Rocket Companies Inc Stock

All right. So we'll kick it off. Very pleased to have Rocket here today. And joining me on stage is Brian Brown, President and Chief Financial Officer. So welcome, Brian.

Thanks, Terry. Thanks for having me.

Yes. Very happy to have you. So maybe we just set the table with some market questions. 2026 origination volumes have come in below expectations relative to the start of the year. What needs to happen for the housing market to become healthier and for the mortgage market to expand? And how are you thinking about the mortgage market size over the next several quarters?

Sure. Yes, happy to take that. Good to see some familiar faces. Thanks for the support. Yes, I think, Terry, you've done a nice job timing this conference around some market news today. So it's probably an appropriate question to start with as we see the 10-year starting to touch a 5 handle. So yes, look, there's a couple of different things. I'll start with the things that I think are obvious and we know our challenges. But there's no question that there's a lot of inflation based in the system, and that's with energy or without energy. That's putting pressure on mortgage rates. I do think there's some room in spreads still to compress.

But all in all, the increasing 10-year treasury is putting pressure on mortgage rates. We know that. Interestingly enough, I think just this morning, Fannie came out with a new mortgage forecast for the year, assumingly incorporating a lot of this data that we're all reading and digesting today. And the interesting piece is they took their purchase assumptions of the purchase market down a bit, but it's still very close to 2025 levels in terms of the total expected amount of purchase volume to be done in the market. And that feels just about right to us.

So while there is a lot of pressure, and I'll be the first to say I would like it if rates cooperated a little bit more and inflation slowed down, I think there's still a lot to be excited about and a lot of opportunity ahead of us. That purchase volume that I mentioned, if that stays reasonably close to '25 levels, again, maybe not as high as we'd like, but provides a ton of opportunity in the market. And then the other thing I don't think folks are talking about quite as much, but we have to remember that we are experiencing equity -- record equity levels in homes today. That presents a huge opportunity for Rocket.

Most of you probably know this, but we are the #1 home equity lender. And that's even -- we only do second liens. We only do second mortgages, but -- we're #1 even when you include the home equity lending side, the revolving line. So having a product to allow consumers to tap into their most valuable asset being the home that they own and the equity that they build up has been -- still presents a great opportunity even in this market. And then, of course, depending on the loan size or the amount of cash that you need to get out of your home, a cash-out refinance can still make a lot of sense to you.

So overall, we'd like it to -- we like rates to cooperate, but we also know that there are still opportunities ahead of us. Maybe just one more thing to double-click on the home buying side. I think sometimes we can look at national statistics, and those can be misleading because we do know that inventory is starting to pick up in certain areas, but that's offset by some really competitive markets where if you're listing your home, you're probably still getting 10 offers or 13 offers. But there is some -- if you really break it down, there is some interesting geographies that are starting to show some green shoots. Nashville comes to mind, San Jose comes to mind, Seattle comes to mind.

We're seeing big inventory unlocks in these areas. So it just goes to show you that having a 50-state national platform being scalable, you know that we have several -- our business is very diversified now. So we have brokers that sit out in market in all of these markets. We have local loan officers that are feet on the street. We have a centralized loan officer base. And when you add that up, we're in all 50 states, all 3,000 counties. And so we get a really nice read on what's going on across the market nationally, but it also presents a bunch of opportunities because while some markets are still hot and it's really tough on buyers, other markets actually have plenty of inventory, and it's turning into an actual buyer's market.

So for all those reasons, despite rates maybe not being where we'd want them to be, I'm still really excited for the year ahead and into next year because I just think it's still a big market. It's still fragmented. And even though we're the biggest player, we still have single-digit share in purchase. So there's still a lot of room to run.

Got it. That's super helpful color. So what type of market environment would you say is best for Rocket? Do you prefer a more challenging market like the one we're in, where execution and scale matter more or just a more favorable market where a rising tide lifts all boats?

Yes, I love this question. It's a good question, and I don't want to give you a flippant answer, but we really try to build this business, particularly through the more recent acquisitions and some of the investments we made, as a have-your-cake-and-eat-it-too business. And what I mean by that is it would be very obvious for me to be up here in front of you and say, well, a lower rate market is clearly the best market because we'd love to help consumers lower their monthly payments or rate and term refinances, which isn't too much of now.

But I actually think that our house view for many years has been that rates would stay higher for longer. In fact, I was just talking to someone in the back there, and they said something about buying Mr. Cooper and accessing that, which I'm sure we'll talk about. And they were like, I assume you were buying Mr. Cooper because you expected rates to go down and you wanted to take advantage of all the rate and term refinances. And of course, that is part of the thesis that's very important, but that wasn't actually why we bought Mr. Cooper. We bought Mr. Cooper because the house view is that rates would stay higher for longer.

