After racking up a $493 million fourth-quarter loss, Rocket executives say they’re focused on reaching homebuyers through the wholesale channel and new personal finance app, Rocket Money.

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Rocket Mortgage’s parent company Rocket Companies reported its first loss since going public Tuesday, saying it lost nearly half-a-billion dollars in the final months of 2022 as last year’s dramatic run-up in mortgage rates eroded the company’s business faster than it could cut expenses.

Rocket reported a $493 million fourth-quarter net loss even after slashing expenses by $202 million from the third quarter as revenue fell 81 percent from a year ago to $481 million.

After its refinancing business largely dried up last year, Rocket lost its title as the nation’s largest mortgage lender during the third quarter to rival United Wholesale Mortgage, which aggressively cut prices last summer to attract homebuyers.

Now, Rocket executives said they’re focused on growing the company’s share of the purchase loan market by rolling out new products geared at homebuyers, strengthening partnerships with real estate agents, and building up business with mortgage brokers through Rocket’s wholesale channel, Rocket TPO.

“Our company has a long track record of disrupting mortgage refinancing in this space and growing market share,” said outgoing Rocket CEO Jay Farner on a call with investment analysts. “We believe we are well positioned to do the same in the home purchase market.”

Investors seemed to take Rocket executives at their word that the company will bounce back — Rocket expects adjusted revenue to rebound to between $700 million and $850 million during the first three months of the year.

Shares in Rocket, which have traded for as little as $5.97 and as much as $14.31 over the last year, were up 3 percent in after-hours trading after Tuesday’s market close of $7.86.

For the full year, Rocket managed to turn a $700 million profit even as revenue plummeted 55 percent from 2021 to $5.8 billion, by slashing 2022 annual expenses by 25 percent to $5.1 billion.

Rocket Mortgage loan originations, 2019-2022

Source: Rocket Companies earnings reports.

Rocket originated $19 billion in mortgages during the last three months of the year, down 75 percent from the $75.8 billion the company originated in the final months of 2021 when rates were lower. For the full 12 months, Rocket Mortgage’s 2022 originations totaled $131 billion, down 62 percent from record 2021 production of $351 billion.

Former Rocket Mortgage CEO Bill Emerson will serve as Rocket Company’s interim CEO when Farner, who presided over the mortgage giant’s 2020 initial public offering and pivot to a fintech platform, retires on June 1 after 27 years with the company.

On Tuesday, Rocket disclosed that Emerson will earn a base salary of $600,000 and be eligible for a bonus of up to 100 percent of that amount in 2023. In addition, Emerson will receive $6 million in restricted stock on March 3 which will vest over three years.

Rocket going head-to-head with UWM for purchase loans

As mortgage rates soared last year, the crucial test all mortgage lenders faced was making the pivot from refinancing existing loans at lower rates to doing more business with homebuyers.

While Rocket’s slick online application process helped it do record refinancing business during the pandemic, rival UWM — which does all of its lending through mortgage brokers who work with multiple lenders — has gained the upper hand in reaching homebuyers.

Not only did UWM benefit from the ties that mortgage brokers have to real estate agents and homebuyers in their local markets, but the wholesaler announced a “Game On” pricing initiative in June that brought its rates down by 50 to 100 basis points (0.5 to 1 percentage point) across all loan types.

UWM’s record $27.7 billion in third quarter purchase loan originations exceeded Rocket Mortgage’s total loan production — both purchase and refinancing — of $23.7 billion.

But Rocket also does business with mortgage brokers through its wholesale division, Rocket Pro TPO, which has launched an all-out — and public — offensive against UWM and its CEO, Mat Ishbia.

Ishbia famously took to Facebook in March 2021 to announce that UWM would no longer do business with mortgage brokers who send loan applications to rivals Rocket Mortgage or Fairway Independent Mortgage.

While Ishbia claimed those companies have attempted to poach mortgage brokers’ clients through their direct and retail channels, UWM’s “All In” initiative has been slammed as anticompetitive, and UWM has found itself in court as both a defendant and a plaintiff.

On Feb. 14, Rocket Pro TPO Executive Vice President Mike Fawaz took the stage at a company event to pitch mortgage brokers, promising to indemnify those who work with Rocket or Fairway from damage claims or lawsuits by UWM.

UWM’s “ultimatum was one of the worst things to happen to independent mortgage brokers in 50 years,” Fawaz said in announcing Rocket’s “bully shield” at the event, which was broadcast live and is available to view on YouTube.

Ishbia “uses his power to intimidate and coerce those with less power, and we all know that happens every single day,” Fawaz said. “He knows small brokers don’t have the financial ability to fight UWM in court. He is the playground bully taking the smaller kids’ lunch money every single day. And you know this and brokers know this. Well, there’s a bigger kid on the playground and it is Rocket.”

A UWM spokesperson declined to comment to Inman on Rocket’s offer to indemnify mortgage brokers against lawsuits by UWM.

Fawaz also said during the event that UWM has backed down from its aggressive “Game On” pricing strategy.

“I’m here to tell you that ‘Game On’ pricing is over,” Fawaz said. “I watch the business every single day and … it’s over. I encourage every single partner that works with that shop — take a look at their pricing and look at where they’re at. It is over.”

