By Telis Demos
Mortgage originator Rocket Cos. is managing to squeeze out growth despite a tough housing market.
In a home-lending environment plagued by high interest rates and low inventory, the company is working whatever angles it can to try to grow its volume. For now, it is working.
In the first quarter, closed-loan origination volume rose from $16.9 billion in the year-earlier period to $20.2 billion this yearmuch faster than the 2% rise in the overall market as estimated by Fannie Mae economists.
Those numbers are still a far cry from the $100 billion-plus quarters of the pandemic mortgage boom. But this jump came despite weekly average 30-year fixed mortgage rates rising to an average of 6.7% in the first quarter from 6.4% a year earlier. Overall, Rocket revenue for the quarter was about $1.4 billion, versus analysts consensus expectation of around $1 billion, according to Visible Alpha.
Rocket shares were up about 5% on Friday morning.
One bump came from home-equity lending, where Rockets volume grew 3.5 times from the first quarter last year to this year. Some was the result of market-share gains, as banks dialed back their own mortgage lending. Banks have warned that impending capital rules will discourage home lending by deposit-takers, leaving more of the market for non-bank originators such as Rocket, which arrange and then sell mortgages on to investors.
The company is even eyeing upside from the recent legal settlement that could hit realtor fees.
It's been too long that the cost of buying and selling a home is too high, Rocket Chief Executive Varun Krishna told analysts on the companys first-quarter earnings call Thursday evening.
There are some folks in the industry that are going to fight this tooth and nail, he said. There's others that are going to look past it and see the opportunity. And we definitely choose to be the latter, he said, adding that Rocket can be on the consumer side and just leverage this totake cost out of the equation.
Rocket is also enjoying a revenue bump thanks in part to the shrinking mortgage industry, which helps pricing for the remaining players. The Detroit-based originator was able to build more margin into mortgages sold, especially with strong demand for high-yielding paper from investors. The companys gain-on-sale margin was 3.11% for the quarter, the highest since the first quarter of 2021.
All that said, the outlook for the mortgage market hardly remains rosy. The Mortgage Bankers Association just lowered its most recent mortgage origination dollar volume forecast for 2024, citing higher rates.
Rocket shares are still down over 7% year-to-date. Lower realtor fees are welcome, but stronger fuel may be needed to get Rocket off the launchpad.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here_._
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(END) Dow Jones Newswires
May 03, 2024 10:46 ET (14:46 GMT)
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