Mortgage industry executives, analysts and economists have started to place their bets on where mortgage rates will settle in 2023 amid the Federal Reserve’s tightening monetary policy and the fears of an economic recession. Spoiler alert: don’t expect much, if any, relief for borrowers in the short term. 

It’s true that after doubling over the course of a year, the 30-year fixed mortgage rate is trending downward at the close of 2022. On Thursday morning, a Freddie Mac survey showed this week’s rates at 6.27%, four basis points lower than the previous week. (Mortgage rates averaged 3.05% one year ago.) And Mortgage News Daily’s tracker clocked rates at 6.28% on Thursday, about 10 basis points lower than Wednesday.

Despite the small drop in mortgage rates in recent weeks, they won’t drop significantly any time soon, analysts and mortgage executives told HousingWire. 

“Our baseline is not for the Federal Reserve to cut rates next year,” said Bose George, mortgage sector analyst at Keefe, Bruyette and Woods. “Spreads could tighten a little bit, and then maybe you get a mortgage rate that’s 5.75% to 6% something, which will be a slightly positive benefit to the market, but not much.”

“The Mortgage Bankers Association is assuming mortgage rates are down to the low fives in the next year. Their volume expectations are a little more positive than ours because that leads to an improvement in the back half of next year. But we’re not building that in at the moment,” he added.

The latest MBA mortgage finance forecast shows the 30-year fixed rate at 5.2% at the end of 2023. 

“MBA expects the housing market and broader economy to remain volatile in early 2023, but with mortgage rates on a downward trajectory, prospective buyers could return to the market,” MBA president and CEO Bob Broeksmit said in a statement. 

The lender outlook on mortgage rates

Those closer to the borrowers – the mortgage lenders – don’t expect rates to go significantly down either.  

“I think we’ll be hovering around 6% to 8% for a little while. I don’t see any major items that would cause rates to drop in 2023,” said United Wholesale Mortgage’s chief strategy officer, Alex Elezaj. 

“Nobody has the crystal ball to know, but we are making sure that as the next refi opportunity comes, our wholesale brokers have the tools in place to execute for their borrowers,” Elezaj added.

Sonu Mittal, head of mortgages at Citizens Bank, expects rates to stay where they are for at least the first half of 2023.

“Then we can see a downward trend, but nothing anywhere close to what we saw before,” he said. “I think rates will settle down somewhere in the middle 5s. But I’m sure you will see all the forecasts.” 

According to Sam Khater, Freddie Mac’s chief economist, heading into the holidays, mortgage rates continued to decrease, which is helpful for potential homebuyers. 

“But new data indicates homeowners are hesitant to list their homes,” Khater said in a statement. “Many of those homeowners are carefully weighing their options as more than two-thirds of current homeowners have a fixed mortgage rate of below 4%.”

Borrowers are hesitant because of a combination of high interest rates, a sense that a home price correction has to happen and that a recession is coming, according to David Battany, executive vice president of capital markets at Guild Mortgage

“It’s the combination of the actual math of a higher payment or just the psychological effect of rates being really high and home prices probably softening,” Battany explained.  

To illustrate the impact of higher mortgage rates, the monthly payment for a median-priced home is currently more than $2,000, a 64% increase from a year ago, according to Realtor.com‘s manager of economic research, George Ratiu. “First-time homebuyers are struggling with high consumer prices, property values and interest rates, which are pushing savings rates to very low levels and delaying their ability to gather a sufficient down payment,” Ratiu said in a statement. 

At the same time, Ratiu said, current homeowners looking for their next home “are finding that the prospect of higher prices and, in many cases, double or triple their current interest rate, are causing them to rethink their decision to move.”



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This article is presented by Aloha Capital. Read our editorial guidelines for more information.

More and more real estate investors are exploring what it might look like to be on the other side of the closing table. I don’t mean being the seller, but rather being the lender. With interest rates on the rise, you can easily earn double-digit interest rates by funding or buying short-term notes.  

Imagine investing in real estate where you don’t need to manage a rehab, sign a personal guarantee, or deal with tenants. And if things go wrong, someone other than you loses their money before you lose a dollar. Sounds pretty nice, right?   

So, how exactly do you go about becoming a lender? How can you make money lending? How do people lose money lending? And finally, is there a way to be a passive lender so you can sit back and earn passive income from active real estate investors?     

I have funded over $500 million in loans in the past five years as the leader of Aloha Capital, a nationwide lender focused on financing residential investment properties. At BPCON22 in San Diego, I had so many conversations with BiggerPockets community members where they mentioned sitting on significant cash reserves that were not getting reinvested into their next deal—why? Because their ideal profit or cash flow from their fix and flip, BRRRR, or turnkey rental strategy was no longer attainable in the markets they have been investing in. Not knowing when they would find their next deal, many were excited to learn how to put their capital to work as a passive private lender. 

Can you make double-digit returns as a lender? Yes, of course. Can you lose money as a lender? You sure can! In this article, we will unpack what it takes to be a lender, including:  

  • Passive vs. active lending  
  • How lenders make money 
  • How lenders lose money 

Let’s get started.

Passive vs. Active Lending

I can tell you firsthand that private lending is far from passive if you are doing it the right way.

You must find qualified borrowers and acceptable deals that meet your criteria, provide competitive terms, then underwrite the borrower’s experience, liquidity, and creditworthiness. You will also need to underwrite the as-is value (AIV) and after-repair value (ARV) along with the detailed rehab budget to ensure the project has the appropriate profit margin for the borrower to make money or if it is a rental exit, the likelihood that the property will cash flow with a rate/term refinance. 

That’s just the beginning. Before you fund the loan, you need to ensure that the title insurance policy and property insurance mitigate risk to you as the lender and then produce loan documents that include all of the business terms and lender protections while staying within state-specific compliance requirements. 

Now that the loan is funded, you should be ensuring that the rehab timeline is being met and likely send additional money to the borrower to cover costs. All along the way, you need to account for and collect interest from the borrower. 

Alternatively, there are opportunities to lend passively by investing in real estate notes or in a real estate debt fund managed by a professional investment property lending business. This provides access to annual returns similar to those you would receive through direct private lending while gaining passive investing benefits by tapping into the lender’s operational infrastructure, expertise, and deal flow.

For example, Aloha Capital has 20+ full-time employees, all with backgrounds in real estate lending and investing, who are focused on finding, underwriting, originating, and servicing loans. Aloha offers investors access to 8 to 14% returns from real estate notes via the Aloha Passive Note Platform, where passive investors can select an already underwritten and originated note, purchase it, and relax while Aloha Capital services the loan. 

In addition, investors can gain access to a diversified portfolio of short-term loans via the Aloha LTD Income Fund, which has an 8% annual return target, no lockup period, and a 7-year track record. In addition, there are other opportunities to gain exposure to note investing, such as crowdfunding platforms where you can own a fraction of a note and private lender matchmakers that broker borrowers needing a loan and private individuals interested in private lending.   

