Rocket’s Origination Volume Jumps 28% In Q3

Detroit-based Rocket Companies, the parent of Rocket Mortgage, saw its strategy of investing in technology and expanding its servicing portfolio start to pay off in the third quarter of 2024. It originated $28.5 billion in loans during the period — up 28% year over year.

Short-lived relief in mortgage rates led to a double-digit increase in mortgage production and gains in market share during the period, executives said. But the company delivered a GAAP net loss of $481 million from July through September, a figure that was driven by a loss of $878.3 million in the fair value of its mortgage servicing rights (MSRs).

“Over the past few months, the market has thrown our industry almost every curve ball imaginable,” Varun Krishna, CEO and director of Rocket Companies, told analysts during an earnings call on Tuesday. “With inflation easing, the Federal Reserve cut rates for the first time in four years. But in an interesting twist, while the Fed lowered rates, mortgage rates did not follow suit. Instead, both the 10-year Treasury yield and the 30-year fixed mortgage rate actually increased.

“In my experience, it’s always important to take the long view and put things in perspective. Despite the housing market being challenging, we are seeing signs of rejuvenation. The 30-year fixed mortgage rate has declined from nearly 8% a year ago. This is helping improve purchase affordability and opening up refinancing opportunities to lower monthly payments, plus housing inventory has increased from 3.4 months to 4.3 months.” 

Rocket’s GAAP net loss of $481 million from July to September was a reversal from its $178 million profit in the second quarteer of 2024, per filings with the Securities and Exchange Commission (SEC). Adjusted earnings, which excludes non-cash expenses and one-time charges, reached $166 million in Q3 2024, lower than the $255 million figure in Q2. 

The GAAP net loss also stemmed from a decline in total revenue, which reached $647 million in Q3, down from $1.3 billion in Q2. Meanwhile, expenses rose to $1.14 billion, up from $1.1 billion in the second quarter.

Operationally, a two-week dip in mortgage rates created a brief window for refinancing in Q3 2024, pushing Rocket’s total origination volume to $28.5 billion from July to September — up from $24.6 billion in the previous quarter and $22.1 billion in Q3 2023. 

Its direct-to-consumer channel remained the primary driver, generating $14 billion in volume during the period, compared to $12.4 billion from its third-party originator channel.

Gain-on-sale margins for Q3 2024 were 278 basis points, a decrease from 299 bps in the previous quarter but nearly unchanged from 276 bps in Q3 2023. This was driven by a margin of 410 bps in the direct-to-consumer channel and 147 bps in the third-party origination (TPO) channel. 

Executives anticipate margin expansion in the fourth quarter, a period when competitors typically adjust pricing strategies around the holidays. According to Rocket leadership, current margins are approaching the historically healthy levels seen before the pandemic.

Rocket’s playbook

While the company doesn’t provide a detailed breakdown of purchase versus refinance business, executives reported market share growth in both areas during the quarter. 

Refinancing opportunities are largely coming from Rocket’s servicing portfolio, which reached an unpaid principal balance (UPB) of $546.1 billion at the end of Q3. With 2.6 million loans, Rocket’s servicing operations generated approximately $1.5 billion in annual fee income.

Rocket, like its peers, has been actively acquiring servicing assets. In Q3 alone, it invested $311 million to add $22.4 billion in UPB, bringing its total UPB acquisitions from January to October to $70 billion. 

Executives anticipate that portfolio acquisitions will remain a key capital deployment strategy alongside opportunities from subservicing agreements, such as Rocket’s partnership with real estate investment trust Annaly Capital Management. The company’s total liquidity was $8.3 billion as of Sept. 30, including $1.2 billion of cash on the balance sheet. 

Rocket reported an 85% recapture rate on its servicing portfolio. 

The company is leveraging technology to navigate mortgage market cycles more effectively. Chief financial officer Brian Brown told analysts that the company can “support $150 billion in origination volume without adding a single dollar in fixed costs.”

Additionally, Krishna said Rocket Logic, the company’s proprietary loan origination system, now saves more than 800,000 team member hours per year — a 14% increase in just two months — that result in more than $30 million in annual savings.

Looking ahead, Rocket projects adjusted revenue between $1.05 billion and $1.2 billion in Q4 2024, a seasonally slower period due to the holidays. Executives said higher mortgage rates have also dampened application volumes. 

Rocket shares fell 11.3% in the after market, following the earnings call, to $13.78.