In a matter of just three weeks, Rocket Cos. has spent over $11 billion to alter the way Americans go through the process of buying, selling, and financing their homes.
The objective is to centralize everything through Rocket, from beginning to end.
In Rocket’s vision of the housing market, buyers and sellers will interact through Redfin Corp., the home-search platform it agreed to acquire for $1.75 billion earlier this month. Homebuyers in need of a mortgage will then turn to Rocket, now the third-largest player in an industry once dominated by banks. Finally, the loan will require servicing, a task that can be handled by Mr. Cooper Group Inc., which Rocket revealed on Monday it will purchase in an all-stock deal worth $9.4 billion.
“This transaction doesn’t just signal consolidation; it represents a fundamental shift in how homeownership services are structured, provided, and scaled through technology and vertical integration,” noted Kirill Krylov, a senior portfolio strategist at Robert W. Baird & Co., in a message to clients on Monday.
The significant moves, which have surprised the real estate industry, come at a time when the US housing market is facing challenges due to persistently high interest rates and home prices that have sidelined potential buyers. Sales of previously owned homes dropped to the lowest level since 1995 last year. These acquisitions will solidify Rocket’s position as a mortgage giant, particularly after banks like Wells Fargo & Co. have largely exited the business.
The timing of these announcements, just months into Donald Trump’s presidency, indicates Rocket’s belief that the financial-technology company will encounter fewer regulatory obstacles in its quest to expand. Detroit-based Rocket aims to cover every kind of consumer-finance transaction under its umbrella, as demonstrated by its foray into credit cards and personal loans to diversify revenue streams traditionally linked to mortgage rate fluctuations.
Upon completion, the combined Rocket and Mr. Cooper will service a loan portfolio of $2.1 trillion and have nearly 10 million clients, according to a statement released on Monday. Mr. Cooper shareholders will receive 11 Rocket shares for each share of Mr. Cooper’s stock they hold, representing a 35% premium, as stated by the companies. At the end of 2024, Rocket was the third-largest US mortgage originator, trailing United Wholesale Mortgage and PennyMac Financial Services Inc., according to data from Inside Mortgage Finance.
Upon closing the deal with Mr. Cooper, Rocket expects to generate roughly $500 million in run-rate revenue and cost synergies. This servicing-focused deal can also help balance Rocket’s lending business by providing extended payments to the servicer when interest rates rise, countering the decline in mortgage originations that typically occurs in such scenarios.
Rocket is positioning itself to benefit from both low and high-interest rate environments.
Uniting a top retail originator with an industry-leading servicer is expected to enhance Rocket’s capacity to achieve lower-cost growth through its origination-servicing flywheel, noted Zelman & Associates analyst Ryan McKeveny in a message to clients on Monday.
The boards of both companies have approved the deal, which is anticipated to be finalized in the fourth quarter pending regulatory approvals, the firms disclosed. Following the transaction, Mr. Cooper Chief Executive Officer Jay Bray will assume the role of president and CEO of the Rocket Mortgage division, reporting to Rocket CEO Varun Krishna. Billionaire Dan Gilbert will remain chairman of the broader Rocket Cos. company.
Rocket’s surge can be attributed in part to the aftermath of the 2008 financial crisis, which led Wall Street banks to largely retreat from the mortgage industry. Bank of America Corp. became the nation’s largest mortgage lender and servicer with its 2008 acquisition of Countrywide Financial Corp. By 2024, BofA was the 19th-largest home lender by volume, according to Inside Mortgage Finance.
‘Musical Chairs’
“It’s like a game of musical chairs, and Rocket just grabbed two more chairs,” said Mike DelPrete, who teaches real estate technology courses at the University of Colorado Boulder. “If you’re a company that isn’t part of an ecosystem, when the music stops you might be out.”
Nonbank mortgage servicers have also grown following the post-financial-crisis era, with major players like Nationstar, Ocwen, and Walter acquiring servicing contracts from big banks looking to reduce their exposure to the mortgage business. Nationstar rebranded itself as Mr. Cooper in 2017.
“When you look at how the world has evolved and changed, the mortgage business has become far more competitive and challenging to run efficiently within a large bank,” remarked Wells Fargo & Co. CEO Charlie Scharf at an investor conference in May. “Not that it’s impossible, but it has brought considerable risk along with it.”
Regulators’ Concerns
Regulators have raised concerns in the past about whether interconnecting components of the homebuying process lead to reduced options and higher rates for consumers. During Joe Biden’s presidency, the Consumer Financial Protection Bureau filed a lawsuit against a Rocket subsidiary for offering incentives and pressuring real estate agents to exclusively refer homebuyers to the lender.
The scheme, deemed a violation of the Real Estate Settlement Procedures Act, led to buyers facing higher mortgage rates and less industry competition. Rocket refuted the CFPB’s claims, calling them “a distortion of reality.”
That lawsuit, among others, was dropped by the CFPB after Trump took office. The new administration significantly reduced the activities of the consumer-finance watchdog, with the agency’s future hanging in the balance amid legal proceedings to dismantle it.
Both Mr. Cooper’s Bray and Rocket’s Krishna are optimistic about receiving regulatory approval for the deal.
“We are confident that we will complete this deal,” Krishna stated during a conference call with analysts on Monday.
Banks Displaced
Since 2008, nonbank entities have been displacing banks in managing mortgage payments for US homeowners. The proportion of mortgages in Fannie Mae and Freddie Mac securities serviced by nonbank mortgage-servicing companies increased from about 35% to 60% over the past decade, according to a report by the Financial Stability Oversight Council last year.
Rocket is known for getting homeowners to refinance their loans at a faster pace than other servicers. Therefore, their acquisition of Mr. Cooper-serviced mortgages could lead to quicker refinancing for those homeowners.
Since many of these mortgages are part of the multitrillion-dollar market for mortgage-backed securities insured by the US government, bond investors may receive their money back sooner than expected, adding pricing volatility.
“Rocket excels at having borrowers refinance their mortgages rapidly compared to other companies handling mortgage payments,” explained Walt Schmidt, a strategist at FHN Financial. “This poses a higher risk for bond investors regarding early repayment if interest rates decline.”
This story was originally featured on Fortune.com
