As mortgage profits shrink, Rocket determined to grow market share

Even as rising interest rates take a bite out of profits, Rocket Cos. says it will continue to take market share away from competitors by building out its end-to-end real estate services, which are repositioning the nation’s biggest mortgage lender as a fintech platform.

Rocket’s record 2021 mortgage originations helped boost the company’s market share to a new high of 8.8 percent, the company said in reporting fourth quarter earnings and full year results. Shares in Rocket also got a lift Friday, closing up nearly 6 percent after the company announced it would reward shareholders with a $2 billion special dividend after originating a record $351 billion in mortgages in 2021.

Rocket Mortgage market share 2009-2021

Source: Rocket Cos. investor presentation.

Rocket’s revenue and profits were down from 2020, however, when the low interest rates in effect during the pandemic triggered a rush of profitable refinancings. In 2020, Rocket Mortgage closed $320 billion in home loans, generating $15.65 billion in revenue and $9.4 billion in profits.

While mortgage origination volume was up nearly 10 percent in 2021, less profitable purchase loans accounted for a greater proportion of the mix. As a result, 2021 revenue was down 17 percent, to $12.9 billion, with net income falling by 35 percent, to $6.07 billion.

Although Rocket did not break out purchase mortgage and refinancing volume, the decline in a key metric — gain on sale margin — was telling. During the fourth quarter of 2020, when the refinancing boom was still going strong, Rocket’s gain on sale margin was 4.41 percent. During the last three months of 2021, when Rocket was more dependent on less profitable purchase loans, gain on sale margin dropped to 2.80 percent.

On a call with investment analysts, Rocket Cos. CEO Jay Farner focused on the company’s potential to continue taking market share away from competitors, thanks to investments the company is making in its technology, brands and people.

“Heading into 2022, we see tremendous opportunity,” Farner said. “We view the challenging market conditions like a rising rate environment as an opportunity to shine.”

With a stable of personal finance and consumer technology brands that includes Rocket Mortgage, Rocket Homes, Rocket Loans, Rocket Auto and Amrock, Rocket Cos. now describes itself as a “fintech platform company” that’s out to unlock the lifetime value of its clients by offering a range of products and services.

Rocket’s end-to-end platform

Rocket Cos. sees opportunities to generate revenue at each stage of the homebuying process, and beyond. Source: Rocket Cos. investor presentation.

Having grown its loan servicing business by 25 percent over the last year, Rocket says it’s now the nation’s fifth-largest loan servicer, giving it ongoing relationships with 2.6 million homeowners that it collects monthly mortgage payments from.

Rocket’s $1.27 billion acquisition of personal finance app Truebill, announced in December, is an opportunity to not only market real estate services to Truebill’s 2.5 million members, but to “incubate the millions of clients in the Rocket ecosystem in Truebill,” Farner said.

“Rocket and Truebill are aligned in one mission — to remove friction from life’s complex moments,” Farner said. “And the relationship has come together quickly. In fact, our combined IT teams are currently working together to create a single-sign-on solution that will bring the entire rocket ecosystem together through one unified login. We expect this new experience to launch in the next 30 to 45 days.”

Having a single-sign-on solution for Rocket and Truebill “is incredibly important,” for cross-selling, Farner said.

Would-be homebuyers “who may be 7, 8, 9 months out from purchasing a home” can do their budgeting and work on their credit score in Truebill, Farner said. “They can engage with Truebill to save some money, and we keep getting signals as they engage. The app has the ability for us to send push notifications to them that really we don’t have today. And so we keep those purchase clients engaged.”

Rocket is counting on its real estate brokerage and search subsidiary, Rocket Homes, to help bring purchase loan business through the door. In 2021, the company said real estate agents in the Rocket Homes network were involved in a record 33,100 real estate transactions valued at $8 billion.

By the end of the year, 80,000 real estate agents had signed up for Rocket Pro Insight (RPI), a digital platform that keeps agents involved in the mortgage process, from application submission to closing.

Rocket has also expanded beyond its core mortgage business by enabling seamless closings through Amrock, Rocket’s title and settlement services company, which handled 1.1 million closings in 2021, Farner said.

Last fall Rocket announced a partnership with Salesforce, allowing Rocket to offer its mortgage technology to 10,000 banks and credit unions that originate $1 trillion in mortgages a year through Salesforce Financial Services Cloud.

“This is the time when we see our investments in our platform truly pay off. We don’t believe any other company has invested in technology, in brand, in people, in partnerships like we have. The partnerships we have with companies like Salesforce, eTrade, Charles Schwab, State Farm and many others, are built on a proprietary platform that cannot be easily replicated by other lenders or other fintech companies,” Farner said.

To raise consumer of the breadth of Rocket’s services, it’s stepped up its marketing efforts. Rocket’s 2022 Super Bowl ad starring Anna Kendrick and Barbie is one high profile example — it was ranked no. 1 by USA Today’s Ad Meter.

Rocket Homes and Rocket Mortgage 2022 Super Bowl ad

The ad, which touted the benefits of using Rocket Homes and Rocket Mortgage to find and finance a home, “is essential in reminding consumers that in a housing market that has remained highly competitive and inventory constrained, we provide the insight and the tools that help our clients get to the closing table faster,” Farner said. “These include our industry leading home search platforms, and programs like overnight underwrite and Rocket Pro Insight.”

While the end of the refi boom could force other mortgage lenders to lay off workers in order to cut expenses, Farner suggested that won’t be the case at Rocket.

“We’ve invested and will continue to invest in marketing and our brand,” Farner said. “We continue to invest in technology, the thousands of technologists here, writing software that make our systems better, make our mortgages more efficient, make our conversion rates better.”

In an apparent allusion to last year’s layoffs at Better — announced by CEO Vishal Garg over a Zoom call — Farner said: “We’ve got the most skilled operations people here in the United States of America who know how to work and process underwriting close loans. We’ve got the best mortgage banking force in this country, nearly 6,000 or so of those folks. That’s the heartbeat of our organization, right? Everything we have is due to the success of those individuals. And so we’re not gonna have a conference call where all of a sudden we let a group of them know they’re not gonna be working here any longer. That’s just not how we do this.”

Layoffs would make it harder to realize Farner’s ambitious goal to grow Rocket’s share of the overall mortgage market to 10 percent in 2022, with a long-term target of 25 percent market share.

Market share category leaders

Source: Rocket Cos. investor presentation.

Compared to other verticals that are now dominated by online players, such as e-commerce, travel, and tax preparation, mortgage remains “highly fragmented,” Rocket noted in an investor presentation touting the company’s potential to “lead the digital transformation of our industries.”

Although Rocket has its sites set squarely on growing market share, Farner said it won’t grow by engaging in pricing wars.

“As rates rapidly increase our strategy has always been to protect our margin and our profitability,” he told investment analysts. “During time periods like this many lenders will significantly reduce their margin in an effort to sustain production. We have found that this is not a sound strategy for profitability, sustainability and maintaining a disciplined approach towards supporting business long term.”

Rocket, he said, has grown its mortgage business “substantially since the last market cycle by doing the right things — delivering the best client experience in the market (and) investing in a flexible, scalable, multichannel platform that’s always ready to quickly capture opportunity.”

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Email Matt Carter