Rocket (RKT) Q3 2026 Earnings Call Transcript

DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Investor Relations - Sharon Ng
• Chief Executive Officer - Varun Krishna
• President and Chief Financial Officer - Brian Brown

TAKEAWAYS

• Adjusted Revenue -- $2.57 billion, which was near the midpoint of management's guidance range despite a decline in overall mortgage application activity.
• Adjusted EBITDA -- $748 million, representing a 29% margin which is the highest level reported by the company in nearly five years.
• Adjusted Net Income -- $419 million, compared to $158 million in the third quarter of 2025.
• Adjusted EPS -- $0.15 for the quarter, an increase from $0.07 in the same period last year.
• Total Liquidity -- $11.4 billion as of Sept. 30, including $2.7 billion in cash and $2.5 billion in undrawn lines of credit.
• Mortgage Servicing Portfolio -- $2.0 trillion in unpaid principal balance across 9.1 million clients, generating $1.0 billion in servicing fee income for the quarter.
• Purchase Market Share -- approached 6.5%, an increase from the 6.2% reported in the second quarter.
• Refinance Market Share -- 15.5%, representing a gain from 14.3% in the prior quarter.
• Gain on Sale Margin -- 3.33% excluding correspondent loans, an increase from 3.11% in the second quarter.
• Direct to Consumer Gain on Sale Margin -- 4.31%, reflecting a growing mix of home equity volume which carries higher margins.
• Net Rate Lock Volume -- $40.4 billion, while closed mortgage loan origination volume reached $43.6 billion.
• Mr. Cooper Synergies -- $300 million in realized annualized expense savings, with the final $100 million of the $400 million target expected in the fourth quarter.
• Future Savings -- $100 million in additional annual savings identified by management for realization in the first half of 2027.
• Q4 Revenue Guidance -- $2.1 billion to $2.3 billion, reflecting seasonal trends and a projected contraction in the refinance market.
• Adjusted Expense Guidance -- $1.85 billion for the fourth quarter, a projected decrease of $165 million from the third quarter.
• AI Credit Integration -- nearly 20% of direct-to-consumer volume, where AI agents completed credit pulls before human loan officer interaction.
• AI Servicing Performance -- 65% of inbound servicing calls handled by the AI voice platform, with over half resolved independently.
• Rocket Local Growth -- 30% year-over-year volume growth, supported by a team of more than 400 loan officers in major metro areas.
• Partner Network Expansion -- 200 new Rocket Pro partners added during the quarter, representing approximately $12 billion in potential annual volume.
• Compass Listing Volume -- 40,000 cumulative unique listings, representing an increase from approximately 25,000 in the previous quarter.

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RISKS

• Brown stated, "I expect there to be a lot of pressure on rate and term refinance in Q4," noting that internal data points to the refinance market potentially declining by nearly half from the third quarter.

SUMMARY

Rocket Companies, Inc. (NYSE:RKT) reported third-quarter results that management attributed to a multiyear transition toward a technology-driven ecosystem less sensitive to interest rate volatility. Management stated that more than 70% of the year's revenue originated from sources such as servicing fees, subscriptions, and home equity products, which served as a ballast against the rising 30-year fixed mortgage rate. The company reported record liquidity levels and emphasized that its proprietary technology platform allowed for margin expansion for the fourth consecutive quarter. Management also reported taking market share in both purchase and refinance sectors despite the broader industry facing multidecade lows in mortgage activity.

• CEO Krishna stated, "Tough markets do not lie. They strip everything down to what is real."
• Management reported that the company has established over $300 billion in origination capacity without requiring additional fixed costs.
• Management indicated that the servicing portfolio functions as a growth engine for future loan recapture rather than solely a recurring cash flow source.
• The company adopted VantageScore 4.0 as its preferred credit scoring model, which management expects will expand borrower qualification rates and reduce closing costs.
• Rocket Money launched Rowan, an AI financial agent developed with Anthropic that manages client finances via text messaging by renegotiating bills and automating savings.
• Recapture rates on the combined mortgage portfolio reached an all-time high, marking the fourth consecutive quarter of improvement.

INDUSTRY GLOSSARY

• MSR: Mortgage Servicing Rights; the right to collect payments and perform other services for a mortgage in exchange for a fee.
• UPB: Unpaid Principal Balance; the amount of principal remaining on a loan or a portfolio of loans.
• Gain on Sale Margin: The profit realized by a mortgage lender when selling a loan into the secondary market.
• Recapture Rate: The percentage of existing mortgage clients who remain with the same lender for their next mortgage transaction.
• Adjusted EBITDA: A non-GAAP financial measure reflecting earnings before interest, taxes, depreciation, and amortization, adjusted for non-cash and non-recurring items.
• VantageScore 4.0: A credit scoring model used to assess the creditworthiness of borrowers.
• Rowan: An AI financial agent developed by Rocket Money for personal finance management.
• OAS: Option Adjusted Spread; a measure used to evaluate the yield of a security with embedded options, like mortgage-backed securities.
• Up-C Collapse: A corporate restructuring that simplifies the ownership structure between a parent company and its operating partnership.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, welcome to The Rocket Companies, Inc. Third Quarter 26 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Sharon Ng, of Investor Relations. Sharon? Please go ahead.