How Lenders Make Money

If you have capital, lending is a great way to make high-yield returns. Lenders providing short-term loans on investment properties can earn interest ranging from 8%-15% annually, along with loan origination fees of 0%-3%. In addition, if the loan extends past maturity, you can charge an extension fee, and if the loan goes into default, you can charge default interest of 20% or more annually (the actual max rate depends on the state usury laws). 

Although this is a large range, in the current real estate environment, a double-digit annual return in first position, with the borrower having equity in the deal, is pretty standard. 

For clarity, a first position or lien is secured by the underlying collateral in the case of real estate lending the subject property. This means that if the borrower defaults on your loan, you, as the lender, can seize the collateral to recoup your capital and unpaid interest through foreclosure. If you are a junior lender, you are not able to foreclose, and the principal of your loan is only available upon the first position lender being paid in full. Although you may earn a slightly higher interest rate as a junior lender, you are increasing your risk of principal loss substantially if the borrower ever defaults.    

How Lenders Lose Money

We’ve talked about making money as a lender. Now, let’s discuss how to not lose your money. 

As the lender, ideally with a first position lien, you create a promissory note that is collateralized by a property through a security instrument (typically a mortgage or deed of trust), and ideally, this loan has a personal guarantee of payment from the guarantor(s).  

So how do you lose money as the lender?  Here are the top three ways:

1. Not being in the first position

Occasionally, borrowers cannot execute their game plan to rehab, sell or rent a property. Or circumstances occur where they are no longer able to cover debt service, or their rehab budget is not sufficient. In this case, the lender in the first position will take action to ensure they recover all or a majority of their capital through foreclosure, a deed in lieu of foreclosure, forbearance, or another method. 

If you are not the first-position lender in this scenario, you are the junior lender, and you have two options to choose from:

  • Pay off the first-position lender in full, including principal, outstanding interest, and default interest, to become the first-position lender.
  • Prepare to lose some or all of your principal. Why? Because default interest, extension fees, and legal fees rack up quickly, and the first position lender is paid in full first!      

2. Lending to borrowers with limited experience, low credit, or insufficient liquidity

These are the three primary factors that I believe drive the risk of loan delinquency and default. You should seek out borrowers that meet your standards in two of three of these categories. If they only qualify in one category, you should require an additional guarantor that satisfies your requirements or pass on funding the deal!

3. Ignoring the borrower’s exit strategy

Ideally, as a lender, you understand the dynamics of the market you are lending in and the borrower’s exit strategy. If you are not adjusting your rate, fees, and leverage based on the loan exit options available to the borrower, then you may be setting yourself up to lose money. If the property needs to be rented instead of sold, does the property cash flow with your loan in place or will the borrower be able to refinance into another loan? If you don’t know, don’t fund it!

Conclusion

In conclusion, anyone can be a private lender if they have access to capital. But seeking out the returns from private lending without actively avoiding the pitfalls may lead to losses rather than gains. 

Like most real estate strategies, you can be a passive or active lender. I hope that this provides some perspective on how passive lending with the right lending partner delivers a great combination of income and risk mitigation. If you go it alone, I hope you take into consideration the three ways to avoid losing money before you fund your first deal.

This article is presented by Aloha Capital

alhoacap

Aloha Capital provides residential real estate investors with access to competitive, transparent, and reliable loans to active real estate investors across the country. We offer short-term bridge loans for Fix & Flip, BRRRR, Short-Term Rental, and Multifamily investors, along with long-term interest only and amortizing loans on single-family, townhomes, condos, and small to mid-sized multifamily properties. We also provide vertical development loans on infill residential properties to spec builders and build-to-rent investors.

Through our accredited investor fund and direct note investment portal, investors seeking passive income can earn up to 12% annualized return through notes originated, underwritten, and serviced by Aloha Capital.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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On Wednesday, existing home sales collapsed near the lows we saw during COVID-19 and back in 2007 when the housing bubble burst. In addition, this is the fourth straight month of inventory declining, while days on the market are growingl! Confused by this? I hear you; let’s dive deeper into today’s report.

From NAR: “In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020,” said NAR Chief Economist Lawrence Yun. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”

One of the housing economic realities that I have been trying to stress this year is that a traditional seller of a home is typically a buyer as well. This explains why total active listing inventory data has been stable over the decades, with the exception of 2006-2011, when those forced distressed credit home sellers couldn’t buy.

Since the credit standards have improved post-2010, we shouldn’t see distressed sellers until a job loss recession happens, even if sales fall noticeably. This happened during the early months of COVID-19, and we have not seen the panic selling in 2022 like some people predicted.

Housing inventory

Today, inventory is almost 900,000 active listings below the lowest level of the four-decade average between 2 million and 2.5 million.

Inventory is now down again in the NAR report; this is the fourth month of inventory decline, now running at 1.14 million. The all-time lows were around 860,000 this year, and the all-time high was a tad over 4 million in 2007.

We have had two historic events that created a waterfall dive in demand recently; we now have precise data showing new listing data declining with those events, which shows how important that data line is to housing demand. This is the biggest story in housing. 

For a decade, the traditional view on housing has been that when demand collapses, inventory will spike higher, which is what we saw during the years when the housing bubble burst.

I have never believed in this concept because of how the housing market credit channels work. I have stressed that inventory can grow through a weakness in demand over time. This means what we saw in 2005-2008 with the inventory spike was a historic event that hasn’t been replicated at any time in recent U.S. economic history. 

We have one data line that clearly shows the credit stress in the system, and it’s been my favorite chart at all my events (see below). Without significant credit stress in the system, we can’t ever assume we will see inventory scale spikes where sellers will not be able to buy homes because of a foreclosure or short sale.

We can believe in a forced equity seller premise, where someone loses their job and needs to sell their home to gain access to money. That is a real live talking point, but it will require a job loss recession. As we can see below, the U.S. housing market had high levels of credit stress in 2005 through 2008; then, after all that, we had the job loss recession. None of that has ever happened again since 2012.

Hopefully, this explains why total active listings are still low, and the NAR data has now shown four months of decline. We have a shot at having total active listings below 1 million over the next two months because demand is picking up during a seasonal inventory decline period.

Below, you can see the decline in sales data, which is not as sharp and short as we saw during COVID-19 but a waterfall dive in demand nonetheless. Mortgage rates spiked in March, and then the new listing data started to decline at the end of June. My line in the sand has always been 4 million on the monthly existing home sales prints because it’s been a rare event that sales go below that level post-1996.

We have broken under 4 million existing home sales only twice post-1996. First was the tail end of the housing bubble bursting in 2008, and second was in 2010 in the aftermath of the homebuyer tax credit when sales were pulled forward and then collapsed.

From NAR: Total existing-home sales waned 7.7% from October to a seasonally adjusted annual rate of 4.09 million in November.

One of the most encouraging signs I see in today’s report, which I also loved in the last report, is that the days on the market are growing.

