What Rocket Mortgage's Annaly pact means for servicing

Rocket Mortgage and Annaly Capital Management, both of whom are large-scale players in their business lines, have formed a new partnership that deepens the former's involvement in the servicing space.

The housing finance company and residential mortgage real-estate investment trust respectively have entered into an business arrangement in which Rocket will provide subservicing operations and recapture for part of Annaly's portfolio.

The partnership complements the publicly traded nonbank lender's acceleration of mortgage-servicing rights acquisition activity, Bill Banfield, Rocket's chief business officer, said in an interview.

"We now have enough of a track record that we know we have the ability to do retention on acquired portfolios, so we're going to keep feeding into that," Banfield said, noting that Rocket would provide purchase, refinance or home equity products to borrowers it subserviced. 

Annaly is Rocket's second subservicing client. Rocket also has a pre-existing, long-term subservicing relationship with Charles Schwab. Annaly has previously purchased some bonds from Rocket's securitizations.

"This is consistent with Rocket's recently stated focus on servicing in order to leverage strength in recapture," analysts at Keefe, Bruyette & Woods said in a report on the mortgage company's new subservicing partnership.

Subservicing makes up about 8% or $42 billion of Rocket's overall $534 billion unpaid principal balance of loans serviced, according to KBW's analysis. Annaly's total servicing portfolio is $192 billion.

"While RKT will likely be servicing a small part of Annaly's portfolio, this could be seen as slightly negative for larger servicers/subservicers," the KBW analysts said.

Banfield said the partnership was not a signal of deepening involvement in subservicing on the order of larger players already in the space.

"We do not have a desire to be a standalone subservicer and compete with many of the firms that are out there that are low-cost providers in that space," he said. "We are looking to grow our portfolio and really focus in on what we describe as the flywheel. So, for certain strategic and meaningful partnerships where we can help them with retention, that's what we would be looking to do."

Rocket's high customer satisfaction ranking and use of artificial intelligence tools for transcriptions of borrower communications and client tracking drew Annaly into the partnership, Steve Campbell, president and chief operating officer, said in that company's press release.

"We are proud to have constructed one of the most durable and high qualify portfolios of MSR in the market and this partnership will allow us to benefit from Rocket's industry-leading servicing capabilities," he said.

By early December Rocket hopes to board Annaly's subservicing onto its system, which combines a widely used vendor platform with proprietary tools and is designed to facilitate a smooth transition, Banfield said.

"We put an enormous amount of effort into making sure that our AI tools that help a client onboard are available 24/7 and that the landing pages are clear. We've seen the first call resolution go up dramatically because of it," Banfield said.

"If we can make the experience better for that client who's transferring it can help them trust us and for when they want to do a future transaction," he said.