Sharon Ng: Good afternoon, everyone, and thank you for joining us for Rocket Companies earnings call covering the third quarter of 2026. With us this afternoon are Rocket Company's CEO, Varun Krishna and our President and CFO, Brian Brown. Earlier today, we issued our third quarter earnings release, which is available on our website at rocketcompanies.com under Investor Info. Also available on our website is an investor presentation. Before I turn things over to Varun, let me quickly go over our disclaimers. On today's call, we provide you with information regarding our third quarter performance as well as our financial outlook. This conference call includes forward looking statements.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and 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 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 will turn things over to Varun Krishna to get us started. Varun.

Varun Krishna: Good afternoon, and thank you for joining our third quarter earnings call. On today's call, I will do 3 things. Walk you through the market, share our results, and show you what 3 years of rebuilding Rocket has brought us. Here's the truth about tough markets. They do not lie. They strip everything down to what is real. Who has the capital to keep investing? Whose model works in any cycle? Who can win their clients back, and who can move fast when it counts? This quarter did all of this. From June to September, the 10 year treasury rose 80 basis points to 5.3%, the highest in 24 years.

The 30 year mortgage rate rose more than 80 basis points to 7.3%. On an annualized basis, existing home sales fell below 4 million Refinance applications fell more than 50% from a year ago. Total applications declined 4 straight weeks to close the quarter. For American families trying to buy a home, the math went from hard to punishing. Well, in that exact market, we delivered. Adjusted revenue of $2.6 billion near the midpoint of our guidance share gains in purchase and refinance, quarter over quarter and year over year. Adjusted EBITDA of $748 million with margins expanding to 29%.

This was our highest margin in nearly 5 years and our fourth straight quarter of expansion since we closed the Mr. Cooper transaction. Adjusted net income of $419 million, $0.15 of adjusted EPS. Let me say that differently. In 1 of the hardest mortgage markets in a generation, we grew share, expanded margins, and earned $0.15 of adjusted EPS. So why does Rocket win? it is no accident. 3 years ago, we made a decision rebuild this company at every single level: an ecosystem that serves clients from home search through servicing. A technology platform built for scale, speed, and efficiency.

Distribution that reaches homebuyers and homeowners everywhere; and a fortress balance sheet, Now over $11 billion in liquidity so we can keep investing while others pull back. That combination puts Rocket squarely in a category of 1. #1 in purchase, refinance, home equity, and servicing. Now let me take you back to late 2023, the last time rates were this high. Back then, we were unprofitable. Today, in a market just as brutal, we earned $0.15 of adjusted EPS and grew market share. Same environment, different rocket, durable through cycles. So the question is, where does this durability come from? It comes from 2 things. First, a business model built for any cycle.

Second, technology that drives better, faster, and a more affordable experience for our clients. Let me talk about the model first. More than 70% of our revenue this year comes from less rate-sensitive sources. Servicing fees, subscriptions, purchase, cash out refinance, home equity. Let me take you inside 2 of them: purchase and servicing. Purchase starts with Redfin, where every home search begins there. Now inside every listing, there is a path to Rocket Mortgage. Buyers meet us before they ever make an offer. The results? Visitors who click through to start a purchase mortgage transaction are up 50% year over year. Redfin's contribution to our refinance leads also more than doubled this quarter from a year ago.

Compass simply extends that same playbook. And delivers what buyers want most, homes, and the agents who sell them. Cumulative unique listings are now nearly 40 thousand up from roughly 25 thousand last quarter. Homes you cannot find anywhere else. Rocket Pro, net rate lock volume through Compass has passed $3 billion since February, up 50% from last quarter. Then they are servicing our ballast. More than $1 billion a quarter in servicing fees, more than $4 billion a year. that is triple where we were 3 years ago. that is recurring cash flow in any rate environment, revenue that shows up whether rates are 4% or 8%.

And here's what makes it compound because we know these clients were first in line when they are ready for their next loan. In Q3, recapture across the combined portfolio hit the highest level in our history. We recapture at a rate multiple times higher than the industry, On our platform, servicing is not just an annuity. It is a growth engine. Home equity extends the advantage. there is a record $12 trillion in tappable home equity in this country. And home equity loans let owners unlock cash without giving up their first lien rate. that is resonating with our existing client base.

Year to date, about 2/3 of our home equity clients also have their first mortgage serviced by Rocket. Our second advantage is technology. And I will be very direct with this. This is where the industry's future gets decided. For most of this industry's history, a mortgage moved at the speed of paperwork and business hours. AI removes both limits. How does technology win? 4 proof points from this quarter. First is credit pulls. We reimagined how credit gets pulled across every digital lead. Purchase and refinance. With AI agents guiding the client all the way through. On nearly 20% of our direct to consumer volume, AI completed that step before the client ever spoke to a loan officer.

