eResearch | Last week, Detroit-based Quicken Loans (“Rocket Companies”), the largest retail mortgage originator in the U.S., filed its S-1 Prospectus with the U.S. Security and Exchange Commission (“S.E.C.”) to list on the New York Stock Exchange under the company name Rocket Companies and ticker symbol RKT.
Rocket Companies’ subsidiaries include:
- Amrock Inc.
- EFB Holdings Inc. (a.k.a. Edison Financial)
- Lendesk Canada Holdings Inc.
- LMB HoldCo LLC (a.k.a. Core Digital Media)
- Nexsys Technologies LLC
- RCRA Holdings LLC, (a.k.a. Rock Auto)
- RockTech Canada Inc.
- Rock Central LLC
- Rocket Homes Real Estate LLC
- RockLoans Holdings LLC
- Woodward Capital Management LLC
IMAGE 1: Rocket Companies Portfolio of Businesses
Rocket Companies was founded in 1985 by Dan Gilbert, the owner of the Cleveland Cavaliers NBA team, who sold the mortgage company in 1999 for US$532 million to Intuit Inc. (NASDAQ: INTU), a U.S. software firm, and then re-purchased it at a steep discount in 2002 for US$64 million
Mr. Gilbert’s holding company, Rock Holdings Inc., is expected to maintain 79% voting power of Rocket Companies’ common stock, with final say over election of board directors and any other material changes such as mergers and sales of company assets.
Rock Holdings also operates 11 other subsidiaries, which collectively has over 20,000 employees.
Rocket Companies
Rocket Companies mainly generates income through the sale of loans on the secondary market, in addition to originating new mortgages and loans through its innovative digital platform, Rocket Mortgage.
According to Mortgage Finance, Rocket Companies is the largest mortgage originator in the U.S., with US$145 billion in originations last year, of which 27% consisted of clients purchasing homes. In Q1/2020, Rocket Companies originated US$51.7 billion in loans.
The majority of last year’s US$145 billion in originations were sold on the secondary market, mainly to government-backed entities such as Fannie Mae and Freddie Mac, who insure the loans against default.
The Rocket brand of companies grew through over US$5 billion of investments in marketing, which includes US$900 million in marketing expenses from last year. To achieve global reach, Rocket Companies partnered with the NCAA and the PGA Tour for marketing campaigns, in addition to launching an NFL Super Bowl advertisement, featuring actor Jason Momoa.
In addition to marketing efforts to acquire new clients, Rocket Companies is leveraging its digital solutions to provide a positive origination experience, which has resulted in high retention rates. In 2019, Rocket Companies reported refinancing retention levels of 76% from existing clients, which is 3.5x higher than the industry average.
Innovative solutions
Rocket Companies is currently working on Rocket Logic, an automated underwriting tool that is expected to leverage data to close the origination of mortgages faster.
The COVID-19 crisis had little impact on Rocket Companies as it reported record mortgage origination volumes from March through June. In June, only 5.1% of serviced loans were on forbearance plans.
Rocket Companies Q1/2020 Financial Highlights
- Revenues of US$1.8 billion, a 151% increase year-over-year, which consisted of US$1.29 billion from the sale of loans and US$535 million from the origination of loans.
- Net income of US$97.7 million compared with a net loss of US$299 million the prior year, a significant improvement due to a large increase in sales of loans.
- Balance sheet consists of US$2.3 billion in Cash and Cash Equivalents, US$12.8 billion in Mortgage loans held for sale, US$11.4 billion in Funding facilities, and US$6.2 billion in Other financing facilities and debt.
Rocket Mortgage
Rocket Companies’ flagship business, Rocket Mortgage, is an online mortgage origination platform and app, which reported over US$1 trillion in home loans to date, growing in market share to 9.2% in Q1/2020 from 1.3% in 2009, at a CAGR of 19%.
IMAGE 2: Rocket Mortgage Mobile App
Rocket Mortgage launched in 2015 with a mandate to connect consumers with mortgages in under ten minutes. The platform has since revolutionized the mortgage industry through digital solutions that automate processes such as data retrieval, mortgage origination, and payment processing.
According to Rocket Companies, 75% of the clients who use the Rocket Mortgage platform consist of first-time home buyers and millennial consumers.
U.S. Mortgage Market
A decade ago, the top five mortgage originators drove more than 60% of retail mortgages, however, the industry experienced increased competition and disruption as a number of innovative solutions entered the market with new methods for originating and processing mortgages.
Today, the top five originators only account for 17.3% of the total U.S. market, as numerous mortgage originators were created over the last 10 years to cater to the growing on-demand society, which favors innovative solutions that increase convenience and user experience.
According to the Mortgage Bankers Association, the mortgage industry reported total originations of US$2.2 trillion last year, with an average of US$2 trillion in annual originations for the past two decades.
As mortgage rates are at historic lows and the U.S. Federal Reserve is expected to keep the benchmark rates down, this may be the most opportune time for Rocket Companies to IPO.
CHART 1: Rocket Mortgage Market Share ($ Billions)
