Financial results reveal tough times for mortgage companies release thursday Evening by Rocket Companies Inc. (NYSE: RKT).
More examples are likely to emerge next week.
Management at the Detroit-based parent company of Rocket Mortgage and other personal finance firms has attempted to present a vision for the future with diversification away from the cyclical mortgage market, but has expressed a sense of extreme challenge. I couldn’t help but. At least in the short term.
Rocket CFO Julie Booth told analysts on Thursday, “We’ve seen a dramatic shift in the size of the mortgage market since the beginning of the year.” He said the 30-year fixed mortgage rate saw its “strongest and fastest rise” in half a year. century.
“Rising interest rates have had a significant impact on interest rate and term refinancing demand,” Booth continued. “Recently, buying demand (for new homes) has also been affected. Consumer sentiment has plummeted to levels not seen in more than a decade, looming economic uncertainty, and fears of a possible recession. Concerns are growing.”
Overall, the company’s closed loan originations in the second quarter were down nearly 60% year over year.
But the bottom line, according to Wedbush Securities analyst Henry Coffey, is that it “wasn’t surprising” that Rocket’s revenues had fallen significantly.
Coffey said the same could be true when rival Pontiac lenders United Wholesale Mortgage and Ann Arbor-based Home Point Financial report earnings next Tuesday and Thursday, respectively. said to be high.
“Mortgage is very cyclical and we’re on the bad side of the cycle,” Coffey told Cranes on Friday morning. Rocket isn’t the only company to report a very modest gap quarter.
Detroit-based Rocket is the nation’s largest mortgage lender, with $351 billion in loans completed in 2021, a record year for the industry. The second-largest lender, PennyMac Financial, ended up with about $120 million less in loans, putting UWM and Homepoint in third and eleventh-largest lenders, respectively, according to data from Inside Mortgage Finance. Ranked.
As analysts like Coffey point out, Rocket has built a platform that allows the company to survive downtime.
“I think last night was probably the best call the Rockets have ever made,” Coffey said. “They really strategized where they were.”
Companies like Rocket and its rivals also have some positive metrics.
Interest rates on 30-year fixed mortgages fell below 5% this week, according to mortgage buying firm Freddie Mac.
According to Freddie Mac’s website, “a tug-of-war between inflationary pressures and an apparent slowdown in economic growth has left mortgage rates volatile.” Interest rates are likely to remain volatile, especially as the Federal Reserve tries to navigate the current economic environment.”
Additionally, mortgage applications have trended upward in recent weeks, according to data from the Mortgage Bankers Association trade group. Yet, according to the MBA’s unadjusted purchase index, applications are down 16% from this time last year.
“Lower interest rates have increased both refinancing and purchase applications, but activity is still down compared to a year ago,” said Joel Kan, MBA’s vice president of economic and industry forecasts. said in a statement. “Lower mortgage rates, combined with signs of more inventory hitting the market, may lead to a rebound in buying activity.”
But many industry observers are pretty bearish on the outlook for mortgage lenders.
Ken Leong, research director at CFRA Research, said in an investor note that “the shrinking mortgage market could continue through 2024, which is a disadvantage for (Rocket) facing a shrinking mortgage market.” We continue to see a positive macro outlook,” he said. On Friday, it urged shareholders to sell their shares. “For mortgage lenders, ( ) housing shortages are constraining financing, while borrowers are facing surges in mortgage rates, constraining mortgage refinancing.”