Mortgage loan servicing giant Mr. Cooper is “firing on all cylinders” and intends to “hit the ground running” when it merges with lender Rocket Companies later this year, Chairman and CEO Jay Bray said Wednesday in announcing a $198 million second-quarter profit.
When its deal to acquire Mr. Cooper closes later this year, Detroit-based Rocket will be collecting monthly payments on $2.1 trillion in mortgage loans — about one in six U.S. mortgages. When those homeowners are ready to refinance, Rocket will have a leg up on “recapturing” their business, Rocket CEO Varun Krishna has said.
Krishna expects the lender’s July 1 acquisition of real estate brokerage Redfin to boost its market share in purchase lending to 8 percent, while bringing Mr. Cooper’s massive $1.5 trillion loan servicing portfolio under Rocket’s roof later this year could help the lender capture 20 percent of all U.S. mortgage refinancings.
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Jay Bray
“We were thrilled to see Rocket close the acquisition of Redfin, which is a major component of the integrated homeownership platform which we are so excited to be building together,” Bray said on Mr. Cooper’s earnings call.
“We’re working very closely with Rocket on post-close integration planning to ensure once the deal closes that we hit the ground running, with strong momentum in place to deliver the benefits of this platform to our clients, partners, and investors.”
Mr. Cooper is the nation’s largest mortgage loan servicer, earning $332 million in Q2 pretax income by collecting monthly mortgage payments from 6.4 million homeowners on behalf of lenders and investors in mortgage-backed securities.
The loan servicing business also gives Mr. Cooper an edge in offering refinancing or home equity loans to those homeowners — a business that generated $64 million in Q2 revenue on $9.4 billion in originations.
Surveys by the Mortgage Bankers Association show lenders have lost money in 10 out of the past 12 quarters.
But Mr. Cooper “has produced solid double-digit returns for nearly two and a half years straight, which demonstrates the power of our scaled platform and balanced business model,” Bray said.
“I’m very pleased with these results; in fact, I’d say the company is firing on all cylinders,” Bray said. “This is a real achievement considering the difficult environment, with persistent high mortgage rates contributing to ongoing affordability challenges, sluggish home sales and home prices coming under pressure in some markets.”
Investment in AI keeping expenses in check
Mr. Cooper’s investment in AI and other technology have helped it grow its loan servicing portfolio by 25 percent from a year ago while keeping operating expenses from necessities like call centers in check, President Mike Weinbach said.
Thanks to technology like AI, revenue from loan servicing was up 13 percent from a year ago, but operating expenses were up only 6 percent, Weinbach said.
Mr. Cooper can service mortgages at nearly half the cost of its competitors, Weinbach said, citing a 2024 benchmark survey by the Mortgage Bankers Association.
Mike Weinbach
That gap is expanding as Mr. Cooper continues to “invest in and implement new AI solutions, since this technology is uniquely suited for optimizing large call center operations,” Weinbach said.
Mr. Cooper’s proprietary AgentiQ application helps team members by interpreting questions posed by customers, tracking sentiment in real time, putting explanatory material and customer information at the agent’s fingertips, and generating call summaries.
“With the first version of AgentiQ now fully rolled out, we’re moving forward to beta-test true ‘agentic’ features, where the system will execute simple tasks on its own,” such as answering questions and fetching data in chat conversations, Weinbach said.
Mr. Cooper’s $1.51 trillion mortgage servicing portfolio
Source: Mr. Cooper earnings reports.
Aided by last year’s $1.3 billion acquisition of Flagstar Bank’s servicing business, Mr. Cooper finished the year with a $1.56 trillion mortgage servicing rights portfolio, up 57 percent from the year before.
But after more than doubling its mortgage servicing rights portfolio over the past three years, Mr. Cooper has seen it shrink for two consecutive quarters this year to $1.51 trillion as of June 30.
The “slight decline” in Q2 was “driven by a single client who is pursuing a different strategy,” Weinbach said — an allusion to United Wholesale Mortgage (UWM) pulling its subservicing contract with Mr. Cooper.
The nation’s biggest lender — and a fierce rival of Rocket — UWM announced in April that it had signed a long-term agreement with ICE Mortgage Technology to bring its loan servicing in-house.
All told, Mr. Cooper has “deboarded” $62 billion in mortgages it was servicing for UWM, Weinbach disclosed.
Mr. Cooper’s $778 billion in subservicing rights still includes an estimated $120 billion in UWM loans which are “expected to migrate” when UWM brings its servicing in-house, BTIG analyst Eric Hagen said in a note to clients.
But Weinbach said Mr. Cooper is on track to bring in $20 billion in new mortgage servicing rights in Q3, and recently signed a new client with $40 billion in loans that Mr. Cooper expects to be servicing by the end of the year.
Correspondent lending driving originations
Source: Mr. Cooper earnings reports.
On the originations side, the $9.4 billion in mortgages Mr. Cooper funded during Q2 represented the strongest quarter in three years.
Most of that business (72 percent) came through the correspondent channel, as Mr. Cooper fine-tuned its pricing and capital market strategies to optimize execution, Weinbach said.
“Over the last year, we’ve become a consistent top five player in this channel, and we expect the power of our platform to drive further share gains, subject of course to maintaining margin discipline,” Weinbach said.
Correspondent lenders are typically smaller institutions that originate and fund their own loans, then resell them to other lenders or investors. Wells Fargo often did more than half of its business through its correspondent channel before exiting the business in 2023.
In the direct-to-consumer channel, more than half of Mr. Cooper’s originations were cash-out refinances (36 percent) or home equity loans (23 percent).
“We believe there is a very substantial opportunity with home equity loans,” Weinbach said, with Mr. Cooper’s loan servicing customers having more than $900 billion in equity they can tap. “We view home equity as a mainstream consumer product, representing the easiest and most-cost effective manner for homeowners to access equity for a wide variety of uses.”
Assuming mortgage rates remain at current levels of around 6.75 percent, Hagen estimates that Rocket’s annual mortgage originations could grow to about $170 billion after the merger closes.
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