And that diversification, bringing that servicing income into the mix, now 70% of our income -- or excuse me, 70% of our revenue being from less rate-sensitive products, which I couldn't have told you if I was sitting up here 5 years ago or 3 years ago is a big change in our business model. So I -- going back to our comments on the market, I actually think that this market presents enough opportunity for us to continue to grow the top line and the bottom line, which we've done very successfully over the past couple of quarters, taking share and growing EBITDA margins.

But the other thing, Terry, that does get me a bit excited about this market is I think it's tougher out there for everyone else. I really do. Most of you probably follow this to some extent, but we are the only mortgage company that has less than 1x leverage. We're the only mortgage company that has an investment-grade rating from Fitch. We have an investment-grade company rating from Moody's. They look a little bit more down on the industry. So we're working on that. We're the only mortgage company with $3 billion of cash on our balance sheet, $11 billion of liquidity that we have access to.

So if there's someone that is in a position to benefit from a higher rate environment, it's definitely Rocket. We've seen industry consolidation pick up at quite a rate over the past, I'll call it, maybe 8 months. I expect some of that to continue. I expect some of the best players like Rocket to continue to grow and take share, while many other companies in this space are struggling with free cash flow. They're struggling on their unit economic side, and they're saying all the right things in terms of how they want to bring costs out of the system. But I don't necessarily think that they have the strength in the balance sheet that Rocket does to continue to invest in the cycle.

So to answer your question, I, of course, would like rates to cooperate a little bit more, but we didn't build this business for a low rate environment. We built it for a high rate environment without giving up the ability to capture the upside when rates move. It wasn't that long ago that we were sitting in the first quarter, and rates did cooperate for a very short period of time. And that's one of the quarters that I'm most proud of because you've been able to see Rocket capitalize, pick up share, take that extra capacity without adding any fixed cost when rates cooperated. We sit here in the third quarter, they're not cooperating, and we're still growing EBITDA margins and taking share.

Got it. I want to touch on affordability briefly. That remains one of the biggest challenges for homebuyers. Maybe just talk about what Rocket is doing to help address the affordability issues for clients.

Yes. This is a top priority for us, and you've heard us talk about it quite a bit. It's so important because going back to what we were just talking about, it's very market dependent, whether it's the buyer's market today or a seller's market today. But regardless of it's a buyer's market or a seller's market, consumers feel pressure. There's no question. When you look at the percentage of people's total income or even disposable income that goes towards their mortgage payment now compared to what that was 5 years ago, it's a much bigger percentage.

So consumers are very focused on it. And I think that's the beauty of Rocket. We are in it with the consumers, and we have assets that other companies don't have. We have a search portal. We have our own brokerage plus a partnership with Compass and access to hundreds of thousands of brokers. We are the biggest lender and financer, but we also have our own title and closing company. And then, of course, after all that said and done, we retain the servicing on the back end. We have the lowest cost to service, thanks to Mr. Cooper and the capabilities that we have there.

So if you were in our shoes and you had all those assets and capabilities, you would believe like we do that we are ripe for helping consumers fix this affordability problem. We can't change interest rates, Terry. I haven't figured out how to do that yet. Maybe you know. But what I can do is I can collect revenues and cash flows off of multiple assets in the transaction, and I can share some of that back with the consumer because I'm capturing more revenue across the different assets than anyone else. And you see us in market doing that right now. We have special pricing if you use Rocket Mortgage and you use Redfin and a Redfin agent. We can give you up to $6,000, maybe $10,000 off.

If you're a service client, that can be up to a client in our ecosystem already and you're returning customer. Remember, those come with very little cost of acquisition because they're already in our ecosystem. It can be up to $20,000. Those are market-winning deals in a great way to show we are in it with the consumer and they can get something here that they can't get anywhere else. Now the beauty of it, these are obviously smart financial people here. And the question we get is, well, isn't that going to impact your profitability margins? And the answer is because we're collecting revenue over those asset classes and because we are very efficient and we're continuing to take costs out of the system through integration and synergies and even beyond, which we talked about in our last earnings call, our EBITDA margins continue to increase despite offering pricing incentives that others in the business couldn't offer.

Got it. So you've talked about having a more balanced business model in recent public calls. What exactly do you mean by that? And how has Rocket's business model evolved following Redfin and the Mr. Cooper acquisition?

