Rocket Cos., preparing for its twin acquisitions of Mr. Cooper and Redfin, sunk back into the red for the first quarter, the second time in the past three quarters it has lost money.
But as the company noted, one of its bright spots was in home equity lending, which had another record quarter, as homeowners looked to access their equity without affecting their first-lien mortgage rate.
"If we consistently have quarter over quarter growth, if you think about the market share opportunity there, regardless, you know, if rates are at 7% or if rates are at 6%, that product is still very attractive," said Brian Brown, chief financial officer, on the earnings call. "So we think there's a really long runway there."
The financials behind Rocket’s quarterly loss
Rocket lost $212 million during the quarter, compared with
On a GAAP basis, Rocket had total revenue of $1 billion, and an adjusted $1.3 billion for the period, which was at the high end of past guidance.
However, expenses in the first quarter were $1.26 billion. Those were up from $1.1 billion one year prior.
Using the non-GAAP adjusted income metric, Rocket made $80 million in the first quarter, versus $84 million in the same period in 2024.
The year started off strong, Varun Krishna, CEO said on the earnings call, especially as mortgage rates dropped during the quarter.
In particular March was a high point at Rocket, as it served 21% more origination clients than it did in the same month in 2023.
Momentum shifts at the start of April
But in April, which is in the second quarter, the market dynamics, normally positive for the start of the spring home purchase season, shifted. That came after President Trump's tariff announcement, which roiled
"It actually marked a sharp reversal in earlier momentum, and that's for a few reasons," Krishna said. "Following global tariff announcements, the stock and bond markets reacted with volatility, and the 10-year Treasury yield fluctuated sharply."
Purchase applications shrunk by double digit percentages in April, which the mortgage industry had not seen since the financial crisis.
"While these short-term headwinds are shaping consumer behavior, certainly it also reinforces our conviction for who we are and where we're going," Krishna said. In this environment an integrated home ownership platform becomes an essential pursuit."
Production up year-over-year in both channels
Total origination volume was $21.6 billion, down from $27.8 billion three months ago but up from $20.2 billion in the first quarter last year.
The direct-to-consumer channel had sold loan volume of $11.3 billion, up from over $9 billion a year ago, while the partner channel did $9.2 billion, up from $7.8 billion.
Second quarter objectives are achievable
"For the second quarter, we expect adjusted revenue to be in the range of $1.175 billion to $1.325 billion with the midpoint of this range representing 2% year-over-year growth," said Brown. "This outlook reflects what was a challenging April from both a margin and volume perspective, and our expectation that May and June will perform sequentially better than April."
This is achievable despite the uncertain market backdrop, Brown continued.
Servicing loses money on fair value adjustment
On the servicing side, Rocket lost $48.5 million as $400.7 million of servicing fee income was cancelled out by a $449.2 million negative adjustment to the fair value of its rights. A year ago, it made $402.3 million in servicing, including a positive adjustment of $56.5 million.
During the call, management was asked if it was considering further acquisitions in order to expand its purchase mortgage business as well as the distributed retail channel. As part of the Redfin deal, Rocket is picking up Bay Equity Home Loans.
Rocket right now is focused on the two pending deals, being "knee deep in integration preparation," and that will be its primary focus, Krishna said.
Fitch removes Ratings Watch status
The day before the earnings were released, May 7, Fitch Ratings removed Rocket Mortgage from Ratings Watch Negative status and affirmed its "BBB-" issuer default rating.
This change reflects Fitch's consideration of the expected impact of the merger agreement with Mr. Cooper, the first quarter financial results at both companies, along with additional information received from Rocket on its planned capital structure. Rocket enhanced its liquidity with
"These factors increase Fitch's confidence that corporate leverage will decline below the downgrade trigger of 1.0x within one year of transaction closing," the Fitch report said. "Still, negative rating action could occur if the company fails to show meaningful progress toward achieving 1.0x corporate leverage near term or if execution risks related to merger integration lead to operational disruptions, which impact market positioning or result in weakened financial metrics."
Redfin also loses money in the quarter
The Fitch analysis did not discuss the pending Redfin purchase.
Redfin, which Rocket signed a deal to acquire
Gross profit, which is primarily revenue minus the costs associated, were $70.6 million, essentially flat from one year ago at $70.8 million. Fourth quarter gross profit was $81,8 million.
Redfin's mortgage segment, including Bay Equity Home Loans, lost $2.3 million during the first quarter, versus a $327,000 loss a year ago.
It earned $974,000 from the title insurance segment, versus a $447,000 loss in the first quarter of 2024.
Bay Equity originated $887 million for the first quarter, down from $1.0 billion in the fourth quarter and $969 million in the first quarter of 2024.
Management points to the positive
"Redfin profits were at the high end of the guidance we gave investors in our last earnings call," CEO Glenn Kelman said in a press release. "The number of Redfin lead agents increased 32% year on year, and loyalty sales increased 40% year on year, thanks to our new plan to pay agents entirely on commission."
However, because of the merger, Redfin did not do a quarterly call, nor is it providing forward guidance.
The company said it had its best quarter for mortgage cross-selling, with a 29% attach rate.
"Many Redfin employees, from agents to engineers, have been over the moon about Rocket's vision of a home-ownership platform," Kelman said. "We can't wait to join Rocket and build the future of homeownership."
Previously, Mr. Cooper reported first quarter results, with
