Sharp rise in loan originations met by declines in portfolio value
Rocket Companies reported a net loss of $481 million in the third quarter, despite recording its highest-ever mortgage origination volume for the period.
The Detroit-based parent company of Rocket Mortgage attributed the loss partly to an $878 million decrease in the value of its mortgage servicing rights portfolio. This valuation drop, often influenced by interest rate shifts and market conditions, marked a reversal from the $115 million in net income reported for the same quarter last year.
Despite the loss, Rocket originated $28.5 billion in home loans during the quarter, up 28% year-over-year. This growth was largely fueled by a brief dip in mortgage rates, which sparked a surge in both refinancing and purchase activity.
On an adjusted basis, Rocket posted a net income of $166 million, up from $7 million last year. Adjusted revenue for the quarter reached $1.32 billion, also a jump from $1 billion the previous year. Rocket’s average gain-on-sale margin for Q3 stood at 2.78%, a modest improvement from the previous year.
"I am so pleased to share that we expanded both our purchase and refinance market share year-over-year in the third quarter," Varun Krishna, CEO and director of Rocket Companies, said in an earnings call. "Net rate lock volume surged 43% year over year, driven by significant refinance activity, alongside growth in purchase volume.”
Despite a challenging housing market, Krishna remained optimistic about Rocket's prospects, crediting the company’s tech-driven "Rocket Superstack" platform for its adaptability.
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"In my experience, it's always important to take the long view and put things in perspective," Krishna said. "Despite the housing market being challenging, we are seeing signs of rejuvenation.
“The 30-year fixed mortgage rate has declined from nearly 8% a year ago. This is helping improve purchase affordability and opening up refinancing opportunities to lower monthly payments, plus housing inventory has increased from 3.4 months to 4.3 months, showing a 26% improvement."
Rocket's rival United Wholesale Mortgage last week reported a sharp drop in net income from $301 million in Q3 last year to $31.9 million for the third quarter of this year.
Rocket’s stock fell as much as 16% in late trading Tuesday, ending the day down 10% at $14.15, after the company indicated that revenue could decline in the coming quarter.
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