Q2 2025 Rocket Companies Inc Earnings Call
Hello, and thank you for standing by my name is Tiffany and I will be your conference operator today.
At this time I would like to welcome everyone to the rocket companies, Inc. Second quarter 2025 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then the number one on your telephone keypad.
I would now like to turn the call over to Sharon <unk> head of Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for joining us for rocket companies earnings call covering the second quarter 2025 with US. This afternoon are rocket company CEO of Arun Krishna and our CFO, Brian Brown earlier today, we issued our second quarter earnings release, which is available on our website at rocket companies Dot com.
Under Investor Info also available on our website is an investor presentation.
I turn things over to Karen Let me quickly go over our disclaimers.
This conference call includes forward looking statements about among other matters expected operating and financial results strategic initiatives. The recent up see collapse and acquisition of Redfin and the anticipated acquisition of Mr. Cooper.
Statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and the assumptions we mentioned today.
We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties.
We undertake no obligation to update these statements as a result of new information or further events, except as required by law.
This call is being broadcast online and is accessible on our Investor Relations website.
A recording of the call will be posted later today.
Our commentary today will also include non-GAAP financial measures reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings release issued earlier today as well as in our filings with the SEC.
And with that I'll turn things over to Vernon Krishna to get Us started.
Ryan.
Good afternoon, everybody and thank you for joining our second quarter 2025 earnings call. There is a lot happening at rocket these days and today I'm going to share our progress in a few key areas first I will recap our outstanding second quarter performance and the current market landscape.
Next I'll share a couple of execution wins from the quarter and finally I'll update you on the Redfin acquisition post close and what lies ahead.
Let's start with the numbers. This was a very strong quarter for us we demonstrated rock solid execution on the business as we close the redfin transaction and made progress on the integration of both redfin and Mr. Cooper.
Adjusted revenue reached $1.340 billion.
Above the high end of our guidance net rate lock volume increased by 13% year over year.
We served over 100000 origination clients, representing a 19% year over year increase with the growth of home equity loans being a key driver.
Adjusted EBITDA was $172 million, representing a solid 13% margin and adjusted diluted EPS of <unk>.
Given the redfin transaction closed on July one <unk> financials are not included in these second quarter results.
I'm, especially proud that we delivered these results in a tough housing market last quarter, we mentioned a delayed spring home buying season, and that's exactly what played out April was particularly challenging for the industry and set the tone for a slow forming season.
June existing home sales came in two 7% lower than may at an annualized pace of $3 9 million more than 20% below pre pandemic levels.
<unk> is a new normal and while affordability remains a key challenge we see signs of optimism consumer sentiment has recovered from the low point in April home price growth is beginning to slow we're seeing prices soften in some areas all signals that the market is slowly shifting in favor of buyers.
With this backdrop, our second quarter performance was driven by the strength of our teams execution purchase volume increased month over month from April to June supported by our affordability programs, including one plus rocket rent rewards and a host of seasonal promotions, we saw particularly strong growth in refinance volume quarter over quarter and year.
Over a year. During this time, we helped clients take full advantage when the 30 year mortgage rate dipped briefly to six 6%, most notably home equity loan volume nearly doubled year over year once again, hitting a new record for units and volume.
Home equity loans, which help homeowners tap a record levels of home equity without impacting their first lien continues to attract new customers to rocket, making up nearly half of all home equity loan clients.
In summary, one word to describe the quarter's results execution.
We focused on acquiring clients sufficiently delighting them recapturing them for their next loan and earning the right to be their lender for life in line with our core strategy.
Next let's turn to our execution wins.
Since I became CEO I have consistently communicated how AI is transforming our business this quarter I would like to share a few more examples of how our momentum in this space is accelerating.
Let's start with our bankers the greatest value our bankers bring us their empathy, helping clients achieve homeownership and building strong relationships with real estate agents to enable our bankers to provide 10 star service to even more clients and agents. We've built an AI powered communication platform that handles dialing.
Texting follow ups and chart, which are fully automating administrative tasks.
Recent enhancements, we've made now dynamically prioritize the client follow up pipeline for our refinance bankers and offer AI recommended next steps and text messages to streamline communication as a result daily refinance client follow ups have increased by nearly 20%.
On the operations side <unk> AI is transforming underwriting beyond traditional automation <unk> AI breakdown complex manual processes into actionable steps that AI agents can handle autonomously.
Now launching new solutions in days instead of months.
The rocket <unk> AI is powered by a technology called model context protocol or MCP.
CP turns our tech stack into a dynamic interconnected system. Unlike siloed AI tools MCP enables intelligent agents to access companywide data instantly through deep integration with legacy systems, and our years of technology investment.
