Rates edged lower again, so now instead of being really, really, really low, they’re really, really, really, really (4 really’s) low.
It remains to be seen if we’ll hit “5 really’s.”
BOOMS, PLATITUDES AND BUSTS
Over the years, we have seen numerous mortgage banks massively expand during refi booms, and then wildly and loudly celebrate their success with platitudes about culture, giving back, teamwork, changing lives, building careers, doing God’s work… and much else.
Then when rates go up by 1/4% and business slows a little, they fire everyone…
I thought of that yesterday when I read about Quicken’s pending Initial Public Offering in this HousingWire article.
Quicken is an amazingly successful and innovative firm, so their ability to even entertain an IPO is simply one more feather in their cap.
But, I assume the markets are expecting Quicken to fire everyone in order to massively trim overhead as soon as rates go up by 1/4% and business slows a little.
B/c, if they don’t, they will face massive losses.
OBSERVATION #1: Don’t Value a Mortgage Company Based on Refi Revenue
It always amazes me to see mortgage company valuations based on revenues derived primarily from refis, when that business will ALWAYS dry up when rates increase. I have no idea how the markets will value Quicken’s current revenue stream, but I have seen many formal valuations of other mortgage companies that seem to entirely ignore the cyclicality of the refi business. I never understand why, but all I can say is “buyer beware.”
OBSERVATION #2: Mass Marketing Works
(This observation and all of the below are taken from the HousingWire article linked above).
Quicken has spent $5 billion marketing both its Quicken and its Rocket Mortgage brands, and it worked. Both names are top of mind with most consumers, and this generates a massive volume of leads. Quicken is the only non-bank in the entire (very fragmented) mortgage industry with this kind of brand recognition.
OBSERVATION #3: Extending Rocket Brand – Fintech
The Rocket brand is so powerful now that it will likely extend to other areas of finance including Auto and Consumer loans. This is another reminder of the power of branding.
OBSERVATION #4: Quicken Is Amazing
Quicken funded over $50 billion in mortgages in the first quarter of this year – something no other company can even come close to doing. Their ability to build systems and to scale is unmatched by anyone. All too many firms try to expand without creating scalable systems first, and it rarely goes well.
OBSERVATION #5: Management Matters – Playing the Long Game
Quicken’s founder, Dan Gilbert, and it’s longtime CEO, Jay Farner, are extraordinarily talented and innovative – and they are in it for the “long game,” according to HousingWire. They’ve ridden numerous boom and bust cycles already and are no doubt preparing for the next, despite the concerns I express above. I suspect the markets are aware of this factor too.
But this is something I blog about often: ALL of us should be playing the long game now, if we want to stay in the business. This is in sharp contrast to the majority of firms that simply try to make as much money as possible in the present with little regard for the future.
Am I worried about Quicken?
Not even close, as we can run circles around them with service, rates, expertise, agent-support and everything else.
But, man do I remain impressed with Quicken!
Founder/Broker | JVM Lending
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