On earnings debut, Rocket reveals plans to dominate the U.S. mortgage market

Company turned $3.5B in profit in Q2, and is forecasting an even better Q3

Even through a conference call, you could tell that Rocket Companies executives were smiling. 

A year ago, as a private company, Rocket had posted a loss of $54 million in the second quarter. But in the second quarter of this year, Rocket turned a $3.5 billion profit on revenue north of $5 billion.

It’s a stunning ascent for the 35-year-old Detroit-based company led by billionaire Dan Gilbert. Rocket, formerly known as Quicken Loans, now sports a market cap of $62 billion, bigger than even General Electric.

And Rocket is scaling up to meet a very ambitious goal, one that would propel it into the upper-echelon of America’s largest companies: capturing 25% of the U.S. residential mortgage market by 2030. 

“Record low interest rates are driving demand for home loans, and the power of our platform is proving a key differentiator for Rocket Mortgage,” CEO Jay Farner said on the earnings call Wednesday. 

Rocket, the nation’s largest residential mortgage lender, tallied $72 billion in loan origination volume during the second quarter, up 126% year-over-year. Gain-on-sale margins jumped to 5.19%, up nearly two percentage points from the first quarter. 

“Our ability to scale volume at these elevated margins led to substantial incremental profitability in the quarter,” said Farner. “While second quarter gain-on-sale margins were certainly elevated by historical standards, this is exactly the kind of market environment we built our platform to perform in.”

Company executives are projecting an even better third quarter: they’re forecasting between $82 billion and $85 billion in loan originations, with gain-on-sale margins between 4.05% to 4.3%.

“The purchase market, in particular, continues to recover following COVID-related disruption in the second quarter,” Farner said. “In fact, we expect the third quarter to be one of our best for purchase origination volume ever at Rocket Mortgage. Demand for a completely digital experience has never been stronger and Rocket is delivering.”

Responding to questions from analysts, executives said they expect trillions of dollars in mortgages could be refinanced and it might take two to three years to work through that volume. “It’s going to be a capacity game,” said COO Bob Walters. “The market is there for the taking.” 

Farner also said Rocket was able to scale more aggressively than competitors due to its tech stack and business model, which he said is far more efficient because it doesn’t require disproportionately high headcounts. 

“Our goal is to have a platform that can close $40 billion [in loan volume] a month,” he said. “There are a lot of folks that might go from 5,000 loans to 10,000 loans or 10 to 15. But to go from where we were 50,000 or 60,000, to over 100,000… is really a challenge. So we find a lot of our competition getting stuck somewhere along the way. That benefits us in that we’re able to continue to scale.”

Stats at a glance: 

  • Closed loan volume of $46.8B in direct-to-consumer channel was up 143% year-over-year. 
  • Net rate lock volume of $92B significantly exceeded closed loan volume in the second quarter. 
  • Gain-on-sale margins increased to 5.19% from 3.25% in Q1. Gain-on-sale margins in direct-to-consumer channels were 5.09% and 2.1% in the Partner Network.
  • Partner Network contributed to $19.7B in closed loans, compared to $11.2B year-over-year. 
  • About 5.1% of the servicing portfolio was on a forbearance plan related to Covid-19 as of June 30.
  • Title insurance business Amrock processed more than 240,000 transactions in Q2, up 45% from Q1 and 171% year-over-year
  • Total expenses rose to $1.6 billion in Q2, about 24% from the prior quarter. Executives attributed the increase due to paying commissions on more loan volume. 
  • About 46% of closed volume came from the servicing book, and Rocket claimed to have an 80% retention rate on those loans.
  • Company has about $1.7B in cash on hand. Executives spoke of potentially looking into acquisitions on the call.

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