An example of <unk> at work is the reviewing of earnest money deposits for MD managing <unk> used to require tedious manual work for tracking validation and reconciliation today agenda verifies DMD documentation and traces funds automatically.
Bringing only exceptions to underwriters.
This technology now processes MD for over 80% of purchase agreements and is estimated to save our operations team nearly 20000 hours annually. The key result is that clients move through the process faster with fewer delays.
Let's turn to our clients AI powered shot and fully digital or refinance options are redefining what it means to have a seamless and fully digital experience.
Our agenda chalk capabilities continue to be up leveled. The power of chart lies in its ability to meet clients, where they are providing an experience they love, enabling us to scale efficiently and operating around the clock. This approach is reshaping client engagement more than 80% of clients now choose to.
New their application through chat with over 10% of leads arriving outside traditional business hours.
What's more clients, who begin their journey in AI chat convert at three times higher rates for purchase applications and two five times higher for refinance applications compared to those who don't use chart.
We've expanded agenda charts capabilities to collect essential income property asset and credit information upfront. This accelerates client qualification and enables seamless handoffs to our bankers with AI supply and complete context and handling the administrative work behind the scenes.
We've taken a big step forward by launching a fully digital at refinance experience.
Clients are now able to complete a digital refinance from application to rate lock in under 30 minutes entirely online at any time of day, even outside of traditional business hours from pulling credit and selecting a product and rate to completing the application receiving automated approval updates uploading documents E signing and even schedule.
With the closing now all happen seamlessly online.
And if clients need support a banker is just one click away looking.
Looking ahead, we're focused on making the process, even faster and more frictionless aiming for completion in under 10 minutes and making refinancing as simple as pressing a refi button on any mortgage we service.
All of these examples show how AI has led to higher team member productivity and expanded capacity, while elevating client experiences.
We put our AI powered capacity to the test when we ran seasonal promotions that spike daily volume, 2% to three times, we manage this surge without adding a single team member demonstrating our ability to flex and scale operations in response to market activities, such as rate drops, while maintaining efficiency and client satisfaction.
I believe we are building a foundation for infinite capacity at rocket, where our growth is supercharged by AI and human capacity is no longer a limiting factor.
Okay, now, let's turn to redfin.
Rocket in redfin together represent a redefinition of the category Redfin gives rocket a new foothold in purchase and takes our presence in local markets to another level.
Relationships with 50 million consumers every month reflect a deep connection with demand right at the top of the funnel and creates new purchase opportunities from both directions from redfin to rocket and rocket to redfin. Despite the early days integration has moved at a rapid pace.
Within our first month, we executed a comprehensive brand update designed to bring a unified look to our digital presence today.
Today Redfin digital pages carry the unified redfin powered by rocket co brand. We also made home buying easier by introducing prequalification buttons on every home listing, allowing clients to take action seamlessly.
In addition, we introduced rocket preferred pricing, giving qualified clients, who finance with rocket mortgage and work with a redfin agent a one point rate reduction in their first year or up to $6000 in closing credits. This delivers meaningful dollars to buyers and helps make homeownership more attainable.
On the product side, we expanded our lending portfolio to address more specialized needs Super jumbo loans and nonqualified mortgage products are now available supporting clients with unique financial profiles.
These solutions extend not just to redfin clients, but to our retail bankers and our mortgage broker partners as well empowering more professionals to serve a much wider array of buyers. Additionally, we added nearly 150 <unk> equity loan officers to our retail banking for us this quarter further expanding our presence in.
Local markets are.
Our momentum is strong and our team remains focused on execution.
We're already seeing some exciting early results are very first redfin client and closed on a home in Colorado in just 10 days and since July one we've seen over 65 redfin clients closed on their dream home with rocket mortgage.
Plus in the first three weeks, there's been a nice jump at the top of the funnel nearly 200000 people have clicked on the get prequalified button within redfin, indicating interest in home financing.
Of those users with a redfin account, 23% became a contactable lead at rocket and 12% of all users who enter the funnel go on to start an application taking a significant step toward homeownership now I have spent most of my career working on consumer Fintech conversion funnels and seen.
Such a positive response for a V. One that's not optimized is very promising.
In addition, 7000 agent referrals have been sent to rocket mortgage.
What's even better is that clients referred from rocket two redfin are 30% more likely than those from other channels to upgrade to verified approval letters, which is the strongest sign that they are moving toward closing.
These results while early highlight the art of the possible when the redfin and rocket platforms are fully connected together, we're meeting our clients at their moment of intent and providing a seamless experience for home search to financing fundamentally changing the way homes are bought sold and financed.
