Based in Detroit Rocket companiesthe parent of Rocket Mortgagesaw its strategy of investing in technology and expanding its service portfolio begin to pay off in the third quarter of 2024. It originated $28.5 billion in loans during that period – up 28% year over year.
The temporary easing of mortgage rates led to a double-digit increase in real estate production and market share gains during this period, executives said. But the company posted a GAAP loss of $481 million from July to September, a figure that was driven by a loss of $878.3 million in the fair value of its mortgage repurchase rights (MSRs).
“Over the past few months, the market has thrown our industry almost every ball imaginable,” Varun Krishna, CEO and director of Rocket Companies, told analysts during an earnings call on Tuesday. “With inflation, i The Federal Reserve reducing rates for the first time in four years. But interestingly, when the Fed lowered rates, mortgage rates did not follow. Instead, both the 10-year Treasury yield and the 30-year fixed mortgage rate actually rose.
“In my experience, it is always important to take the long view and put things in perspective. Although the housing market is challenging, we are seeing signs of recovery. The 30-year mortgage rate is down from about 8% last year. This helps improve affordability and opens up opportunities to refinance to lower monthly payments, and mortgages increased from 3.4 months to 4.3 months.”
Rocket’s GAAP net loss of $481 million from July through September was a reversal of its $178 million profit for the second quarter of 2024, per filing Securities and Exchange Commission (SEC). Adjusted earnings, which exclude non-cash and one-time costs, reached $166 million in Q3 2024, down from $255 million in Q2.
The net GAAP loss also came from a decline in net income, which reached $647 million in Q3, down from $1.3 billion in Q2. Meanwhile, expenses rose to $1.14 billion, up from $1.1 billion in the second quarter.
Operationally, the dip in two-week mortgage rates created a short window for refinancing in Q3 2024, pushing the Rocket’s total to $28.5 billion from July to September – up from $24.6 billion in the previous quarter and $22.1 billion in – Q3 2023.
Its direct-to-consumer channel remains the main driver, generating $14 billion in volume during the period, compared to $12.4 billion in its third-party originator channel.
Net sales margin for Q3 2024 was 278 basis points, down from 299 bps in the previous quarter but almost unchanged from 276 bps in Q3 2023. This was driven by a 410 bps margin in the direct-to-consumer channel. and 147 bps on a third party channel (TPO).
Management expects margin expansion in the fourth quarter, a time when competitors typically adjust pricing strategies around the holidays. According to Rocket leadership, the current limits are approaching the healthy levels seen before the pandemic.
The Rocket Playbook
While the company did not provide full details of the acquisitions versus refinancing business, management reported market share growth in both areas during the quarter.
The opportunity to refinance comes largely from Rocket’s service portfolio, which reached an unpaid principal balance (UPB) of $546.1 billion at the end of Q3. With 2.6 million loans, Rocket’s servicing operations generated approximately $1.5 billion in annual revenue.
Rocket, like its peers, has been busy acquiring servicing equipment. In Q3 alone, it invested $311 million to add $22.4 billion to UPB, bringing its total acquisition of UPB from January to October to $70 billion.
Management expects that portfolio purchases will remain an important funding strategy and opportunities arise from settlement agreements, such as Rocket’s partnership with a real estate investment trust. Annaly Capital Management. The company’s net cash was $8.3 billion as of Sept. 30, including $1.2 billion in cash on the balance sheet.
Rocket has reported an 85% repeat rate for its service portfolio.
The company uses technology to navigate real estate market cycles effectively. Chief Financial Officer Brian Brown told analysts that the company “can support $150 billion in initial volume without adding a single dollar in fixed costs.”
Additionally, Krishna said Rocket Logic, the company’s proprietary loan origination system, now saves more than 800,000 team member hours a year — a 14% increase in just two months — resulting in more than $30 million in annual savings.
Looking ahead, Rocket projects adjusted revenue between $1.05 billion and $1.2 billion in Q4 2024, a seasonally slow period due to the holidays. Administrators said higher loan levels also reduced application rates.
Rocket shares fell 11.3% in aftermarket trading, following the earnings call, to $13.78.
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