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Rocket Companies originates record home purchase mortgages despite industry headwinds

Rocket Companies CEO Jay Farner (Rocket Companies, iStock)

Rocket Companies originated the most home purchase loans in its history in the second quarter, even as record-low interest rates cut into the lender’s profit.

The company reported $1 billion in net income, down from $3.4 billion a year earlier. Revenue also fell, to $2.7 billion from $5 billion. The company said its earnings fell because interest rates dropped to record lows in 2020, sending homeowners rushing to refinance, while the volume of mortgages for purchases almost doubled in the period.

The Detroit-based company provides mortgages, home listings, title insurance and auto listings. It is one of the largest mortgage lenders in the country.

Rocket Companies closed on $83.8 billion in purchase mortgages in the second quarter, up from $72.3 billion in the second quarter of 2020. It expects loan volume to be between $82.0 billion and $87.0 billion in the third quarter.

Rocket Companies’ CEO Jay Farner, said in a call with analysts on August 12 that the biggest challenge is the lack of supply of available homes and cars.

“The markets are so hot that there are significant inventory challenges in both real estate and automotive sectors,” said Farner on the call.

The U.S. mortgage market has been red hot ever since the Federal Reserve cut benchmark rates to record lows at the start of the pandemic. Home sales soared as buyers took advantage of cheap rates to secure more spacious and comfortable homes to ride out the Covid-19 lockdowns.

Now, after a run of more than a year, demand looks poised to drop. Refinancings have declined and purchase mortgages are starting to fall. In June, mortgage applications for new home purchases fell 3 percent from May, according to the Mortgage Bankers Association.

Farner adds that despite forecasts for a slowdown in mortgage lending later this year, the company is expecting its business to be even better.

“We’re going to gain market share and achieve record origination volume this year,” he said.

The company also announced a new relationship with life insurance company MassMutual, which allows its 9,000-plus agents to help originate home loans through Rocket Mortgage. Additionally, Rocket Companies is planning to launch a new residential solar division in early 2022. It also plans to start an iBuying program facilitated through third-party partner companies in coming quarters.

Rocket Companies goal is to have an all-in-one platform so, for instance, a Rocket Mortgage customer can also get property appraised through its appraisal and title insurance arm, Amrock.

Nonbank mortgage companies like Rocket Mortgage have exploded in popularity since the great recession after banks backed away.

Some academics and economists, along with Ginnie Mae are concerned that some nonbanks may not have the capital to service mortgages if large numbers of homes go into foreclosure. These critics said it was especially problematic since these mortgage companies were primary lenders of government backed loans such as FHA and VA mortgages. So far, these problems have yet to arise.

Many of these companies, including Rocket Companies, have had their best year on record during the pandemic. Rocket Companies, chaired by mortgage mogul Dan Gilbert and the parent of Quicken Loans, went public last year, raising $1.8 billion.

Rocket Companies stock increased 10.2 percent to $19.21 on Friday.