A year ago, that number was zero. Think about what that means. Our loan officers now spend their time with clients who are ready to move forward. Second, the fully digital refinance. We threw out the form entirely and rebuilt the experience around agents. Clients can choose to pull their credit see their loan options, and lock their rate without ever speaking to a loan officer. In Q3, digital was more than 40% of all direct to consumer refinance applications. And digital leads converted at 4x the rate of every other channel. Same demand, more growth. Third is voice. Our AI voice agents are now integral to how we serve every client.

The platform handles 65% of inbound servicing calls, and resolves more than half of them on its own. it is natural, personal, and always on. Clients get answers in seconds, and our people spend their time where humans excel. Fourth, is the agentic future. Consumers are starting to shop with their own AI agents, like Meta's Muse, that compare price, speed, and ratings across lenders giving people more transparency and control. We saw that coming. Over the past 18 months, we built the APIs and protocols those agents need to complete the mortgage process with Rocket end to end. And here's the thing about agents. They do not care about your brand. They care about 2 things.

The best price the easiest close. And we show up well as Rocket in both. Put it all together. Rocket is faster, simpler, and more affordable, open 24/7 across every channel, From AI agents to in person. Our structural cost advantage flows straight back to clients through better rates, and offers like our preferred pricing bundle. So where do we go from here? I will close where I started. Tough markets do not lie. They reveal what is real. And this quarter revealed a company that delivered revenue near the midpoint of guidance expanded margins for the fourth straight quarter, and took share in purchase and refinance in 1 of the hardest markets this industry has ever seen.

3 years ago, at these rates, we lost money. Today, we make it. The rates did not change. We did. We built Rocket to be the strongest ship in rough water. We are built to grow in any rate environment. We are not waiting for the market We are taking the reins. And with that, let me hand it over to Brian.

Brian Nicholas Brown: Thank you, Varun, and good afternoon, everyone. Today, I will walk through our third quarter results, the expense discipline behind our margin expansion, and the strength of our balance sheet. I will close with our outlook for the fourth quarter. Let's start with the results. Q3 was a tough quarter for the mortgage industry. The 30 year fixed rate started the quarter at 6.4% and rose to 7.3% by the end of September. The MBA's mortgage application index fell in 10 of the 13 weeks during the quarter. Applications were down 23% from the second quarter average. Those headwinds have carried into the fourth quarter, which I will cover more in our outlook.

Against that backdrop, Rocket grew share in both purchase and refinance. We expanded adjusted EBITDA margin to its highest level in nearly 5 years, and we ended the quarter with record liquidity. Adjusted revenue was $2.6 billion near the midpoint of our guidance range. Adjusted EBITDA was $748 million a 29% margin, up from 28% last quarter. This is our fourth consecutive quarter of margin expansion and our highest since the fourth quarter of 2021. Adjusted net income was $419 million and adjusted diluted EPS was $0.15 On a GAAP basis, total revenue was $3.3 billion and net income was $79 million or $0.25 per diluted share.

We generated $40.4 billion in net rate lock volume, and $43.6 billion in closed loan volume. In what was a smaller market, we grew both purchase and refinance share. Based on our estimates, purchase market share approached 6.5% and refinance market share was 15.5%. that is compared to the 6.2%, 14.3% reported in the second quarter. In purchase, our investments in distribution are paying off. Rocket Local is our team of in market loan officers who work directly with real estate agents in their communities. Rocket Local grew volume more than 30% year over year, and we have built the team to more than 400 loan officers across major metro areas. Our partnership with Redfin and Compass extend that reach.

And today, 1 in 5 of our purchase clients is represented by a Redfin or Compass agent. We are also growing in wholesale. Over the last few months, we have added roughly 200 new Rocket Pro partners to our platform, representing $12 billion in potential annual volume. Our loan officers and pro broker partners have the full weight of the Rocket platform behind them. They focus on relationships, and the platform handles routine work. That makes them more productive and gives clients a better faster, and more affordable experience. In refinance, home equity loans were the standout. Volume set a record as homeowners tapped into their home's values without giving up the rate on their first lien.

Cash out refinance volume remained healthy, supported by another step up in recapture. Recapture rates on the combined portfolio reached an all time high, the fourth consecutive quarter of improvement. Gain on sale margin, excluding correspondent, was 333 basis points, up from 311 basis points last quarter. The increase was driven by higher direct to consumer margins which rose to 31 basis points from 413 basis points in the second quarter. That improvement reflects a growing mix of home equity volume, which carries higher gain on sale margins. As Varun shared, Rocket is a fundamentally different company than it was 3 years ago. Servicing is our foundation.

