Rocket profit down 35% in 2021, despite record loan volume closed

Breana Noble
The Detroit News

Rocket Companies Inc. recorded a $12.9 billion net income in 2021, a 35% decrease year-over-year, despite closing a record loan volume last year.

The Detroit-based mortgage giant reported earnings after the bell Thursday. Its stock closed up more than 4% after hitting an all-time low on Wednesday, though it was falling again by 1.8% in after-hours trading.

Rocket, which includes mortgage lending giant Rocket Mortgage as well as other real estate and e-commerce businesses, reported the profit on net revenue of more than $12.9 billion for the year, a 17% decrease year-over-year. Yet the country's largest mortgage originator closed a record $351 billion in loans last year, a nearly 10% rise from 2020.

"Last year was an incredibly successful year for Rocket Companies as we continued to break records in 2021," CEO Jay Farner said during an earnings call. 

The company, which employs some 26,000 employees mostly in Detroit, also reported for the fourth quarter of 2021 a net income of $865 million, a 70% decline year-over-year, on net revenue of $2.59 billion.

U.S. home mortgage lenders are seeing a decline in business due to rising mortgage rates and fewer refinance applications. Mortgage applications dropped to their lowest level since December 2019 last week. The average rate for a 30-year fixed-rate loan was 3.89%, mortgage-finance corporation Freddie Mac said Thursday.

That's a change from 2021 — when home-price growth surged to its highest values since 1987 because of low interest rates, according to the S&P CoreLogic Case-Shiller National Home Price Index.

Fourth-quarter volumes of $75.9 billion met Rocket's projection of $75 billion to $80 billion, including 76% growth in purchase volume as the market shifts from refinances with increases in interest rates. Rocket was forecasting volumes between $52 billion and $57 billion in the first three months of 2022.

"We projected nearly triple our 2018 quarterly run rate of $20 billion, growing significantly faster than other market participants over the last three years," Farner said.

Its gain-on-sale margin for the final three months of the year of 2.8% also was within its guidance of 2.65% to 2.95%. Its 2021 margin was 3.13%. Rocket projects its margin for the first quarter will fall between 2.8% to 3.1%. Rocket posted a total liquidity of $9.1 billion, including cash on-hand of $2.1 billion.

Farner said Rocket has an advantage when it comes to retaining its margins, despite increasing interest rates: "That's not really the driver," he said. "The driver is achieving that new thing that they want, whether that's a new home or their kids' college education or a new kitchen, and that's what I feel, that's where brands, that's where confidence in our company comes through."

Julie Booth, chief financial officer, also emphasized Rocket's servicing portfolio, which had $552 billion in assets at the end of 2021, up 35% from 2020, and 2.6 million clients.

"If they retain the servicing of the mortgages late last year that were sub 3%, those are not refinanceable," said Kevin Heal, analyst at Argus Research. "That could be very lucrative in a rising rate environment."

Meanwhile, unique visitors to Rocket's platform grew 33% year-over-year to 204 million users.

The Rocket Cos. umbrella covers numerous businesses, including an automotive retail marketplace that was launched in 2017. Rocket Auto in 2021 generated more than $1.9 billion in gross merchandise value, more than doubling the previous year's performance.

Amrock LLC, Rocket's title company, completed more than 1.1 million client closings during 2021. And Rocket Homes, the company's digital real-estate platform, assisted clients with nearly $8 billion of real estate transactions during the year.

The company's board of directors also approved a special dividend of $1.01 per share. It is payable on March 22 to shareholders as of March 8.

At least one other mortgage lender saw profits fall as origination grew. Ann Arbor's Home Point Capital Inc. posted $1.19 million in profit in 2021, down 73% year-over-year, with $96.203 billion in volume closed, up 55%. Pontiac-based United Wholesale Mortgage Holdings Corp. reports full-year and fourth-quarter earnings on Tuesday.

“I think the nonbank originators will continue to gain market share,” Heal said. “With the technology that Rocket and UWMC have, they will win out because of their ability to close versus going to a bank or credit union that might take longer.”

Twitter: @BreanaCNoble