I am not, nor will I ever be, a fan of a housing market with days on the market in the teens or lower. This means we don’t have enough active listings for buyers, forcing people to bid against each other. I consider this growth year over year from 18 days to 24 days as a plus and a step toward a more normalized housing market.

NAR: First-time buyers were responsible for 28% of sales in November; Individual investors purchased 14% of homes; All-cash sales accounted for 26% of transactions; Distressed sales represented 2% of sales; Properties typically remained on the market for 24 days.

Home-price growth is cooling off dramatically, which is another awesome thing about housing this year. Yes, I know I am very biased here. Since February 2022, I have labeled the housing market savagely unhealthy as home prices have escalated well above my 23% home price growth model for 2020-2024 in less than two years.

This is why my rants of needing higher mortgage rates went into overdrive back then. However, now we are working our way back to a normal marketplace, which is good, not bad.

NAR: The median existing-home price for all housing types in November was $370,700, an increase of 3.5% from November 2021 ($358,200), as prices rose in all regions. This marks 129 consecutive months of year-over-year increases, the longest-running streak on record.

Purchase applications

The other housing news of the day, the forward-looking purchase application data, had another positive trend data line report. The week-to-week action saw a slight 0.1% decline, but now the year-over-year decline is 36%. As crazy as this sounds, that is 10% above the lows we had this year when this index was down 46% year over year.

Now, we need to add some context to this data line.

During the months of October 2021 to January 2022, we had a rare volume rise in the purchase application data, which took existing home sales toward 6.49 million in January of this year. This meant that all housing data, especially purchase application data, would have extremely hard comps to work with this year from October to January.

When I saw where trend sales data was going, I was anticipating that purchase application data would be down on average between 35%-45% year over year from October to January. So far this year, we have been down 36%-46% during this period. So, the data looks normal to me, as I was anticipating this.

What I didn’t anticipate was how well the market reacted to mortgage rates that went 1.25% lower in a short amount of time. This sent this data line positive for seven straight weeks, making us rise from the bottom decline of 46% year over year to now just 36%.

This means, for now, we have found a bottom in the data and bounced off the lows with positive trending data. This means in a few months, the existing home sales data should look better as this data line looks out 30-90 days.

The big takeaway in today’s existing home sales report is that we need to see new listing data grow in 2023 to get more home sales. Some people might believe that new listing data being negative is good for the housing market because it means inventory is stable. I believe this is the wrong way to look at the housing market. We want to see people list their homes and move when they want to. That is just a function of life; not everyone sits in the same home for 18 years like me. 

Hopefully, in 2023, when we see the traditional inventory rise, this will come with new listing data growth, and we can get the total national inventory levels back to 2019 levels, which I will be very happy to see.

The housing market couldn’t take the shock of mortgage rates moving from 3% to 7.375% in one year, and this forced some people to change their minds about selling their home since they will have to buy another one. Hopefully, a more stable mortgage rate market means new listing data can grow in 2023.





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Lower mortgage rates helped to increase borrowers’ demand for home loans last week, which in turn drummed up optimism for the mortgage industry at the end of 2022. Economists believe that if the trend continues, the market will be able to improve in the second half of 2023. 

“The latest data on the housing market show that homebuilders are pulling back the pace of new construction in response to low levels of traffic, and we expect this weakness in demand will persist in 2023, as the U.S. is likely to enter a recession,” Mike Fratantoni, Mortgage Bankers Association’s senior vice president and chief economist, said in a statement.

“If mortgage rates continue to trend down, as we are forecasting, more buyers are likely to return to the market later in the year, as affordability improves with both lower rates and slower home-price growth,” Fratantoni added. 

Last week, the Federal Reserve raised the federal funds rate by 50 basis points to 4.25%-4.50%. This was a smaller hike than the 75 bps per meeting the policymakers have stuck to since June and was due to inflation slowing more rapidly than expected in November.

Consequently, mortgage rates started a downward trend. 

The latest MBA survey shows that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.34% last week, down from the previous week’s 6.42%. Rates for jumbo loan balances (greater than $647,200) went from 6.14% to 5.97% in the same period.   

The average 30-year fixed rate mortgage, according to Mortgage News Dailywas 6.38% on Tuesday. 

According to Mark Fleming, chief economist at First American, the housing market potential in 2023 will remain largely dependent on the path of mortgage rates. 

“If inflation decelerates toward the Fed’s target range in the second half of 2023, as is currently expected, then it’s possible that mortgage rates may decline modestly in the latter half of the year,” said Fleming. “While mortgage rates will remain high compared with pandemic-era lows, stable and potentially modestly lower mortgage rates will elevate housing market potential in 2023.”

Uptick in applications 

Borrowers’ demand for home loans quickly reacted to lower mortgage rates. The MBA survey shows that the mortgage composite index for the week ending Dec. 16 increased 0.85% from the prior week, but was down 64% compared to the same period in 2021. 

The refinance index increased 6% from the week prior and was 84.5% lower than the same week one year ago. Meanwhile, the seasonally adjusted purchase index held steady from one week earlier — and was down 36.5% from this time last year.

The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications.

“The Federal Reserve raised its short-term rate target last week, but longer-term rates, including mortgage rates, declined for the week, with the 30-year conforming rate reaching– its lowest level since September,” Fratantoni said. “This is a particularly slow time of year for home buying, so it is not surprising that purchase applications did not move much in response to lower mortgage rates.” 

The MBA survey also shows that refinancing’s share of mortgage activity increased to 31.3% last week from 29.4% of total applications in the prior week. The FHA share of total applications decreased slightly to 13% from 13.1% the week prior. The VA share rose from 11.5% to 11.9%. Meanwhile, the USDA share remained unchanged during the same period.  

Due to long-run interest rates pulling back over the past month, Fannie Mae‘s latest forecast projects total home sales to be 5.72 million units in 2022, up from 5.67 million in the prior forecast. However, total home sales for next year are expected to decrease to 4.57 million – up from 4.42 million previously projected by the economists. 

Total mortgage origination activity is expected to be at $2.35 trillion in 2022 and $1.70 trillion in 2023, unchanged from the previous forecasts. 



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When the refi market dried up in 2022, business took a drastic turn for Thuan Nguyen, CEO of Loan Factory and the top loan originator on the Scotsman Guide for the last two years. Prior to the downturn, more than 90% of Nguyen’s business came from refinances.

Nguyen says he has originated $467 million in origination volume this year, closing 1311 units by the end of November. This falls well below the landmark $1 billion he reached in 2020 and 2021.

Forecasting another purchase market in 2023, Nguyen started using his proprietary software for something new – to pursue relationships with realtors. 

“I never had to work with realtors, but now I spend a lot of time working with realtors – supporting them and partnering with them,” Nguyen said in an interview with HousingWire

He built features that cater to realtors’ needs – such as weekly updates on the housing market, daily alerts of mortgage rates and keeping real estate agents informed of borrowers’ pre-approval status. 

While Nguyen had to cut his workforce to about half this year, he plans to scale his company in 2023 by hiring 1,000 LOs and targeting the purchase market in Loan Factory’s 44 licensed states. 

