Rocket Cos. for the first quarter turned around losses
But that gain-on-sale growth is likely short-lived as management predicted the level will return to close to where it was in the second half of last year.
Yet, on the earnings call, management painted a positive picture of the current interest rate surge — earlier today, Freddie Mac
"If rates are to stay higher for longer, and let's say it's not a $1.8 trillion market, it's something less than that, there's a view you can get to pretty easily that that actually benefits us even more given our capitalization levels, given our liquidity and some of the investments we've made over the past two years in terms of technology to increase capacity," Brian Brown, Rocket's chief financial officer said.
The Detroit-based firm had first quarter GAAP net income of $290.7 million, versus
Gain-on-sale totaled 311 basis points on closed loans of $20.2 billion. For the fourth quarter, it was 268 basis points with $17.3 billion of production, while one year ago the gain-on-sale was 239 basis points on volume of $16.9 billion.
That first quarter margin benefitted from a pair of market conditions that are not likely to reoccur, Brown stated. The first was the lower interest rate environment during the period versus where they are currently.
"Another factor was our extremely strong execution in the securitization markets for home equity loan products," he continued. "Therefore, our expectation is that the second quarter gain on sale margins will return to levels closer to those observed in the second half of last year."
Rocket executives claimed the company
In dollar terms, the net gain-on-sale, which includes the fair value of mortgage servicing rights Rocket originated, was $699.2 million, versus $469.6 million one year prior.
At the same time net servicing income increased to $402.3 million, compared with a loss of $31.9 million for the first quarter of 2023.
The servicing line included a $56.5 million gain in the change of the fair value of its MSRs; one year ago, it had a $398.3 million loss.
In March and April, Rocket acquired four portfolios with $8.2 billion of MSRs for a total consideration of $110 million. Those rights have higher coupons than what Rocket currently averages.
The company sees these borrowers as a customer recapture opportunity, especially if rates go down.
"Despite recent market volatility, we are steadfast in our belief that there's tremendous opportunity ahead for Rocket," Krishna said.
He pointed to the reduction in industry capacity —
The next factor was the decision by a number of banks to reduce their mortgage lending businesses because of "profitability challenges," as well as changing capital rules.
Finally, Krishna said that
Rocket's balance sheet gives it the opportunity to take advantage of these trends, he claimed.
