On its quest to reclaim the title of nation’s biggest mortgage lender, Rocket didn’t sacrifice profits, generating $291 million in net income as revenue grew 107 percent from a year ago, to $1.38 billion.

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Rocket Mortgage continues to make headway in its quest to reclaim the title of nation’s biggest mortgage lender, gaining market share during the first quarter with double-digit growth in both purchase loans and refinancing from a year ago, parent company Rocket Cos. reported Thursday.

The Detroit-based lender didn’t sacrifice profits in Q1 either, generating $291 million in net income as revenue grew 107 percent from a year ago, to $1.38 billion. That’s a big turnaround from the $411 million Q1 net loss Rocket racked up a year ago.

Not only was closed loan origination volume up 19 percent, to $20.2 billion, but those loans were more profitable, generating 3.11 percent gain on sale margin, up from 2.39 percent a year ago.

Varun Krishna

“I’m incredibly proud of our team’s performance in Q1, as we accelerated top-line growth for the third straight quarter and achieved our highest profitability in two years, Rocket CEO Varun Krishna said, in a statement. “Once again, we expanded both our purchase and refinance market share, through a combination of innovation, technology, process enhancements and strong execution.”

Rocket said the company expects second quarter adjusted revenue of between $1.075 billion to $1.225 billion.

Shares in Rocket, which in the past year have traded for as little as $7.17 and as much as $15.19, were up 2 percent from Thursday’s close of $12.73 in after hours trading following the release of earnings.

Growing loan servicing portfolio

In addition to originating mortgages, Rocket is also a loan servicer, collecting monthly mortgage payments from homeowners on behalf of investors in mortgage-backed securities.

At the end of the first quarter, Rocket was servicing $511 billion in loans, collecting payments from 2.5 million borrowers. Rocket said it acquired another $8.2 billion in mortgage servicing rights in March and April for $110 million.

While loan servicing is a steady source of income for Rocket, generating about $1.4 billion a year in fees, the value of its mortgage servicing rights (MSR) portfolio can fluctuate drastically, at least on paper, as mortgage rates go up and down.

Higher mortgage rates mean loan servicers are more likely to lose borrowers in their MSR portfolio if mortgage rates come back down and those borrowers refinance and end up with another servicer. Loan servicers must adjust the fair value of their MSRs to reflect that risk — an accounting requirement that can wreak havoc on earnings reports.

Much of Rocket’s Q1 2023 net loss was driven by a $398 million writedown in the fair value of the company’s MSR portfolio. In Q1 2024, things went the other way, with Rocket’s bottom line getting a boost from a $56 million upward adjustment in the value of the MSR portfolio.

That’s one reason loan servicers — and lenders that are in the loan servicing business — often emphasize adjusted rather than net earnings.

Rocket said that its $174 million in adjusted earnings before interest, taxes, depreciation and amortizations (EBITDA) was the highest in two years (Rocket’s adjusted EBITDA loss in Q1 2023 was $79 million).

Mortgage lending is Rocket’s biggest business, but it also matches consumers with real estate agents through a brokerage subsidiary, Rocket Homes, and provides closing and settlement services through its Amrock subsidiary.

In addition, Rocket has sought to position itself as a fintech (financial technology) business, by providing personal finance services to consumers through its Rocket Money subsidiary and personal loans through Rocket Loans.

Focus on homebuyers

Rocket lost its title as the nation’s largest mortgage lender in 2022, as rising interest rates crushed its refinancing business and rival United Wholesale Mortgage aggressively cut prices to attract homebuyers.

Since then, Rocket has been focused on homebuyers, rolling out new products, strengthening partnerships with real estate agents and building business with mortgage brokers through Rocket TPO, the company’s wholesale and correspondent channel.

In April, Rocket Mortgage announced an AI-driven technology platform, Rocket Logic, that has reduced turn times by 25 percent from August 2022 to February 2024, “contributing significantly to our ability to process loans nearly 2.5 times faster than the industry.”

Another brand new AI tool for client support teams that handle 65 million calls a year, Rocket Logic Synopsis, is being used to transcribe and tag client interactions and log client preferences.

Rocket said it’s also launched a pilot for a voice-generative AI tool that lets clients modify verified approval letters by using their voice, which should help reduce a workload of nearly 300,000 manual requests Rocket handles each year.

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Email Matt Carter

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