“I think I built a very good system – good process and good technology. But then it’s been underutilized,” Nguyen said. “If I can open it up and share that with a thousand of LOs (…) instead of having a one to one win, now I can have a 1,000 to one win doing the same thing.”

Read on for Nguyen’s new business strategies for 2023, how he plans to scale his business and prospects for the housing market.

This interview has been condensed and lightly edited for clarity.

Connie Kim: Thuan, you hit a record $2.47 billion in origination volume last year, making you the loan originator with the most origination volume for two consecutive years on the Scotsman Guide. However, with your volume mostly coming from refis, how badly has it affected your business?

Thuan Nguyen: Not good. If you look at that (Scotsman guide) number, about 94% of my business was from refinance. Right now, there’s no more refinance, so it’s a big change.

Earlier this year was much better, but now it’s not good. I close about 60 loans a month only. For sure I won’t be able to make $1 billion [in origination volume] this year. My production until the end of November is 1311 units or $467 million. That is about one-fifth of the previous year. I don’t even know if I’ll be on top anymore.

It’s affecting everyone, but for me, it’s harder because most of my business comes from refinances. 

CK: Are you doing all these productions by yourself? How is business delegated among team members? 

Nguyen: I do have a team that works for me and supports me. There’s no way I can close that many transactions by myself. I cut [my team] down a lot. I have about five loan officers helping me, and I have more than 30 processors and assistants helping me. 

CK: Has there been layoffs at Loan Factory as well? 

Nguyen: I would say more than 100 layoffs at Loan Factory, and many of them also left voluntarily. Last year we had more than 200 employees, including LOs, processors, and assistants. 

CK: With the market drastically shifting to a purchase market from refinances this year, how have you changed your business strategy, which was refi-dependant? 

Nguyen: I changed my strategy a lot. In the past, I never had to work with realtors, but now I spend a lot of time working with realtors – supporting them and partnering with them.

Secondly, I did not recruit LOs, but now I have opened up. My company had only a few LOs, but now I want to grow full speed and focus on recruiting and supporting LOs.

My plan is to open up my platform, my resources, [and] my technology to help LOs who join me. Instead of focusing on myself, I’ll focus on recruiting LOs, training and supporting them and building a great platform so that they can make money easily. We have about two to three dozen independent LOs, but the goal is to have 1,000 LOs in 2023. 

CK: The software you built for Loan Factory – Moso Software – automated a lot of the mortgage business model, whereas other lenders require loan originators to talk to borrowers. How has your software helped build relationships in a purchase mortgage-dependent market? 

Nguyen: We built some features to support realtors. For example, we have subscriptions that go out to realtors weekly. Out of the 27,000 transactions, we have about 8,000 realtors that closed transactions with us. So the system will put them into a database and email them every week with market updates.

We also have another subscription sending daily alerts to realtors because a lot of them want to know the rates today, especially when rates keep on changing so fast. We also help realtors follow up with their clients. 

A lot of agents send us loan pre-approval requests. Our system would monitor and update the realtor of the process of the borrower’s application. The software helps us monitor the production, the referrals they send to us, the referrals they send to them.

We track the referrals both ways, and that would allow us to improve their relationship. We send them a report every month showing how many transactions they sent us, how many clients we sent to them, and what their status is. So, with technology, we can do a lot of things and we can scale.

We build relationships with existing clients, too. For example, whenever we have a new client, we ask them how they found out about us and then we track that. We reach out to the referral and say thank you.

For example, if our client is happy with us, he refers his friends and family to us. We track that. We know who referred a new client to us; we say thank you. We show our appreciation. And I don’t think anyone out there does this. So we focus a lot on customer service.

CK: With the mortgage origination volume expected to shrink further next year, how do you plan on managing cost-cutting when you plan on hiring more LOs?

Nguyen: We have a great system in place. Everything is pretty much automated, highly automated, so we don’t have to cut costs anymore. Actually, if we have 1,000 LOs joining, we probably have to hire more people in the support system. I don’t expect to cut more, but we expect to hire more people.

I think I built a very good system – good process and good technology. But then it’s been underutilized. If I can open it up and share that with a thousand of LOs, those LOs can use those as a tool to go out and help consumers. Instead of having a one-to-one win, now I can have a 1,000-to-one win doing the same thing.

I’ve been selling subscriptions to my software, but the LO who joins my company can use my software free of charge. When they join, they can take advantage of everything I have – from technology, process, marketing, pricing, support, and even mentorship.

CK: Retail lenders gave out hefty signing bonuses to top producing LOs during the pandemic boom. Is this something you plan on doing to recruit top producers? 

Nguyen: We want to recruit high production LOs, but at the same time, I see that some LOs have a lot of potential, so I’m open to everyone. Most of the signing bonus came from retail lenders. They charge super high interest rates. I don’t think that model will last.

The bottom line is how can they (LOs) attract a lot of clients, how can they close a lot of transactions. When LOs join a company, they’ll be looking for how much they will get paid per transaction, what kind of support do I need, what kind of pricing can I provide to my clients? Those are more important than the signing bonus. 

CK: In addition to hiring more LOs in 2023, are you planning office expansions like you did in 2020?

Nguyen: Actually, I already expanded so fast. Right now, we are already in 44 states. So we cover almost the entire nation. License-wise, we are almost everywhere. The next step would be having 1000 LOs in the company – that’s how we’ll expand.

CK: There has been a lot of talk about retail LOs moving over to the wholesale channel amid the mortgage downmarket. Have you seen this trend as well? 

Nguyen: Yes, for sure. Retail rates are so high, and I see that being a broker has so many advantages, especially the pricing. I think that trend will continue for sure. I don’t see any advantages in retail LOs.

In the past, many retail loan officers chose to work with lenders because they had a good process, a good system to support them. But now the broker system is improving a lot. Some brokers provide all kinds of support, or even the same level of support. So working with a mortgage broker that has a good support system, good process, [and] good pricing is way better than working for a retail lender. 

CK: Who are your major wholesale partners, and what about them makes it easier for you to work with them?

Nguyen: Rocket Mortgage. We receive a lot of support from them – good pricing always, they have no early payoff penalty fee, underwriting support, no extension costs. There are a lot of perks they give us, and it’s in the contract. They have Pinnacle partners – I believe the top 15% of brokers would get better pricing. 

CK: What kinds of products will gain traction in 2023?

Nguyen: I think right now, non-QMs are pretty popular. The newly released Freddie Mac’s Home Possible mortgage and Fannie Mae’s HomeReady mortgage to help first-time homebuyers and low income borrowers will become popular. Fannie Mae and Freddie Mac are helping people with low income, so I think that will become popular, as it will benefit a lot of people. 

CK: Mortgage rates are expected to go down, but expected home sales numbers aren’t encouraging. Are you still hopeful about seeing an uptick in housing activity?

Nguyen: I think we are already starting to see that with rates starting to decline [as of] two, three weeks ago. I think we already hit the bottom. That’s why I feel optimistic. A lot of people can still afford and qualify. They’ve been waiting, so early next year they’ll jump into the market. 

