Rocket’s CFO says lower house prices will lift the buying market

An expected reduction in mortgage activity will force more consolidation in the industry, said one of Rocket’s corporate leaders, but that potential homebuyers will enjoy collateral damage in the form of lower home prices.

U.S. high-rise home values ​​will drop as much as 5% this year, according to a December analysis by ratings agency Fitch. Meanwhile, industry forecasts Indicate the annual origin volume Between $1.7 trillion and $1.9 trillion, less than half $4 trillion High reached in 2021. Dips, while painful, could support a strong buying market for previously marginalized buyers.

“Our general view is that a slight dip in rates is OK in the mortgage space,” Brian Brown, chief financial officer at Rocket Companies, said in a Fitch webinar on Wednesday. We’re going to need to watch it closely and think about the credit and all the things I know you guys are thinking about. But a 5% drop could really be beneficial for first-time homebuyers.”

And it pushed home prices and mortgage rates skyrocketing, which have been over 7% over the past few months Decades of low application activityAnd Widespread layoffsand a number of Mergers and acquisitions. However, the market has shown some signs of recent life, including an increase in apps to start the year.

Millennial first time buyers Brown suggested that they pounce on falling home prices. consumers today Well qualified for comparison To those whose loans caused the Great Financial Crisis, experts consistently point to affordability as their biggest problem.

Rocket is ready to take advantage of the first time homebuyers pool collected from its Rocket Money app, which has millions of members Who do not have mortgages with a lender. A personal finance program that keeps users at home is why Brown didn’t expect Rocket to enter the crowded M&A market.

“It could literally be a game-changer for how a mortgage company does business on the buying side,” Brown said of the app. “So diversification is a big deal.”

The Detroit-based big guy wasn’t immune to market woes, offering voluntary employee buyouts last spring and more. recent cuts. Rocket Money, formerly TrueBill, was the company’s only acquisition since it went public in 2020. Brown said the company has looked at acquisition opportunities but hasn’t made any investments yet.

Other major players in the industry have also been active in the mortgage company market, Collect smaller lendersif not Sections of departing employees One of the companies that suffered from the market downturn last year. Margin pressure last year on the heels of a bumper market was the main driver of merger and acquisition activity last year, according to Stratmore Group.

Brown said consolidation will continue but at a slower pace, given the capital buildup for the industry in the past few years. rocket that was still profitable In the third quarter of last year, it announced $8.8 billion in liquidity and about $20 billion in warehouse financing. In order to monitor the health of still-operating lenders, Brown said, industry observers should monitor the firms’ abilities to meet covenant requirements, renew warehouse lines of credit and their activity in the mortgage servicing rights market.

The first MSR portfolio over $10 billion recently went up for bidding, and it’s been rumored that larger deals are likely to hit the market. related to Wells Fargo Mortgage Reversals. However, the pool of MSR buyers is limited among large companies, and any withdrawal from an institutional buyer could create more supply than demand affecting valuations.

“Watch the cash flows because if you are asked to sell those assets, for working capital financing, that could be a situation that can be difficult because there are timing issues there,” he said.

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