Rocket Companies sees $96M profit as mortgage volume falls

Dan Gilbert's Rocket Companies managed $96 million in net income, or profit, in the third quarter as rising interest rates continue to inflict pain across the mortgage industry.

Rocket Companies, the publicly traded corporate parent of Rocket Mortgage, saw total revenue of $1.3 billion for the quarter, which although down slightly from last quarter's $1.4 billion, was a 58% drop from its $3.1 billion in revenue (and $1.4 billion profit) in the third quarter of 2021, before interest rates began soaring.

Rocket eked out a $60 million profit in the second quarter.

Like other lenders, Rocket continues to experience a year-over-year plunge in mortgage volume, closing $114 billion in loans so far this year through the third quarter, compared with $275 billion for the same nine-month period last year.

During an earnings call late Thursday with Wall Street analysts, CEO Jay Farner emphasized Rocket's liquidity and "fortress balance sheet" that will allow it to "weather the storm."

“The mortgage industry continues to face challenging times. Thirty-year fixed mortgage rates have eclipsed 7%, the highest in decades," Farner said. “Housing affordability is at a 30-year low, and weakening consumer sentiment is leading to a rapidly deteriorating home purchase market."

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After enjoying record profits and boom years in 2020 and 2021, Rocket this year has been trimming headcount and aggressively cutting expenses. It has done two rounds of employee buyouts so far, cutting an unspecified number of positions.

During Thursday's earnings call, Brian Brown, Rocket's chief accounting officer, touted how the firm has been adjusting to the mortgage industry's down cycle by cutting more than $2 billion in expenses on an annualized basis between the last year's third quarter and this year's third quarter.

For the industry as a whole, there are likely more job cuts ahead, Brown said.

“The industry is flooded with loan officers who are struggling to produce," he said. "In fact, our estimate suggests that industry volume, per loan officer, is near an all-time low, at less than one loan per loan officer per month.

“The economics are simply unsustainable, and capacity in the industry will continue to come out," he added.

Rising mortgage rates have crushed mortgage refinancing activity, traditionally a major profit center for Rocket Mortgage, formerly known as Quicken Loans and the nation's top mortgage lender by volume.

Higher rates have also put a damper on existing home sales, which have sagged for eight consecutive months this year, according to the National Association of Realtors.

The average interest rate on a 30-year, fixed-rate mortgage is 6.95% this week, according to government-backed Freddie Mac. That compares with just over 3% a year earlier. The last time mortgage rates were this high was 2002.

Yet some consumers are still refinancing.

Farner said in response to an analyst's question that Rocket is "doing quite a bit" of cash-out refinancings, often for customers who intend to use the money to pay down other forms of debt.

Industrywide, he estimated that about 90% of consumers who are currently doing a refinancing are "pulling some form of cash out when they do."

“As we watch savings drop and people spend more on their credit cards, they’re under more pressure," Farner said. "Although it’s not always, of course, the right decision for our client to take cash out of their first mortgage. That’s why we have the home equity loan product that we’ve rolled out, that’s why we have the Rocket Loan product we’ve rolled out."

Other nationally ranked metro Detroit mortgage lenders have trimmed headcount as well this year.

Troy-based Flagstar Bank earlier this year reduced its mortgage staff by 20%, or 420 people, and last month disclosed it had cut the staff an additional 7%. Flagstar recently reported that its volume of mortgage originations was down 45% in third quarter from a year ago.

And Ann Arbor-based Home Point Financial Corp. recently said it would lay off 217 workers this month.

Pontiac-based United Wholesale Mortgage could give an update Friday morning on its staffing when it is due to report third quarter earnings.

Contact JC Reindl at 313-378-5460 or jcreindl@freepress.com. Follow him on Twitter @jcreindl.

This article originally appeared on Detroit Free Press: Rocket Companies sees $96M profit as mortgage volume falls