In summary, we had a very productive quarter balancing short and long term execution and I also want to thank our teams for their speed discipline and heart.
Huge shout out also to our servicing team for winning our 11th J D Power Award for servicing earlier. This month. This recognition is a testament to our enduring commitment to loving protecting an amazing our clients. It is this dedication that underpins our industry, leading recapture rate and will be force multiply.
With Mr Cooper.
Looking ahead, our teams are fully engaged in the integration work needed to realize the full potential of our integrated homeownership platform.
We are delivering on our milestones and remain on track to close the Mr. Cooper transaction in Q4.
At rocket, we live by and Ism Youll see it when you believe it as we bring rocket redfin and sued Mr. Cooper together under one roof. We are building a homeownership experience that is simpler faster and more affordable.
And we're building a stronger company with an all weather business model that thrives in any market and interest rate environment.
We are positioning rocket to be in a category of its own a business with a significantly larger lead funnel a massive data lake and AI powered capacity with a client acquisition cost to lifetime value model unseen in this industry.
All designed to eliminate waste from the system lower costs for consumers and create a more frictionless experience.
The pieces are coming together and we are working relentlessly to make this vision a reality we believe.
Thank you and with that I'll turn it over to Brian.
Arun and good afternoon, everyone. It's been a really busy and productive quarter to say the least we drove strong execution, while taking steps to integrate transformative acquisitions and balance short and long term objectives. We.
We pride ourselves on allocating our resources with financial discipline, and concurrently making bold investments in our future. We clearly demonstrated this in the second quarter.
Today, I will highlight our second quarter performance provide an update on the integration planning with redfin, Mr. Cooper and discuss the cost actions, we took to drive higher operational leverage I will conclude with our outlook for the third quarter.
Let's start with our financial performance first I want to Echo <unk> remarks about how proud we are of the team's performance in the second quarter, we demonstrated strong execution and a volatile quarter that got off to a really slow start all the while we closed the redfin transaction on July 1st and are working very hard.
And towards the close of the Mr. Cooper transaction in Q4 of this year.
This quarter's execution was truly a team effort.
From a top line standpoint, adjusted revenue reached 1.340 billion, beating the high end of our guidance range and achieving 9% year over year growth.
Net rate lock volume exceeded $28 billion, an increase of 13% over the same period.
Our gain on sale margin for Q2 was healthy at 280 basis points in line with our average over the past 12 months.
On an adjusted EBITDA basis, we delivered $172 million or a 13% adjusted EBITDA margin.
We reported adjusted net income of $75 million and adjusted diluted EPS came in at four <unk>.
We delivered these results despite ongoing market headwinds as.
As we noted last quarter extreme volatility in April delayed the start of the spring home buying season.
While purchase season was indeed slow forming and the market conditions remain challenging we were right alongside our clients supporting them with our affordability solutions like one plus and rocket rent rewards.
As a result, our purchase volume grew sequentially from April to June <unk>.
Refinance volume was also a bright spot with home equity loans doubling year over year.
The market is gradually rebalancing in favour of homebuyers and 11 of the 50 largest U S metro areas, including several in Texas, Florida, and California home prices are softening and the income needed to purchase a home is declining home price growth is moderating inventory is expanding by double digits.
Year over year, and affordability is improving albeit with elevated 30 year fixed mortgage rates.
After years of constrained supply and rising prices buyers are finally, starting to gain more leverage in the market.
Now, let's turn to redfin the acquisition is already enhancing our platform and expanding our reach and strengthening our position in the purchase market Redfin brings direct access to 15 million monthly consumers and deep relationships with real estate agents across the country.
Together, we are significantly growing our top of funnel and fueling purchase lead generation from both brands are combined 14 Petabyte data Lake also enhances our AI capabilities, enabling more personalized experiences at scale.
As I shared when we announced the acquisition of Redfin in March we expect $200 million in total synergies that's $140 million on the expense side and $60 million in revenue.
On revenue synergies, it's early but we are encouraged by the results we're seeing so far.
Rune highlighted the surge in leads and higher conversion rates were already seeing from rocket and Redfin is cross pollination of leads agent referrals and mortgage applications.
This early momentum is exciting and points of tremendous growth potential ahead on.
On the expense side, we have line of sight into the target synergies and have already started to take actions in the first four weeks since closing.
We plan to provide more details in future quarters.
Regarding Mr. Cooper the integration planning is in full force and our teams are meeting and collaborating closely we remain on track to close the Mr. Cooper transaction in Q4.
Now, let's cover our capital position. It provides a competitive advantage our robust funding profile and the flexibility to invest in our business over the short and long term.
In June we successfully issued $4 billion in unsecured bonds to refinance Mr. Cooper's debt upon change of control.
