Posted on 10/31/2022 12:44:57 PM PDT by Red Badger
America’s largest home lender harnessed a generation of low rates to refinance millions of mortgages. Its effort to switch focus is a challenge.
The mortgage industry turned from feast to famine faster than America’s largest home lender anticipated.
Rocket Mortgage harnessed a generation of low rates to refinance millions of homeowners. Last year, it racked up more than double the refi volume of any other lender, accounting for more than $1 of every $10 lent out during a boom for the mortgage industry.
Now the Federal Reserve’s efforts to fight inflation have sent mortgage rates soaring. And refinancing, the driver of Rocket’s business, no longer makes sense for many homeowners.
With mortgage rates now above 7%, just 133,000 U.S. homeowners can save money by refinancing at today’s rates, down from a peak of over 19 million in late 2020, according to Black Knight Inc., BKI 0.53%increase; green up pointing triangle a mortgage technology and data provider. Refinancing accounted for some 82% of the total dollar volume of Rocket’s loans last year, according to Inside Mortgage Finance, an industry research firm.
Rocket has switched its focus, selling mortgages on new purchases and pitching customers on refinancing packages that allow them to pull cash out of their homes. It is also trying to get smaller—shrinking its ranks through a mix of buyouts and attrition, rather than the layoffs that have become commonplace at its competitors.
(Excerpt) Read more at wsj.com ...
Push button.
Crash to Earth.
I’m probably talking out of my arsse because I know next to nothing about the industry, but it was already competitive before, so why would it be any more competitive now? What you used to make in volume you can make up to some degree in margins. I mean, isn’t it the interest on the loans that make them profitable to lenders?
Bidenflation = Fed counterattack by raising rates = mortgage lenders getting shelled.
Biden’s fault.
When the mortgage rates go up, less and less people buy homes.
If less and less people buy homes, the mortgage company will start laying off people................
Refinancing as an industry was always going to run into problems at some point. Eventually rates just won’t be going down enough for you to have anything to offer.
Wonder what a poll would show of how many Rocket employees voted for the current vegetable in the White House and his able bodied assistant. From CEO to the newest person cold calling people for loans. Also, including any and all lobbyists for the company and industry, itself.
100% Biden
Rocket Mortgage did great by me. Cheap $$$
133,000 possible refi customers now versus over 19 million two years ago.
I mean, isn't it the interest on the loans that make them profitable to lenders?
Only if the lender holds your loan to maturity. Rocket doesn't.
The market shrunk by 95%.
That is massive crash and burn territory in any industry.
If Rocket execs had half a brain they would have already sold their stock and fled the country.
If they have not done so they are fried toast—their families need to keep them away from tall buildings and bridges.
“...and then sell the loan off pretty quickly.”
That’s not new. That’s been the model for decades.
So I go back to my question. Even though the pie has shrunk, the profit margins should be higher on those loans that are left. no?
Because volume is down, yes, you wont need as many people selling. However, that doesn’t mean selling loans can’t be lucrative, does it?
IN other words, would it be easier to resell 7% loans than 2% loans?
This is Business 1.
You have fixed costs and variable costs.
Fixed costs cost you money no matter what happens with your revenue.
Variable costs vary with your revenue.
When you lose 95% of your revenue your fixed costs destroy you.
You bleed cash and die.
Quickly.
Like a Rocket.
;-)
I don’t have an MBA but I work in business. What you call ‘fixed costs’ we call expenses and overhead. What you call ‘variable costs’ I would call “cost of sale”
I have no doubt that large corporations have a lot of bloat and overhead.
You have to tighten the belt to survive. Capital that don’t contribute to revenue should be liquidated if you’re in for a long term bad market. But Rocket isn’t suffering this alone. All their competitors are in the same market.
I was just asking weather higher interest loans are more lurative on an individual basis.
There must be a lot of mortgage brokers looking for a new job. There are not going to be any refinancing for another year. New mortgages are at the lowest level since 2008.
“I was just asking weather higher interest loans are more lucrative on an individual basis.”
That is like asking about how hard it is raining while a tornado destroys your house.
The short answer—it does not matter.
Toast is toast.
Yup—The whole mortgage origination industry gets crushed when interest rates rise significantly—particularly in a once in a generation scenario.
Then in a decade or so there will be a new generation of youngsters lining up for the slaughter.
;-)
The problem with fixed costs (remember this if you ever start your own business) is that it takes a long time to reduce them.
Building and equipment leases go on for many months and years.
Liquidation of inventory takes time and can mean taking severe losses.
Laying off employees is traumatic—for them and you—and is almost always delayed until it is too late.
Many of the fixed costs are truly fixed—and the only way to stop them is to close the business.
My realtor thinks my area (Huntsville, AL) will weather the housing interest rate increases just fine. I am not so sure, though it’s an attractive area, price wise, so it’s likely to fair better than a lot of areas.
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