The stock of Rocket Companies (NYSE: RKT) surged by 71.19% and saw a rise of $17.30. The price stock closed at $24.30 on Tuesday. The reduction in the interest rate of Treasury notes allows a sigh of relief in the mortgage market because the mortgage rate reacts to impact in the interest rate. The 10-year Treasury note reduced on Monday to 1.4% from last week’s 1.6%.
The rise of tech-oriented digital mortgage firm
Rocket Companies (RKT) is a mortgage originator company based in Detroit which is America’s largest mortgage lender. Most of their operational and business performance is based majorly on tech-driven real estate, online-commerce business, and mortgage. Rocket Companies leans heavily towards an app for online brokerage.
There are two main ways that financial intermediaries like mortgage companies and banks source the funding for the mortgages. One is through monetary deposit base and floats, which the banks mostly use for retail banking. The second way is through wholesale supply of money (treasury notes, securities or bonds etc.) that financial intermediaries use for huge transactions for large clients which then is given at relatively low rates.
The difference between the two ways of funding is that the former method of retail bank mortgaging is heavily influenced by interest-rate and as the interest rate rise then lending from the float (non-interest based deposit/current account) becomes highly profitable without compressing the spread-margins. The wholesale supply method of mortgaging is relatively immune to any changes in base interest rates.
Quicken Loans trumping traditional mortgage intermediaries
Rocket Companies (RKT) excels in the mortgage market due to it dealing solely with mortgage funding through wholesale money borrowing in which the re-financings are given at low rates. The mortgage market is highly susceptible to the fluctuations in the interest rate due to which if the rates are increased, the demand for mortgages declines and thus mortgage re-financings decline as well.
However, even when the mortgage market fluctuates, the perks of wholesale money borrowing is that it always allows mortgage originating companies to borrow and lend large transactions at relatively lower market rate. Thus financial intermediaries that provide mortgage funding through this channel have an edge in the mortgage market.
What’s even better is the business model of Rocket Companies Inc. (NYSE:RKT) because they focused on making wholesale money borrowing highly accessible and mobile by providing it to the most effortless platform available in this era- the online market of E-Commerce. They call this platform Quicken Loans. Why this is really impressive is because the Rocket Companies have reduced the time plus transaction cost for customers as well as the company itself by cutting the costs of owning offices, hiring brokers, doing paperwork, removing broker’s commission, and instead introducing a simple software app in its stead.
What is the actual standing of the Rocket Companies’ performance?
So does this review of the company’s work and operation fundamentals work better in reality or are just ideally envisioned mission goals of the company? Well, let’s take a look at Rocket’s fourth-quarter earnings from last year and yearly highlights that it released on previous Thursday, the 25th of February.
The company’s total revenue in Q4 2020 increased to $4.7 billion dollars from $1.9 billion in Q4 2019. The net-earnings increased from $0.8 billion in Q4 2019 to $2.8 billion. Year-over-year improvements of 121% in the loan origination volume; the record closed at a generated volume of $320.2 billion. The platform of Rocket Companies generated 153 million new visitors for the previous year and the client retention rate was 91% for the whole of 2020.
A roadmap to robust growth in 2021
Two of the most exciting news in the boffo quarterly and yearly report, with regards to future and current prospects, is that due to the 144% soaring of profits in the fourth quarter; the mortgage company has declared a $1.11 special dividend in class A share of common stocks for its investors. Secondly, Rocket Companies (NYSE: RKT) has declared a partnership with Morgan Stanley Private Bank due to which it will now expand its mortgage origination services while adhering to mortgages for Morgan Stanley.