CK: With mortgage rates expected to drop to 5% levels, some LOs expect refi activity to go from homeowners who locked in rates at 7% levels. Is this in line with your expectations for next year? 

Nguyen: No, because not many people took out loans at that rate. There weren’t a lot of transactions during that period, either. Plus, if their loan amount is small, what’s in it for them to refinance? So I don’t see a lot of support for that. It has to be purchase-heavy for sure next year. 

CK: For those LOs that will be sticking with the industry, what strategies should they be deploying?

Nguyen: It’s all about relationships with family members, friends, [and] realtors, so focus on that and social media. There are so many loan officers, but only some will be successful. LOs will have to spend a lot of time on marketing on social media. Loan officers have to let the public know who they are and why they are good. They have to educate the public. 

It takes a lot of effort, and it’s important to choose a good partner. If you don’t have a good system, good pricing, [and a] good process in place, how can you compete? It’s all about technology and pricing. Consumers got hit with high rates. They want to shop around. So if you work for a retail lender with high rates, how can you win? How can you get the customers? That’s why I say in the next year, you will see more consolidation, more retail LOs joining the broker channel. 



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Ownership of the Phoenix Suns basketball team will soon be switching hands. Billionaire mortgage executive Mat Ishbia is finalizing a purchase of the Phoenix Suns franchise in the near future, according to ESPN reporter Adrian Wojnarowski.

Ishbia is chairman and CEO of Michigan-based mortgage lender United Wholesale Mortgage (UWM). He purchasing the franchise, which includes the Phoenix Suns and the Phoenix Mercury WNBA team, from Robert Sarver.

The Suns franchise was put up for sale by Sarver earlier this year after a tumultuous year for the current owner. Sarver was fined $10 million and suspended for one year following the NBA’s investigation into the owner’s workplace conduct — which stemmed from allegations of a culture of intolerance, harassment, discrimination.

The total purchase price has not been made public yet, but is likely to be one of the largest NBA team purchase prices in recent history. Per Wojnarowski, the Suns deal is expected to close in the “near future,” and he said was priced in the neighborhood of $4 billion.

Ishbia joined UWM in 2003 after graduating from Michigan State University, where he was a walk-on player for the men’s basketball program under Head Coach Tom Izzo. The UWM CEO was backup point guard from 1998-2002 and won a national championship.

This isn’t Ishbia’s first attempt at purchasing a professional sports team, nor is it UWM’s first ties to college or professional sports. The UWM executive has pursued the purchase of a number of NBA and NFL teams in recent years, although none of his prior attempts were successful.

In June 2022, Mat Ishbia and his brother, Justin Ishbia, who owns 22% of UWM, were among four finalists in a bid to purchase of the Denver Broncos, which had been up for grabs since February 2022. Other finalists included Josh Harris, owner of NBA Philadelphia 76ers and NHL New Jersey Devils; Rob Walton, son of Sam Walton, the founder of Walmart; and Jose Feliciano, co-owner of Clearlake Capital.

The Broncos were ultimately sold to the Walton-Penner family ownership group for $4.65 billion in August 2022.

Justin, a founding partner in Shore Capital, will make a significant investment and serve as alternate governor, Wojnorawski reported.

In 2021, UWM was announced as the jersey sponsor for the Detroit Pistons basketball team. The financial terms of that deal were not disclosed to the public.

UWM is also a frequent sponsor of Ishbia’s alma mater. In 2021, Ishbia made a $32 million donation to Michigan State for a new football building. Later that year, the CEO announced that UWM would sponsor all men’s basketball and football players with $500 dollar monthly stipends in return for the players advertising UWM on their social media pages.

The majority of Ishbia’s wealth is tied up in UWM, which as of Tuesday afternoon had a market cap of about $6.44 billion.

A spokesperson for the lender did not immediately respond to a request for comment.





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Single-family homebuilders are pulling back in a major way. The downward trend overall in new housing starts continued in November, dropping 0.5% from October to a seasonally adjusted annual rate of 1.427 million, according to a report released Tuesday by U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

November’s annual housing start rate was down 16.4% on a yearly basis, reflecting the continued decline in homebuilder confidence and middling sales activity.

“November continued to see a slip in home construction activity, despite inflation cooling off and mortgage rates falling,” Nicole Bachaud, Zillow’s economist, said in a statement. “Even though the cost of borrowing is lower than it was a month ago, affordability is still a major concern causing many potential home buyers to stay out of the housing market.”

A sizable decrease in single family starts was the main culprit in the overall slower pace of homebuilding. In November, the single-family sector posted a 4.1% monthly decline and 32.1% yearly drop to a pace of 828,000 units. The multifamily sector, on the other hand, had a strong month with starts increasing 4.8% from the month prior and 24.5% compared to a year ago, to a rate of 584,000 units.

Regionally, housing starts were down month over month in the Northeast (-18.6%) and Midwest (-16.5%), but were up 0.1% and 8.3% in the South and West, respectively. On a yearly basis, housing starts were down in all four regions, with the largest annual drop coming from the Northeast at 27.2%.

While housing starts mostly held steady on a national basis, the number of building permits issued to homebuilders represented one of the largest monthly drops in the past decade. In November, the number of building permits posted an 11.2% monthly decline and 22.4% year-over-year drop to a pace of 1.342 million. Large declines in both the single-family and multifamily sectors contributed to this drop, with single-family falling 29.7% and multifamily dropping 10.7% year over year, to annual rates of 781,000 and 509,000, respectively.

“It’s not easy for builders to balance the short-term pullback in demand with the long-term need for more housing nationwide, but on the surface it seems a more reasonable strategy would be to pull back on short-term starts and keep the longer-term permit pipeline as full as possible,” Neda Navab, the president of U.S. regional operations at Compass, said in a statement. “That homebuilders have instead taken the opposite path – clearing out those homes already permitted, but leaving the cupboard more bare for tomorrow – does not bode well for a nation that remains under-built after an anemic decade following the 2008-era housing crash.”

“While it may only take a few months to complete a home once work on it has begun, in many areas the permitting process that precedes any actual construction work is an exceedingly complicated and expensive process that can take years to play out. Securing permits today may enable many builders to then begin work tomorrow when conditions are more favorable, and any reasonable policy improvements designed to make the permitting process smoother should be welcomed,” Navab continued.

On a most positive note, completions by homebuilders were up 10.8% month over month and 6.0% year over year, with the single-family sector reporting a 9.9% yearly increase to a rate of 1.047 million. The multifamily sector, however, was down 3.2% compared to a year ago, to a rate of 430,000.

“Homebuilder activity from months past is finally paying off, an increase in the number of completions in November, and an increase in single family completions specifically, will help to boost the inventory starved market this winter,” Bachaud said.

Odeta Kushi, deputy chief economist at First American, said the housing market remains structurally undersupplied, “but we’re at a point in the housing cycle where demand has pulled back swiftly and inventory may rise as homes sit on the market longer. Increasing new-home completions will be beneficial to the market in the long-run.”