It's a couple of things. One is the revenue diversification. There's a slide we put out in our investor deck recently, and it shows what I was speaking to before that 70% of our revenue now comes from less rate-sensitive products. For those of you that have been following Rocket for a long time, even 5 or 3 years ago, that was completely inverted. I would have had to sit up here and tell you 70% of our revenue came from rate term refinances.

And of course, it's not always fair to look at it on a percentage basis because the important part is you maintain those recurring sources and capture the upside. But as we sit here today, 70% comes from purchase transactions. It comes from Rocket Money. It comes from servicing. It comes from Rocket Loans. And it comes from some of those tapping into your home equity products that I mentioned, which are much less rate sensitive. We know that because we're doing a bunch of them today, even when rates are higher. And only the remaining 30% is really rate and term refinance or some of the more interest-sensitive things that are attached to servicing like escrow.

So that's one way I describe the balanced business model is that's a significant change for Rocket to have these recurring cash flows dropping to the bottom line in a rate environment like this. But I think the other important aspect of having a balanced business model is the cost side of the house because I get asked a lot, how are we going to continue to increase EBITDA margins in a challenged environment. And a lot of that has to come from the middle of the P&L, too. We will continue to grow top line, and we will continue to drive revenue even in this market. But we have to be disciplined while we do it.

And we talked a lot about the synergy math and achieving that early, but that was really a combination -- a business combination, and you'd expect us to achieve synergies that way. I still look at a bunch of opportunity going forward on the cost side of the house. Our -- when I look at the velocity of which innovation is pacing in this organization, I have never seen anything like it. We are shipping more code per engineer, record levels. And by the way, it's not just engineers shipping code anymore. Product managers are shipping code. Designers are shipping code. Even better than that, business people are shipping code. These AI tools have made it so that you don't have to be a technical engineer anymore to make configuration changes to your system.

So think about things like when there's product changes from the GSEs or things that are changing your business. Traditionally, that was an engineer. There was probably a product person who had to write a story and an engineer to pick it up and code it and then a business would come in and test it. Today, you can skip all that. The business can make it. You still got to do the testing and make sure it works effectively, but you can almost skip 2 or 3 steps in the process. So the reason I bring that up in this question is because I think continuing to focus on an efficient business model, back when rates were low and COVID, we IPO'd and we're all happy that big margins were dropping to the bottom line.

But if we're being honest, the way we captured a lot of that upside capacity was through human capital. We hired, and we were like really good at it. We were some of the best recruiting. We're like basically a loan officer recruiting firm or underwriter recruiting firm or a loan officer licensing firm. And while that all still matters to some extent, being able to do $300 billion in growing of capacity through the system with a much lower apples-to-apples headcount number than we did during COVID is a much more balanced business model. Our goal on the cost side is grow our capacity at the same or less fixed cost and no longer rely on human capital.

I know, Terry, you're probably doing a bunch of these today, and I don't know what others will say up here, but I do know even today, you're hearing people still talking about needing to meaningfully grow their loan officer count and out there hiring. And we're always hiring the best loan officers, of course, as you'd expect us to do and rebalancing the portfolio through attrition and gaining, but we are laser-focused on growing the capacity while not growing the -- not growing human capital and headcount.

Got it. Rocket doesn't sound like a traditional mortgage company. When you use terms like ecosystem, platform and distribution. What do you really mean -- what do those mean to Rocket?

Yes. Let me start with platform. I think it's an important question. So to me, the platform is the foundation. If you think about a home, it doesn't matter what you build on top of it if the foundation isn't solid. And I think this is, frankly speaking, where a lot of companies, at least in our space, go wrong. I think about the foundation being the infrastructure, the technology layer, but maybe more importantly, the data layer. That is one of the most valuable assets that we own is the amount of client data that we have.

But that's only the half of it, being able to access that client data, being able to build propensity models on top of it is really a secret sauce. Everyone today has access to the same LLMs. The same frontier models for the most part. You can have some -- anything you thought was an exclusive partnership or something that you were doing with an LLM is going to be short-lived. It just is.

So the value that we have that others don't have really comes through the amount of data that we have and being able to train these models on top of the richest data from a 40-year mortgage company, largest lender, biggest servicer, 50 million people coming to Redfin every single month and searching for homes, 5 million-plus people going to Rocket Money and having a premium subscription, hundreds of thousands of clients getting personal loans with us and being able to combine that data and those attributes, being able to mine that, get personalize our messaging and our marketing for our clients is something that's hard to replicate.