This transaction was nearly three times oversubscribed with strong participation from a diverse investor base, including significant demand from investment grade funds signaling confidence in our credit profile.
If in the unlikely case that Mr. Cooper transaction doesn't close the debt is extinguished and the cash is returned to investors.
Additionally, subsequent to June 30.
We repaid approximately $250 million of the redfin term loan debt in connection with the change of control provisions and outcome that also enabled us to further streamline our capital structure.
Taken together these actions position us well for a successful close and integration with Mr. Cooper in Q4.
As of June 30, inclusive of the $4 billion in unsecured bonds related to Mr. Cooper, we held $6 billion in available cash and $7 6 billion in mortgage servicing rights.
Totaling $13 $6 billion in balance sheet value.
Total liquidity stood at $9 1 billion, including $5 1 billion of cash on the balance sheet <unk> $9 billion in corporate cash to self fund originations $1 $1 billion in Undrawn lines of credit and $2 billion in Undrawn MSR credit facilities.
Before I discuss our third quarter outlook I'd like to take a moment to focus on a very important topic operational efficiency, we take a very disciplined approach to expense management and capital allocation, which are foundational to how we operate.
These principles guide every decision, we make as we scale and optimize across search and origination and servicing with the customer always front and center.
We recently took further actions to streamline our operations in the second quarter, we completed the shutdown of rocket mortgage Canada.
Also in July we initiated the wind down of the rocket visa signature card program.
While there will be a financial benefit from these decisions. Our primary objective is to sharpen our focus and double down on our homeownership platform in our mission to help everyone home.
Beyond discontinuing these two business lines earlier this month, we restructured G&A teams that support the mortgage origination business.
These changes were a result of our investments in AI and automation, which have allowed us to reduce redundant roles and retire legacy workflows.
We expect these actions to collectively deliver approximately $80 million in annualized savings the majority of which will be recognized on a full quarter run rate basis, starting in Q4.
It's also worth emphasizing that these efficiencies are separate from the synergies previously announced as part of the Redfin and Mr. Cooper transactions.
As we look ahead to the third quarter, we're cautiously optimistic about the summer home buying season as the market continues to shift in favor of buyers. While we know that the home buying season typically slows around labor day as kids return to school and family settled down our current approval letter pipeline indicates that the summer home buying.
Season will be extended with strong activity continuing through the third quarter. This trend is reflected in our sequential month over month growth in approval letters over the past couple of months bucking. The typical seasonal slowdown we see this time of year.
This is the first quarter that we'll be incorporating redfin into our guidance for the third quarter inclusive of redfin, we expect adjusted revenue to be between $1.600 billion and $1.750 billion on a rocket standalone basis, we expect adjusted revenue to be in.
The range of $1 billion $325 million to $1 billion $475 million.
Now with regard to expenses, let me walk you through a couple of the key cost drivers expected in the third quarter.
On a consolidated basis, including redfin and non reoccurring items, we expect total expenses to increase by approximately $335 million compared to the second quarter.
Importantly, this projected increase is based on revenue at the midpoint of our guidance.
It reflects $275 million in redfin related costs and $90 million in nonrecurring items, partially offset by a reduction in rocket standalone expenses.
The decline in rocket Standalone expense reflects the planned step down in brand marketing as we transition out of the upfront investment phase of our brand restage.
We are now operating at a more optimized run rate, while continuing to build on the elevated brand awareness established early this year.
The $90 million increase in nonrecurring items relates to the redfin and Mr. Cooper transactions of that $30 million reflect severance and transaction costs, which will be classified as one time expenses. The remaining $60 million reflects interest expense incurred from refinancing Mr. Cooper's debt ahead of Clos.
<unk>.
Post close the newly issued bonds will substitute Mr. Cooper's existing debt and the associated interest expense.
Last to reiterate the internal cost actions, including the reduction in head count at rocket.
Paired with the wind down of the rocket mortgage Canada and credit card businesses are expected to yield $80 million in annualized savings due to the timing of these actions there will only be minimal impact in the third quarter and the full run rate savings are expected to be realized in the fourth quarter.
In summary, our results in the second quarter showed the impact of our execution and focus as we continue to deliver value for our clients team members and stakeholders. We are even more excited by what we can achieve going forward with the combined strength of rocket redfin and soon Mr. Cooper.
We're building an integrated homeownership platform. The industry has never seen one that delivers modern seamless and more affordable homeownership experiences and one with an all weather business that is both resilient and thrives across market conditions.
We will continue to prioritize operational efficiency move with speed and agility and execute with focus on our mission to help everyone home.
Operator, we're now ready to open it up for questions.
