Rocket Mortgage wants you to forget about the 2020 refi boom

Detroit heavyweight generated a $6 billion net income last year, down 35% from 2020  

Rocket Companies CEO Jay Farner

No mortgage lender in America capitalized on the pandemic-driven refi boom better than Rocket Mortgage.

The Detroit-based company, with a ready-built infrastructure and top-notch brand recognition, was uniquely positioned to absorb historic mortgage demand as others struggled to get out of the gates. In 2020, Rocket’s parent company notched $9.4 billion in profit on the strength of $320 billion in mortgage originations. Few thought those records would ever be broken.

It’s fitting then that Rocket executives in Thursday’s earnings report opted not to compare the full-year 2021 financials with that of the prior year, which it treated as something of a freak occurrence. They quietly chose to compare 2021 financial results with 2019 results, a fairly normal year for the mortgage industry.

Overall, Rocket reported a $6 billion in profit in 2021, a 35.4% decline from the prior year, even though mortgage originations actually rose to $351 billion, up nearly 10% from 2020. Business also slowed considerably in the fourth quarter, as interest rates ticked up and refis waned. Rocket’s net income fell 69.5% year-over-year to $865 million, which was also a sequential decline of 37%.

Margins declined to 2.80% in the fourth quarter, a sequential decline of 25 basis points and a 161 bps decline from a year prior.

If Rocket executives, who no doubt noticed that the company’s stock had been trading at its lowest mark ever – were worried about a downturn, they didn’t show it.

Jay Farner, CEO of Rocket Companies, said on a conference call with analysts that as rates rapidly increase, the company’s strategy has always been to protect margin and profitability. “In fact, we have grown our mortgage business substantially since the last market cycle by doing the right things,” he said.

Farner told analysts that Rocket has invested heavily in a flexible, scalable multi-channel platform and is still generating significant mortgage volume growth from less rate-sensitive products, such as purchase business and cash-out refinances.

In the fourth quarter, the company reported $75.8 billion in loan originations, down 30% compared to the same period of 2020 and 13% compared to the third quarter of 2021.

Since Rocket brought employees back to the office on February 14, the non rate-sensitive products account for nearly 90% of the mortgage production, Farner said.

Purchase volume grew 76% year-over-year due to focus on a “technology-driven client experience,” the company said.

Regarding the servicing book, the unpaid principal balance increased 35% year-over-year to $552 billion as of December 31. Rocket has 2.6 million clients in the servicing portfolio and generates an annual $1.4 billion in recurring servicing fee income. 

Rocket has invested heavily in diversifying beyond mortgage. Farner said the company will continue its strategy to leverage its platform to grow and scale across real estate, mortgage, and financial services. The acquisition of Truebill, a personal finance app, for $1.3 billion in December, was part of the strategy. 

“Our combined teams are currently working together to create a single sign-on solution that will bring the entire Rocket ecosystem together through one unified login. We expect this new experience to launch in the next 30 to 45 days,” Farner told analysts.

The company expects closed loan volume of between $52 billion and $57 billion for the first quarter of 2022, with a rate lock volume between $50 billion and $57 billion. Executives are forecasting the gain-on-sale margin to be between 2.80% and 3.10%.

Despite the annual decrease in profits, the company board of directors declared a special dividend of $1.01 per share to Class A common stockholders. It will fund with cash distributions of around $2.0 billion. 

“Since our IPO, Rocket has returned $4.5 billion to shareholders through dividends and share repurchases while remaining well-capitalized and investing in a disciplined manner to generate long-term shareholder value,” Farner said. 

Rocket Companies shares closed on Thursday at $11.56, up 4.33% from the prior day. The stocks were down 0.95% in the aftermarket following the earnings report. 

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