[New] FARNER, FINTECH AND THE FUTURE

How Rocket Cos. CEO Jay Farner Is Planning To Be A Player Beyond Mortgages

By KATIE JENSEN, STAFF WRITER, MORTGAGE BANKER MAGAZINE

In the mortgage world, when someone says Rocket, most in the industry assume they’re talking about Rocket Mortgage But that might be a surprise to the regulators at the SEC.

That’s because Rocket, at the top of every filing, says it’s primarily not a lender. It officially defines itself as a Detroit-based FinTech holding company consisting of tech-driven real estate, mortgage, and financial services businesses.

In a conversation with friends or fellow brokers, call Rocket a lender all you’d like, but you’ll stand corrected if CEO Jay Farner is in the room.

Rocket Mortgage is a lender, but what about Rocket Auto, Rocket Solar, Rocket Homes, Rocket Loans, Amrock, and StockX — after all, what do shoes have to do with mortgages? Why did Founder Dan Gilbert buy Dictionary.com and a computer game called Deck’n Dice? Are these superfluous purchases or is there an actual plan here?

In an exclusive interview with Mortgage Banker Magazine, Rocket CEO Jay Farner, I had the opportunity to ask him these exact questions. Farner told me there is indeed a plan, and a goal that no other company in the mortgage industry is striving for.

“Our clients don’t come to us to get a mortgage; they come to improve their financial situation… they come to figure out the next step in their lives,” Farner said. “So any acquisition or any company that we can build that brings value to the client in that way is where we’re focused.”

Ideally, in the next 10 years, Rocket will become a one-stop-shop where consumers can manage all their finances. They’ll go to Rocket for a variety of financial services, whether it’s to cancel subscriptions, get an auto loan, get a mortgage, or even a loan to install solar panels on their house.

“There’s a huge opportunity to place all of this on one platform,” Farner said. “I wake up this morning and I can save $50 by refinancing my car loan. I should be able to press a button to make that happen, and because of the data that Rocket has, by tomorrow, I should start receiving savings on that car loan.”

So if you’re still calling Rocket a mortgage lender 10 years from now, it’ll be like calling Amazon an online bookstore. Not entirely wrong, but not entirely right either.

As you may know, Amazon started off as an online bookstore before expanding into a behemoth company with a large e-commerce business. But the Amazon web store isn’t what made Jeff Bezos filthy rich. The majority of Amazon’s total operating profits — nearly 75% in 2021 — comes from Amazon Web Services (AWS).

AWS, a cloud platform (or, in other words, a collection of hardware and software), offers computing services like storage, servers, and networking to other enterprises that don’t want to spend a ton of money building their own servers. AWS is rented on a metered billing model, bringing in tons of recurring revenue for Amazon.

Now think about Rocket offering its technology and resources to help banks provide services they otherwise couldn’t afford, like mortgages. They’ve already begun doing so with Santander Bank.

“That’s the same exact thing that Rocket is thinking about, but from a financial services perspective,” Farner said. “So yes, we do mortgage, but – and I think you’re picking up on it – comparing us to a mortgage lender will become more and more challenging as time goes on.”

REBRAND & DOMINATE

Rocket’s journey to Amazon-level success begins with dominating both retail and wholesale channels, as well as rebranding as a fintech company.

During the pandemic housing boom,

The Stock Game

Mortgage companies never used to go public on the NASDAQ, but when the pandemic housing boom hit, a number of banks and mortgage lenders filed IPOs. These include Rocket Companies (RKT), United Wholesale Mortgage (UWMC), Guild Holdings (GHLD), loanDepot (LDI), Home Point Capital (HMPT), Pennymac Financial Services (PFSI), and a few others.

These stocks are provided ratings by multiple analysts, all of whom look at the same data but sometimes come away with different opinions. In November, Argus Senior Analyst Kevin Heal caused a slight disruption when he published a report that downgraded the stock from “hold” to “sell,” causing RKT value to tumble 10.6%.

However, Rocket’s SEC filings show that some of Rocket’s executives, including CEO Jay Farner and Director of Rocket Companies Matthew Rizik, bought more shares of RKT after the downgrade from Argus, proving that top executives are not sweating over recent stock performance. As of the end of November, Jay Farner owns 5,574,507 shares of RKT and Rizik owns 515,502 shares.

It should be noted that since Heal’s report was released on November 16, he has issued a number of corrections, but stated that his sentiment and rating on RKT remains the same.

it became harder for nearly everyone in the mortgage industry to keep up with burgeoning demand. The unprecedented rise in mortgage applications created a need for faster turnaround times, forcing many banks and lenders to make technological improvements. As a result, fintech boomed throughout the course of the pandemic, streamlining appraisals, underwriting, and applications processes.

