Last year, Rocket Mortgage, America’s top mortgage lender, benefited greatly from record low mortgage rates — racking up more than double the refi volume of any lender. 

But with rates rapidly climbing past the 7% level, the Detroit-based lender is now in a tough spot as it attempts to pivot to purchase mortgages and persuade its customers to get cash-out refis – all while trying to cut costs through voluntary buyouts and attrition, the Wall Street Journal reported in a deep dive published Tuesday.  

Rocket is expected to post a loss in the third quarter, its first since going public in August 2020, and lose the title of largest originator to its rival, United Wholesale Mortgage, according to FactSet and Inside Mortgage Finance.

IMF forecasts Rocket to have originated roughly in the middle of the $23 billion and $28 billion range it predicted in the third quarter. UWM is expected to top that figure, generating $30 billion this quarter. Mortgage originations at Rocket declined 36% to $34.5 billion in the second quarter from the previous quarter as rates skyrocketed. 

Here is a breakdown of the Journal’s deep dive into Rocket’s current challenges.

Relationships with real estate agents

Throughout 2020 and 2021, all mortgage lenders enjoyed the low-hanging fruit of refinancings, considered a relatively easy source of income. But when refis dried up, one major stumbling block for refi-heavy Rocket was the lack of relationships with its bankers and real estate agents, who bring in business for lenders, the Journal reported. 

Many real estate agents preferred to work with local lenders they knew, and would tend to only send to Rocket the clients who couldn’t qualify elsewhere, Katie Glover, a former Rocket banker, told the Journal. 

Glover spent a few months last year writing mortgages on a team that was intended to establish relationships with real estate agents. Her team disbanded and she left the industry.

According to Rocket, the lender has more than 100,000 agents who use its two-year-old service, which allows them to check on the status of clients’ loans and get contact information for team members, the Journal reported. 

Cash-out refis, new products

In a purchase-heavy market, Rocket in August became an exclusive preferred mortgage provider for Santander Bank customers. In September, it introduced a rate buy-down program, dubbed “inflation buster,” which reduces homebuyers’ monthly mortgage payments by one full percentage point for the first year of their loan. Lenders, including UWM, have rolled out similar rate buy-downs in a surging rate environment, which are intended to give borrowers a reprieve from high inflation and affordability challenges. 

Rocket has also focused on offering cash-out refis to homeowners, taking advantage of record home equity levels that ballooned during the pandemic.

Refinancing can lower the monthly mortgage payment, but these days it also carries a higher rate and extends the loan term, which potentially increases the total interest cost. Homeowners who obtain cash-out refis and then miss their payments are putting themselves at a foreclosure risk because the home serves as collateral with cash-out refis. 

Colin Wyzgoski, former banker at Rocket, said he was instructed to tell clients that a higher interest rate was fine because they could refinance again when rates drop (a common sales strategy for many lenders in the current environment). Wyzgoski told the Journal that he was instructed to look through potential clients’ financial records and find upcoming expenses so he could push homeowners to consolidate into their mortgages through a refi. 

“It’s a common ARP,” Wyzgoski said, referring to a sales tactic known internally as “acknowledge, respond, pivot.”

State and federal regulations require homeowners to benefit from refinancing, but these regulations provide borrowers flexibility in determining what is beneficial. Rocket Mortgage’s CEO Bob Walters said customers get to decide what is right for their own finances. 

Wyzgoski quit in August after taking time off due to work-related stress.

A strained workforce

While the lender offered multiple voluntary buyouts this year, remaining employees reportedly faced intense pressure to bring in business. (This is also not uncommon in the industry given the decline in origination volume.)

Internal emails acquired by the Journal include a note that states: “We are not in a world or market where we can withdraw because we get a no today.”

Another email to Rocket’s mortgage bankers stated: “You are surrounded by success,” mentioning a refinance banker made over $50,000 in February from 44 loans.

“FIRE UP and GRAB IT!” the memo said. 

Rocket told the Journal it has made changes – lifting hourly pay for new bankers and per-loan commissions for seasoned bankers. An average banker works up to seven hours less per week this year compared to 2021 and sales goals have been lowered, the company said. 

“When it’s good, they encourage you to come in to make even more sales,” Amanda Womack, a former employee at Rocket, told the Journal. “When it’s bad, they encourage you to come in because you’re not making money for the company.”

Womack started at Rocket in early 2021 but left the lender in July.