Rocket CEO takes aim at Better.com, margin-cutting competitors

Emily Elconin/Bloomberg

Rocket Cos. executives took a shot at their mortgage industry competitors who reduce their pricing, and thus their margins, as origination volume starts to shrink.

"We have found that this is not a sound strategy for profitability, sustainability and maintaining a disciplined approach towards supporting our business long term," said Vice Chairman and CEO Jay Farner on the fourth quarter earnings call.

During the question and answer session, Farner continued on this point, saying other lenders shouldn't teach their organizations that the solution to retain market share is by cutting margin.

Rocket's margin on its direct-to-consumer originations was 432 basis points in the fourth quarter, and some channel competitors are coming in at 250 bps.

"You can run those numbers but how can you invest in marketing at 250 basis points? How can you invest in technology at 250 basis points? How can you keep your best [loan officers] at 250 basis points?" Farner said.

The CEO also took a shot at direct-to-consumer rival Better.com without naming the company, when discussing how Rocket’s people make the organization the successful.

"And so we're not going to have a conference call where all of a sudden we let a group of them know they're not going to be working any longer," said Farner. "Profitability is important, but the investment in our team members is the most important thing that leads to the future growth of this organization."

In the fourth quarter, Rocket Cos., which also now includes Rocket Auto, Rocket Homes and the recently acquired Truebill, reported net income of $865 million, compared with $1.39 billion in the third quarter and $2.8 billion in the fourth quarter of 2020. For all of 2021, it earned $6.1 billion, compared with $9.4 billion in 2020.

Rocket closed $75.9 billion of mortgages during the fourth quarter. In the third quarter, Rocket had $88 billion of total volume, while in the fourth quarter of 2020, it originated $107.2 billion.

But full year originations of $351.2 billion topped 2020's $320.2 billion.

For the first quarter of 2022, Rocket expects volume to come in between $52 billion and $57 billion, with its overall gain on sale margin (which includes originations from its partner division, where the margins are lower) to be between 280 bps and 310 bps. That first quarter guidance includes the effects of the omicron variant causing Rocket to close its offices temporarily, although Farner added they had reopened as of Feb. 14.