Rocket Mortgage Stock: Is It a Safe Buy in 2021?
The prevailing interest rates are pretty low and that has resulted in a great environment for mortgage originators. Upon refinancing volumes, the 2020 origination estimates are expected to go past $3.2 trillion. This is going to be the highest value in a 20 year time period. The housing sales environment is very strong right now and many mortgage companies such as Rocket Companies, Guild Holdings, and United Wholesale have gone public. So, is investing in the Rocket Mortgage stock a wise thing to do right now? Is there another meltdown on the horizon? Should you invest in Rocket Mortgage stocks at this moment? Let’s find out.
Rocket Mortgage Stock: Things to Know Before Investing in 2021
Is there another housing price bubble?
Prior to the housing crisis of 2008, there was a residential real estate bubble. Prior to the mortgage meltdown, the bubble was so strong that it had only happened in the 1920s before the Great Depression.
What is a price bubble?
Price bubbles happen when borrowers, lenders, and regulators all believe an asset is special and cannot fall in price. The institutional memory of the financial system, the addition of post-crisis regulations, and the prevalence of government-guaranteed mortgages make it almost impossible for another one to occur anytime in near future. So fears of a repeat are probably overblown.
Rocket doesn’t hold its loans, so its credit risk is low
Given that another bubble is not in the cards, what else can go wrong with Rocket’s business model?
Credit risk is by far the biggest risk that mortgage originators face. That isn’t really applicable here, since Rocket is a nonbank mortgage originator that generally sells the loans it makes in the secondary market. This means that if the loans don’t perform, the buyer bears that risk, not Rocket.
Note too that Rocket’s production involves government-guaranteed loans, so credit risk is already limited to begin with.
How are Rocket Mortgage stocks when compared to the average?
Rocket possesses mortgage servicing rights on its book as an asset. Remember that mortgage servicing is a type of asset that is volatile and difficult-to-value. A mortgage servicing right is the compensation the servicer receives for handling the administrative duties of a loan. These include processing payments, ensuring property taxes are paid and that insurance is valid, and loss mitigation when the borrower goes delinquent. For compensation, the servicer gets paid 0.25% of the loan balance. That asset is valuable since it usually doesn’t cost 0.25% to service a loan.
Servicing assets can fall in value if delinquencies shoot up. Rocket’s delinquency rate was only 4% as of Sept. 30, compared to an overall U.S. delinquency rate of 6.3%. This deems Rocket’s mortgage servicing rights as high quality. Because of that, the risk of a major write-down is very low.
What can be expected from Rocket Mortgage stocks next year?
Probably the biggest risk for Rocket is an abrupt increase in interest rates, which would choke off the current refinancing wave. This would mean that earnings could decrease. Mortgage originators are in a highly cyclical business, which explains why earnings multiples are so low right now.
For example, Rocket trades at under six times estimated 2020 earnings per share, and PennyMac Financial trades at three times estimated EPS. While earnings are expected to fall next year, the super-low existing multiples give the investor quite the margin of safety. For what it’s worth, the Street expects EPS to fall by over 50% next year, so an increase in rates is baked into the estimates already. If rates don’t increase, those estimates are probably low.
Because Rocket’s business model doesn’t require a large number of loan officers to generate significant sales volume, it gives the company a distinct advantage over its competitors. Loan-officer commissions are far and away the biggest expense for originators, and that gives Rocket the ability to outperform almost every other retail originator. Rocket is one of my CAPS picks.
What is the Rocket Mortgage Super Bowl Squares Sweepstakes?
The nation’s largest mortgage lender, Rocket Mortgage, announced that entries are open for the second annual Rocket Mortgage Super Bowl Squares Sweepstakes. It is the world’s largest Super Bowl squares official game. Interested folks can enter the giveaway for free at RocketMortgageSquares.com. The sweepstakes is part of Rocket Mortgage’s multi-year partnership with the National Football League (NFL). There have been numerous memorable Super Bowl commercials made by Rocket Mortgage such as this hilarious one from Super Bowl LIV featuring Jason Momoa:
During Super Bowl LIV, millions of fans watched the Kansas City Chiefs, led by their quarterback Patrick Mahomes, earn a come from behind win against the San Francisco 49ers. They were also wondering if they would be able to score a piece of the $1.75 million provided through the giveaway. The inaugural Rocket Mortgage Super Bowl Squares awarded two grand prizes of $500,000 each that could be put toward each winner’s dream home. 15 individuals were also awarded $50,000 each, one for every change of score.
“The excitement around last year’s Rocket Mortgage Super Bowl Squares eclipsed all expectations. Beyond the thrill of the game, the grand prizes were life-changing for our winners,” said Jay Farner, CEO of Detroit-based Rocket Mortgage. “The Super Bowl is the place to pull out all the stops and plan one of the largest giveaways in all of sports. Whether you are a huge football fan or there for the entertaining commercials, everyone is watching the game. Rocket Mortgage Super Bowl Squares gives Americans the chance to start the new year off right by winning big money too!”
Similar to the sweepstakes during Super Bowl LIV, two lucky winners will be awarded $500,000 each. $50,000 will also be awarded for every scoring play made during the game. So during Super Bowl LV, $50,000 will be awarded for every touchdown, field goal, extra point, two-point conversion or safety.
How to sign up for Rocket Mortgage Super Bowl sweepstakes?
To sign up for the Super Bowl sweepstakes, you must visit RocketMortgageSquares.com. On the registration page, participants must choose from one of the 100 squares on a 10-by-10 grid. After the entry period closes, each row and column will be assigned a random number between zero and nine. One axis of the grid will represent the last digit of the NFC Champion’s score and the other will align with the last digit of the AFC Champion’s score.
Every time the score changes during Super Bowl LV, airing at 6:30pm EST, February 7th on CBS, a winner will be randomly selected from the pool of entrants on the square that aligns with the last digit of each team’s score.
“Through the second annual Rocket Mortgage Super Bowl Squares Sweepstakes, we look forward to building on the impact and success of last year’s program to continue to provide our fans unique opportunities to immerse themselves in the Super Bowl,” said Tracie Rodburg, Senior Vice President Sponsorship Management at the NFL. “We’re proud of our partnership with Rocket Mortgage during an unprecedented year and season.”
What’s more, the fun doesn’t need to stop with just a single square. If fans want to up the excitement and add more opportunities to win this free giveaway, they can share the sweepstakes registration information on their personal Twitter and/or Facebook accounts. Whenever their friends/followers sign up through their poster’s unique link, they will receive one bonus square, up to a maximum of 10 spots.
The last date for submission of entries is February 4th, 2021, by 11:59 PM EST. Entries are completely free. A purchase won’t have an impact on your chances of winning the sweepstakes. All entrants must be at least 18 years of age and legal residents of the United States of America to compete. So instead of just buying Rocket Mortgage stocks for your portfolio, you can also win some good amount of money if you are lucky.