Rocket Companies, the parent of Rocket Mortgage, returned to profitability in the second quarter of 2023 driven by an increase in the purchase mortgage market share and expense cuts in business lines that aren’t profitable. 

The Detroit-headquartered lender’s GAAP net income in Q2 was $139 million, an improvement from GAAP net loss of $411 million in 2023 Q1. Rocket posted a $33 million adjusted net income loss in the second quarter, following a $111 million loss in Q1.  

Rocket is “very pleased to see our purchase market share grow on both a year-over-year and quarter-over-quarter basis. Our focus on servicing clients through innovation in this challenging market is working,” Bill Emerson, interim CEO of Rocket Companies, told analysts in its earnings call.

Rocket generated $22.3 billion in origination volume in Q2, up about 31% from $17 billion in Q1 2023. The second quarter production represents a 35% drop compared to the same period in 2022. Gain-on-sale margins posted for the second quarter of 2023 was 267 points, up from the previous quarter’s 239 points. 

By channel, Rocket reported $12.4 billion in sold loans through its direct-to-consumer channel and $9.6 billion through its TPO channel, its conduit to mortgage brokers and historically a stronger source of purchase business. The company doesn’t break out purchase business versus refinancings in its earnings reports.

“We’ve seen growth in both channels. It’s not specific or exclusive to one or the other and we’re actually happy about the growth in both,” Emerson said to an analyst asking where the purchase market share gains came from. 

Rocket’s share of the purchase business jumped to 55% in the first three months of 2023, according to data from Inside Mortgage Finance (IMF). Purchase volume in the first quarter came in at $9.4 billion, ranking third in the IMF’s rankings.

Rocket’s strategy going forward will remain the same – pursuing its direct-to-consumer business and TPO channel, Emerson noted. HousingWire recently published a deep-dive feature on whether Rocket’s accelerated efforts of hiring local loan officers represented a shift in the lender’s strategy.

“As we look at our direct-to-consumer business, there’s a way to get more local and more regional with that out of a centralized location that I think is beneficial to the interactions that we would have with realtors and builders, and that’s something that we’re constantly working on and evaluating, but I think what you’re seeing is an organization that’s committed to a direct-to-consumer model, the digitization of the process,” Emerson said.

Betting big on fintech

Rocket has been betting big on the strength of its platform — branding itself as a fintech. 

With Varun Krishna — a veteran in the financial technology world who held executive positions at Intuit and PayPal — taking helm of the company as CEO starting in September, Rocket has its vision set on growing its platform.

“He (Varun) clearly rose to the top as far as someone that would be able to come in here and paint a great strategic vision for the organization, someone who had alignment with us in a fintech space and the abilities that we have and the things that we’re looking to do as it relates to expanding our business and our platform and our ecosystem,” Emerson said.

The number of Rocket accounts grew to 29.3 million, an increase of nearly 2 million, as of June 30.

Rocket reiterated its priority of diversifying client acquisition channels, lowering client acquisition costs and engaging clients through their lifetime — lifting conversion from lead to close. 

Rocket’s improving financials 

Rocket focused on operational efficiency and trimmed its cost structure through voluntary buyouts and winding down businesses that were not profitable.

In July, Rocket offered its third round of voluntary buyouts to employees. Its previous two rounds of buyouts resulted in a staff reduction of about 30% in 2022.

A one-time charge of about $50 million related to the voluntary career transition program primarily in Q3.

The company pivoted from investing in a sales platform for solar to only offering solar financing through the Rocket Loans platform; and shut down operations of Rocket Auto — measures which are expected to save costs between $150 million and $200 million on an annualized basis. 

The company’s expenses were $1.1 billion in the second quarter, remaining flat from the previous quarter’s $1.1 billion. Net revenue for Q2 came in at $1.2 billion, nearly doubling from $666 million in the previous quarter. Revenue in Q2 2022 was $1.4 billion.

Rocket’s liquidity improved in Q2 to $8.6 billion from $8.1 billion from the previous quarter.

The Detroit-based lender closed the second quarter with $900 million cash-on-hand and $6.4 billion of mortgage servicing rights. 

Rocket’s mortgage servicing portfolio included more than 2.4 million loans service, with approximately $500 billion in unpaid principal balance. 

The lender generated $343 million of cash revenue from its servicing book, which represents approximately $1.4 billion on an annualized basis. 

What’s ahead for Q3? 

A third of the way into Q3, Rocket sees purchase mortgage shares growing but the lack of inventory will continue to be a challenge. 

“The trends are very consistent, particularly on the purchase side with what we saw in Q2. So that’s the good news. The challenge comes back to the inventory levels,” Brian Brown, CFO said in the earnings call. 

Rocket is focused on bringing in origination volume from existing homes on the market.

“While we are always encouraged by a little bit of increase in the new construction, it’s still relatively small in the grand scheme (…) We are constantly working with builders on that, but that’s not going to show any short-term positive impact for us from a closed loan perspective along the line,” Emerson told analysts. 

Rocket expects to post an adjusted revenue between $850 million to $1 billion in Q3.