At this time, if you would like to ask a question Press Star then the number one on your telephone keypad.
Draw your question simply press Star one again.
Currently ask the questions are limited to one for today's call.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from Luca <unk> with Goldman Sachs. Please go ahead.
Hey, good evening or good evening, Brian I wanted to ask about your outlook for <unk> and the rest of 2020 slides on costs. What do you view as the core run rate from here and three can be on and how are you thinking about the pacing of revenue growth and expenses from here.
Hey, Lucas I'm going to start by just talking a little bit about the outlook and then I think Bryan you can jump in on that nothing related to cost in our guidance. So let me let me start by just taking your box Rollouts portal. We were almost same call. We were talking about the home buying season, and what we shared was at that point it was going to be a slower forming season.
And for that momentum will build up over time, so ultimately that basically leads to a longer spring home buying season, and thats pretty much what we've seen play out this quarter.
<unk> was pretty abnormal theres a lot of volatility you had tariffs you had rates dipping and climbing you had consumer sentiment dropping so in general affordability was a little bit challenged.
In terms of the start of the season, it was a little bit lagging, but as we look ahead, we're definitely seeing signals that suggest momentum.
I'll give you two interesting installed absolute come from redfin, well first one is around nationwide home price growth and that's actually been in <unk>.
Year over year, so it's falling from six 9% to about three 4%.
The thing is that in about 11 major markets Redfin is absolutely seen home prices come down and so the good news is that the market is starting to shift in favor of buyers and Thats a great mobile purchases.
Purchase Susan will extend so it's a great opportunity for borrowers who have been on the sidelines and we expect that demand to extend we expect it to carry through the traditional labor day drop off and again that gives us optimism and youll see that optimism and confidence reflected in our outlook in our guide.
It is up 6% year over year, and so maybe Brian you can unpack a little further in terms of <unk> expense, yes sure. Thanks Lucas I. Appreciate the question first just to start I want to double down that Q2 was a really strong performance quarter very proud of the team as Brian said it got off to a very choppy start but the good news is the start of the third quarter.
It really picked up where we ended the second quarter. So that momentum is continuing and when we look at the pre approval pipeline on the purchase side as we said in our prepared remarks, it's our belief that the home buying season is going to continue on it was slow forming to Brian's point and it likely will continue past the traditional September.
Labor day holiday and so that's all baked into the guidance and then just a reminder for the group that this guide does include redfin for the first time and we talked about the $270 million that's baked in there. So if I take a step back and I look at the guidance for the quarter I see $1 6 billion to 175.
270 of that spread and so to Brian's point, if I take out redfin were up 6% year over year and 4% quarter over quarter.
If I look at the MBA forecast quarter over quarter Theyre looking at flat for example, so we think that it's a really strong guide we think that it shows another quarter of growth and just I'll leave you with just a little bit of commentary on volume and margins. We believe that margins will be relatively consistent with Q2.
So that means that the revenue drive revenue growth on their <unk> standalone basis is really coming from production and coming from share gains.
On the expense side of the house look.
Operational excellence financial rigor, that's what we do that's in our DNA and I think this quarter was a really nice example of that execution looking forward remember that this was this quarter. It also includes redfin on the expense side of the house, So and we said in the prepared remarks on the consolidated basis, we expect Q3 expenses to be up.
About $335 million that includes that $275 million of estimated redfin expenses.
And I think Theres a couple of other things I want to point out one. It also includes estimate of $30 million less than the rocket mortgage marketing and Thats due to the brand spend the brand restage that we talked a lot about in the first half of the year is starting to work and roll off and the brands that brand spend starting to return to more traditional.
Levels I talked a lot about that last quarter and then we got to we got to think through the onetime costs too. So we're estimating about $120 million of nonrecurring expenses in Q3 at $90 million more than last quarter and as I said in the prepared remarks, that's about $30 million in severance and onetime costs associated with.
Cooper in Redfin transactions, the Hep C class and then Theres about $60 million of estimated interest expense and thats associated with that $4 billion bond issuance that we did which will be used to pay down Cooper unsecured debt upon close.
Finally, as I said in my prepared remarks, we also did take significant actions during the quarter to streamline our business and narrow our focus and that included a head count reduction in July across some of our G&A teams in the rocket companies proper.
And the wind down of two businesses, which was rocket mortgage Canada and the credit card business and the combined impact of those two wind downs as well as the head count reductions is about $80 million on an annualized basis, and we won't fully realize that to the fourth quarter, but I did want to point it out here and the last.
And you may be thinking about the rocket mortgage Canada business and the credit card wind down there is a small financial benefit from winding down those businesses as they were operating at a slight loss, but really the most important reason is the lack of product market fit and the fact that we're just obsessing about narrowing our focus and doubling down on the homeownership.
