Mortgage

Rocket expects decrease quantity throughout shopping for season

While forecasting declining mortgage originations ahead, Rocket Cos. Vice Chairman and CEO Jay Farner used the company’s first-quarter earnings call to continue the war of words with United Wholesale Mortgage, claiming his business was the most popular brand in the channel.

“For the first time, Rocket Pro TPO has gained the title of No. 1 most favored brand among mortgage brokers for its account executives and operations support, according to a brand health study conducted by a third- party firm,” Farner said in his latest broadside. “This speaks to our commitment to helping our broker partners succeed and grow.”

A request for further details about that survey was not returned by press time. The battle between the two companies celebrated its first anniversary in March and shows no signs of abating.

Still, like UWM, Rocket is expecting second-quarter origination volume to be lower on a quarter-to-quarter basis despite the current spring home purchase season.

Rocket originated $54 billion during the first quarter at a gain on sale of 301 basis points. That was down from $75.8 billion in the fourth quarter at a 280 bps margin. However, in the first quarter of 2022, management enhanced the margin by 15 bps because of the rapid increase in bond yields. In the first quarter of 2021, Rocket produced $103.5 billion at a margin of 374 bps.

Rocket Pro TPO’s volume of $26 billion was down from $30.3 billion in the fourth quarter and $40.7 billion one year ago. Its GOS of 91 bps was higher than the 79 bps earned in the prior quarter but down from 193 bps in the first quarter of 2021. Most, but not all, of the channel’s production comes from mortgage brokers and Rocket historically has not broken out that information.

By comparison, UWM originated $38.8 billion in the quarter (at a 99 bps gain on sale), all of it from mortgage brokers. In the fourth quarter, it originated $55.2 billion (80 bps) and during the first quarter of 2021 it logged $49.1 billion (219 bps).

Rocket, like UWM, is expecting lower production from all its channels, guiding to closed loan volume between $35 billion and $40 billion for the current three-month period. Its GOS of between 260 bps and 290 bps is flat with the first quarter if that 15 bps from the changes in the bond market is taken out, said Julie Booth, chief financial officer.

Rocket earned $1.03 billion in the first quarter, compared with $865 million in the fourth quarter and $2.78 billion in the first quarter of 2021.

When asked about the guidance, as well as the headcount reduction at Rocket, Farner said he was telling company employees that the market is in the “third inning” of the shift. On April 25, Rocket announced internally that it would be offering a buyout to 8% of its mortgage and title workforce, which would reduce headcount by 2,080.

“You’ve got to have a long-term view while you’re taking short-term actions to ensure that the company is set up for success,” he continued. On the defensive side, “get your expenses in order and ensure that you’ve got a tight grasp on everything you’re spending and it’s the right place to put your dollars.”

But Rocket’s expectations for the current quarter are much lower than others had forecast.

“The guidance came in weaker than us/consensus, especially on volume,” Bose George, an analyst at Keefe, Bruyette & Woods, said in a report. “However, we are not all that surprised given the recent move in rates.”

KBW previously predicted Rocket would produce $58 billion in the current quarter, while the consensus was at $60.6 billion. But the gain-on-sale outlook was in line with KBW’s 280 bps and the consensus 296 bps.

“Rocket has begun to take cost reduction measures and the volume guide suggests that the company will not chase volume at lower margins,” George said.

Rocket expects to take a one-time charge in the second quarter of between $50 million and $60 million because of the previously announced headcount reduction. On an annualized basis, cost savings are expected to be around $180 million or $45 million per quarter, Booth said.  

But like UWM’s Mat Ishbia, Farner said the company’s business strategy is based upon its long-term outlook first, not on short-term gains.

“So originating a product that today might add a little bit of revenue to the top line of our business but has a concern around liquidity would be something that we would not be interested in doing,” said Farner. “Our focus would be on making sure our business is strong, because it’s not a matter of if, but when rates shift, change and move and there’s opportunity.”

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