As the firm notes in its S-1, “we do not have direct credit exposure to the servicing portfolio since we do not own the underlying loans that are being serviced.”ĭespite earning a higher ROIC and minimal credit exposure, Rocket Companies, as any lender, is still highly reliant upon interest rates to drive business. Rocket Companies also takes on less credit exposure than traditional lenders because it sells all the loans it originates. Rocket Companies’ ROIC is also higher than each of the four largest (by revenue) traditional banks, JPMorgan JPM & Chase (JPM), Bank of America BAC, (BAC), Wells Fargo (WFC WFC) and Citigroup C (C), which it competes against for mortgage origination business. The firm’s focused, capital light approach to lending drives Rocket Companies’ 19% ROIC, which is well above its online lending peer LendingTree TREE (TREE) at 7%.
The firm notes most sales occur within three weeks of origination, in turn requiring minimal capital. The firm originates mortgage loans that are sold to government-backed entities or to investors in the secondary market. Middleman Business Provides Less Exposure to Risky LoansĪs an originator, the Rocket Companies operates a capital light business and holds less credit exposure than a traditional lender or bank. Year-to-date in 2020, overall client retention has grown to 75%. According to the firm, overall client retention reached 63% in 2019, and refinancing retention reached 76%, which is well above the industry average of 22%.
Rocket Companies’ focus on speed, efficiency, and ease of use not only drives its market share, but it also improves the firm’s client retention. RKT Rising Market Share New Constructs, LLC
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