Detroit — Rocket Cos. Inc., the parent company of mortgage giant Rocket Mortgage, posted third-quarter profit, revenue and closed-door earnings growth amid a slowdown in the mortgage industry due to aggressive interest rate hikes by the US Federal Reserve (Fed). Loan volumes dropped sharply from the previous year’s levels. Decades of curbing high inflation.
Rocket Cos. announced Thursday that it generated a net profit of $96 million on revenue of $1.3 billion in the third quarter. This is down 93% and 58% respectively from Q3 2021. From $88 billion a year ago. Profit on sale was 2.69%, down from 3.05% a year ago.
Company’s stock After Thursday’s market close, the stock fell about 6.5% to close at $6.51 per share. The results beat analyst revenue expectations but fell short of earnings per share expectations.
“The mortgage industry continues to face difficult times. 30-year fixed mortgage rates are above 7%, the highest in decades. (A) More than 300 basis points of growth this year is , was the largest and fastest since 1982. Affordability is at its lowest level in 30 years.Weak consumer sentiment is leading to a rapid downturn in the homebuying market,” said Jay of The Rocket. Farner CEO said on the company’s earnings call.
Citing data from the Mortgage Bankers Association, Farner said mortgage applications were at their lowest level since the mid-1990s and told investors to expect an industry consolidation in the coming quarters. .
“We expect to see a significant separation in the next few quarters between well-capitalized players in the mortgage space – those who have clearly defined long-term strategic plans and those who do not. I keep getting out of the system,” he said. “Industry consolidation will occur and companies that are not well capitalized will struggle with liquidity. Ultimately, only the strong will survive.”
The average 30-year mortgage rate in the US was 6.95%, mortgage buyer Freddie Mac reported Thursday. It was 3.09% at this time last year, according to the Associated Press. reportEarlier this week, the Fed hiked rates by 0.75 points for the fourth time this year, but hinted that more hikes were likely.
“Rapidly rising interest rates and declining housing affordability are simultaneously impacting homebuying and refinancing demand,” said Bryan Brown, Rocket’s incoming chief financial officer and treasurer. As of mid-month, industry-wide refinancing applications were down 86% and overall home purchase applications were down 37%.
“Volumes are clearly under pressure. There continues to be significant overcapacity in the mortgage industry and increased competition for all loans. The industry is flooded with loan officers struggling to produce. I do,” Brown said.
Still, Rocket executives say the company is poised to withstand the headwinds hitting the industry, based on decades of experience navigating economic cycles and the platform’s reach of nearly 24 million accounts.
Rocket’s total liquidity in the third quarter increased $1.5 billion in the third quarter to $8.8 billion, including $4.0 billion of available cash. Looking to the fourth quarter, Rocket expects adjusted earnings to be between $600 million and $750 million. Closed $17 billion to $22 billion in loans. Profit on sale between 2.3% and 2.6%.
Eric Gordon, an industry observer and professor at the University of Michigan’s Ross School of Business, said, “They did a reasonable job of cutting costs in the face of a plummeting mortgage business, but mortgages “Unless there is a quick recovery, further cuts will be necessary.” “If people don’t buy or refinance homes, Rocket could cut marketing costs until the market starts to change.”
Rocket eliminated more than $100 million in expenses from the second quarter to the third quarter, to approximately $1.2 billion. Brown said the company is targeting another $50 million to $100 million in cost savings this quarter.
Management highlighted some of the ways the company is weathering industry headwinds.in earnings releaseFor example, the company noted that Rocket Mortgage has launched a new “inflation buster” program that cuts a homebuyer’s monthly mortgage payment by 1 percentage point in the first year of the loan. Rocket also recently announced the launch of a new loyalty program, Rocket Rewards. This allows customers to earn points when engaging with the company’s platform, for example, by applying for a pre-qualified approval letter.
The Wall Street Journal highlights the challenges facing Rocket Mortgage (citing data from Black Knight Inc.) report Just 133,000 U.S. homeowners could save money this week by refinancing at today’s rates from more than 19 million in late 2020. It accounted for about 82% of the amount, the WSJ reported, citing industry research.
Meanwhile, on November 11, Rocket’s board of directors approved an extension to its $1 billion share buyback program, which was first approved two years ago. The company reportedly returned about $409 million to its Class A common shareholders as of Wednesday.
Pontiac-based competitor United Wholesale Mortgage Holdings Corporation is expected to report third-quarter earnings on Friday.