This month, we’ll talk to mortgage leaders about where the market is headed and how products are evolving digitally to suit buyers’ needs now. We’ll also explore emerging alternative financing options that are changing the game for buyers and sellers. Join us for Mortgage and Alternative Financing Month.
Bob Walters, the president and chief operating officer of Rocket Companies, has been through just about everything you can imagine in the mortgage industry. In his nearly 25 years serving in different capacities for the Rock Holdings family of companies, he’s seen the mortgage industry boom and bust.
This past year was unprecedented for real estate, with both the brokerage industry and mortgage industry completely halting then climbing to massive highs while mortgage rates hit all-time lows. Walters recently spoke with Inman about some of the technology transformation hitting the industry, why all the big mortgage companies are going public and the feud with United Wholesale Mortgage.
In the past year due to some of the COVID-19 tailwinds we’ve seen refinance and purchase volume boom. I know a lot of lenders struggled in the early days to keep with demand. How did Rocket Mortgage handle the sudden increase in capacity?
It’s hard to believe it’s been a year since that hit. I was doing a little reflecting over the weekend when the 10-year [treasury yield] dropped down to 60 basis points and when the stock market crashed. I remember seeing that first employment report where there was like 25 million people out of work.
But you’re right, very very quickly, the volume came pouring in. One of the blessings that we have is what we built over time is our very scalable model, so that incredibly scalable model really served us tremendously.
We were doing about $15 billion a month pre-COVID and then within four months after COVID we were doing $35 billion. Obviously that is a dramatic increase.
We don’t have a processor-centric model that most places have, so that was a huge benefit for us and that’s what really drove out ability to increase and improve and have that scale. A lot of competitors are bound by human capacity. We have some of that too, but we have a bifurcated system where we bifurcate the roles that are typically packed into one person called a processor. We break it into — we have teams that just order [verifications of employment] for example or just order homeowners insurance or just work on appraisals, so you can scale those up much more rapidly.
I know with Rocket Mortgage, the digitization of the mortgage process has always been a key focus for you all, but as an industry, how much have the COVID-19 tailwinds helped accelerate the digital transformation of the mortgage industry?
I think quite a bit. For example, Fannie and Freddie both had COVID-19 variances on digital appraisals, regarding alternate needs to verify employment, as far as understanding a lot of employers simply weren’t in the same position to verify employment. A lot of the barriers by necessity had to be eliminated or relaxed so i think you see a lot of benefit.
And it wasn’t like a lot of risk control was given up as a result, so that was a significant benefit. I think all of us working from home have found both challenges but also opportunities to move information and data in a way that is less physical. I think that certainly has been a component.
Homeowners themselves have been more plugged into technology in many ways, therefore more ready to transact. Once you go through the home lending process it’s not a one minute process, it’s a process where we’re going to need information from you over the span of time. The ability to interact quickly and easily with folks is really paramount. We’ve seen turn times drop pretty consistently over that time and a lot of that is because of these things.
One of the other trends that has hit both the residential brokerage and mortgage industry is the quest to build a more end-to-end ecosystem. I know you launched Rocket Homes and have recently partnered with realtor.com. Why are you making more moves into the traditional real estate brokerage space and what does that mean for your mortgage customers?
I think it’s a natural extension. Folks don’t want a really bifurcated process, they want something that makes sense. They’re trying to buy a house. They’re not trying to get a mortgage, or trying to work with a Realtor, or trying to work with an insurance agent. They’re trying to get a house. So how do we make the task of getting a home easier, more complete and more intuitive? Having more control over the process is part of it.
Data ties everything together, technology ties together, it’s just a natural extension of what people are trying to accomplish.
We’ve seen a lot of mortgage companies go public in the last year. What does going public allow you to do that you weren’t able to do before?
I don’t think day-to-day it has a lot of change in how we interact with our clients but what it does do is, it certainly bolsters the balance sheet. Liquidity is incredibly important, balance sheet is incredibly important.
When we went through the early days of COVID-19, interest rates dropped dramatically and created a liquidity stress on lenders because they were getting margin calls on their hedges. Nothing was wrong, that’s just how things work when you’re hedging large amounts and interest rates fall, then that means those hedges are under water which means you need to post collateral until the loans settle. There were a number of mortgage companies that were right on the edge of [going under] and a few of them did go under. Having a very large balance sheet, access to liquidity, warehouse lines is very important.
Being a public company brings an increased balance sheet, that’s one of it, the second thing is, it’s just even more oversight. The SEC and the things that a public company has to do, is difficult but makes those companies stronger because they’re getting ratings and they’re doing things from an oversight perspective that make the company even more complete from a risk and regulatory standpoint.
The last thing is, you create a currency in the stock that allows for acquisitions if deemed appropriate and that’s certainly something that we’re looking at.
As one of the incumbents in the space, how do you view the different lending and alternative financing models that are popping up all over the industry like home swaps, iBuyers and other companies that provide different paths to buying a home than the traditional mortgage process?
I think any time you get innovation whether the innovation ends up working or not, it’s a good thing. It’s testing things, it’s trying things. Sometimes you’re trying to do X and you end up with Y and Y is valuable and you never would have gotten to Y without pursuing X.
In that regard, all of these attempts at innovation are good. As far as which ones will be long term viable that remains to be seen. There are challenges to the iBuyer model, but it’s interesting to see how that’s going. Anything that increases consumer choice is a good thing.
You had a rival in United Wholesale Mortgage (UWM) who said it would no longer work with mortgage brokers who also worked with Rocket Mortgage, essentially issuing an ultimatum to those brokers. Is this the start of a potentially troubling trend, lenders telling independent brokers with whom they can and cannot work?
In my 25 some odd years in this business, I’ve never seen anything like it. Imagine if Fannie Mae said if you sell to Freddie Mac you can’t work with Fannie Mae. I realize that those are two government sponsored enterprises, but it would be absurd.
Whether or not it’s legal or not isn’t something that I can opine on, but it does set a really really bad precedent. The ultimate losers are mortgage brokers. If you talk to any mortgage brokers they’re furious. Some feel that they have to do something out of necessity to protect their pipelines, but they’re furious because they know the broker knows that their super power is their choice. They don’t want to become a retail platform for UWM.
I think in the long run this is really going to hurt UWM. Any time you do something that is deeply unpopular that is really offensive to your clients and your customers over time you pay a price for it.
Are there any other troubling macro trends you see on the horizon for the mortgage industry?
If you’ve been in our business for a long time, you know that it is a business that is characterized by volatility. If you want to clip a 2 percent coupon and go to sleep every night, this isn’t the business for you. We see peaks and we see valleys. If you think about the business as long term shareholder value and long term client value, then it’s a heck of a business.
We’ve certainly come through one of the most prosperous periods of time and whether or not the next 2-3 years will be prosperous or less so, I don’t know. Which is why the firms that do very well over time are the ones that continue to innovate, continue to make things easier and better.
So some years are better than others if you look at the bottom line but you’re continuing to advance. We measure our success based on market share. If we’re gaining market share it means we’re doing something right by the client. That really is the ultimate testament, more so than what the profits and losses look like.