Just two weeks after announcing the sudden retirement of longtime executive Jay Farner, Rocket Companies reported a fat financial loss in the fourth quarter of 2022, its largest ever. And some analysts believe it may not be the last unprofitable period for the lender this year.
The Detroit-headquartered lender suffered a $197 million net income loss from September to December, on the back of a $166 million loss in the third quarter, when the company also lost the title as America’s largest mortgage originator.
In all, Rocket originated $19 billion in mortgage volume in the fourth quarter, 26% lower than the $25.6 billion it originated in Q3. The fourth quarter production also represents an 75% decline compared to the same period in 2021.
Like many of its competitors, Rocket’s performance last year dramatically declined compared to 2021, when refinancing business was still plentiful.
Rocket fell from $4.5 billion in adjusted net income in 2021 to a $137 million adjusted net loss in 2022. Originations dropped from $351 billion to $133 billion in the same period.
“Last year marked a period of transformation for Rocket. We right-sized our business to respond to a challenging market; we also made key investments to serve our clients better on every step of their home ownership journey,” Farner said in prepared remarks. “With foundational pieces of our client engagement program in place, we are focused on expanding our top of funnel, lifting conversion and lowering our client acquisition cost, with the ultimate goal of growing our purchase market share and extending client lifetime value.”
To date, expense cuts haven’t offset the declines in revenues – the company has offered voluntary buyouts and made several rounds of layoffs. Expenses in the fourth quarter tallied $986 million, down from $1.18 billion a quarter ago, roughly a $200 million cut in expenses.
Meanwhile, revenues plunged in the fourth quarter. According to Rocket’s earnings report, the lender generated a total of $481 million in revenue in the final quarter of the year, down from $1.295 billion in the third quarter. Revenue in the fourth quarter of 2021 was $2.95 billion.
On the bright side, Rocket’s servicing portfolio is increasing. The unpaid principal balance in its servicing book rose to $535 billion as of Dec. 31, compared to $531 billion as of the end of September. Rocket has 2.5 million clients in the servicing portfolio. It generates an annual $1.5 billion in recurring servicing fee income.
Despite gains with the servicing portfolio, the financial performance deteriorated amid leadership changes.
Rocket Companies announced on Feb. 13 that Farner will retire as CEO in June. He also stepped down as a board of directors member in early February. News of Farner’s resignation was a surprise as the 49-year-old executive spent 27 years of his professional career at the company.
Bill Emerson, Farner’s predecessor, will move from Rock Holdings to rerun Rocket Companies. He already took Farner’s board seat. The board of directors approved a base salary of $600,000 for Emerson, effective Jun. 1. He will also be eligible for a target bonus of 100% of his base salary for 2023 and receive a grant of restricted stock units equal to $6 million on Mar. 3.
Rocket is looking both internally and externally for a permanent CEO. According to analysts, Farner’s replacement will be tasked to put the company on a profitable path while it transitions from a refi-reliant lender into a multi-disciplined fintech. Some analysts estimate Rocket will return to profitability only in the third quarter of 2023.
