How Rocket Mortgage plans to win in 2025

Rocket Companies’ third-quarter earnings call offered a glimpse into a key element of its 2025 strategy for Rocket Mortgage — driving profits through ridiculously high recapture rates and an expanding servicing portfolio.

When mortgage rates dropped into the low 6% range in early September, most lenders struggled to truly capitalize on the two-week window. But Rocket Mortgage pounced, quickly identifying which borrowers in its growing servicing portfolio were ‘in the money,’ and using a combination of humans and machines to execute refis, all while decreasing fixed costs, executives said this week.

“Our scalable tech platform is what empowers us to navigate dynamic markets with agility. From my perspective, the most powerful benefit of AI is the boost it gives to operational efficiency and productivity. Simply put, it’s about achieving more with the same resources,” CEO Varun Krishna said on the earnings call. “Today, we have the capacity to support $150 billion in origination volume without adding a single dollar of fixed costs. We proved that this quarter. Not only did we handle more volume—net rate lock volume was up 43%—but we did so with 7% fewer production team members, year over year.”

Rocket’s strategic expansion into the mortgage servicing arena—where it boasts an eye-popping 85% recapture rate—also represents more than just a simple revenue hedge against a still-choppy originations market.

In the midst of a servicing acquisition spree, the company now has millions of potential new customers in its ecosystem, and executives say its technological advancements allow for faster decision-making and better outcomes, creating efficiencies others can’t match when the refis do come.

It appears to be a compelling model in an era of muted home sales and high origination costs, and it positions Rocket to compete against other large servicers with high recapture rates—Freedom Mortgage, Mr. Cooper, Pennymac and NewRez—as rival lenders without servicing increasingly get boxed out on repeat business.

Here’s HousingWire’s early look at Rocket Mortgage’s 2025 recapture play strategy.

The promise of Rocket’s flywheel

On the earnings call, Krishna highlighted the significance of a recent subservicing deal with real estate investment trust Annaly Capital Management, framing it as a growth driver that leverages Rocket’s servicing flywheel model to bring new origination clients into its ecosystem. 

By collecting payments, managing escrow accounts, and handling customer queries with limited friction, Rocket can throw big data at its tech engines— which includes Rocket Logic Synopsis and Navigator—to learn more about customer behavior and capture the next origination.  

“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.”