We are the largest servicer in the country with $2 trillion of unpaid principal balance across 9.1 million clients. Servicing generated $1 billion of fee income for the third quarter. As rates rose, the fair market value of our MSRs, net of hedges, increased to $710 million in the quarter, Because our recapture engine acts as a natural hedge, we do not need to hedge away all the upside. When rates fall, recapture offsets the decline in value. Now let me walk you through what drove our profitability expansion. There are 2 parts to the story, disciplined expense management and ongoing investments in technology that give us optionality on our fixed cost structure. Starting with expenses.

Total expenses were $2.3 billion, down $175 million from the second quarter, A portion of this decrease reflects synergies and the rest reflects variable costs that move with volume. Through the quarter, we have realized $300 million in Mr. Cooper expense synergies. We expect to deliver the remaining $100 million of annualized savings in the fourth quarter. Reaching the full $400 million, a year ahead of the original timeline. As we shared last quarter, beyond the $400 million of Mr. Cooper expense synergies, we have line of sight into an additional $100 million in annual savings, which we expect to realize in the first half of 2027. The second driver of our profitability expansion is our technology platform.

Most lenders rent their technology. We have built ours across origination and servicing, and we pair it with the richest client datasets in the industry. When you control the system and the data, you do not wait on a vendor's road map. We build AI, deploy it, and scale it across the business faster than others running on a rented system. The result is an industry-leading cost to originate and service. On the top line, the AI capabilities Varun described lift conversion, turning more of the leads we already generate into closed loans and lifetime client relationships without adding acquisition cost.

On the bottom line, AI handles more of the routine work across origination and servicing and keeps lowering our cost per loan. Those savings are structural. that is where the optionality comes in. The traditional mortgage model adds capacity by adding headcount. We do not run the business that way. We have built more than $300 billion of origination capacity without needing to add fixed costs. If the market remains soft, we can align our cost structure with demand, keep the capacity we need. When the market turns, others will be hiring to catch up.

We will already have the capacity in place, We are not dependent on a rate recovery, but we are positioned to capture the upside when it comes. Underpinning all of this is the strongest balance sheet in the industry. We ended the quarter with a record $11.4 billion of liquidity, including $2.7 billion of cash. Net corporate leverage is below 1 turn. And we are the only independent mortgage company with an investment grade rating. This matters more now than at any point in the last few years. Many lenders came into this market with less capital and more leverage, and higher rates are testing their balance sheets along with their business models.

In a market like this, capital is not just defense. it is offense. We have the capital to keep investing and take advantage when opportunities arise. Investing through the cycle is how we build on the advantages we have today, our technology platform, our servicing portfolio, our ecosystem, our distribution, our brand, and our talent. We are going to keep investing and keep widening that gap. Now turning to our outlook for the fourth quarter. As I mentioned earlier, the market remains challenged. The MBA purchase application index is down nearly 20% year over year and refinance applications are down more than 50%.

The fourth quarter is seasonally low for our industry and this year that slowdown comes at a time when mortgage rates are reaching highs we have not seen in 2 decades. Last quarter, we told you our real time data pointed to a third quarter mortgage market that would be smaller than Q2, something the industry had not seen since 2022. That is exactly how the third quarter played out. Today, based on our estimates, the same data points to a fourth quarter market well below what industry forecasts indicate. More specifically, we expect the refinance market to decline by almost half from the third quarter, which would leave the overall mortgage activity near multi decade lows.

With that context, in the fourth quarter, we expect adjusted revenue to be between $2.1 billion and $2.3 billion. Our guidance reflects continued share gains. And turning to expenses, At the midpoint of the revenue range, we expect total expenses of $2.05 billion, including $110 million of intangible amortization, $80 million of stock based compensation, and $10 million of 1-time integration costs. Excluding these items, we expect expenses of $1.85 billion, a decline of $165 million from the third quarter. As always, our guidance reflects the latest market data and our current visibility. Let me close with this. Tough markets drive separation. This quarter, rates rose, volumes fell, and the industry felt it.

Rocket grew share, expanded margin, delivered synergies ahead of plan, and ended the quarter with record liquidity. The fourth quarter will be harder still. We are ready for it. With that, operator, we are ready for questions.

Operator: We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Ryan McKeveny with Zelman & Associates. Your line is open. Please go ahead.

Ryan McKeveny: Great. Thank you for taking the questions and congrats on the execution in the tough environment. So obviously, the mortgage rate backdrop has moved meaningfully higher the last couple of months. And certainly for us and Fannie Mae and kind of everybody who is forecasting the origination market, obviously, have come down quite a bit. both for 4Q and for 2027. So I was hoping you could maybe elaborate a bit more on the backdrop that you are looking at, kind of what is embedded from a market perspective?

Within that 4Q guide, how you are thinking about market share, And to the extent you are willing to talk a little bit about 2027, I guess I would be curious any thoughts on how you are thinking about the ability to continue driving profits even if we do enter a period where the industry backdrop is even more challenging. That would be great. Thank you so much.