Platform.
Great. Thank you for the color.
Your next question comes from Bose, George with <unk>. Please go ahead.
Good afternoon.
Historically, you guys, obviously didn't hedge your MSR given the very high recapture rates.
But just given that the recapture rates on the Cooper MSR will be lower just given the.
A lot of that is acquired et cetera, just what are your thoughts about the hedge strategy and on a combined basis going forward.
Yes, thanks for the question, but so as it relates to <unk> I'll start with your answer your question directly on the Cooper side, but I do want to talk a little bit about just the rocket proper side and the hedge there too so as it relates to the Cooper side. The plan is to continue hedging the combined portfolios Cooper does a really nice job that I think they target around.
670% coverage so.
Youre thinking about hey, it's the day after close I don't expect any change there and the reason for that is because we have to prove to ourselves that these recapture synergies or can that come in and as we start having more data and real information. We will continue to reevaluate that because to your point there is a real natural hedge between the MSR value fluctuations in there.
Captured business, but on the rocket side, we haven't hedged I want I want to point that out and we've primarily hedge the MSR assets that we plan to sell so it's been more of a temporary.
But as we continue to evaluate our strategy, we did layer on our hedged during the quarter really around that assumption and that is to preserve the flow earnings component of the MSR value, particularly on those lower note rates that are unlikely to pay off any time soon so youll see that in the financials when we file the Q.
You are being very thoughtful about it but that that float earnings assumption, which is based on the short term side of the curve. We did put a hedge on to try to preserve that.
Okay, great. Thanks for the detail.
Your next question comes from Mark Devries with Deutsche Bank. Please go ahead.
Thanks I appreciate all the comments you made on redfin.
I'm just wondering if there are any other thoughts you would want to share about what you've learned kind of post closing of that deal and how you're feeling about the synergy guidance.
Yeah, absolutely I mean, I'll start by just sharing.
What we're seeing and some context around why we're so excited about the deal and then Brian maybe you can comment further as well let.
Let me just start with why Redfin and I think it's important just to really internalize that this is all about our strategy around purchase and purchase is something that we have declared as a company level imperative, we think purchases of durable, but for the long term growth of the company.
What's interesting about purchases that there are a few things around the purchase funnel that really make it interesting and complex.
Lead flow is expensive it takes a long time to nurture relationships with a client you need deep relationships with clients and deep relationships with Realtors and you also have this kind of local dynamic where every market is a little bit different and this is really why the connection with redfin is so powerful because redfin essentially solves all of those channels.
This is a company with relationships with 50 million consumers at the top of the funnel most of those consumers are daily active users that use our mobile app redfin is incredibly connected with the local ecosystem thousands of local agents and what's also interesting is of all of the U S. Homebuyers that are purchasing a home this coming year.
Nearly one in four at some point are going to touch the redfin platform during their search and real estate journey.
The other thing is that regimen is just beloved right. It's a very trusted brand with high awareness high affinity and so those are the reasons that we loved this integration that we loved this company, but in terms of the actual integration I do want to share that I'm. So proud of just the amount of work that was completed before and after close leading us to just be integration.
Ready on day, one and I'm Super proud of the team.
On day, one we had co branding redfin powered by rocket.
Day, one we had launched a prequalification buttons on every home listing page on day, one we launched a preferred pricing bundles saving consumers' money on day, one we had the ability for realtors to refer to rocket as well as the ability to create demand from rocket to redfin as well and we're seeing some awesome early data, we're seeing that the quality.
If traffic is very high in fact clients that were actually referring from rocket two regimen are 30% more likely to upgrade to what we call a valve or a verified approval letter and that really matters and what's important is that verified approvals are the strongest indicators of conversion and purchase. So it is early days, but I.
Would say that we're very pleased with the integration.
The last thing I would say before I ask Brian if theres anything you would want to add is that it's all about culture Brendan I actually we are out in Seattle last week with our leadership team, we were meeting with Glenn Coleman and his leadership team and just the energy and momentum of these companies is so inspiring you can see the solar you can see the culture of the company that is already becoming.
Very deeply connected.
And what I look at it as a very healthy sign is that you just can't see we're one company and in the old Company begins. So this is just the beginning but we're very excited about the progress.
Ryan is there anything you would you would add in terms of synergies or financial standpoint, Yes sure. Michael It's good to hear from you. So just as a reminder for the group we set upon announcement that we expect $200 million in synergies 60 of that was revenue of $140 million of it was expense interference point. It's early days, we're only four weeks in but I would.
