When the Federal Reserve slashed interest rates to zero on March 15, 2020 and set off an extraordinary real estate boom, Rocket Mortgage was ready. The Detroit-based lender’s unmatched combination of name recognition, digital infrastructure and consumer technology enabled it to originate more than $670 billion in mortgages in 2020 and 2021, smashing records in the process.
Its parent Rocket Companies rode the wave to a stunning $9.4 billion in profit in 2020 and $6.1 billion in 2021.
But more than 80% of Rocket’s volume during those years came from refinancings, data from Inside Mortgage Finance (IMF) showed. Its centralized call center business model, which Rocket relied upon to dominate an unprecedented refi market, isn’t as durable when interest rates are high, there are few refi opportunities and having strong relationships with real estate agents is what brings home the bacon.
And Rocket is well aware.
The lender made focused efforts to target the purchase market in 2021 and set up dedicated teams to cultivate relationships with real estate agents. Coming off multiple quarters of financial losses, Rocket has accelerated those efforts in 2023, embarking on a remote local loan officer hiring spree designed to capture purchase market business from real estate agent connections, sources told HousingWire.
It’s not yet clear whether this represents a change in its business model or what level of resources Rocket intends to devote to grow this revenue line. Against the backdrop of rising rates, Rocket Companies has been betting big on the strength of its platform. Its announcement of a new CEO Varun Krishna — a veteran in the financial technology world who held executive positions at Intuit and Paypal, confirms that Rocket is fully committed to becoming a fintech company.
“What is clear here is that their long-held view that when rates went up, they could simply change their focus to purchase mortgages is not holding up. Because in a purchase volume environment we’re in now, local originators have a distinct advantage over call center, centralized originators,” said Brian Hale, CEO of industry consulting firm Mortgage Advisory Partners.
To gain insight into how Rocket plans to strengthen its local presence to capture purchase volume, HousingWire spoke to more than a dozen former Rocket employees, current retail loan officers and mortgage brokers who have been contacted by Rocket recruiters to join its local initiative.
Rocket declined to answer HousingWire’s questions about the company’s efforts to strengthen its local presence; it noted in a statement that its hiring of remote mortgage bankers is not new.
Shift in internal messaging, recruiting high-producing LOs
There’s no doubt that Rocket’s model works exceptionally well when the environment is heavy refi. But it’s not as successful in a purchase market, a former president’s club account executive explained in an interview with HousingWire.
“In the purchase market, there are a lot of times people want that more personal touch, you need to be developing relationships with Realtors, and that can be much more difficult to do at scale,” he said.
It was around late 2020, early 2021 when executives started emphasizing the need to target the purchase market, according to multiple former Rocket employees, including former mortgage bankers, an account executive and a senior recruiter.
Rocket tried different tactics to increase its purchase market share, including setting up teams that focused on cultivating relationships with real estate agents in 2021.
Also in 2021, Rocket decided it needed to have some loan officers on the ground who are in close contact with real estate agents.
According to a former senior recruiter, it was in the summer of 2021 that the lender started the “executive local loan officer program.”
“The executive loan officer or the local loan officer program was not on the radar [when refis were booming], like even discussed or like a kind of a dream child project yet, I think that it became very reactionary to what was going on in the market,” a former senior recruiter said.
With the mortgage market declining 70% year over year, the plan gained traction in early 2023.
Rocket is currently recruiting remote local loan officers who have a minimum of three years of experience in mortgage loan origination, active NMLS and state licenses and a “proven track record generating organic referrals from your network that results in closing,” according to job postings on LinkedIn and Rocket’s careers website.
The LOs are to be based in the West, Southeast and Northeast regions of the country. Job postings show that it is hiring remote executive loan officers in more than 30 states, including Arizona, Colorado, Illinois, Maryland, Florida, Tennessee and Washington as of July 31.
The former senior recruiter trained other recruiters on how to reach out to high-producing, licensed loan officers before leaving Rocket in August 2022.
Rocket pulled data to see who had “volume underneath them because they wanted people that are already doing well in the marketplace,” the former recruiter said.
Messages were intentionally kept generic – not throwing too much out there but enough of a bait to get someone interested.
“‘We just want to see if there’s maybe an opportunity to have you come work for us’ is what the recruiter told me,” Shane Kidwell, CEO of Dwell Mortgage, said in an interview with HousingWire in June.