Varun Krishna: Hey, Brian. Thank you so much for the question. You know, why do not I start by just unpacking a little bit on the 2027 market outlook? And then I will tag team with Brian to unpack a little more on the Q4 guide. I think, look, the reality is this may be the toughest mortgage market in more than 30 years. But let me just tell you, like, I like tough markets because like, when you are playing in this nosebleed territory, no 1 can really hide. Right? So, yes, mortgage applications at their lowest level since January 2025, And Redfin reports that homebuyer demand is actually at its lowest level since 2013.

But Rocket has a pretty unique view into this market. Right? We are the largest mortgage lender We operate in every channel. Every state, and we see a lot. And the other thing is that Redfin gives us a pretty unique visibility into the demand before buyers even apply. So we have been calling for a smaller market than the industry forecast. And that is pretty much exactly what we have seen quarter after quarter after quarter. So when you look at 2027, you know, the forecasts are below $2 trillion. We think it could actually be even smaller still. But I think here's, like, the key thing. I think that is exactly what we have been planning for.

I think in a good market, like, everyone looks good. But in a tough market, the truth comes out a little bit. We have spent the last 3 years building for this exact environment. that is why 70% of our revenue is recurring; it is less sensitive to rates. We have more than $300 billion in origination capacity that is pure result of our investment in technology. And I think just a great compare is again, when you just think back to 2023, it is like the last time that rates were around this level. They were this high. And Rocket was actually losing money. And today, perhaps in an even tougher environment, we are taking share.

We are expanding margins even with rates back up over 7%, and I think that just shows incredible resilience of our business model. So when you compare these 2 time periods, you have 2 very different versions of Rocket, and I think that should tell us something. So that is kind of the context on Q4 and a little bit of a perspective into 2027. And with that, maybe, Brian, you could unpack a little more on the, 4Q guide.

Brian Nicholas Brown: Sure. Yeah. Happy to do it. Good to hear from you, Brian. Let me actually start with Q3 because I just think that would be a good jumping off point for Q4. And Q3 results were very good to your point, and I am really proud of the team. Purchase continues to be a bright spot. And if I just double click into there, in the prepared remarks, you heard me talk a little bit about Rocket Local. that is starting to contribute to the purchase growth in a meaningful way. 400 loan officers working in communities around The US, and their volume, if I just compare it on a year over year basis, is up over 30%.

You know, we know that realtors like working with loan officers in their local communities, and that is starting to prove out in Rocket Local. On the wholesale side, I touched on this, but that continues our strategy to provide the best tech and capabilities to brokers is working. And we have onboarded a record number of brokers over the last quarter, over 200 of them. And that I that volume I expect to come continue into next year. On the refinance side it is no surprise that rate in term is a bit challenged, but cash out in home equity continued to perform above even our expectations.

And as a reminder, that home equity business really helps boost the gain on sale margins in the quarter that you saw come through. And, of course, I would be remiss if I did not talk about recapture. As it relates to both refinance and purchase, but we are now at record levels of recapture on the legacy Cooper book. Well ahead of our original synergy targets, which we said we would not hit for 2 years from now. On to Q4, look, Brian said it well, I expect Q4 to be tough. You have normal seasonality. We usually measure that at about 15 to 18% down on a historical basis when you compare Q4 to Q3.

But given the sharp increases in rates, I expect there to be a lot of pressure on rate and term refinance in Q4. We can measure, you almost a 50% decrease on the refinance side going into Q4. So if all these conditions hold, it could be 1 of our lowest origination quarters in 3 decades or lowest market quarters, I should say, in 3 decades. And all that is reflected in our guide, which we think is very strong against this backdrop. We still expect cash out and second liens to be productive. And we expect to take share in the purchase market, which remains challenged but much less so than refinance. Very helpful. Thank you.

Operator: Your next question comes from the line of Ryan Nash with Goldman Sachs. Your line is open. Please go ahead.

Ryan Nash: Thank you. Hey, Varun. Hey, Brian. So you know, maybe a few-part question on expenses. First, in the 4Q guide, Brian, I think you noted $165 million over quarter decline. Maybe just talk a little bit about how much that is volume based versus other savings. And then more broadly, Brian, I think you talked about you made a comment aligning your cost structure with demand. I know you mentioned another $100 million of cost saves in 1Q and the first half of 2027, but can you expand on the 'realigning the cost structure' comment? And are there more levers for you to pull beyond that $100 million. Thank you.

Brian Nicholas Brown: Yeah. Thanks, Brian. Appreciate it. Yeah. Let me I will hit on your questions. And just to zoom out because I would like to give an update on the synergy goals first. So mister Cooper, goal was $400 million. Through the end of the third quarter, we have realized about $300 million of the $400 million and I expect to realize that final $100 million in the fourth quarter. that is about $25 million of impact in the fourth quarter, but a $100 million on an annualized basis. So that will put us 1 year ahead of our synergy goal, and I am really proud of the team.

And, of course, that is on a tough backdrop of the market while we are continuing to take shares. You said it, but in Q4, after intangibles, stock comp, onetime costs, I expect it to be down I expect expenses to be down about a $165 million versus Q3. And, you know, since Q4 represents fully realized Cooper synergies, I think that is a good starting point for our fixed cost base into 2027. But I do want to call out because you mentioned the other $100 million that we are not stopping there. Last call, we told you we have line of sight into an additional $100 million that is on top of the $400 million Cooper synergies.

