As the shifting mortgage lending environment continues to deal blows to players of all sizes in the sector, Rocket Companies, the parent of Rocket Mortgage, reported significant losses in the third quarter.
Rocket reported total revenue of $1.3 billion in its latest earnings, dropping more than 40% from the same period last year. The company also saw a significant decline in its net income, tallying just $96 million compared to nearly $1.4 billion in Q3 2021.
The company also reported an adjusted net loss of $166 million in the third quarter, posting its first unprofitable quarter since going public.
During a Thursday call with investors, Rocket Companies CEO Jay Farner acknowledged the “challenging times” the mortgage industry has faced as mortgage rates have climbed beyond 7% this year.
“Housing affordability is at a 30-year low, and weakening consumer sentiment is leading to a rapidly deteriorating home purchase market,” Farner said. “While we typically see lower demand for purchase transactions in the fourth quarter, the sequential decline the industry is experiencing has been even more pronounced due to overall market weakness.”
Lenders have struggled as mortgage originations have waned over the past year—particularly refinances. Rocket was no exception, as the company generated $25.6 billion in mortgage volume in the third quarter, down 71% from the $88 billion it generated as the mortgage industry experienced its sugar highs of 2021.
That’s par for the course as the lending industry has seen mortgage applications dwindle to their lowest levels since the mid-1990s, according to Farner, who cited data from the Mortgage Bankers Association during the conference call.
Despite the hurdles facing the mortgage industry, Farner and Rocket CFO Brian Brown claimed that the Detroit company would come out the other side better in the long run.
“These cycles are nothing new for Rocket,” Farner said, touting the company’s 37-year history of weathering highs and lows in the market.
“Each time we’ve been nimble, pivoting and operating with flexibility and thoughtfulness that allow us to capitalize with every market shift, and each time, we’ve also invested heavily in strategies that provide us with a deep competitive advantage when the market corrects,” he added.
Despite declining performance in the third quarter, Brown highlighted that Rocket’s results hit the market within its guided range for closed loan volume, net rate locks and gain on sale margin.
He also touted the company’s strength on its balance sheet as a “major strategic advantage” as it weathered the current market conditions.
“We ended the third quarter with $4 billion of available cash and $7.3 billion of mortgage servicing rights,” he said. “Together, these two assets represent a total of $11.3 billion of value on our balance sheet, equating to more than $5.50 per share.”
While they refrained from discussing Rocket’s quarterly declines during the call, Farner and Brown touted some of the company’s new products that they expect to carry the company through the turbulent times.
In September, the company launched its Inflation Buster program, which reduces a homebuyer’s monthly mortgage payment by one percentage point in the first year of their loan.
Since launching the product, Farner said that it has “resonated with homebuyers” while also pairing well with the company’s Rate Drop Advantage Program, which covers much of the cost to refinance in the years ahead if rates fall.
He also highlighted Rocket Money—formerly known as Truebill—and Rocket Rewards, the company’s newly launched loyalty program that distributes points toward financial transactions across the Rocket Platform.
The program provides clients points for taking specific actions such as applying for a pre-qualified approval letter, utilizing mortgage affordability calculators or reading informational articles about the home purchase process.
Farner said that more than 70 million points were awarded to new and existing Rocket clients for completing over 17,000 activities in the first three days of the program’s existence.
“Rocket Rewards will continue to create real value for first-time homebuyers where affordability is the biggest challenge to achieving their goals,” Farner said.
Looking ahead, Rocket expects the following ranges in for the fourth quarter 2022:
- Adjusted revenue of between $600 million to $750 million
- Closed loan volume of between $17 billion and $22 billion
- Net rate lock volume of between $15 billion and $21 billion
- Gain on sale margins of 2.3% to 2.6%
“In these turbulent times, we remain focused on fulfilling our mission to be the best at creating certainty in life’s most complex moments so that our clients can live their dreams,” Farner said.