“I was told by the recruiter this division – Rocket retail started a year ago. So this isn’t brand new,” Kidwell noted.
HousingWire reviewed voice messages and transcripts of phone conversations between Rocket and mortgage brokers and retail loan officers. Those messages commonly said “Rocket Mortgage is going local” and that it was a different division than its consumer-direct model.
In December of 2022, Rocket said it would pay 40 bps on a Rocket lead, 115 bps on a self-generated lead and a $36,000 base salary for a local executive loan officer, according to the former senior recruiter.
A mortgage broker who was contacted by a Rocket recruiter in June said Rocket would provide 37 bps on Rocket-generated loans, 97 bps for self-generated leads and $7,000 per loan.
The comp structure “was lower than some places but the executive loan officers were provided the marketing materials, the brand of Rocket,” the former senior recruiter said. “They [positioned] it as we’re able to pay you a little less because of the value that we provide as the No. 1 lender.”
While HousingWire was unable to confirm the size of the executive loan officer program, a mortgage banker who was recently hired by Rocket said he was told roughly 150 loan officers had joined as of late June.
That mortgage banker is tapping into his existing real estate agent networks while leveraging Rocket’s brand name recognition with consumers.
“It’s the branding that Rocket has. When you tell someone you’re going to Rocket, everybody knows who Rocket is,” the mortgage banker said. “With my previous employer, they didn’t have as much [name recognition]. (…) I’m still working with all of the real estate agents that I was working with in the past.”
Another benefit for remote LOs in Rocket’s executive local loan officer program is the dedicated support staff.
Remote LOs send their loans to a dedicated team of processors and underwriters who exclusively handle executive loan officers’ loans, the banker told HousingWire.
And purchase loans are coming from markets across the country.
“I don’t think that there’s anywhere that they’re not focused on,” the newly hired banker told HousingWire. “I think it’s everywhere, just trying to create a presence literally in every market.”
Rocket declined to speak to HousingWire about its efforts to expand its local presence. In a prepared statement, a spokesperson said, “The country’s best mortgage bankers can’t always work out of one of its offices in Detroit, Cleveland or Phoenix, but that doesn’t keep them from working with Rocket and having the backing and support of the nation’s largest and most respected lender.”
“Many of Rocket Mortgage’s remote mortgage bankers work out of their homes, while some have desk-share agreements in real estate offices or use co-working spaces,” Rocket’s spokesperson added.
Possible channel conflicts for Rocket?
Prior to Rocket’s accelerated local initiative, its origination business came entirely from its direct-to-consumer centralized model and its Pro TPO division – its conduit to mortgage brokers and historically a stronger source of purchase business.
“But now, there is potential that Rocket local loan officers are going after the same geography as the brokers who are also forwarding business to Rocket,” Warren Kornfeld, senior vice president of the financial institutions group at Moody’s Investors Service, said.
As is true for other lenders operating in multiple channels, Rocket needs to manage potential conflicts between its broker and remote local loan officer channels.
It has always had multiple broker partners in the same neighborhood competing with one another, so from their perspective nothing has changed, Rocket said.
“If a broker is working with a client and that client has had a relationship or a conversation with Rocket retail, Rocket retail stands down and its broker partner continues with the transaction as part of the commitment to the broker community,” Mike Fawaz, executive vice president at Rocket Pro TPO, said in an interview with HousingWire in early June.
However, Rocket’s “apparent strategy to build out a retail channel” will create channel conflict stemming from different pricing strategies in its TPO and retail channel, Rick Roque, vice president of CrossCountry Mortgage and an industry consultant on partnerships and retail acquisitions.
“What will happen is their internal operations will either better serve their wholesale or their retail platforms, it won’t better serve both. So there will be service-level challenges operationally. There will be conflict, internally and externally. And so you just create service-level challenges for the consumer,” Roque said.
Challenges of offering different pricing and services would hardly be unique to Rocket. There are plenty of other lenders that also offer different services through different channels, including Caliber/Newrez and Pennymac, both of which work in retail, wholesale and correspondent channels.
Even within the same company, retail loan officers can offer different loan pricing than their colleagues depending on their production volume.
As to how to solve the broker versus local LOs conflicts?