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This article is part of our Housing 2022-23 forecast series. After the series wraps, join us on February 6 for the HW+ Virtual 2023 Forecast Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the top predictions for this year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.

It is of little surprise to housing market prognosticators and participants alike that the biggest housing trend in 2022 was the market’s response to the record-breaking increase in mortgage rates, as the Federal Reserve tightened monetary policy to tame inflation. It’s also no surprise that the questions on everyone’s mind as we enter 2023 are: what will happen to inflation and how that will influence monetary policy and mortgage rates over the course of the year.  

Headline Inflation is Over-Served

It has become apparent in 2022, and was recently confirmed in remarks by Fed Chairman Powell, that the Fed is focused on the dynamics of inflation in parts. The first part is core goods inflation, which increased dramatically in 2021 due to COVID-related supply disruptions in combination with a COVID-related demand surge for goods by domestic consumers. As the figure shows, that inflation surge is fading fast. Apparently, the transitory inflation story that was prevalent a year ago does apply, but only to the core goods sector of the economy.

The other, and significantly larger, sector of the economy is core services, which comprises over 130 million workers, 86 percent of total non-farm employment. Core services is almost 60 percent of the total Consumer Price Index and shelter makes up 57 percent of core services.

As the figure shows, service sector inflation is still rising, largely due to the shelter component. That may seem initially disheartening for the 2023 outlook. However, shelter inflation lags observed rental and house price increases by approximately one year by virtue of how it is measured. We already know that rents and prices are declining, so it’s just a matter of time — likely in 2023 — until the shelter component of inflation will cool. 

If core goods inflation is already cooling and shelter inflation is expected to do the same, then what’s left? Core services, excluding shelter. Here, the crystal ball gets cloudier. Services providers are still struggling to find labor, their primary input. As a result, service sector wages are still growing quickly — faster than the overall rate of wage growth, which is pretty strong itself. 

Less consumption demand would help, and this is why the Fed wants to keep raising rates. But by how much? The currently forecasted “terminal rate” – the Fed’s best guess at the level where they can stop raising the fed funds rate – is not too hot, not too cold, but just “tight,” which will likely be 5 to 5.25 percent by mid-next year. 

Assuming the terminal rate is just right, and that core services excluding shelter inflation also shows signs of cooling in mid-2023, then we can forecast more upward pressure on mortgage rates in the first half of the year. The popular 30-year, fixed mortgage rate is loosely benchmarked to the 10-year Treasury bond. As the Fed continues to tighten monetary policy, that means more upward pressure on Treasury bonds and, therefore, mortgage rates — not the amount of pressure on mortgage rates that occurred in 2022, but just a little bit more. 

Slighty higher rates imply sales trending further lower in the first half of the year because higher rates have a dual impact on sales: pricing out buyers who lose purchasing power and keeping some potential sellers rate-locked in. Prices will also continue to correct and reflect the new dynamic of less demand relative to slightly more, yet still well below historically normal, levels of supply.

The Light at the End of the Tunnel

But there’s a light at the end of the tunnel. If inflation responds as expected in early 2023 and the Fed’s terminal rate guess is right, that will indicate that we may have a handle on inflation by mid-year. It’s even possible that mortgage rates could then actually decline modestly in the latter half of the year, as inflation expectations ease and the risk premium due to uncertainty declines. House-buying power could be given a boost from lower house prices and modestly lower mortgage rates.

There’s plenty of good reasons to believe that this could come to pass in 2023. Core goods inflation is already cooling, shelter inflation is expected to do the same in the coming months and, in theory, tighter monetary policy should cool services demand. Forecasting is challenging and economists have been notoriously bad at it. Nonetheless, this is one plausible scenario for 2023.

But I must warn the reader, I have been advised by mentors that when forecasting I should either say when, or by how much but never both. And no matter what, do not look surprised when I get it right.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Mark Fleming at @mflemingecon (Twitter)

To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com



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Local markets is a HousingWire magazine feature spotlighting housing trends across the country.

Louisville, Kentucky

Affordable housing prices combined with a vibrant history and a thriving culinary scene have certainly made Derby City a popular destination for homebuyers. However, even Louisville’s active housing market has slowed down recently. “I haven’t been seeing as many multiple offer situations lately,” Christine Ridenour Lindsey, a local agent with RE/MAX Properties East, said. “Last year you might have 20 offers on a house and half of them would be cash.” According to Ridenour Lindsey, as the market has cooled, she has noticed fewer all-cash offers being made. This trend has made it easier for buyers with financing and other contingencies to purchase a home. Also helping buyers is an increase in housing inventory, Ridenour Lindsey said. “It is hard to tell if more homes are being listed or if things are just sitting a bit longer, but there is definitely more inventory,” she said. “Interest rates going up has slowed the market down a little bit, which we needed — it was unsustainable the way it was going.”

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Reno, Nevada

Known as “The Biggest Little City in the World,” Reno, Nevada, has been a hub for everything from railway expansion to gambling to divorce settlements. The city was named after Civil War Union Major General Jesse L. Reno, who was killed in action during the Battle of South Mountain at nearby Fox’s Gap. It has become a major technology center as it is home to offices for Amazon, Tesla, Panasonic, Microsoft, Apple and Google. Accompanying the influx of tech companies has been an influx of tech workers, causing home prices in the metro area to rise rapidly. “We have seen tremendous growth,” Mike Wood, a local RE/MAX agent, said. “Since May of 2020 we have seen growth accelerating faster than the national average and this happened as well from 2003 to 2007, but then our decline was also accelerated. It is like a roller coaster: the steeper the climb, the faster the drop.” According to Wood, this latest market shift is no exception to the rule. “I would say our price decrease should probably rank within the 10 highest in the nation, percentage-wise,” he said. “And our buyers that do get under contract are a little bit more skittish and quicker to cancel, so I have seen a high number of back-on-markets.” Looking ahead, Wood said making sure homes are well staged and presented and priced fairly will be key to getting to the closing table. 

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Destin, Florida

In November 2021, the median home sales price in Destin soared to $650,000, a year-over-year increase of 28.1%, according to Redfin. Since then, prices have cooled considerably, dropping to a median of $605,000 in August 2022, just 1.0% higher than a year ago. But with beautiful beaches and great amenities, it appears that Destin’s popularity is here to stay. Family circumstances forced Destin, Florida-based Corcoran Group agent and leader of The Ketchersid Team Jodi Ketchersid to take a step back from her real estate career in May. When she returned to the industry in late summer, the housing market looked different. A lot different. “It was like, ‘Holy cow! What happened to the market?’” Ketchersid said. “It felt like it happened overnight, but it wasn’t like the light shut off. I think this area was being really undervalued for so long — prices were low — and then everything went crazy and house prices became almost hyperinflated as people were willing to pay well over list price.”

