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Detroit-based Rocket Companies generated $1 billion in their first quarter earnings and CEO Jay Farner said they’re in the market to purchase another player in the mortgage industry.
Kevin Barker, a Piper Sandler analyst, asked Farner that given that Rocket is flush with cash – just over $2.3 billion – if he would consider deploying those funds to make a strategic acquisition to increase the capacity to garner more purchase originations.
“We continue to see traction in purchase. I think that will be amplified by the fact that capacity is coming out quickly and in particular in the areas where people don’t have the strong resources to market,” Farner said. “So, I feel very confident about our ability to organically grow purchase.
"That said, your other comment about the availability of strategic opportunities that may allow us to lean into the purchase market. There are a handful of those type of opportunities that exist, and I think it’s a just matter of staying close to them and watching them and ensure that we are making the right investment and at the right time. Like Julie (Booth, Rocket's chief financial officer) always says we’ve got the capital to be strategic and that’s what we’ll do.”
Earlier in the call, when talking about the actions the company has taken to position itself for the future, Farner said, “As we see people pull back, as we see capacity get reduced, as we see people struggle, there will be opportunities and if they’re the right ones, we’re positioned from an asset perspective to take advantage of those opportunities that will position us to grow.”
As far as acquisitions are concerned, one possible target might be loanDepot, a California-based national mortgage funder, which announced its earnings today, reporting a $91 million loss in the first quarter and, as a result, a suspension of their dividend for the foreseeable future. They do not expect to be profitable this year, said their Chief Financial Officer Patrick Flanagan. In addition, the company also announced cutbacks in marketing expenses and expects to reduce headcount.
A Rocket spokesman said the company would not elaborate beyond what was said during the earnings call.
Industry analyst Rob Chrisman told Mortgage News Network's Christine Stuart in an interview, Farner's announcement isn't a surprise. “You have a lot of companies out there who are weaponizing their 2020 and 2021 earnings," said Chrisman, who is also a contributor to Mortgage Banker magazine. In the most recent issue, he wrote, "Despite the belt tightening that is expected throughout 2022, money will be spent on technology initiatives that will help lenders in the long run."
Barker, the Piper Sandler analyst, said in the same MNN interview, "I think they like to stick with their bread and butter. Conforming loans, it could be jumbo, I think they’re going to stick with mostly performing originations." He suggested Rocket could be looking to also build up its purchase volume by purchasing a company with a distributive retail franchise.
Compared to its main competitors, the number one mortgage lender in the country seems to be in a comfortable place. United Wholesale Mortgage reported a much lower profit of $453.2 million from January to March, buoyed by adjustments in the fair value of mortgage servicing rights.
Rocket’s quarterly revenues were down about 41% from last year’s first quarter income of $4.5 billion. Rocket’s net income of just over $1 billion was about a 62.5% drop from last year’s net income of $2.7 billion in the first quarter.
The company lowered its first quarter expenses in the quarter to $1.6 billion from last year’s nearly $1.7 billion, the company reported.
“Looking ahead to Q2, we expect our business to face headwinds due to the rapid increase in rates that has occurred year-to-date,” Booth, Rocket's CFO, said.
“As a result of the rapidly changing mortgage market, we are taking significant cost reduction measures throughout the remainder of the second quarter. We expect to incur a one-time charge of approximately $50 to $60 million related to the voluntary career transition program that we rolled out in the second quarter. Excluding this one-time charge, we expect Q2 expenses to be down approximately $200 million to roughly $1.4 billion compared to $1.6 billion. On an annualized basis the cost savings from our voluntary career transition program are expected to be around $180 million,” she added.
In late April, Rocket and Amrock, its title company, announced the offering of voluntary buyouts to 8% of its workforce. Rocket companies, including Rocket Mortgage, employ approximately 26,000 people, mostly in Detroit.
Farner talked up the company’s TrueBill system, saying, “TrueBill, which became part of the Rocket ecosystem in December, has continued its impressive growth. The company now has 3.4 million members, up 142% from Q1 of 2021.
“Included in that 3.4 million members are 1.7 million paying premium members, more than doubling from Q1 of 2021. TrueBill helps our clients manage their entire financial lives and keeps our clients engaged in our ecosystem generating over $100 million in growing and annualized recurring revenue,” Farner added.
In December, Rocket Companies acquired Truebill, the personal finance app, for $1.275 billion in cash. Truebill helps consumers manage subscriptions, improve credit scores, track spending and build budgets. The company also renegotiates bills on its clients' behalf, claiming to save them as much as 20% on services, including cable and telephone bills.