“I guess it’s with communication and geographic areas, and how they are going to do two businesses together. It’s one of those things that all companies say about cannibalizing a certain business. And what’s the tipping point when you go and do that? You don’t want to do it too fast, you don’t want to do it too slow. So, it’s a balancing act,” said Kornfield.
Will going local be enough to move the needle?
“A Realtor had a listing, I think he had like eight or 10 offers on the house. None of the loan officers called to introduce themselves to the listing agent except for Rocket Mortgage, which is very unusual,” Brian Parkinson, a mortgage banker at Alerus Mortgage, said.
Parkinson said he believed that it was one of the local Rocket LOs who closed the deal, which indicates that “they are clearly making a shift as they have to with no refi business.”
These are the kinds of proactive moves Rocket wants to see from the local loan officers they’ve hired.
Rocket is making progress in its transition from refi to purchase, the data shows. By the end of 2021, less than 20% of Rocket’s production came from purchase mortgages, according to IMF.
Fast forward to this year, and Rocket’s share of purchase business jumped to 55% in the first three months of 2023. Purchase volume in the first quarter came in at $9.4 billion, good for third overall on IMF’s rankings.
But Rocket’s purchase gains haven’t kept pace with its rivals. United Wholesale Mortgage, which surpassed it as the top mortgage lender in America in Q3 2022, originated $19.2 billion in purchase mortgages (86% of its originations) in the first quarter of 2023. To boot, the average purchase mix for the top-50 mortgage lenders in America in the first quarter was 84.7%, nearly 30 percentage points higher than Rocket.
What Rocket does have is nearly unlimited resources. If the lender wants to dramatically increase its purchase business through recruitment or other means, it has more dry powder than any rival independent mortgage bank.
As of Q1 2023, Rocket reported $8.1 billion in liquidity — including $900 million in cash. The cost of originating the next loan is also quite low for Rocket – a lot of the underwriting and processing goes through technology and the main cost comes down to individual workers, according to Kornfeld.
“The company has enormous unused capacity and unbelievable operating leverage(…) The company wants to drive as much volume efficiently through their machine,” Kornfeld noted.
Another advantage to investing in local LOs is that retail originated loans have a higher gain-on-sale margin compared to the wholesale channel and the lender owns the customer relationship, Kornfeld said.
“In retail originated loans, [lenders] own the customer. So, when that homeowner has other financing needs, they’ll come, hopefully, if you’ve done a good job, to you whether they’re buying a new property or whether they are refinancing their existing property,” Kornfeld noted.
Rocket – a company with 8,236 sponsored MLOs according to the NMLS as of July 31 – would need to hire hundreds of loan officers to be a meaningful player in non-consumer direct retail lending, experts said.
And the lender has not made any indication in its SEC filings that it is pursuing a new, distributed sales strategy.
As with every other lender in America, Rocket may still be figuring out how to adapt to the high-rate environment, even if it means going against the grain of what they’ve done for decades — relying on direct-to-consumer business and mortgage brokers.
Given that Rocket’s purchase mortgage market share improved marginally to 3.8% in Q1 2023 from 3.5% at the end of 2021, it would appear that the mortgage lender is simply testing the waters. By comparison, UWM almost doubled its purchase mortgage market share to 7.7% in Q1 2023 from 4.7% at the end of 2021.
Analysts are split as to whether Rocket has shifted its strategy to go after the purchase market.
Rocket hiring local loan officers is considered “incremental at best as it is not a big enough component to be classified as a change in strategy or a new division,” said Shampa Bhattacharya, senior director at Fitch Ratings.
“If they were to grow it significantly and quickly and/or bolt on an acquisition, we would pay more attention to what it might mean for their profile.”
But it does seem like a “slight shift in strategy” from what they’re doing and it would appear that they’re maybe more focused on being able to drive purchase origination by themselves as opposed to relying on third parties, said Kevin Barker, managing director at Piper Sandler.
“Rocket is attempting to adjust to the market dynamics, given that they were so sensitive to refinance originations with their call center operations, and ultimately, the purchase market is dominated by access to Realtors, which requires a more distributed sales force,” Barker said.
If Rocket’s going-local strategy is ultimately successful, “it could have a big impact on the market,” Kornfield said.
Transitioning meaningfully from the direct-to-consumer channel and a broker strategy to an in-house local loan officer tactic would take time.
“I think they could (be successful). It takes a long time to build up the relationships on a national level,” Barker said.
