Rocket’s 3Q originations soar as gain-on-sale margins shrink

Rocket Cos. earned nearly $3 billion in the third quarter, up from $495 million in 3Q19, and down from the $3.5 billion reported in preliminary and final results for 2Q20.

Closed origination volume soared during the three-month fiscal period to a record high of $89 billion, a substantial increase from more than $40 billion in 3Q19. It also was up from $72.3 billion in 2Q20.

The third-quarter gain-on-sale margin, at 4.52%, was up compared to the 3.29% logged during the same quarter a year ago, but it was lower than in the second quarter of this year, at 5.19%.

Historically, gain-on-margins typically shrink much more quickly in this type of market environment, said Julie Booth, chief financial officer and treasurer at Rocket. She gave the following breakdown of contributors to the change after analysts asked for it.

“Change in the loan pricing represented less than 10 basis points of that variance [from Q2 to Q3]. Channel and product mix were the biggest drivers of this variance — about 40 basis points of this — and that resulted from our strong partner network growth that we found during Q3,” she said during the company’s earnings call. “If we look ahead into Q4 margins are still strong by historical standards and they continue to remain strong.”

Company executives noted several initiatives aimed at reducing its reliance on the refinancing boom, including partnership with high-profile referral partners such as Realtor.com, Charles Schwab and Mint. They also flagged relatively higher advertising and marketing costs for the company in the third quarter due to high demand for ads during the election.

Company executives are considering a $1 billion buyback of the company’s stock, or may alternately consider paying a special dividend to investors.

Rocket Cos. stock was trading at $21 per share shortly before noon on the East Coast on Wednesday. After its IPO launched in August, Rocket’s stock climbed to its current price level and has largely remained flat ever since. Just prior to the release of its earnings it was trading slightly higher, just shy of $22 per share.

The digital mortgage pioneer’s executives additionally noted plans to continue its efforts to make inroads into the Canadian mortgage market.

A lot of traditional nonbank companies focused primarily on mortgages tend to stick to their knitting, but Rocket, which positions itself as more of an technology-driven innovator, also is pursuing auto and personal loans. Executives declined to provide guidance for those businesses.