Rocket has bolstered itself, its brokers, and its correspondent partners with industry leading fintech over the past few years with programs like Correspondent Assist, Pathfinder, Rocket Connect, and Rocket Pro TPO Client Portal.

“So it’s a mind shift from a company that produces mortgages to a company that takes its thousands of technology people and empowers them to build these great projects for our clients,” Farner said.

Don’t be mistaken. You wouldn’t call Rocket a fintech provider — at least not yet. Fintech providers sell their technology for a fee, but Rocket only provides its technology to its partners.

“They recently introduced the rewards program that can only be used if you basically get a mortgage through Rocket,” Argus Analyst Kevin Heal said. “It’s like having airline miles. I’ve got 30,000 miles on United, but United doesn’t fly into this place that I’m going to, so I can’t use these miles. With Rocket, you can only use those rewards for paying down closing costs on your mortgage from Rocket.”

In 2022, Rocket formed an exclusive partnership with Santander Bank to provide mortgages for the bank’s two million customers with “exclusive discounts and dedicated resources” to help them buy a home. Specifically, Rocket Mortgage provides discounts on loan costs and closing costs with enhanced discounts for Santander Private Clients and employees who close loans within the program.

In February 2022, Santander, the Bostonbased bank with 650 retail offices in the U.S., had to exit the mortgage business because the cost to originate was too high and it wasn’t seeing enough of a return on its business.

Rocket spokesperson John Perish said Santander was prompted to reach out to Rocket after it announced in 2021 that it formed a relationship with Salesforce to make its mortgage origination technology available to banks, credit unions, and other financial institutions.

In August, Rocket also announced its partnership with Q2 Holdings, provider of digital banking solutions, to enable Q2 banks and credit unions to offer Rocket Mortgage’s digital home loan application experience. Rocket offers perks such as live mortgage assistance inside of Q2’s online banking platform.

GET ON BOARD, OR NOT

But, wait. Retail banks are brokers’ competitors, aren’t they? How do Rocket’s broker partners feel about their lender offering its technology and resources to their competitors for a discount?

“The way we think about the brand and the technology that we’ve built is that it is a benefit to the partners that we work with,” Farner said. “We’d like to reach the client everywhere we can and it may be through a broker or it may be through a partner bank.”

“If you’re not partnering with us, then clearly we’re a direct competitor, and we will be using all of the resources we have to go out and win the clients that we’re all competing for,” Farner added.

WHO NEEDS WHO?

When it comes to which lender has the best marketing, Rocket blows everyone else out of the water. The everyday consumer may recognize them from their commercials on TV and social media (now more geared towards Rocket Money), the Anna Kendrick 2022 Super Bowl Ad, or if they went to see the Cleveland Cavaliers at the Rocket Mortgage Fieldhouse. Their 2019 commercial “Push Button, Get Mortgage” certainly caused a stir amongst the broker community, making it easy for consumers to submit applications, manage autopay, view loan information, and attain a current home value estimate.

United Wholesale Mortgage, Rocket’s cross-town rival, also has a mobile app for brokers that it rolled out in 2016 called Blink+, providing a point-of-sale, loan origination system, and customer relationship manager all-in-one package. Never heard of it? Well, that’s the point.

Because of its retail business, Rocket has the power to market to consumers directly — and it does a mighty fine job doing it.

“Within the pandemic, they had very high margins relative to the peer group,” Barker said. “And they weren’t as competitive on prices, which told me that customers would go to Rocket, not necessarily looking for the best rate, but just because they knew who Rocket was.”

However, Rocket’s successful marketing tactics do not negate the amount of business their broker partners bring in — roughly 42% of their mortgage originations come from their partner network. Homebuyers, making the biggest financial decision of their lives, like to work with real estate agents, brokers, and lenders they trust. They appreciate guidance from a professional who will get the loan closed and on time.

“I think it’s part of Rocket at this point and the brokers are essentially Rocket’s distributed sales force, right?” Barker said. “Who do you trust to get this loan done at the right time and get all the paperwork ready? Because, let’s say, I’m moving my family halfway across the country to get this done. So trust and relationships are much more important, and that requires a localized sales force,” Barker said.

So, the success of Rocket’s direct-toconsumer channel and these partnerships with banks does not mean they’ll be ditching the wholesale channel. The partner network is an integral part of Rocket Mortgage’s business, but there are other, less expensive ways to get customer leads, than through brokers. Rocket Money has the potential to do just that.

Rocket Money

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