It's exceeding our expectations, particularly on the demand and the lead creation side, So I'll probably reserve the right to comment more on revenue over the next couple of quarters. Since it's early days and then on the expense side look we have direct line of sight into the $140 million.
We've already started taking significant actions in July and those actions are completely separate and distinct in the other things I mentioned at rocket so.
To summarize it we feel really good about achieving and dare I say, even exceeding our expectations on both the revenue and expense side of the synergy house.
Great. Thank you.
Your next question comes from Brian <unk> with Zelman. Please go ahead.
Hey, Thanks, Brian and Brian Congrats on the quarter. Thanks for all the detail as always.
On the purchase side and also a bit of a tangential follow up on the rest and topic.
Really encouraging commentary on the initial traction with the pre approval button you called out the expansion of the local market presence.
One thing we've seen over time in the residential broker space is that the number of real estate agents can really influence market share to brokerage. So with redfin is sitting at about 2200 agents I'm curious as you and the team with Glenn the strategize on the business should we expect the agent count side.
Of resin.
Potentially meaningfully expand or at least directionally continue expanding as it has been over the last year.
And then secondarily and kind of bigger picture on purchase.
We're about a year removed from Investor day. So I'm just curious if you can kind of refresh on conviction level in the multiyear purchase market share targets.
You laid out at that time, thank you very much.
Okay. Thank you so much for the question.
I would just start maybe with the second part of the question and just to frame up our holistic purchase strategy. So purchase obviously is a major strategic area of focus for us as a company. It's a massive market. It's incredibly inefficient. It's fragmented it's expensive and it's full of friction and so for us it's imperative that we fix it right.
We want to represent Basel as a future platform for growth and we think theres a huge opportunity for transformation here and so I just want to recap our building blocks that are ultimately focused on building a durable strategy around purchased so far.
First piece of that as we've already talked about is redfin redfin essentially provides an incredibly efficient high quality top of funnel experience. It will connect us to more consumers more realtors and it really will allow us to build an efficient lead nurturing python or purchase the second is servicing in particular, what we call <unk>.
Capture and as we know a rocket already has leading recapture rates and thats, because we deliver an amazing servicing experience and so when you think about the additional of Mr. Cooper It essentially supercharging, our recapture flywheel, which is essential to our purchase growth strategy because it will allow us to serve more purchase clients by essentially becoming their lender for life.
Through servicing and then recapturing their next loan and creating a great rocket experience.
The third thing I would also call out is our wholesale strategy with respect to broker and wholesale is a critical part of our purchase engine. This is a space that we're definitely doubling down on.
We are now live on the Orion platform, we're seeing great momentum there in terms of wallet share, which is growing quarter over quarter and year over year and we're also launching a lot of new innovation in the brokerage space, we have more compensation flexibility, we have better pricing technology and we have improved processes, we're pulling in working with more credit options. So those are the key building blocks for us.
To grow in scale and purchase in terms of the agent piece one thing two things that I would highlight one is <unk> and in house agent network also halls, and extensive partner network of thousands of agents and the second thing that I would highlight is that we're bringing together the rocket homes agent network together with a redfin agent network is.
And so that allows us to achieve more synthetic scale and then the third thing I would highlight is that the key thing that we also have with the <unk> experience is really the traffic. It's the relationships with 50 million consumers at the top of the funnel and the ability to connect directly with those consumers.
In addition to having the agent network as well and those are the reasons that we really believe that we have a scalable strategy around purchase.
And we are on track to hit our goals and we're feeling great about the progress.
That's very helpful. Thank you.
Your next question comes from Jeff Adelson with Morgan Stanley. Please go ahead.
Hey, good evening for ingredient Brian.
Thanks for taking my questions I was hoping we could maybe just talk quickly about Mr. Cooper I know the deal is still not closed yet, but now that another several months has gone by I am just curious whether you still think those synergies are on track and maybe you could comment a little bit on if you've done any more work or incremental work into.
Whether you think that that 65% recapture rate assumption could be conservative correct number et cetera. Thank you.
Yes. Thanks for the question Justin All I'll start just by talking about the context on the progress that we're making on the deal and then I'll ask Brian to jump in as well.
Me just start by talking about why Mr. Cooper and rocket makes sense and at the heart of it is just our ability to build lifetime value long term relationships with clients and thats essentially what servicing represents the ability to serve our client for the entirety of their loan experience.
And our thesis is that if we do a good job with that we earn the right to recapture them for a new loan which is core to our strategy and ultimately if we do that right. We end up reducing the cost of acquisition, which allows us to pass on more value more savings directly to the client I would say in terms of our progress toward closing, we're very pleased with the progress we're on track for it.
Q4 close.