We expect that to be realized in the first half of 2027. But secondly, we are leaving no stones unturned on vendor and third party costs, and we are also fine tuning our marketing efforts. that is all on top of the $100 million. And then you touched on capacity a bit, which is a good point. You know, we have driven a lot of excess capacity in the business, and we are taking a hard look at that in light of the current rate environment. Have north of $300 billion of capacity. So listen. That option value is very high, and we will continue to evaluate based on demand.

And we will have more to report on that in the next earnings call. Thanks for the call, Brian.

Operator: Your next question comes from the line of Jeffrey Adelson with Morgan Stanley. Your line is open. Please go ahead.

Jeffrey Adelson: Hey, thanks. Good to hear from Varun and Brian. Maybe just could you talk about. You know, we talked about competition last quarter. And, obviously, it continues to be a pretty tough environment out there. Can you just talk about how you guys are faring, what you are seeing out there from your competitors, how you are able to take advantage in this tougher backdrop. And, you know, you. You have had a couple quarters now of continued market share gains here. Maybe just highlight where you are seeing that come from other than just the channel high level channel numbers purchased in refi. You know, anything specific under the hood that you think is driving that?

Is it more the recapture increases of the focus on Rocket Pro? And, you know, do you think that environment is continuing quarter to date?

Varun Krishna: Jeff, thanks so much for the question. Look, this is a great topic. I think the reality is the market is literally testing every single lender and that is, like, a good news, bad news story. I think the good news is if you have a strong business model, guess what? it is gonna shine through. But the bad news is if you have a flaw in your business model, it is gonna get exposed. So when we think about what it takes to actually win in this environment, think there is a couple of different things that matter. I think the first thing is you have to have a brand.

You have to have a brand that stands for something that brings clients directly to you. The second thing is you have to reach buyers before they are shopping for a mortgage, and you have to have good signals of intent, good models. The third thing, which is perhaps you know, super critical, is that you need things like origination servicing, and recapture working together as a unit, as a system. Then you need technology that you can control so that you can innovate faster and cheaper across that entire stack. And then lastly, you also need capital to keep investing when those markets inevitably get harder.

And that is a lot to have to be able to survive and thrive. Right? And I think most lenders today have, like, 1 piece of this equation. Right? Some originate, but they do not service. Some service, but they have no origination or recapture. Some own, you know, home search portals, but they do not have the mortgage transaction. And I would argue that none of them are bringing it all together into, like, an AI powered platform. So if I were to put that even more simply, like, hope is, like, not a strategy when it comes to competition. But if you contrast that with Rocket, you start to see all of these ingredients. Right?

Redfin brings 50 million monthly active users directly into our funnel, high intent, high quality homebuyers. We are the largest lender and the largest servicer. We have 9.1 million clients. We own our technology. it is highly proprietary. Own it end to end with AI making that even more impactful and productive. And then we ended the quarter, as Brian shared, with record We have $11.4 billion, and we have a leverage ratio below 1x. So simply put, you know, the market is putting pressure on everyone, but we are not all gonna come out of that in the same position. So every quarter, we think these are the core ingredients.

We think we are putting more distance between Rocket and our competitors. Okay. Great.

Brian Nicholas Brown: And just as a quick follow-up maybe for Brian. You mentioned the improving gain on sale margin this quarter. You talked about home equity, the mix increasing and driving the bulk of that. Maybe just talk about the outlook in the fourth quarter and from here as you think about that as a component of your revenue guide and with the weaker volumes specifically in refi for the quarter. Is that something that could maybe reverse the trend if you have less refi next quarter? Thanks. Yeah. Thanks. I think, look, a couple things. If I look at where we are printing margins right now on a channel level, they are very similar to the Q3 margins.

So the only thing then, Jeff, you have to think about is mix shift. And as I said, I do expect rate and term to probably be even less in Q4. And those second liens and cash out do come with higher margins so that is something I view as a positive. I think the other thing that is worth pointing out when you think about gain on sale margins is traditionally when rates have risen, and we have seen lenders out there maybe try to use pricing as a lever to still drive volume. You are not seeing that as much anymore.

You know, I think the position that Varun mentioned, some of our other competitors are in that lever available for them anymore. You could see a little bit of that helping gain on sale margins in the third quarter, and I could see some of that helping gain on sale margins stay steady in the fourth quarter. Okay, great. Thank you, Varun and Brian.

Operator: Your next question comes from the line of Douglas Harter with BTIG. Your line is open. Please go ahead.

Douglas Harter: Thanks, good afternoon. Hoping we could talk a little bit more about the market share gains that you have been experiencing, Brian. You mentioned Rocket Local, but just hoping we could just talk a little more broadly, like, how DTC is doing in terms of market share both in purchase and refi?