On Jan. 15, UWM announced a new “Control Your Price” program that lets loan originators slash up to 40 basis points per loan, with an upper ceiling of 150 basis points per quarter.

“Sometimes 10-20 basis points is all an LO needs to win over a real estate agent or get creative on a borrower’s loan,” UWM said in a press release provided to Inman. “With Control Your Price, they now have the ability to modify pricing as they see fit.”

Available for conventional, government and non-agency loans of up to $1 million, the incentive “is in addition to UWM’s already sharp pricing,” the company said.

Asked on Rocket’s earnings call how successful the company has been in recruiting new mortgage broker partners, Farner said Fawaz and his team “have done a wonderful job,” but offered no numbers.

“How much success have you guys had in adding new partners to Rocket TPO, given some of the competitive pricing dynamics we’ve seen in the wholesale space and some of the irrational pricing behavior we’ve seen from competitors?” Morgan Stanley analyst Blake Netter asked Farner.

“It’s resonating with brokers, and it’s a very fluid space,” Farner said. “We track how many partners are coming in track how many partners are leaving others. And as you really articulated, those brokers are very price sensitive … it’s the superpower of a mortgage broker, the ability to pick and choose who they work with, to give themselves an advantage. And as you know, we stand firmly behind adding to that superpower. So we’re onboarding new TPO partners all the time and I think that’s the right way to approach that market.”

Rocket’s pivot to fintech platform

Rocket executives continue to pitch Rocket’s $1.27 billion acquisition of personal finance app Truebill in 2021 as a key component of their plan to acquire new customers and turn the company’s stable of brands into a fintech platform capable of unlocking “the lifetime value of the client.”

While providing home loans through Rocket Mortgage is Rocket’s biggest business, it also helps consumers line up real estate services, personal loans, used cars and rooftop solar systems through subsidiaries Rocket Homes, Rocket Loans, Rocket Auto and Rocket Solar.

Since rebranding Truebill as Rocket Money in August and tightening its integration into the Rocket platform, the app has climbed to the top 10 in the iOS app store, and was the most downloaded finance app on Jan. 2, Rocket said.

Brian Brown

“Rocket Money provides us with a distinct competitive advantage by acquiring clients for less than $100 per client,” Rocket Chief Financial Officer Brian Brown said on Tuesday’s earnings call. “In contrast, the mortgage industry acquires a closed client for thousands of dollars. We see tremendous opportunity to lower our client acquisition costs by acquiring clients through Rocket Money. Clients acquired through Rocket Money are focused on their finances, and tend to be much earlier in their home ownership journey.”

To engage with prospective homebuyers, in November Rocket began piloting a guided digital dashboard called “Home Buying Plan,” which it’s in the process of rolling out to a broader audience.

“Clients can set homebuying milestones, engage with personalized financial tools and credit building resources,” Farner said. “They can search for their dream home and receive advice on how to stay on track to be more confident homebuyers. Home Buying Plan enables us to engage with clients providing them with help and guidance as they prepare for the next transaction.”

So a client might begin their relationship with Rocket by using Rocket Money’s financial planning tools and creating a Rocket account, Farner said. Once Rocket has identified their desire to become a homeowner, they’re introduced to Home Buying Plan.

“There is an opportunity to actually grow market share in the mortgage space and purchase in particular, but you’ve got to bring down the cost to acquire the client you’ve got to increase conversion rate,” Farner said.

To increase conversion rates, last fall Rocket rolled out a loyalty program, Rocket Rewards, to generate more business for Rocket Mortgage. Prospective homebuyers can earn reward points by reading educational articles, watching videos, or using a mortgage calculator to save up to $10,000 on their closing costs when financing their home purchase through Rocket Mortgage.

Rocket said Tuesday that the loyalty program has shown strong client adoption and engagement, with more than 1 million clients who have redeemed almost $600,000 in points to date. Last month, Rocket introduced Rocket Rewards to its 2.5 million servicing clients — mortgage borrowers the company collects monthly payments from.

The next step to build out Rocket Rewards, Farner hinted, could be a Rocket Rewards credit card.

“I can only touch on [it] a little bit … [but] imagine a credit card where every day you’re spending and doing things and that spending allows you to build rewards to help you buy your next home,” Farner said.

Farner said Rocket Rewards should also help ensure that would-be homebuyers working with Rocket Homes partner agents ultimately choose Rocket Mortgage.

“We can be engaging with the client, but we’ve got to be there on that Saturday afternoon, when they see that house and … usually who they’re there with is their agent,” Farner said. “So their agent may have a mortgage company that they like to work with.”

Doug Seabolt

Farner said Rocket Homes CEO Doug Seabolt and Chief Product Officer Sam Vida have been “growing out and solidifying” the Rocket Homes partner agent team over the last six months.

With the rewards program now in place, “Our clients look and say, ‘Wait a second, I’ve already built $850 towards my closing fees with Rocket,'” Farner said. “‘I’ve got a verified approval. And I’m working with a preferred Rocket Agent sitting there on a Saturday.’ The only call or text or email comes directly to us, not to another mortgage company.”

Editor’s note: This story was updated to include additional details about Rocket’s campaign to recruit mortgage brokers to its wholesale division, Rocket TPO, and the company’s pivot to become a fintech platform.

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