FintechMortgage

Quicken Loans IPO would set fintech valuation tone and make mortgages cool again

An IPO could value Quicken Loans in the tens of billions of dollars

A Quicken Loans IPO valuing the company in the tens of billions may be imminent.

If true, this is huge for two reasons: as America’s largest mortgage lender, Quicken Loans would set the challenger bank valuation tone, and being public would give other fintech disruptors an important lens on the most complex consumer finance product.

Let’s break it all down, including whether an IPO brand might be Quicken or Rocket.

Top Challenger Banks Becoming Incumbents

Here’s how challenger banks have evolved as the fintech disruption cycle has matured:

  • Tout how [insert consumer finance products here] are broken, and you’re going to fix it.
  • Launch with a single product like personal or student loans, deposits or asset management/trading.
  • Raise hundreds of millions of dollars.
  • Use most of that funding to acquire millions of customers by telling them you’re better than a bank.
  • Raise hundreds of millions more dollars on multi-billion dollar valuations.
  • Expand into other products.
  • Become a bank.
  • Or be acquired by a bank if your valuation isn’t too lofty.
  • Or warm to IPO prospects if other IPOs play.

Top challenger banks are accelerating as COVID-19 plays out, and they’re rapidly becoming incumbents. A few examples:

  • Robinhood fundraising and user growth are off the charts despite early-COVID-19 outages.
  • Revolut has also raised crazy money, built its management team, hit 12 million customers, and launched a super app to integrate more banking services.
  • Chime won the day on rapid-response to get COVID-19 stimulus checks to people early.
  • Varo is this close to being a full fledged bank.

These and other fintech leaders have done a lot for how young they are.

Now the question is whether they can meet customers’ lifelong budgeting, saving, borrowing, and investing needs. Part of the answer lies in the complexity of scale mortgage lending, which Quicken Loans mastered over the last 35 years.

Is Quicken Loans Seriously America’s Largest Mortgage Lender?

In 2019, Quicken Loans funded $145.8 billion in mortgages overall (per Inside Mortgage Finance), placing it second behind Wells Fargo’s $201.8 billion in overall funded volume.

Julian Hebron
Columnist

And on IMF’s 2019 retail-only mortgage fundings list (which excludes certain sales channels), Quicken Loans funded $142.8 billion placing it above Wells Fargo’s $94.25 billion. Plus, Quicken Loans beat Wells in overall mortgage fundings for Q1 2020 ($61.7 billion vs. $47.6 billion).

Do you have any idea how hard it is to fund that many mortgages in a year?

To put this in perspective, when Zillow entered the mortgage business last year, its five-year Wall Street guidance pencils to about $7 billion in annual fundings, and the company is nowhere near that after 18 months, even with all its marketing muscle.

Sprawling federal and state regulations in both housing and banking/lending make mortgages the gold standard of difficulty in consumer finance. Gathering deposits or doing student and personal loans is a breeze compared to mortgages. As I said recently in this column:

“It’s way harder than it looks to fund even $5 billion. It gets exponentially harder when you go above $10 billion, and then again for $20 billion. Then if you almost double that again, you’re in the nation’s top 10 mortgage lenders, all of which took one to three decades to build organically and through mergers and acquisitions.”

Quicken Loans is a good example here.

Quicken Loans IPO After Decades Of Innovation?

Dan Gilbert founded Quicken Loans in 1985 as a branch-based mortgage lender, then sold to Intuit in 1999.

Yes, the same Intuit that bought Credit Karma for $7.1 billion just before COVID-19 hit America.

Yes, the “Quicken” part of Quicken Loans’ brand has been licensed from Intuit all these years.

And yes, this is one of the reasons I still believe Quicken Loans should just rebrand to Rocket once and for all – and may do so with an IPO (more on this below). 

But back to the timeline…

In 1999, Quicken Loans made an early pivot from branch-based to internet-based lending. This made them way more nimble through years of re-regulation after the 2008 crisis.

The biggest consumer protection regulation deadline of all (TRID, aka The Reason I Drink) came in October 2015.

Other lenders spent years and most resources scrambling on TRID, but it was a breeze for Quicken Loans, and they launched Rocket Mortgage the very next month in November 2015.

This gave them a multi-year jump on modernizing mortgages and growing market share.

The rest is history. America’s largest mortgage lender. Critical lessons on scale fintech marketing. And a core executive bench that’s been schooling the industry for decades.

What Goes Into A Quicken Loans IPO Valuation?

Mortgage-only shops are great cash flow businesses for owners, but mostly don’t have fintech-like valuations because of the highly cyclical rate market.

An IPO could value Quicken Loans in the tens of billions of dollars, setting a new tone for valuations.

Being a consumer-direct category leader with proprietary tech and a household-name brand would certainly bring fintech sheen to a Quicken Loans IPO.

They’ve spent billions building both Quicken Loans and Rocket Mortgage brands, and my money is on a Rocket IPO that includes Rocket Mortgage for home loans, Rocket Homes for home buying/selling services, Rocket Loans for personal loans, and Rocket HQ for credit monitoring and financial advice.

Loan servicing may help valuation too. As rates bottom in 2020, today’s mortgages are less likely to pay off, making servicing more valuable.

Quicken Loans services $343.6 billion in mortgages as of 1Q 2020. While this pales in comparison to top-ranked Wells Fargo’s $1.38 trillion in servicing, it’s still a strong base.

And Quicken Loans funded $61.7 billion in Q1 2020 alone, so you can see how they could grow a servicing portfolio of record low rates fast if they wanted to.

Then of course, there’s the multi-billion dollar question for Quicken Loans — and other top mortgage lenders and challenger banks.

How Soon Will Quicken Loans & Challenger Banks Have Full Product Sets?

Scale customer acquisition is one key reason top VC-backed challenger banks have multi-billion dollar valuations. Get millions of customers now, expand the product set later.

To date, no challenger bank has made meaningful progress expanding to mortgage because it’s a much harder product and compliance game at scale.

Yet Quicken Loans was a customer acquisition big dog years before the current crop of hot challenger banks. And the core Quicken/Rocket companies are super deep in the customer’s home buying, financing, improving, selling, and financial management journey, which does three things:

  1. Diversifies revenue
  2. Makes core mortgage products stickier
  3. Lets them repurpose proprietary technology for non-mortgage products

Therefore, it’s arguably easier for top mortgage firms to expand into non-mortgage products than for top challenger banks to expand into mortgages.

When America’s fifth-ranked retail mortgage lender loanDepot was close to an IPO back in 2017, founding CEO Anthony Hsieh summarized this thesis with a catchphrase: 

“We’ve got to make mortgages cool again.”

Hsieh’s point then and now is that certain sophisticated mortgage-first firms are worthy of fintech valuations.

Now it looks like we might finally find out.

And if we do get a Quicken/Rocket IPO, challenger banks will find out more about the scale mortgage playbook.

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