Rocket + Redfin + Mr. Cooper = First in Class

April 1, 2025 | Premium Service | With the surprise announcement of the purchase of Mr. Cooper (COOP) by Rocket Companies (RKT), our earlier predictions of accelerating consolidation in the residential mortgage sector have been fulfilled and then some. Combined with the purchase of Redfin (RDFN) only days before, RKT has deployed its currency, financial power and reputation to up the ante on mortgage industry consolidation. Who are the winners and losers in this stunning escalation of the race to dominate mortgage? 

Why is this transaction significant? First and foremost, the combination of COOP and RKT, plus RDFN, creates an integrated business of realty, lending, servicing and asset management that is impressive. RKT is the #2 lender behind United Wholesale Mortgage (UWMC) and one of two nonbanks that play in the jumbo market, Inside Mortgage Finance Reports, the remaining top-10 issuers being banks led by JPMorganChase (JPM). The addition of COOP and the largest primary servicing book in the industry gives the RKT franchise considerable new heft and internal cash flow generation, plus the ability to manage assets for institutional investors and other issuers. 

But this transaction throws down the gauntlet to the rest of the mortgage industry. The remaining top-ten issuers must now make a speedy assessment of their market position and, in many cases, make a tough decision about buying and/or selling a business. When you see that established players such as Rate are considering selling major operating units or even exiting the business altogether, this speaks to the level of competition in the industry.

The table below shows our mortgage equity group sorted by one year returns, what passes for a long time horizon in today’s market. But this list does not include all of the relevant players, many of which remain private in terms of equity but have significant relationships with institutional debt investors. 

Mortgage Equity Group

Sources: Bloomberg, Inside Mortgage Finance

Second, it marks the marriage of two existing issuers who now control a top-2 aggregator in Rocket and the largest non-bank servicer in COOP.  We put both of these issuers in the category of firms that love to create and/or buy mortgage servicing rights. While COOP has been cautious about chasing market leaders such as Freedom Mortgage in the MSR market, when you have over a $1.5 trillion in primary servicing, you don’t need to stretch. 

Now with RKT, COOP has an engine for creating MSRs that is equal to that of UWMC. The difference with UWMC is that CEO Matt Ishbia has been selling MSRs to fund his price war in the wholesale channel against RKT and other larger players.  We think that UWMC is a net-loser a world where lenders and large servicers join forces. Simply being a very efficient lender is not sufficient.

“People don’t like selling MSR because they can’t originate them. But we can originate them and we make them every single day so we feel good about that,” Ishbia told IMF earlier this year. We tend to think that Ishbia is selling himself short by disposing of his MSRs at a discount to cost and, further, we think players such as COOP, Freedom and Bayview/Lakeview have it right when they acquire and retain MSRs rather than monetize the asset.

If we consider the table above, the organizations with top-ten lenders and servicers are in the great competition for dominance in residential lending. Add private players such as Freedom Mortgage (#4 lender, price leader in MSRs) and the Bayview/Lakeview binary (#2 owned servicing) to the mix. But the bottom line is this: If you are not a top-ten lender and a top-ten owner of servicing, then you are a target. Eventually the logic of low lending volumes and high prices for MSRs will drive you to sell your assets and exit the business.  

With the announcement of two significant M&A transactions, RKT has paid a price in terms of ST equity valuation, but we like the prospects for RKT going forward. WGA has served as an advisor to COOP for many years. We also know the leadership at RKT and have a high regard for the company’s culture and also the financial resources of the Rocket Companies created by billionaire Dan Gilbert and led by CEO Bill Emerson.

Source: Yahoo Finance

Indeed, the cultural fit between the two mortgage issuers, with a focus on serving the customer, from retail borrower to institutional investor, is very powerful. RKT brings operational excellence and a strong market position lending, while COOP brings good lending, a larger servicing book and, significantly, asset management expertise that is a very rare commodity in the world of residential mortgages. 

The firms that will dominate the mortgage market in the future will have top-ten lending capability, double digit share in servicing and a robust asset management arm to raise capital from institutional investors and particularly insurers. Bayview, COOP, Carrington and PennyMac Financial (PFSI) are among the few firms that have effective asset management capabilities. As the mortgage industry continues to consolidate, firms with established relationships in the bond market for debt finance and among institutional investors for raising new equity will inherit the earth.

The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.