Rocket Companies posts major loss in fourth quarter

It's the first time in the red for the firm since it went public in 2020

Rocket Companies posts major loss in fourth quarter

Rocket Mortgage parent company Rocket Companies, on Tuesday, reported a net loss of $493 million in the fourth quarter on $481 million in total revenue  – marking the first time the company has been in the red since going public in August 2020.

For the full fiscal year 2022, the company reported net income of $700 million – a far cry from the $6 billion in profit posted in 2021 and the massive $9.4 billion in profit posted in 2020. In another sobering result, the company’s total mortgage volume was $133.1 billion for last year, versus $351.2 billion in 2021.

Such highs and lows track the booming years of record refinancing levels by homeowners that yielded low-hanging fruit for mortgage companies and the virtual end of such activity. The report further mirrors the volatility of the market with higher interest rates set by the Fed to tame inflation.

How is the mortgage industry doing?

The upshot: “The mortgage industry faced an extremely difficult environment in 2022,” Rocket’s chief financial officer Brian Brown told shareholders during an earnings call that began in the late afternoon at 4:30pm ET. “Rapidly rising interest rates, declining consumer confidence and challenging affordability impacted demand for purchase and refinance mortgage products throughout the year.”

Brown cited a veritable ‘who’s who’ in the industry in suggesting Rocket was hardly alone in facing market-driven challenges, pointing to statistics to buttress his point “To put the demand headwinds in perspective, the MBA’s mortgage application index dropped nearly 70% in 2022, the largest inter-year drop in the history of the data set going back to 1990,” he said, referencing research from the Mortgage Bankers Association. “At the same time demand was falling, the mortgage industry faced excess capacity.”

What caused the housing market to fall?

CEO Jay Farner (pictured) further detailed the disappointing results – and the reasons behind them.

“2022 was a challenging year for the housing and mortgage industry, and one defined by rapid change,” he said. “Over the past 12 months, eight increases in the Fed funds rate intended to rein in high inflation led to a sharp rise in mortgage rates. The 30-year fixed rate mortgage spiked from roughly 3% in January to more than 7% by the end of October. This represents the largest and steepest rise in roughly four decades.”

Such volatility, coupled with an increased cost in financing, combined in eroding profit, he suggested: “Demand for rate and term refinance transactions shrank significantly while housing affordability and consumer concerns about a looming recession weighed heavily on the home purchase market,” he explained. “Despite this backdrop, we continue to invest in innovative technology and programs to serve our clients better and to capture the immense opportunity.”

He described the resulting landscape under which it hopes to increase market share: “The mortgage industry is fragmented. The direct-to-consumer channel, Rocket’s bread and butter from the beginning, represents the vast majority of the mortgage market. Our company has a long track record of disrupting mortgage refinance in this space and growing market share, and we believe we are well-positioned to do the same in the home purchase market, with products and the ecosystem and the client engagement programs that we’ve put in place. We believe we can grow our purchase share by delivering an engaging and differentiated client experience with the additional programs we’ve launched over the last 12 months, particularly to the millennial and first-time home buyers who drive the industry.”

Farner set to retire June 1

Farner also took time to address his imminent retirement, a disclosure the company first made on Feb. 14. Bill Emerson, vice chairman of Rock Holdings – the majority shareholder of Rocket, will serve as interim CEO until a successor is appointed.

“As you know, on June 1, I will be retiring from my role as CEO,” Farner said. “The last 27 years of Rocket and in particular the last six as CEO, have been among the most rewarding experiences of my life. We’ve accomplished so much together as a team, and I’ve made many lifelong friends.

“With all the excellent work accomplished in 2022 and into 2023, I believe now is the right time to step aside, so I can spend more time with my family while the company continues on its journey executing on these transformational strategies.”

Emerson – who served as CEO of Rocket Mortgage for 15 years from 2002 to 2017 – offered a few words: “I’m excited to roll up my sleeves and dig in with Jay and the rest of the company’s phenomenal leadership team to build on our strong foundation and continue executing at a high level while the board conducts a search for a permanent successor,” he said. “On a personal note, Jay has been a great colleague and friend, and I want to take a moment to thank him for his tremendous impact on this organization. His vision for Rocket future has created a pathway for success and positioned Rocket very well.”