High mortgage rates hurt rocket companiesthe father of rocket mortgageagain in the first quarter of 2023. Rocket has been cut expenses and targeting the buyout business, but the company was unable to achieve first-quarter profitability in a shrinking mortgage market.
The Detroit-based lender suffered an adjusted net income loss of $111 million in the first quarter, following a loss of $197 million in the fourth quarter. The company’s GAAP net loss in the first quarter was $411 million, down from $493 million in the fourth quarter of 2022.
“Rocket delivered strong first quarter results against the backdrop of a uncertain macro environment. Adjusted revenue surpassed the high end of our guidance, driven by healthy customer demand and strong execution,” Jay Farner, Rocket Companies CEO, said in a statement.
Farner, who is outgoing at the end of the quarter, said that Rocket buy pipeline has grown in the second quarter. He also acknowledged that low inventory and poor housing affordability are still present. challenges.
Rocket originated $17 billion in mortgages in the first three months of 2023, a 10.5% decrease from $19 billion in Q4 2022. First-quarter production also represents a whopping 67% drop compared to with the same period of 2022.
By channel, Rocket reported $8.8 billion in loans sold through its direct-to-consumer channel and $6.6 billion through its TPO channel, your conduit to mortgage brokers and historically a more solid source of buying business. (The company does not break out the buyout business versus refinancings in its earnings reports.)
Recruitment of potential home buyers
The executives emphasized that the company is well positioned to target the home buying market through its customer engagement programs, including Rocket Money, Rocket Rewards, Rocket Signature Card and the Home Buying Plan.
“We now have multiple ways to acquire and attract our customers,” Brian Brown, Rocket Companies’ chief financial officer, told analysts.
“We believe this commitment will help increase our purchase market share as well as lower the cost of our customer acquisition, significantly increase conversion from start to close, increase retention and extend customer lifetime value. Brown added.
Most recently, Rocket launched a ‘Buy+ and Sell+’ buying initiative, a collaboration between Rocket Homes and Rocket Mortgage, its proprietary home search platform and real estate agent referral network business.
Through Rocket’s “Buy+” program, customers who earn the purchase financing from Rocket Mortgage and find a home with a Rocket Homes partner real estate agent, you’ll receive a credit equal to 1.5% of your loan amount toward closing costs, which will help defray down-front costs, the company said in April.
With SELL+, sellers who list their home with a Rocket Homes verified agent partner will receive a 1% rebate check of the sales price from Rocket Homes after closing.
Rocket’s effort to attract homebuyers and homeowners in the first quarter includes the launch of its first credit card.
Those looking to buy a home can get 5% back using Rocket’s Visa Signature card for up to $8,000 that can be used for closing costs and down payments. Homeowners who make monthly mortgage payments to Rocket Mortgage can use points on their card to receive 2% of their card spend toward their unpaid principal balance.
Road to profitability
Rocket reported net income of $666 million in the first quarter, an improvement from a total of $481 million in the final quarter of 2022. Revenue in the first quarter of 2022 was $2.7 billion. The company’s expenses rose to $1.1 billion from $986 million in the prior quarter.
After cutting expenses by 40% in 2022, which involved offering voluntary buyouts and several rounds of layoffs, Brown said the company is headed in the right direction for profitability.
“Looking from the fourth to the first quarter, we cut the operating loss in half. margins have improved from the fourth quarter to the first quarter quite substantially to the profit margins on sale, that is, and then we’ve driven revenue from first quarter levels to second quarter levels,” Brown said.
Posted sales profit margins in the first quarter were 239 basis points, compared to 217 basis points in the prior quarter.
Rocket reported $8.1 billion in liquidity, including $900 million in cash, unchanged from the prior quarter.
The unpaid principal balance in its service book dropped to $524.8 billion as of March 31, compared with $535 billion as of Q4 2022. Rocket has 2.5 million customers and generates $1.5 billion annually in revenue recurring service fees.
Regarding potential acquisitions, Rocket hinted at buying MSR portfolios. fargo wells recently put up a portfolio of MSRs worth about $50 billion at auctionbut Rocket was outbid by Mr. Cooper, sources told HousingWire.
“When you are thinking about buying an MSR, you have to think about the cost of originating it (…) We became experts in producing a refinancing transaction (…) So if you think about where you could put your dollars while you keep cracking that code, you start to see gains, just like I think we saw with refinancing during the year,” Bob Walters, chief executive officer of Rocket Mortgage, said on Thursday’s earnings call.
“A strong place that we will look at is taking advantage of the gains that we find and being able to generate our own growing MSRs through the origination of purchase transactions,” Walters told analysts.
Looking ahead, Rocket expects to post adjusted revenue between $850 million and $1 billion in the second quarter.
In absolute dollars, Rocket expects second-quarter expenses to be slightly higher than first-quarter, in part due to higher production, but also due to marketing expenses for its exclusive credit card launch and national campaign. Buy+.
“We need a little bit of cooperation from the housing stock in the context of the market, but I think we’re doing everything right and we’re absolutely within striking distance,” Brown said.
