Housing boom powers Rocket Companies to $3 billion quarterly profit

Rocket Companies Inc., continuing to ride the wave of a home sales boom that has held up amid the coronavirus pandemic, on Tuesday reported a third-quarter profit of nearly $3 billion, a 506% increase over the third quarter of 2019.

Closed loan origination volume, a key marker of success in the home mortgage market, was up 122% year-over-year to a record $89 billion. 

"The COVID-19 pandemic has fundamentally changed the way Americans think of their homes," CEO Jay Farner said on a call with analysts Tuesday. "For decades, many viewed their house as their most important investment. ... It is now where we work, where we teach our children, and where we gather with friends."

"This enthusiasm around the value of home is clear in the numbers," he said, noting a recent National Association of Realtors report indicating existing-home sales in the U.S. in September were up more than 20% year-over year, and news reports suggesting some Americans are seeking larger homes in suburban communities amid the pandemic.

"Homeownership is on the rise across the country, led by a new generation of first-time homebuyers," he said. "As a result of shifting demographics, and the ongoing pandemic, we are seeing rapid acceleration in the long-term shift from physical to digital transactions across the industries where we participate."

An "unprecedented number" of consumers are interested in taking advantage of historically-low interest rates, he said. According to Freddie Mac, mortgage rates hit another record low last week — marking the 12th record low recorded this year. The 30-year fixed rate hit 2.78%, while the 15-year fixed rate hit 2.32%. Low rates have fueled a housing market boom in the United States.

Rocket's gain on sales margin rose to 4.5%, up from just below 3.3% in the third quarter of last year. The company's net income of nearly $3 billion was on net revenue of $4.6 billion, up from $1.6 billion in 2019. Adjusted pre-tax earnings totaled nearly $3.5 billion, enabling the company to deliver diluted earnings per share of of $0.54.

Rocket's total expenses grew 46% in the third quarter, which it attributed primarily to higher variable compensation and the hiring of new employees to support the company's growth. Rocket, headquartered in downtown Detroit, now employs approximately 22,000 people.

The company announced several new partnerships, including with Realtor.com, Mint by Intuit and an unnamed financial services company it says is one of the largest in the world. Executives said more details on that partnership would come next year.

Rocket launched a new technology platform, called Rocket Pro Insight, which real-estate agents can check for real-time updates on the status of their clients' mortgages. The company reported that 1,100 agents signed up the first day the platform went live, and said it expects 15,000 to sign up before year's end.

Farner also noted the ways the company has expanded its use of data science and artificial intelligence, saying that in the third quarter the company reached the "milestone" of generating more than $60 million in application volume over the last two years using those tools. 

The company reported Tuesday that about 4.1% of its total servicing portfolio, representing some 84,000 clients, was on a COVID-19-related forbearance plan at the end of October. That's down from 4.7% at the end of August, and 5.1% at the end of June.

As of the end of the quarter that closed in September, the company's total liquidity stood at $6.9 billion, including $3.5 billion in cash-on-hand.

The company's board of directors has approved a program, announced in the earnings release and effective Tuesday, that authorizes Rocket to repurchase up to $1 billion worth of the company's common stock. The program will be in place for two years.

"The program gives us the flexibility to take advantage of opportunities if we believe the market is undervaluing our business," said chief financial officer Julie Booth. "We are committed to using our substantial cash generation to create long-term value for our shareholders."

Rocket's stock at market's close Tuesday was $21.60 per share. It was down about 2.5% in after-hours trading.

Tuesday's earnings report was the company's second since going public in August. Rocket raised $1.8 billion in an initial public offering. 

In the second quarter, Rocket posted a nearly $3.5 billion profit on revenue of more than $5 billion and reported closed loan origination volume of $72.3 billion. At that time, executives forecast a strong third quarter and projected closed loan volume of between $82 billion and $85 billion.

Looking ahead to the fourth quarter, executives said they expect consumer demand for home loans to remain strong. The company expects to reach closed loan volume of between $88 billion and $93 billion, compared with the $50.8 billion it recorded in the final quarter of 2019.

"It was great news that a (COVID-19) vaccine may be on its way, but we don't believe this will alter the course that has been set now for more work-from-home, leveraging the home for family and work," said Farner. "All of those things bode very well for homeownership."

jgrzelewski@detroitnews.com

Twitter: @JGrzelewski