Rocket touts home equity lending in profitable Q2

Rocket Cos. says its home equity origination volume hit a record-high this spring, one of several achievements the lender promoted in its latest earnings.

The industry giant posted $178 million in net income for the second quarter, a positive financial metric despite some other wavering figures. Rocket's gain-on-sale margin was 299 basis points, up year-over-year but down slightly on a quarterly basis. 

"We've said a lot that we expected gain-on-sale margin expansion from 2022 levels, and the 299 basis points in Q2 was really healthy," said Brian Brown, chief financial officer and treasurer at Rocket Cos., in an earnings call Thursday afternoon. "A month into the third quarter, I feel good about those levels being relatively consistent."

The company's record home equity lending was aided by the introduction of an automated valuation model to speed closings in as few as seven days, it said. The firm did not report the dollar amount of home equity loan volume. The self-described number two player in purchase lending, excluding correspondent, reported $24.6 billion in closed loan volume between March and June, both quarterly and annual rises.

Executives throughout the call touted Rocket's technology, including an artificial intelligence-powered live chat it claims converts customers three times as often than those who don't use the cat. Rocket Logic Assistance meanwhile delivers over 300,000 detailed transcripts every week from outbound calls, helping employees complete over 100 data points on mortgage applicants, CEO Varun Krishna said. 

The Detroit firm's net income did fall from the first quarter's $290.7 million mark, although it was up from last June and is a major upswing from the $233 million net loss at the end of 2023. On an adjusted basis, Rocket's net income was $121 million in the second quarter, up $37 million from the end of March. 

Concerning the firm's massive servicing portfolio, it disclosed segment income of $241.7 million, minus $112.9 million for a change in the fair value of mortgage servicing rights. That income was down quarterly and annually. Company revenue remained relatively flat, at $1.3 billion. 

Rocket has massive reserves of $3.2 billion in cash and $7.2 billion in MSRs. It recently renewed a 3-year, $1.15 billion revolving credit facility, Brown said. In another move, the Detroit giant recently acquired five MSR portfolios with an unpaid principal balance of $21 billion for $315 million.

The firm is also a week removed from earning its 10th overall J.D. Power award for leading client satisfaction in servicing. 

Brown said the company anticipates the third quarter to mirror the recent period, while suggesting Rocket is getting ahead of a potential rate decline-driven refinance wave. 

"In the past, consumers may have looked for a 60 to 75 basis point rate reduction to make the benefit worthwhile," he said. "Today at Rocket Mortgage, we're seeing clients refi for less than a 50 basis point rate benefit. Thanks to our fast and easy process, the majority of clients are closing in two weeks or less."