Rocket reports $291 million in profit amid improved margins and MSR acquisitions

Rocket companiesthe parent of Rocket mortgage, delivered profits in the first quarter of 2024 through cost-cutting initiatives and increased investments in artificial intelligence (AI). In a shrinking market, competitors leaving the space have allowed the company to gain market share and increase margins on sales.

Ultimately, the Detroit-headquartered lender reported GAAP net income of $291 million from January to March, following a GAAP net loss of $411 million in the first quarter of 2023 and a loss of $233 million in the fourth quarter of 2023, per filing at the bank. Securities and Exchange Commission (SEC).

On Thursday afternoon, Rocket also reported adjusted net income of $84 million in the first quarter of 2024, an improvement compared to a loss of $111 million in the first quarter of 2023 and a loss of $6 million in the fourth quarter of 2023.

Rocket reported adjusted net sales of $1.2 billion in the first quarter, well above the upper end of expectations. It was also a significant increase from $666 million in the first quarter of 2023 and $694 million in the fourth quarter of 2023. Meanwhile, the company’s costs rose to $1 billion in the first quarter of 2024, up from $937 million in the previous quarter. It was unchanged compared to the same quarter in 2023.

“We accelerated revenue growth for the third quarter in a row and achieved our highest profitability in two years,” said Varun Krishna, CEO and director of Rocket Companies, in a prepared statement.

In a call with analysts, Krishna said that both “market share for purchases and refinances increased, registering double-digit percentage growth year-over-year.” He added that Rocket’s analysis shows that “we have taken that market share from major players in the industry and from major banks in particular.”

The company does not distinguish between purchase activities and refinancing in its earnings reports.

Rocket originated $20.2 billion in mortgages in the first quarter of 2024, compared to $17.2 billion in the previous quarter and $16.9 billion in the same quarter last year. Sales margin gains for the first quarter of 2024 were 311 basis points, up from the previous quarter’s 268 basis points.

“Last year’s profit-on-sales margins are partly due to more and more capacity coming out of the system,” said Brian Brown, chief financial officer at Rocket Companies.

By channel, from January through March, Rocket reported $9 billion in loan originations through its direct-to-consumer channel and $7.7 billion through its third-party originator (TPO) channel, its channel to mortgage brokers that has historically been a stronger source of purchase. company.

Growth in maintenance assets

The company’s servicing portfolio, including subordinated loans, totaled $511 billion in unpaid principal (UPB) at the end of the first quarter. Rocket managed 2.5 million loans and generated approximately $1.4 billion in annual fees.

The company has been actively acquiring maintenance assets. It acquired four mortgage servicing rights (MSR) portfolios for $110 million in March and April, adding $8.2 billion to UPB.

Executives said the portfolios include loans with a blended weighted average coupon rate higher than the current portfolio. This provides a refinancing option when interest rates fall, and the ability to sell home loans, cash-out refis and other products.

Home equity products are also on the rise at Rocket, the company claims. Volumes have more than tripled compared to the same period last year, “providing us with a springboard to consolidate a customer’s first and second lien mortgages as interest rates decline in the future,” Krishna told analysts.

Brown told analysts that Rocket’s customer retention rate in the first quarter was 96%, “which is still multiples higher than the industry average retention rate.”

Rocket – led by Krishna, a veteran of the fintech world – is more focused on technology than ever. Last month, the company launched Rocket Logic, a proprietary AI-powered platform that powers phone calls handled on the servicing and origination side of the business, including loans sent by mortgage brokers partnered with Rocket Pro TPO.

Looking ahead, the company expects adjusted revenue between $1.075 billion and $1.225 billion in the second quarter of 2024.

“The traditional spring purchasing season is slowly starting throughout the sector. 2024 has turned out to be the worst March and April for purchase requests in the last 30 years,” Brown said. “Despite the challenging interest rate and inventory environment, our second quarter guidance reflects our expectation that higher value positions will regain market share in the second quarter.”

Krishna said he sees a “perfect storm” for Rocket to grow its market share. That’s because mortgage industry consolidation and capacity rationalization are underway. In addition, banks are reducing their exposure to mortgages, which could become even clearer with the Basel III Endgame Rules.

Also the National Association of Real Estate Agents‘ (NAR) nationwide settlement of commission lawsuits offers “the opportunity to change the home value equation and pave the way for a better experience for both home buyers and sellers,” Krishna added.