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Rocket Companies, Inc. (NYSE: RKT), a Detroit-based holding company consisting of tech-driven real estate, mortgage and financial services businesses—including Rocket Mortgage, Rocket Homes and Rocket Auto— recently announced results for the quarter ended Sept. 30, 2020.

Jay Farner, CEO of Rocket Companies, stated, “In the midst of the pandemic, we were able to help an unprecedented number of Americans buy and refinance homes, providing financial relief through our tech-driven platform and award-winning service. Rocket Companies assisted more clients in the third quarter of 2020 than any quarter in our 35-year history. More importantly, the company did this while maintaining industry-leading margins and profitability, demonstrating the sheer power of our platform as Rocket executes at incredible scale.

“While the mortgage industry sits at a critical inflection point, Rocket Companies continues to build for the future—always looking for the next opportunity. Throughout the first three quarters of 2020, we have generated $6.6 billion in GAAP net income. As the company enters the last quarter of 2020, it does so with all cylinders firing and looks forward to a strong end to the year.”

Third Quarter Highlights

– Generated record closed loan origination volume of $89.0 billion and net rate lock volume of $94.7 billion, which represented year-over-year improvements of 122 percent and 101 percent, respectively.

– Increased gain on sale margin by 37 percent year-over-year to a historically strong 4.52 percent.

– Continued to leverage approximately 2,900 technology team members and more than $500 million annual investment in the company’s technology to further innovate, increase monthly loan production capacity and enhance efficiency.

– Grew total revenue, net, by 186 percent and adjusted revenue by 163 percent as compared to the third quarter of 2019; during this time total expenses increased by 46 percent, primarily driven by higher variable compensation and an increase in team members in production roles to support growth.

– Increased other income by 140 percent year-over-year, which included Amrock’s strong growth from title insurance services, property valuation, and settlement services as a result of the increase in origination volume noted above.

– Successfully completed one of the largest U.S. IPOs of the last five years.
– Through subsidiary Rocket Mortgage, issued $750 million of 3.625 percent senior notes due 2029 and $1.25 billion of 3.875 percent senior notes due 2031. A part of the proceeds from the newly issued notes was used to refinance $1.25 billion of 5.75 percent senior notes due 2025 that were paid off subsequent to quarter end. The remaining net proceeds are expected to be used for general corporate purposes. The newly issued notes will produce an annualized interest savings of approximately $25 million through May 1, 2025.

Current Environment

Rocket Companies continues to see strong consumer demand for home loans into the fourth quarter of 2020. In addition:

– Net client retention rate was 92 percent and client refinance recapture rate was 82 percent over the twelve months ended Sept. 30, 2020.

“We believe that our net client retention rate is superior to many subscription-based businesses and that both statistics are far better than others in the mortgage industry.”

– As of Oct. 31, 2020, approximately 84,000 clients, or 4.1 percent of total servicing portfolio, were on a forbearance plan related to COVID-19, which compares favorably with the overall industry figure of 5.8 percent reported by the Mortgage Bankers Association as of Oct. 25, 20207and with August 31, 2020 figure of 4.7 percent.

Fourth Quarter Outlook

Rocket Companies expects the following ranges compared to the year-earlier period:

– Closed loan volume of between $88 billion and $93 billion, or an increase of 73 percent to 83 percent compared to $50.8 billion in the fourth quarter of 2019.

– Net rate lock volume of between $80 billion and $87 billion, which would represent an increase of 82 percent to 98 percent compared to $43.9 billion in the fourth quarter of 2019.

– Gain on sale margins of 3.80 percent to 4.10 percent, which would be an improvement of 11 percent to 20 percent compared to 3.41 percent in the fourth quarter of 2019.

Balance Sheet and Liquidity

Rocket Companies says it remains in a strong liquidity position, with total liquidity of $6.9 billion, which includes $3.5 billion of cash on-hand, $2.8 billion of undrawn lines of credit, $0.3 billion of undrawn MSR lines, and $0.3 billion of corporate cash used to self-fund loan originations which could be transferred to funding facilities (warehouse lines) “at our option.” Subsequent to the end of the quarter, Rocket Companies repaid the $1.25 billion of 5.75 percent senior notes due 2025 with funds received from the $750 million of 3.625 percent senior notes due 2029, and the $1.25 billion of 3.875 percent senior notes due 2031, issued on Sept.14, 2020. The remaining net proceeds from the senior notes are expected to be used for general corporate purposes.

For more information, please visit www.rocketcompanies.com.

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