchasing initiatives continue to gain traction. “
A recent Halloween-themed commercial poked fun at the intense competition for homes in many markets, reminiscent of the classic horror film “Night of the Living Dead”, depicting an army of zombie shoppers who are beaten by a buyer making an offer financed by Rocket Mortgage.
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