“MSRs are an attractive way to acquire future origination clients together, our origination and servicing businesses form a powerful homeowner supply wheel that allows us to source new clients and organically create new MSRs,” Krishna said.
While Rocket doesn’t appear motivated to become a massive subservicer, its historic strengths in servicing and refinancing offer an intriguing value proposition to prospective asset manager partners.
“Recapture rate allows an asset manager to protect against CPR or prepayment risk, and it will be a big part of our strategy going into 2025,” said Brian Brown, the company CFO.
Rocket Mortgage, which also has a subservicing deal with Charles Schwab, only disclosed that it will service “a portion of the mortgage servicing rights held by Annaly” starting in December.
Krishna framed the Annaly deal as part of a larger strategic vision.
“We ended the third quarter with $3 billion of available cash and $6.8 billion of mortgage servicing rights,” he said. “Together, these assets represent a total of $9.8 billion of value on the balance sheet…[Having MSRs] is just showcasing the power of the platform, and it’s just something that illustrates how we scale beyond our four walls because we’ve earned the right to take these capabilities to benefit others like Annaly.”
A shift in Rocket Mortgage’s MSR strategy
Through the third quarter, Rocket has already acquired or committed to over $70 billion in unpaid principal balance for its servicing portfolio—a 15% increase over year-end 2023. That’s 220,000 customers added through Q3. In all, Rocket Mortgage has about 2.6 million customers and $546 billion in unpaid balance servicing rights.
In 2023, when losses mounted, Rocket was one of the largest net MSR sellers, HousingWire previously reported. Now, however, the lender looks to pivot to a buyer role, signaling a shift in strategy as it builds out its servicing portfolio for long-term gains. This shift comes as other major players, such as Wells Fargo, reduced their MSR holdings at the start of 2024, and hundreds of IMBs sell servicing rights to free up cash for originations. All the while, companies like Mr. Cooper and Lakeview Loan Servicing have expanded their portfolios.
Independent mortgage banks and private capital investors remain highly active in the MSR market, using servicing rights as a cash-flow tool.
Brown expects Rocket to grow its servicing presence even further in 2025. “I expect us to continue to double down there on those opportunities, both from the bulk acquisition market, but I think this subservicing aspect is also very interesting to us because if you were in a seat where you didn’t have an in-house capability, protecting those cash flows has to be your number one priority,” he said.
In a call with HousingWire, Brown said that Rocket’s value proposition in the MSR space is twofold. “We’ve learned that if you provide the client the best experience on the servicing side, they do come back to you for their next loan. And strictly from a financial perspective to a company like us, the value of capturing the client’s next loan can be 10 to 20x of just owning that servicing asset,” he said.
Rocket Mortgage is prioritizing a high recapture rate over cost efficiency. “We’ve never set out to be the lowest-cost servicer. We’ve always set out to be the best servicer and take care of those clients and earn their business back,” Brown said.
The MSR acquisition market remains a competitive space, said Tom Piercy, CGO at Incenter Capital Advisors.
“The MSR asset is still an extremely attractive alternative investment for capital,” he said, noting that low-coupon MSRs from the 2020 and 2021 origination boom are in high demand but limited supply, leading to a slowed bulk MSR sales market.
As the bulk servicing market “wanes,” Piercy says that recapture efforts are at the top of mind. “If I’m not good at recapture, I’m going to sell it because I’d rather have the cash and not the risk,” he said. “I’m not sure you are going to see large volume trade, few and far between within the next six months.”
With economic uncertainties on the horizon, Rocket executives said the company is primed for a strong year in 2025. Krishna expressed confidence in the housing market’s fundamentals, pointing to increasing inventory levels and high homeowner equity. “Obviously, the housing market is a big part of the GDP. And the good thing there is that we’re seeing some signs of rejuvenation. You’ve got more inventory, you’ve got more homes that are selling at or below the listing price, and you’ve got equity at an all-time high. And when you look at housing inventory, we went from 3.4 months to 4.3 months,” he said.
Krishna added, “The most important thing we look at is our ability to execute in any market… we feel tremendously confident in our super stack, which we see as a tailwind that gives us an edge against competitors.”
