Shares of Rocket Companies RKT, +19.50% , the parent of major mortgage lender Quicken Loans, gained over 20% after initially falling flat following its initial public offering.
Rocket Cos. first traded at $18 when it debuted on the New York Stock Exchange Thursday morning, in line with its IPO price. The company said late Wednesday that it had sold 100 million shares in the offering at $18 a share. Last week, the company said it was aiming to offer $150 million shares priced between $20 and $22 a share.
Rocket’s stock rose 20% throughout the day to close above $21, within its initial target range. Rocket president and chief operating officer Bob Walters chalked up the lower-than-expected IPO price to the company being “a bit of an enigma for the public markets.”
“In the secondary markets we’re seeing that trade up, so that gives us a bit of validation at least early on,” Walters said. Walters assumes the president mantle for the now-public company after holding the same title for many years at its largest subsidiary, Quicken Loans. Much of Quicken’s leadership team took the top ranks at the new company, which was carved out of co-founder Dan Gilbert’s empire, including CEO Jay Farner and chief financial officer Julie Booth.
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The company made the decision to go public for two reasons. First, Gilbert wanted to take out a small amount of equity, which Walters said he will invest in Detroit and Cleveland. The Detroit-based Quicken was valued at $35 billion in the listing, giving it a higher market value than neighbor Ford Motor Co, according to Bloomberg.
Rocket’s prospectus noted that the proceeds of the offering would mainly go toward purchasing businesses and Class D stock from Rocket Cos.’ previous holding company, Rock Holdings Inc., which is owned by Gilbert. And following the deal, Gilbert will retain majority voting power in the company.
But Walters also emphasized that the offering was done in order to award employees with stock. “That may be fairly common in Silicon Valley, but it’s not that common in Detroit,” he said.
Quicken Loans rose to become the country’s largest mortgage lender in recent years following the debut of Rocket Mortgage, its digital mortgage application process. Rocket Mortgage proved especially popular among millennials, Walters said, who now form the largest generation of home buyers in the market.
Today, many lenders “are working hard to have their own version of that,” Walters said. Rocket, meanwhile, is looking to enhance its technology so that it can make the mortgage process more efficient and scale up how many applications it can process. He compared the company’s ambitions to Amazon AMZN, +0.62%.
“Amazon has a consumer-facing website where you can find goods and buy goods, but lots of companies have a consumer-facing website,” Walters said.
“What Amazon has that no one else has is an unbelievable logistics platform,” he continued. “Essentially, we’re building the Amazon for financial services — building this leveragable, scalable platform that we can do significant amount of mortgages through and quite frankly also enable some of our other partners through our Rocket Pro channel to leverage that platform as well.”
“ ‘These are really extraordinary times, very profitable times for us.’ ”
To accomplish that goal, the company will need to hire more tech talent, Walters said. The hope is that by going public and providing stock compensation, they’ll be about to poach workers from Silicon Valley.
Currently, the company closes around 100,000 mortgages a month, Walters said. While he did not cite a specific target for the future, he suggested the company hopes to scale up to closing as many as 200,000 loans each month.
Rocket’s IPO occurred the same day that Freddie Mac FMCC, +2.45% announced that the average interest rate on the benchmark 30-year mortgage had fallen to a record low. It was the eighth time this year a record had been set.
Earlier in the pandemic, Quicken CEO Farner predicted that rates would not end up dropping below 3% because of the pandemic — though that’s just what happened. The ultra-low rate environment has been a boost for the mortgage industry, providing it with a steady flow of refinance applications. Walters estimated that within the $11 trillion mortgage market, around $9 to $10 trillion is tied up in loans where the homeowner could benefit financially from refinancing.
It could take many years to work through all that demand if rates stayed that low. “Whether interest rates will stay or not nobody knows, but these are really extraordinary times, very profitable times for us,” he said.
As interest rates fell because of the pandemic, the numbers of Americans requesting payment relief on their home loans initially rose significantly. Quicken escaped that trend, seeing about half of what the rest of the industry saw in terms of its forbearance rate. But even if the rate were to go up, the company is prepared, Walters said.
“There’s no challenge at this point from a liquidity standpoint,” he said.
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