We received HSR approval, we're advancing with state level regulators with the GSE used and of course with FHFA. It is a large complex transaction, but the process is moving as expected and the teams from both organizations are collaborating very closely and it is our number one priority across the company. Brian is there anything you would you would want to.
Yes, I think that's the only thing I would add is every day that we have made progress since last update we just keep building on that conviction around the synergy numbers.
Similar to the redfin update other than the fact, we're not closed here I would say a line of sight on the expense side makes us feel really good and the work that.
We're doing in terms of tearing apart the recapture only gives us more conviction. So as we sit here today. The only way I can probably answer that question is conviction continues to increase and we're very confident in the numbers.
Okay, great and if I could just circle back on the right thing.
All the color.
Numbers, you've provided thus far I was just curious.
Do you have any early line of sight into how the attach rates that you highlighted in 2024 for Redfin, you mentioned, 27% on mortgage 61% on title and escrow do you have any sort of update on how that's trended or.
How you performed on that since the deal closed.
Yes of course, I can give you an update on that I mean, I'll kind of take a step back and if I look at <unk> business model again to your point, it's early days, but we've seen a couple of really positive things. One has been an increase in traffic. Obviously this is an exciting time of year for homebuyers and youre expecting to see activity, but some of the redfin.
Brand and performance marketing is clearly paying off and we're starting to see some nice returns. There. So traffic is actually up which is good.
And then the second thing you mentioned, which is true is that we are starting to see some exciting green shoots on the attach rate side, we had to take the time to get the loan officers transition over and that was really important and we're happy to report we were successfully able to do that but the vast majority of the pay equity loan officers coming over.
To rocket and since that into Burns point, we had really good pre planning exercise. So we were able to do a lot of that on day. One we've seen the recapture rates actually improved from the historical redfin recapture rates, which is obviously really good news for achieving those revenue synergies.
Okay, great. Thank you guys.
Your final question comes from Doug Harter with UBS. Please go ahead.
Thanks, one of the pillars for market share growth that you laid out in Investor day was.
MSR acquisitions, obviously big part of the Coop transaction, but can you talk about your appetite to continue to acquire MSR as both while waiting for the deal to close and after it closes.
Yeah. Thanks, Doug let me jump in there so just a little market color if I kind of look at the first half of this year compared to the first half of last year overall transfers are down something like 30% last time I checked. So it's been more of a muted market Theres no question there on the supply.
On the demand side.
Of course, it's still high.
Hi.
It's competitive I guess is a short way to say that so if I think about our bidding strategy at rocket, which we've talked about many times. The nice part for US is to the extent, we see assets with high recapture potential very interesting to us and will continue to be active in that market and then as I think about the two companies.
<unk> and tube coming together I'm also really excited one because it does put together a really competitive bid process, obviously with our capital levels and our recapture abilities, but its also nice because we have option value in that option value really comes from the combined entities, having a really good fulfillment engine for the servicing book.
Through the rocket organic growth, having a wholesale channel our retail channel a correspondent channel even a co issue channel. So said differently. We don't have to be active in the bulk market allows us to be opportunity opportunistic and stick to really high expected return thresholds that if we can meet them we will be active.
And we'll get at those levels and if we can't we don't have to be so so far this year a bit muted just in terms of the general activity and what's coming to market, but no changes in the rocket bid strategy.
Just maybe a little bit of change in less supply coming to the market.
I appreciate that.
And then you highlighted some of the benefits of AI, replacing legacy workflow.
Can you talk about how much more is.
The potential is there.
How youre thinking about those.
Impacts might impact the capacity.
Origination volumes and just how we should think about the longer term trajectory of scoring core rocket expenses.
Yeah. Thanks, Doug I mean, I would say that I expect the longer term trajectory to geometric we accelerate we are we're building a platform where scale is basically no longer constrained by people are cost today, we easily handle a $150 billion in originations without really any increase in fixed expenses.
I mean thats not theoretical it's happening the results are measurable and you can see it in our operations with one thousands of hours say you see it in our communication platform of telephony you see it in the client experience with now more and more fully digital flows from start to finish so.
Not view this as just kind of automation I view it as a structural advantage and it's a better experience, it's changing the shape of our business model and we're very excited about it.
This foundation as a foundation for infinite capacity, it's not sort of a pipe dream, it's very real and we're just getting started so I expect that our progress will accelerate geometrically.
Great I appreciate that Brian.
That concludes our question and answer session I will now turn the call back over to Varian Krishna for closing remarks.
Thank you everyone for attending the call and we look forward to seeing you next quarter.
Ladies and gentlemen, this concludes today's call. Thank you all for joining you may now disconnect.
Yeah.
Yeah.
Yeah.