Rocket Companies, the parent of Rocket Mortgage, delivered a profit in the first quarter of 2024 through initiatives to reduce costs and increased investments in artificial intelligence (AI). In a contracting market, competitors exiting the space have allowed the company to improve market share and gain-on-sale margins.

Ultimately, the Detroit-headquartered lender reported a 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 Q4 2023, per filings with the Securities and Exchange Commission (SEC). 

On Thursday afternoon, Rocket also reported an adjusted net income of $84 million in Q1 2024, an improvement compared to a loss of $111 million in Q1 2023 and a loss of $6 million in Q4 2023.

Rocket reported adjusted net revenue of $1.2 billion in the first quarter, far exceeding the high end of the guidance range. It was also a sizable increase from $666 million in Q1 2023 and $694 million in Q4 2023. Meanwhile, the company’s expenses in Q1 2024 increased to $1 billion, up from the previous quarter’s $937 million. It was unchanged compared to the same quarter in 2023. 

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

In a call with analysts, Krishna said that both “purchase and refinance market share expanded, showing double-digit percentage growth on a year-over-year basis.” He added that Rocket’s analysis shows that “we took that market share from large industry players and big banks in particular.”

The company doesn’t break out purchase business versus refinances in its earnings reports.

Rocket originated $20.2 billion in mortgages in Q1 2024, up from $17.2 billion in the previous quarter and $16.9 billion in the same quarter last year. Gain-on-sale margins posted for Q1 2024 were 311 basis points, up from the prior quarter’s 268 bps.

“Gain-on-sale margins over the past year have been driven in part by capacity continuing to come out of the system,” said Brian Brown, chief financial officer at Rocket Companies.  

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

Growth in servicing assets

The company’s servicing portfolio, including subserviced loans, was at $511 billion in unpaid principal balance (UPB) at the end of the first quarter. Rocket serviced 2.5 million loans, generating about $1.4 billion in annual fee income. 

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

Executives said the portfolios have loans with a blended weighted average coupon rate above that off the current portfolio. This provides a refinance opportunity when rates decline, and the opportunity to sell home equity loans, cash-out refis and other products. 

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

Brown told analysts that Rocket’s client retention rate in the first quarter was 96%, “which continues to be multiples higher than the industry average retention rate.”  

Rocket — under the helm of Krishna, a veteran in the fintech world — has been focused on technology more than ever before. Last month, the company launched Rocket Logic, a patented AI-driven platform active for calls handled in the servicing and origination sides of the business, including loans sent by mortgage brokers working with Rocket Pro TPO. 

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

“​​The traditional spring purchase season is off to a slow start across the industry. 2024 has turned in the worst March and April for purchase applications in the last 30 years,” Brown said. “Despite the challenging rate and inventory environment, our Q2 guidance reflects our expectation of higher-value positions to take share again in the second quarter.”

Krishna said he sees a “perfect storm” for Rocket to grow market share. That’s because there’s a mortgage industry consolidation and capacity rationalization underway. In addition, banks are reducing their exposure to mortgages, which may become more evident with Basel III Endgame rules. 

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