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Boise, Idaho

Boise, Idaho, made quite a few headlines over the past few years as homebuyers flocked to the state’s capital city. In June 2022, the Boise housing market was the most overpriced in the U.S., according to an analysis of 100 markets conducted by researchers at Florida Atlantic University and Florida International University. The study found that property prices in the Boise metro area were 69% higher than they should have been given Boise’s long-term pricing pattern. But the rapidly appreciating home prices and rising mortgage rates have taken a toll on buyers’ purchase power, causing listings to sit on the market longer. “Houses aren’t flying off the shelf like they were last year with multiple offers,” Christina Ward, a local Keller Williams agent, said. Ward said this slowdown has led to an increase in housing inventory. In September, she said the metro area had about double the number of houses for sale as it did a year prior. “We have about 2.6 months of inventory and that is still a seller’s market.” Ward also noted that she is seeing fewer out-of-town buyers. “The buyers we are seeing need to move because they have to — they got a divorce or have an addition to the family, or a new job or are empty nesters wanting to downsize.”

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San Diego, California

Like so many other markets across the country, rising mortgage rates have taken a toll on the San Diego housing market. According to the San Diego Association of Realtors, the median price of a single-family home in the county dropped 5% in August to $910,000. While still pricy compared to the national median sales price of $389,500, according to the National Association of Realtors, it is a significant decrease. “I have a lot of buyers that are popping back up out of the woodwork,” Alanna Strei, a local eXp Realty agent, said. “They don’t like the interest rates, but it is not stopping them, they just aren’t happy about it.” Despite the slowdown, Strei said home price growth year over year was still at about 15% in September. “The fact that we are considering that as slow is kind of insane,” she said. “It is still a great time to sell.”

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This article was originally published in the December/January issue of HousingWire Magazine, click here to read the full magazine.



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rocket mortgage

Rocket Companies, the parent company of what was once the largest mortgage originator in the country, capitalized on the all-time low mortgage rates during the pandemic years, racking up record profits through an enormous amount of refinances. Last year, it originated $351 billion in total volume — with more than double the refi volume of any lender. 

But when mortgage rates started rising following downward pressures on inflation, its business took a hit and the unimaginable happened: Rocket Mortgage not only lost $166 million in the third quarter, but it fell from its throne. Rocket lost its origination crown to its chief antagonist United Wholesale Mortgage.

At $25.6 billion, Rocket’s origination volume in the quarter was 31% lower than that of Pontiac, Michigan-based UWM, which has been gobbling up market share with its aggressive pricing strategy in the broker channel.

To be clear, every lender has taken a hit this year, with the $4 trillion mortgage industry in 2021 declining to an estimated $1.7 trillion in 2022. But the high-rate environment seems to have exposed the vulnerability of lenders that are more reliant on refinancings through a call center model and don’t have strong relationships with real estate agents.

As the current high-rate business climate works against its refi-focused business model, Rocket is betting big on the strength of its platform – a single sign-on solution for the entire Rocket ecosystem consisting of real estate services, personal loans, used cars and rooftop solar systems through subsidiaries.

At stake is the title of the country’s largest mortgage originator — and proving its strategy of branding itself as a fintech which would enable Rocket to reach a bigger audience beyond the mortgage industry.

“As we navigate and adjust to the current environment, we’re continuing our long-term strategy of investing in our platform with an eye toward the future,” Brian Brown, Rocket’s CFO, emphasized to analysts in its recent earnings call.

Rocket is in a tough spot at the moment. UWM is aiming to cement its position as the country’s largest originator by undercutting competitors through cut-rate prices in the broker channel. Rocket is the second-largest player in wholesale and though it is a reliable source of purchase business, Rocket remains far behind UWM. 

While UWM faces a risk of losing market share when it pulls back from its aggressive pricing strategy, the wholesale lender says its bountiful profit of $325.6 million in the third quarter and improved liquidity position offsets the shrinking margins from its ‘Game On’ pricing.

“Honestly, for the next couple of years UWM is positioned a little better because they don’t have expenses like Rocket from going on to other ventures,” Kevin Heal, senior analyst at Argus Research, said. “They’re staying in the lane of being a wholesale lender.”

Rocket, whose executives have frequently spoken about the long game and the cyclicality of the mortgage industry, declined to comment for this story.

Is Rocket Mortgage waiting for another refi boom?

Though Rocket Companies has evolved from a single mortgage lender to an ecosystem of businesses involved in personal finance, auto sales, home sale and solar panels, its main source of revenue continues to be mortgages. About 94% of its generated total net revenue came from its direct-to-consumer and partner network mortgage segments year-to-date.

I think in some aspects they would like to be viewed as a proptech or fintech company. But at the end of the day, the core of the business is mortgage in our opinion.

Jay McCanless, senior vp at wedbush securities

“The mortgage business was such a large part of their business in 2021 to 2022; you’re not going to be able to replace that overnight,” Jay McCanless, senior vice president at Wedbush Securities, said. “I think in some aspects they would like to be viewed as a proptech or fintech company. But at the end of the day, the core of the business is mortgage in our opinion.” 

The Michigan lender boasts partnerships that include Salesforce – which allows Rocket to offer its mortgage technology to banks and credit unions that collectively originate $1 trillion in mortgages a year through Salesforce Financial Services Cloud – and Santander Bank, that allows Rocket Mortgage to originate mortgages for Santander clients. 

However, mortgage rates doubled from the start of the year to surpass 6% levels, and the lack of portfolio recapture have undoubtedly hurt Rocket’s mortgage business, Shampa Bhattacharya, director of the financial institutions group at Fitch Ratings, said. 

Roughly six of every seven U.S. homeowners with mortgages have a mortgage interest rate far below 6% levels, according to Redfin. Homeowners are discouraged from moving because selling their home and buying another could mean giving up their low mortgage rate and taking on a larger monthly housing bill, creating a “lock-in” effect across the country. 

Unlike UWM — which outsources its servicing, meaning that originations aren’t as dependent on the portfolio recapture aspect — Rocket owns those customer relationships and servicing portfolios, which would generate leads in a stronger refinance environment, Bhattacharya explained.

Rates are expected to go down to the 5% levels in 2023, but it’s highly unlikely that rates will decline to the 2 and 3% levels like it did in 2020 and 2021, raising questions on whether Rocket will be able to benefit from the refi boom as it did two years ago.

“Those loans would have really low customer acquisition costs, which is what makes them so attractive,” she said. “That business significantly reduced and it had a disproportionate impact on volumes and margins.” 

Not having a local presence through branches nor relationships with real estate agents – crucial for winning over referral businesses in a purchase market environment – is an Achilles heel for Rocket in the current market.

Rocket bankers work instead at centralized locations and are given leads that follow up on customer inquiries regarding ways to save money, a former Rocket banker who requested anonymity, said in an interview. 

“They had it set up where you would always get warm leads as much as you need for many hours a day,” said a former Rocket banker. “People inquired about saving money or cashing out, and a banker will follow up with them and transfer them over to a seasoned banker.” 

