Despite the recent easing in mortgage rates, executives at the company’s parent company Rocket Mortgage The industry is expected to face challenging conditions in the coming months, mainly due to regulatory changes, low affordability levels and consolidation.
What’s their script? Detroit-based leader rocket company It said they will continue to invest in artificial intelligence (AI) to improve operational efficiencies and expand their service portfolio, creating opportunities for future refinances and home equity loans. They will also continue to chase market share purchases.
“We are going through challenging times and unpredictability has become the new normal,” Varun Krishna, CEO and director of Rocket Companies, told analysts on Thursday’s second-quarter earnings call. “Despite the gradual decline in home listings, There are some signs of recovery, but sales affordability remains at historically low levels as mortgage rates remain high and home prices rise.”
Against this backdrop, the company’s GAAP net income from April to June was $178 million, down from $291 million in the first quarter of 2024 but up from the $291 million in the first quarter of 2023, according to filings with the Securities and Exchange Commission. Second-quarter profit of $139 million Securities and Exchange Commission (U.S. Securities and Exchange Commission). Adjusted earnings, excluding non-cash charges and one-time charges, reached $255 million in the second quarter of 2024, the company’s highest profit in two years.
This was driven by Rocket’s adjusted revenue reaching $1.3 billion in the second quarter, compared with $1.38 billion in the first quarter of 2024 and $1.23 billion in the same period last year. Meanwhile, the company’s expenses increased to $1.1 billion in the second quarter of 2024, up from $1.08 billion in the previous quarter and $1.09 billion in the same period last year.
Krishna said homebuying activity in the sector was weak in the spring, with purchase applications falling to their lowest level in more than three decades as macroeconomic uncertainty and affordability concerns kept potential buyers on the sidelines. Smaller mortgage companies are being acquired or exited, and employment is down 36% from its peak.
“Whether it’s the industry’s capacity, increased regulation like Basel III, the dynamics of fragmentation and consolidation, or the AI paradigm shift we’re experiencing, these are important dynamics that will determine the winners and losers in the space.” Krishna said. “We believe they will be of great benefit to us.”
Rocket originated $24.6 billion in mortgage loans in the second quarter of 2024, up from $20.2 billion in the previous quarter and $22.3 billion in the second quarter of 2023. This was down from 311 basis points in the previous quarter. But that’s better than the 267 basis points figure in the second quarter of 2023 — an improvement that, according to Rocket executives, can be attributed to capacity in its capital markets team and exit industries.
Broken down by channel, Rocket reported closing $13 billion in loans through its direct-to-consumer channel and $11.3 billion through its third-party originator (TPO) channel from April to June , this channel has historically been a stronger source of buying.
The company did not break out purchases and refinances in its earnings report. But Krishna said Rocket “has grown its buying market share year over year by continually improving our processes, teams, marketing and technology.”
Service asset growth
The company’s servicing portfolio, which includes subordinated servicing loans, had an unpaid principal balance (UPB) of $534.6 billion at the end of the second quarter. Rocket has serviced 2.6 million loans and generated approximately $1.4 billion in annual fee revenue.
Like its peers, Rocket has been aggressively acquiring servicing assets at higher coupon rates to create refinance and home equity opportunities when interest rates fall. In the second quarter, the company added $20.8 billion of UPB to its portfolio for total consideration of $315 million.
“We retain customers on their next deal at rates three times higher than the industry average, positioning ourselves as their lender for life and generating recurring cash without additional acquisition costs,” said Krishna. Stream. “We will continue to expand our service portfolio. ”
The company named Shawn Malhotra as its first chief technology officer during the quarter. In June, it launched MSR Audit Automation, a workflow system that streamlines the loan origination process, enabling capital markets teams to complete audits of mortgage servicing rights in half the time.
Looking ahead, executives said the company expects the mortgage market in the third quarter of 2024 to be consistent with conditions in the second quarter. Rocket provided third-quarter adjusted revenue guidance of $1.15 billion to $1.3 billion. Operating expenses are expected to remain unchanged.
As of June 30, Rocket had total liquidity of $8.6 billion, including $1.3 billion in cash on its balance sheet.