Varun Krishna: Thanks for the question, Douglas. I mean, look, I would start by saying 3 years ago, we set 2 bold goals, 8% purchase share, 20% refi share, and we are very much on track. Right? Purchase right now is approaching 6.5%. Refi hits 15.5%. So both are up into the right, and we are looking to accelerate that. And it is worth pointing out that we are actually doing this with rates back up above 7%. And I would just highlight, you know, a couple of the key drivers behind the gains, and I am gonna highlight 4. I think the first 1 is recapture. And essentially, you know, we are first in line.

When our servicing clients need their next mortgage. And it is great to see that recapture across the combined portfolio is at record levels. The second 1 is Redfin. Redfin is the doorway to Rocket. Right? Clicks to start a purchase mortgage are up 50% year over year. what is also cool is that refinance leads have more than doubled. And so Redfin is really providing a valuable booster as the front door to Rocket. The third thing, as Brian talked about, is home equity. Home equity is a product that is perfectly built for this market. We have become the nation's largest home equity lender and Rocket already services the first mortgage for 2/3 of these clients.

And then the last 1, as you asked about, is sort of our distribution, our ecosystem. You know, Rocket Local connects loan officers with agents and buyers in their local communities. it is how we reach a very fragmented purchase market just focusing on 1 relationship at a time. Volume there grew more than 30% year over year. And then you also have Redfin and Compass, key ingredients that have driven more than 20% of our purchase closings. And then also Brian talked a little bit about our broker partners. Over 200 brokers have now activated with Rocket. That represents almost $12 billion in potential annualized volume.

So 4 consecutive quarters of expanding margins taking share, more share and better economics, it is kind of the combination that we are solving for. I appreciate that.

Brian Nicholas Brown: And can you just as a follow-up, can you talk about your appetite to continue to grow, Rocket Local?

Varun Krishna: Yeah. I would just say that, look, I think at the end of the day, you know, maybe I can do is just step back and just reframe our local strategy in general. Right? Like, 78% of buyers rely on their agents' input when they are choosing a lender. We are seeing that through Redfin. We are seeing that through Compass. People wanna work with people that they know. Someone who picks up the phone on nights, on weekends, it is really all about trust. A big part of this is just our local strategy in general. Like, Rocket Local is 1 component of that strategy.

We have local loan officers that are working in every community But it is also about Compass. it is also about Redfin. it is putting the entire power of the Rocket platform behind all of those relationships. So it is about pricing, it is about it is about it is about underwriting. it is about fulfillment. it is the same platform that is providing our agents, loan officers, and brokers success and scale. it is also about our centralized platform. All of these things working together as a unit. And so we just want Rocket to be there however they choose. Some people will focus on a local relationship. Some people will use digital.

Some people will use their own AI assistant. And what we are doing is just simply expanding the strength and the reach of all of these components to meet our clients where they are. Thank you.

Operator: Your next question comes from the line of Daniel Kurnos with Stonex. Your line is open. Please go ahead.

Dan Kurnos: Great. Thanks. Good afternoon. Varun, I mean, your clearly in the enviable position of having the best balance sheet in order to decide how aggressive you guys want to be in this market and to your point, you have spent a lot of time talking about purchase being a bright spot right now. So you extended the Compass pricing credit through year end after more than $3 billion of locks since February, Orbit ads, some pricing credit flexibility.

How are you deciding where to discount and how deep, what kind of payback are you underwriting there, and how should we think about that as a permanent part of 2027's pricing, or is this a share acquisition tool that rolls off once the volume sticks?

Brian Nicholas Brown: Yeah. Thanks, Daniel. Maybe I will take that. And, Varun, you have something to add too. But I think, look, the. I am glad you brought it up because the pricing strategy is simple. It is based on an ROI. Strategy. So if the unit economics have to work. Going back to my earlier comments on the gain on sale margin. I do not think that we have to be you know, pricing completely through or rock bottom prices on every single loan that we do, but we do have the flexibility and to use price as a lever, and you are seeing that showing up in the Compass relationship right now.

And part of that was to get it jump-started and drive some volume and have agents have something to offer to their consumers that they would not be able to get otherwise. And that worked out really well. And then to your point, we extended it because we are seeing healthy ROIs there. What I like about what you are suggesting is it is simple. It gives us the option value as a lever to pull when no 1 else really has that lever to pull. So it is something that we focus on in terms of our brand messaging. it is something that we focus on internally a lot.

But it does all come back to an ROI driven equation. Got it. that is helpful.

Dan Kurnos: And then maybe a more fun 1. So Rocket was an original partner on Meta's personal agent protocol. I think at Sierra, Muse connected with Rocket's agent, and you got preapproval letter within minutes. We know that there are others out there that are blocking Muse outright. And you guys are still building Rowan with Anthropic. So I guess when a third party agent owns the front end, how do you guys make sure you own the client relationship and recapture? And does that traffic reach you guys at cheaper than a paid lead or route buyers through Redfin search?

