The Federal Reserve’s efforts to battle inflation are taking a bite out of Rocket Mortgage’s core business.
The Rocket Companies subsidiary is struggling to find its footing in a rising rate environment, the Wall Street Journal reported. The upturn in mortgage rates has cooled demand for mortgage products, including the bread and butter of America’s largest home lender, refinancings.
In late 2020, more than 19 million Americans stood to benefit from refinancings, according to Black Knight. That’s down to 133,000 homeowners as rates have pushed past 7 percent; refinancings accounted for 82 percent of Rocket’s loan dollar volume last year, according to Inside Mortgage Finance.
Refinancings were down 86 percent year-over-year in the week ending on Oct. 21, according to the Mortgage Bankers Association.
The company has tried combatting the decline by shifting its efforts to functions like selling mortgages and encouraging customers to pull cash out of their properties.
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Cashing out helps homeowners tap home values for urgent needs, but often increases lifetime interest costs by restarting a homeowner’s housing debt.
In August, 96 percent of refis were used to pull out cash, according to Black Knight, up from 54 percent a year ago. A company spokesperson told the outlet the average cash-out customer receives $45,000 and cuts monthly payments by $100.
The company’s loan volume for this year is hurtling towards less than half from a year ago. For the first half of 2022, Rocket Companies earnings were down by two-thirds. The company could post its first loss after going public in 2020 when it reports third quarter earnings this week.
As the company tries to get better traction in the current rate environment, bankers say they’re facing widespread burnout and decreased commission checks. Rocket has offered buyout packages to some employees and so far avoided enacting layoffs, a fate seen in recent months at other mortgage, proptech and residential companies.
— Holden Walter-Warner