Rocket Companies, the parent of Rocket Mortgage, wasn’t immune to the headwinds the industry is facing as it reported a GAAP net loss of $390 million in 2023 and an adjusted net loss of $143 million. Yet the company still captured market share, a testament to how poor the mortgage business has been over the last 18 months.
Rocket reduced its cost structure in 2023 and 2022 by double digits but lower origination volume failed to keep the company profitable as the mortgage industry is still going through a brutal cycle.
The Detroit-headquartered lender reported a GAAP net loss of $233 million in Q4 2023, following a GAAP net gain of $115 million in Q3. Rocket posted an adjusted net loss of $6 million in the final quarter of last year, a decline from the $7 million adjusted net gain in the previous quarter.
The adjusted net loss for full year 2023 was $143 million, a touch bigger than the $137 million loss posted in 2022, marking a second straight year of not being profitable.
But Varun Krishna, CEO and director of Rocket Companies, noted its growth in market share during a difficult year for mortgage lenders and spared a decent amount of time highlighting the company’s priority in AI going forward.
“I’m proud to share that we grew market share in both purchase and refinance annually. Purchase market share grew by 14% and refinance market share grew by 10%, from 2022 to 2023,” Krishna told analysts in Rocket’s Q4 earnings call.
“By leveraging AI we will transform an industry that is ripe for innovation, establishing Rocket as the premier choice for clients and partners, including local real estate agents, mortgage brokers, and financial institutions.”
Rocket originated $17.3 billion in mortgages in Q4 2023, down from $22.2 billion in Q3 2023. The fourth-quarter production represents a decline of about 9% compared to the $19 billion volume in Q4 2022. Gain-on-sale margins posted for Q4 2023 were 268 basis points, down from the previous quarter’s 276 bps.
For the entire year of 2023, Rocket generated $78.7 billion in closed loan volume, down from $133.1 billion in 2022.
By channel, Rocket reported $10.3 billion in closed loans through its direct-to-consumer channel in Q4 and $8.5 billion through its third-party originator (TPO) channel, its conduit to mortgage brokers that has historically been a stronger source of purchase business. The company doesn’t break out purchase business versus refinances in its earnings reports.
Rocket’s “AI-fueled homeownership strategy“
AI will impact the industry across mortgage banking, underwriting and servicing, Krishna highlighted.
In Q4, Rocket piloted an AI virtual assistant with 325 mortgage bankers for outbound client calls. The virtual assistant automatically transcribes, summarizes and populates hundreds of crucial application fields hands-free in real-time, enabling bankers to be more productive, noted Krisna.
Nearly two-thirds of income verification were automated at Rocket in December, which thus far, posted zero audit findings.
About 70% of Rocket’s servicing calls and chats are fully self-served without the need of team member assistance which enables team members to address issues that require a human touch.
Rocket’s next objective is to expand AI to other areas of the business that will drive enhanced client experiences and operational efficiency.
“We expect to continue growing market share through our AI-fueled homeownership strategy and by driving scalable revenue growth and profitability,” said Brian Brown, chief financial officer at Rocket Companies.
The company — under the helm of Krishna, a veteran in the financial technology world — has been focused on technology more than ever before.
Rocket’s efforts to become a fintech company includes onboarding Alastair (Alex) Rampell to its newly created board of director position.
Alex, who co-founded several fintech firms including Affirm, is expected to provide his insight as the company continues to pursue its mission of AI-powered homeownership, Dan Gilbert, founder and chairman of Rocket Companies, had said at the time of his appointment.
Rightsizing continued at Rocket
Rocket reported net revenue of $694 million in the fourth quarter, a sizable decline from a total of $1.2 billion in Q3 2023. The company’s expenses in Q4 dropped to $937 million from the previous quarter’s $1.08 billion.
All in all, Rocket posted revenue of $3.8 billion in 2023, a drop from $5.8 billion in 2022. Expenses dropped to $4.2 billion last year from the previous year’s $5.1 billion
“2023 was about doing the difficult but necessary work to right size the business but it was also about narrowing our focus,” said Brown.
The company reduced its cost structure by nearly 20% in 2023 in addition to a nearly 25% reduction in 2022.
In 2023, Rocket sunset projects that did not meet its expectations — including shutting down Rocket Auto and Rocket Solar.
“More recently, after conducting a review of our entire portfolio of projects, we cut the list by more than 80%, which helped reduce costs, but more importantly it freed up resources to work on the core business,” Brown said.
Poised for growth in 2024
The company expects to post an adjusted revenue of $925 million to $1.08 billion in the first quarter of 2024, the midpoint of which would represent a 13% increase quarter over quarter.
“This sequential improvement demonstrates notable strength as the industry typical seasonality calls for a double digit decline in origination volume from the fourth quarter to the first quarter,” Brown said.
“It’s a bit of a survival of the fittest dynamic with winners taking most. We grew market share in double digits in both purchase and refi. We feel very good about our position in terms of our assets and our endurance. So we’re confident on building on those gains,” noted Krishna.
Rocket reported $9 billion in liquidity as of Dec. 31, 2023 — including $1.1 billion in cash — up from $8.7 billion in liquidity in the previous quarter.
The unpaid principal balance in its servicing book increased to $509 billion as of Dec. 31, compared to $506 billion at the end of Q3 2023.
Rocket has 2.5 million clients and generates $1.4 billion annually in recurring servicing fee income.
Rocket expects operating expenses in Q1 to be slightly lower compared to the same period in 2023 due to savings realized from its operation efficiency efforts that were implemented last year.
“We are optimistic about market conditions improving from 2023 industry. Forecasters expect the size of the mortgage origination market to grow by north of 30% in 2024. But regardless of what the market does, we expect to continue growing market share, through our AI-fueled homeownership strategy, and by driving scalable revenue growth and profitability,” said Brown.