Varun Krishna: I think the way I would frame it is that we are building technology that meets the client where they are. I mean, some clients are gonna use an agentic interface in order to shop for rates, or contain more of the experience. Some clients are gonna focus on local relationships. Trust their agent or a broker partner. Clients are gonna come directly to Rocket and work directly within our channels. You know, our goal is to meet the client exactly where they are. We wanna have low rates, We wanna have fast turn times. We wanna deliver absolute certainty. that is what our brand stands for.

From our perspective, know, the experience does not start and end in any 1 particular place. It starts where consumer defines it, and it ends with a 6 successful closing. And that is kind of the fundamental of our strategy. Got it. Thank you both very much.

Operator: Your next question from the line of Donald Fandetti of Wells Fargo. Your line is open. Please go ahead.

Donald Fandetti: Yes. Varun, it seems like the servicing portfolio is driving a lot of home equity cross sell. It seems like it is driving cash out refi recapture. Can you just dig in a little bit more on that? And do you see that continuing to grow in terms of impact?

Brian Nicholas Brown: Donald, let me start that 1 up. Yeah. I do. I think, you know, you saw those results come through in Q3 in a big way, and that is a big part of our Q4 guide. Is those products continuing to be a very productive part of our origination business. To your point, the large majority of that comes from our servicing book at a very low cost of acquisition, and that continues to be really exciting. You know, 1 thing we have not been asked about a lot is our recapture capabilities, and we know we are the biggest servicer. We have combined and fully integrated with mister Cooper.

That results in the richest dataset of client service information out there. that is helpful in a number of ways. We know proprietary data is a huge advantage in building propensity models, and we are seeing those models perform even better with the combination of these 2 companies coming together. We talked about, you know, the recapture being above our expectations. It actually, in Q3, hit a percent on the legacy Cooper portfolio. And remember, the goal is 65, but we set it 65 by the end of 2027.

When we look at these client equity levels in their home and we match that up to some of the debt and debt consolidation work we can do for them, and get them in a lower net rate product, there is still a ton of room to run in my personal opinion. You know, 1 of the things we talked about on a previous call was how will the liquidity behave and how will the securitization market behave.

And it is been extremely productive, and that has not been a challenge at all. there is appetite for that yield, and there is definitely a consumer need and demand in the servicing portfolio as we look, you know, for a longer horizon.

Varun Krishna: I think 1 thing I would just add here is just Brian talked a little bit about the scale and breadth of our data. If you just think about how much data Rocket generates in even 1 day to power our recapture platform, Yesterday, we sent 37 thousand chats. We processed 170 thousand documents. We sent 214 thousand text messages. We did 404 thousand calls, and that is almost 500 thousand minutes of talk time. So when Brian talks about the strength of our data platform and the power of our recapture capability, just gives you a sense of how we score and rescore our pipeline based on technology.

And so that is AI power at scale at a platform that is really designed to power recapture. Thank you.

Operator: Your next question comes from the line of Bose George of KBW. Your line is open. Please go ahead.

Bose George: Yes, good afternoon. Brian, can you discuss how you are viewing opportunities in the MSR market? Could we still see MSR acquisitions? Or just with the growing correspondent business, is bulk acquisition become less of a focus.

Brian Nicholas Brown: Yeah. Thanks, Bose. I will take that 1. Yeah. I do think you can continue to see acquisitions. it is ultimately just the best execution equation. You mentioned the correspondent business. that is been very productive for us. You know, we have a platform that scales very well there. But most importantly, we have the lowest cost of service and best recapture rate. So if you have those 2 ingredients, you can build yourself a really nice meal, whether that is acquiring through a correspondent or whether that is, of course, doing bulk acquisition. So we continue to be active over all the MSR acquisition channels, and it continues to be a really good use of capital for us.

You may have noticed we did sell a few low WAC portfolios that the recapture ability is gotta be lower given where those are sitting at 3 and 4 note rate per, you know, WACs. However, we retain the vast majority of those. We retain the subservicing and the recapture abilities on those portfolios. Again, that is something I do not think anyone else in the industry can claim that they can do subservicing and recapture for these investment funds. So it continues to be I would say a good use of cash capital for us, and we will continue to evaluate all the different channels, including co issue. Acquiring MSRs. Okay. Great.

Bose George: Thank you. Let me just throw in 1 last 1. You have obviously had a lot of success with M and A. What are your thoughts about future M and A and just specifically in terms of distributed retail. I mean, Rocket Local is doing very well. You are growing there. Is that something where M&A could sort of supplement that?

Varun Krishna: I would just say we are always opportunistic in terms of things that can expand our core strategy and drive market share gains, and so we will continue to look at opportunities as they come up. And that is kind of our primary focus. So. Okay. Great. Thanks a lot.

Operator: There are no further questions at this time. I will now turn the call back to Varun, for closing remarks.

Varun Krishna: All right. Thank you, everyone, for joining, and we look forward to seeing you next quarter.

Operator: This concludes today's call. Thank you for attending, You may now disconnect.

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