The former Rocket banker focused on refinancing mortgages to lower rates during his three years at the company, but after intense training sessions on mortgage products and sales techniques, which last about six to eight weeks, bankers are able to handle basically any type of calls, the former banker explained. 

In an effort to address criticism regarding the lack of relationships with real estate agents, Rocket set up a new team focused on cultivating relationships with real estate agents. However, the team was disbanded last year, according to a report by the Wall Street Journal in late October. Rocket didn’t provide comment on whether all the teams had been disbanded and whether it plans on setting them up again. 

If you can influence consumers through ongoing direct consumer marketing, that’s powerful if it works.

Andy Harris, President of vantage mortgage brokers

In a rising-rate environment, Rocket bankers have pivoted to persuading existing customers to get a cash-out refi — taking advantage of record home equity levels that ballooned during the pandemic, the Journal reported. 

It’s a tough sell.

Getting potential borrowers to trade a 3% mortgage for a 6% one is like “pushing rocks up hills,” Colin Wyzgoski, who quit his job as a banker in August after taking time off because of work stress, told the Journal.

There’s also heavy competition for Rocket bankers to contend with.

“With the market starting to shift, lenders are starting to show back up in the door,” Jeremy Blanton, a real estate agent at RE/MAX Southern Shores, told HousingWire. “Now that the refi market slowed down they have time and are doing the customer support for agents again.” 

For retail lenders, brand recognition is key. And this is where Rocket has a big advantage over others —when it comes to Rocket, arguably no one is better at marketing. It would be foolish to count out a company as well resourced and well known to consumers as Rocket is, observers said.

“If you can influence consumers through ongoing direct consumer marketing, that’s powerful if it works,” Andy Harris, president of Vantage Mortgage Brokers, said. 

Harris explained that younger generations are “more savvy because data is more readily available online” and that’s why Rocket is trying to bill itself to be a fintech company and try to attract the younger age homebuyers in a different way. 

Plenty of money on hand

For a company with a market cap of $15.5 billion and increased liquidity in the third quarter, Rocket is positioned to withstand the storm better than any other lender.  

It’s all about building the sticky relationship with the end customer and then selling them the products when any need arises for a mortgage and they already have the customer. If they come to Rocket, their customer acquisition costs are really low and their margins are high, that’s their business strategy.

Shampa Bhattacharya, director of the financial institutions group at Fitch Ratings

Having the cash and credit lines on hand to ride out the rough patches in the market — known as liquidity — could be what separates the winners from the losers in the mortgage industry.

“Rocket is willing to sacrifice some income for the next quarters to capture market share and pull guys out of business,” Heal said. “They have plenty of funding available to finance the mortgages in between the period when they are origination and when they get sold.”

Rocket’s SEC filing indicates that it ended the third quarter of 2022 with a “strong liquidity position,” which includes $800 million of cash on hand, $3.2 billion of corporate cash used to self-fund loan originations, a portion of which could be transferred to funding facilities – warehouse lines, which used to fund loan originations.

At the end of the third quarter, the value of mortgage servicing rights came in at $7.3 billion, an increase of $1.9 billion year-to-date. A rise in the fair market value of MSRs on Rocket’s balance sheet helps to bolster the lender’s asset position, which creates more collateral for borrowings or potential income from future MSR sales — all of which help pump up Rocket’s liquidity. 

For now, Rocket is “dealing with relatively low leverage and fairly efficient operations” but red flags to look for include large cash burns combined with significant MSR sales, according to analysts. 

“You are basically selling your forward cash flow at a discount rate,” Kevin Barker, managing director at Piper Sandler, said. “It’s selling your future earnings in order to maintain your current market share. That is ultimately going to be dilutive to long term franchise value.”

Rocket’s to-do list as a fintech

“Rocket is going into the quarter and the start of 2023 on a pretty cautious footing, it seems like they’re doing multiple things to expand the funnel,” McCanless said, adding that the company is getting creative to generate opportunities for purchase originations where they can.

The Detroit company claimed to have 24 million Rocket user accounts through Rocket Homes, Rocket Auto, Rocket Solar and Rocket Money as of the third quarter of 2022. The goal for Rocket is to bring these members into their business lines well before they are ready to buy a home — and get them to lock in mortgages when becoming homeowners. 

“It’s all about building the sticky relationship with the end customer and then selling them the products when any need arises for a mortgage and they already have the customer,” said Bhattacharya. “If they come to Rocket, their customer acquisition costs are really low and their margins are high, that’s their business strategy.”

With a larger top of the funnel and a lower client acquisition cost, higher conversion through deeper client insights and personalized offerings, and client retention with increased lifetime value, Rocket has a significant advantage over others in the space.

Jay Farner, CEO of Rocket Companies

The most recent example of that effort is the launch of Rocket Rewards, a loyalty program that distributes points toward financial transactions across the Rocket platform for potential homebuyers. In turn, homebuyers can use points to get discounts in their closing costs in the future.  

At the vanguard of Rocket’s efforts to be defined as a fintech is Rocket Money, the latest addition to the Rocket portfolio. Formerly known as Truebill — a personal finance app that helps people split bills and cancel subscriptions — Rocket acquired the business in December 2021. Rocket wants to use the app to acquire leads for the mortgage origination business at a lower customer acquisition cost.

“With a larger top of the funnel and a lower client acquisition cost, higher conversion through deeper client insights and personalized offerings, and client retention with increased lifetime value, Rocket has a significant advantage over others in the space,”Jay Farner, CEO of Rocket Companies, told analysts during its earnings call of Rocket’s long term strategy.

“As we see rates shift and adjust, if there’s an opportunity to help folks, we’re not marketing to a $2.5 million client base, we’re marketing to a $10 million client base, and that’s the vision of what we’re creating,” Farner said.

Rocket declined to make any executives available for interviews and referred to the third quarter earnings call for any details on Rocket Companies future plans. 

Despite Rocket’s ambitions, it’s likely going to take a couple of quarters before the lender returns to profitability.

“Considering how far origination demand has fallen and the significant consolidation that has occurred in the space, we believe Rocket will continue to produce slightly negative operating earnings for the next couple of quarters (absent a sharp drop in rates),” analysts at Piper Sandler wrote in a report following Rocket’s third quarter earnings.

“With the mortgage industry heading into the winter months, we might be going into a recession, one of the most profound turnarounds,” Brian Hale, founder and CEO at Mortgage Advisory Partners, said of upcoming market prospects. “Everybody (every lender) is going to have a black eye here. It’s not a lack of desire for loans, the loans don’t exist.”

As with all companies, businesses must adapt to the changing times. Rocket is really trying to redefine themselves as a fintech provider not just a mortgage company, said Heal, of Argus Research. 

“It’s yet to be seen if that strategy has yet to work out,” he said. 

That is not to say that Rocket doesn’t have advanced technology, Bhattachary added. “They have a lot of investment going on and a lot of innovation going on in its customer acquisition channel.

“The trick,” she said, “is to stay around and be around when the market changes and the cycle turns around. Then we’ll see who is in a better position and why.”



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