Dan Gilbert’s Rocket Companies managed $96 million in net income, or earnings, in the third quarter as rising interest rates continue to hurt the mortgage industry.
Rocket Companies, the publicly traded parent of Rocket Mortgage, reported total revenue of $1.3 billion for the quarter, which, although down slightly from $1.4 billion last quarter, represents a 58% decline from its $3.1 billion in revenue (and $1.4 billion in profit) in the third quarter of 2021, before interest rates began to rise in arrow.
Rocket made a profit of $60 million in the second quarter.
Like other lenders, Rocket continues to experience a year-over-year plunge in mortgage volume, closing $114 billion in loans so far this year through the third quarter, down from $275 billion. for the same nine-month period last year.
During a Thursday night earnings call with Wall Street analysts, CEO Jay Farner pointed to Rocket’s liquidity and “strong balance sheet” that will allow it to “weather the storm.”
“The mortgage industry continues to face difficult times. 30-year fixed mortgage rates eclipsed 7%, the highest in decades,” Farner said. “Housing affordability is at a 30-year low and weakening consumer confidence is causing the home buying market to deteriorate rapidly.
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After posting record profits and boom years in 2020 and 2021, Rocket this year has downsized and aggressively cut expenses. So far, it has carried out two rounds of employee buyouts, cutting an unknown number of positions.
During Thursday’s earnings call, Brian Brown, Rocket’s chief accounting officer, explained how the company had adapted to the down cycle in the mortgage industry by cutting spending by more than $2 billion on an annualized basis between the third quarter of last year and the third quarter of this year.
For the industry as a whole, there are likely more job cuts to come, Brown said.
“The industry is flooded with loan officers struggling to produce,” he said. “In fact, our estimate suggests that industry volume, per loan officer, is near an all-time low at less than one loan per loan officer per month. .
“The economy is simply unsustainable and the capacity of the industry will continue to come out,” he added.
Rising mortgage rates crushed mortgage refinance business, traditionally a major profit center for Rocket Mortgage, formerly known as Quicken Loans and the nation’s top mortgage lender by volume.
Rising rates have also dampened sales of existing homes, which have fallen for eight consecutive months this year, according to the National Association of Realtors.
The average interest rate on a 30-year fixed-rate mortgage is 6.95% this week, according to government-backed Freddie Mac. That compares to just over 3% a year earlier. The last time mortgage rates were this high was in 2002.
Yet some consumers continue to refinance.
Farner said in response to an analyst’s question that Rocket “does a lot” of cash refinances, often for customers who intend to use the money to pay off other forms of debt.
Industry-wide, he estimated that about 90% of consumers who currently refinance “take out some form of money when they do.”
“As we see the economies go down and people spend more on their credit cards, they’re under more pressure,” Farner said. “While it’s not always, of course, the right decision for our client to take money out of his first mortgage. That’s why we have the home equity loan product that we’ve rolled out, it’s is why we have the Rocket Loan product that we rolled out.”
Other nationally-ranked Metro Detroit mortgage lenders have also downsized this year.
Troy-based Flagstar Bank earlier this year cut its mortgage staff by 20%, or 420 people, and last month revealed it had cut staff by a further 7%. Flagstar recently announced that its mortgage volume was down 45% in the third quarter compared to a year ago.
And Ann Arbor-based Home Point Financial Corp. recently announced it would lay off 217 workers this month.
Pontiac-based United Wholesale Mortgage may provide an update Friday morning on its staffing when it is due to release its third-quarter results.
Contact JC Reindl at 313-378-5460 or jcreindl@freepress.com. Follow him on Twitter @jcreindl.
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