Rocket's mortgage-domination vision
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As the mortgage industry struggles with persistently high mortgage rates, Rocket is spending more than $9 billion to buy mortgage servicing giant Mr. Cooper and cement its position as the biggest player in the space.
Why it matters: Rocket's vision is of a one-stop shop where homeowners use its services when they're buying a home (it announced its acquisition of Redfin just three weeks ago), when they take out a purchase mortgage, when they pay that mortgage every month, and when they refinance.
The big picture: Banks have been steadily leaving the mortgage industry since racking up some $100 billion in mortgage-related fines after the global financial crisis.
- That's opened up the sector to non-banks in general, and to Rocket in particular.
How it works: The mortgage servicing business has historically been a boring backwater of the industry, with thin margins and complex valuation formulas.
- Increasingly, however, non-bank servicers like Rocket are trying to take advantage of the fact that they deal with their customers every month. The goal is to maximize the so-called "recapture rate" — the chance that an existing customer will choose the same company for their next loan.
By the numbers: Rocket's recapture rate of 83% reflects its perennial status atop JD Power's list of most admired mortgage servicers. Mr. Cooper's recapture rate is also high, at 50%, but could rise further if married to Rocket's bigger and more sophisticated suite of mortgage products.
- The industry as a whole has a recapture rate of 28%, per Rocket, and that number is even lower for banks, which are more focused on cross-selling products like checking accounts and credit cards.
Between the lines: "It used to be taboo to churn a book of business, and now it's gotten to be almost taboo if you don't," says Mike Carnes, who runs servicing-rights valuations at MIAC Analytics.
- "If you're not making a concerted effort to recapture your borrowers, you know you could potentially lose those borrowers to any competitor."
Where it stands: "For almost three years, we've been in very, very challenging conditions, with interest rates higher and fewer refinancings across the board," says Marina Walsh, a mortgage servicing expert at the Mortgage Bankers Association.
- "So recapture does take additional weight, because if you're losing a borrower through a payoff, you want to try to retain them with a new origination."
The bottom line: In the mortgage industry, when the going gets tough, the tough start consolidating through M&A activity.
