This week a Quicken Loans SEC filing confirmed the company will IPO with Rocket branding, as I predicted in HousingWire last month. Below, I explain why this is important, what it means for consumers and key things all mortgage pros must know about this milestone event in our industry.
1. Rocket Brand Power Is Real For Consumers
The Quicken Loans/Rocket Mortgage machine had 20.2 million interactions with prospective clients in 2019, which is 80% more than it had in 2014. You’ll recall Rocket Mortgage was launched as the company’s digital mortgage brand in October 2015, and that’s when it began an aggressive brand push. From 2015 to 2016 alone, that brand push increased prospective client interactions from 11.7 million to 16 million.
Interacting with this many leads led to becoming America’s top retail mortgage lender two years ago – and the company held that slot – funding $145 billion in originations in 2019 and $51.7 billion Q1 2020.
The company has spent $5 billion since founding on marketing, including $900 million in 2019 alone, with a huge emphasis on Rocket. Now the “Rocket” brand is official with a ‘Rocket Companies’ branded IPO.
Consumer adoption is plain in the lead and volume stats above as well as in branded property stats. They created RocketMortgage.com from nothing in 2016, and the site had 73.8 million visits in 2019. Rocket advertising ubiquity has not only made Rocket Mortgage synonymous with push-button digital mortgages, it fills the funnel – which isn’t just a funnel, it’s end-to-end digital lending infrastructure.
2. Rocket Brand Might Also Fuel Fintech Valuation
Now, the Rocket brand will go deeper into four additional areas: Rocket Homes for home sale and search, Rocket Auto for car buying, Rocket Loans for personal loans, Rock Connections for client service and engagement.
From a revenue standpoint, Homes, Auto and Loans are small contributors, but these businesses have potential and Rocket Connections is the marketing glue that holds it all together and could give this IPO a fintech valuation.
The SEC filing placeholder said the company aims to raise $100 million, but it’ll likely be several multiples of that. I’ll expand on this and stats on other Rocket businesses after the IPO prices.
3. Quicken/Rocket Can Refi Billions Imminently. Can You?
Quicken/Rocket funded $51.7 billion in loans in Q1 2020 with an average loan amount of $277,000, average loan-to-value ratio of 73%, average credit score of 747, and a weighted average rate of 3.57%.
These stats are staggering given that rates on such high quality profiles are almost a half a percent lower now. It tells us two things:
- The rest of 2020 for Quicken/Rocket and the industry is going to be one for the ages as we keep racing to get homeowners in line with record low rates. Just watch those EPOs!
- The value of loan servicing won’t be as high as some think until this plays out. Originators are partly right to think today’s fundings have rich servicing values, but buyers of mortgage servicing rights won’t pay premiums until some of this margin comes out of the system.
4. Mortgage Company Founders Can Retain Control After Dealmaking
Dan Gilbert is a founder’s founder. In addition to the Quicken/Rocket brand family, he’s also got 110+ other companies in the Rock Holdings mothership, including sports and consumer mainstays like the Cleveland Cavaliers, Dictionary.com, and StockX.
The Quicken/Rocket SEC filing shows synergistic relationships between Rocket Companies and Rock Holdings companies will continue as usual.
Also, the IPO will use a share class structure that preserves 79% control of the company for Gilbert, which means he can control shareholder actions and who’s on the board.
The IPO set off mortgage M&A talk this summer, and too often mortgage deals are viewed as capitulation by active and engaged founder-operators.
Meanwhile, everywhere else in fintech, any and all deals are celebrated as victories.
As mortgage dealmakers, we should take our cues from the fintech community and view dealmaking as a positive. Especially if, as Gilbert is demonstrating, you can maintain control if you want to.
I hope this encourages more founders to explore smart deals.
5. Well Paid Execs Play The Long Game
Quicken Loans CEO Jay Farner made a $650,000 base salary and a $11,075,567 bonus last year. Decent for a 47-year-old financial exec, until you consider he helped build and now runs America’s top mortgage lender.
The real money is in building enterprise value, and participating in that value via equity in the company.
He’s been with the company for 24 years, and 24 years is the average tenure for the core executive team. Farner and team deserve their forthcoming equity compensation for playing the long game.