Rocket delivers record volume in Q3, but execs are tight-lipped on purchase v. refi

Rocket posted closing origination volume of $89B and margins checked in at 4.52%

Back in September, executives at Rocket Companies bragged about delivering a record third quarter, the kind of origination volume no observer or analyst had ever seen before. They weren’t kidding.

Thanks to unprecedented market conditions, shifting demographics and historically low interest rates, Rocket posted closing origination volume of $89 billion, up 122% year-over-year, and rate lock volume at nearly $95 billion, an increase of 101% from the third quarter of 2019.

On the strength of those eye-popping numbers, Rocket cruised to a third-quarter profit of nearly $3 billion, a 506% increase year-over-year.

“Rocket Companies assisted more clients in the third quarter of 2020 than any quarter in our 35-year history,” CEO Jay Farner said on the Tuesday afternoon earnings call.

Rocket, the nation’s largest mortgage lender, easily surpassed its roughly $72 billion in originations from the second quarter. It had forecast between $82 billion and $85 billion in loan originations for the third quarter, with gain-on-sale margins projected between 4.05% and 4.23%. It blew all of those numbers out of the water.

Gain-on-sale margins, notably, checked in at 4.52%.

Executives on the Tuesday earnings call attributed the prosperous quarter to gains in the direct-to-consumer channel, investments in technology, and a bevy of strategic partnerships, some of which were just announced in the third quarter.

The Detroit-based company entered a marketing partnership with News Corp’s real estate portal, integrated a mortgage program through fintech app Mint, and bought a Canadian fintech firm. (Farner also said Rocket would have another major partnership to announce in the first quarter of 2021.)

Though analysts asked Farner and CFO Julie Booth to break down the share of purchase volume versus refinance volume, they declined to do so. (In its S-1, Rocket revealed that in 2019 just 27% of its loans were purchase.)

“We’re not disclosing that and the mix between the channels,” Booth said Tuesday.

However, Farner noted that the third quarter was “one of the strongest purchase quarters” and that Rocket issued more verified approval letters to clients in Q3 than any prior quarter in company history. He further said that the purchase business was driven by Millennials who prefer a digital mortgage experience.

According to the earnings statement, Rocket’s direct-to-consumer channel originated $53.6 billion in funded loan volume during the third quarter, with a gain-on-sale margin of 5.78%. It contributed to $3.3 billion in revenue in the third quarter.

Meanwhile, its partner network, which includes referrals from Charles Schwab and State Farm Insurance as well as mortgage brokers, generated $29.6 billion in funded loan volume during the third quarter. The gain-on-sale margin was 2.70%, and it contributed to $1.2 billion in revenue.

Farner also disclosed that the company would be buying back $1 billion in its Class A stock, which was trading at $21.60 at the close of business on Tuesday.

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