So I think of that as the foundation of the platform. The ecosystem to me are really the assets that you put around it, going back to our -- some of our previous talking points. That's being able to say we have this really strong foundation. Now we need to put the assets and capabilities around it. So that's things like the search portal, the brokerage, the loan officers, the underwriters, the servicers and the closers and the title people and the processors, all doing a job on top of this foundation, on top of that platform.

And to your last point around distribution, I think this is something that gets overlooked in our space. If we were at a different conference, a technology conference or we were meeting with other firms, they would talk a lot about their access to distribution. You don't really hear mortgage companies talk about distribution, but I'd argue it might be the most important thing. How many contacts do you have? What's the network effect of those? That's why having all these brokers out on the field, all these service clients, all of the 50 million Redfin clients out there.

That's why the Compass partnership was so important because having these contact points with realtors, bringing you clients at low cost of acquisitions and going through your purchase process with them, all of that matters. At the end of the day, we all have a client base, and we all want to market to that client base and make sure they choose us first for their financial products, particularly in this case, their mortgage. And no one has a bigger client base than us, and no one has more different levers and channels to pull on. I just don't hear most people think about it like this.

I think some people on the servicing side are just beginning to think about servicing as a distribution channel or a very important client base that they can mine and do their next loan. That was how we built servicing. But I do think there's even fewer companies thinking about the number of clients that they get to have a search interaction with or the number of clients using Rocket Money is another major advantage to us. So we really think about the platform and the ecosystem and distribution is sort of words to describe how we think about the business and how we think about tackling share gains and accessing clients in a way that's less traditional in this space.

Just real quick, Terry, to wrap up this one, I -- when I first got to the space, I'm always surprised how mortgage companies, in particular, would just keep rebuying the same client. They will do the loan one time and then the next time, they'll buy the same client again because there's -- the infrequency of mortgage just makes it for hard to maintain a relationship over time. It's kind of obvious when I say it. However, I think a lot of people still haven't crack the code. They're still repurchasing or rebuying that client or they're -- we know they're losing that client on their next transaction because the industry numbers tell us that 70% of the time, the client is going to choose a different lender on their second mortgage from their first lender. Of course, at Rocket, that's inverted. And the majority of the time, they're going to come back to Rocket. That's not the case for the industry.

Got it. Super helpful. So let's talk about integration. We're approaching 1 year since we closed the Mr. Cooper and Redfin acquisitions. The 2 large public companies. What surprised you most during the integration process? And what should investors expect over the next 12 months?

Yes. I'll start with the -- we have the good and the bad. So I'll be balanced and transparent with this group. Integrations are very hard. They are very hard. And I think like any good President or CFO, it's easy to pencil out the numbers in an Excel file on paper and get very excited about the synergy value. But then you quickly realize you're talking about real human beings, you're talking about real consumers, you're talking about real systems and real processes. So I'm very proud of what the team accomplished, and it wasn't easy by any stretch. It's a big -- it has to be your first, second and third priority in business.

It cannot be something that's a part-time job. That includes myself and Varun and the leadership team. You have to focus on it every single day, bringing -- despite the fact that I do think these companies that we combined with were culturally aligned for the most part, you always find challenges when you really get under the hood and you start working together. So first of all, I want to say it's not an easy process, and I'll even continue on. I'd say one of the biggest things we learned was just the servicing transfer, getting all those service clients over to the Mr. Cooper platform. Mr. Cooper was before Rocket, the biggest acquirer of servicing, not even close.

So they had built a pretty good process to get loans onboarded and transferred and they built some proprietary technology, in fact, to help them do that. But doing 2.5 million loans is a different story and doing it all in a very short period of time with focusing on the client experience is a tough nut to crack. So I'm very proud of what we accomplished. You're never done, done, done, I don't think in an integration, but giving all those loans now fully over to the Mr. Cooper platform is a huge unlock. It's a huge unlock because now we can have these propensity models and these recapture models trained on one data set that is now mirrored across 9.5 million clients.

We were duct tape and doing all the good stuff to make sure we didn't miss out on any opportunities. But now being on one system is a big deal. Obviously, you've heard about it, but I'm very proud of what the team has accomplished on the cost side of the house. We were happy to report that -- we've got the full -- on a run rate basis, we've got the full expense envelope with Mr. Cooper, $400 million a year ahead of plan, more than a year ahead of plan. On our last earnings call, we talked about line of sight into an additional $100 million. Some of that is a jumping off point from the further synergy value we expect to realize for really getting in there even more.

So look, you're never totally done, but I am very proud. I think a couple of things come to mind. One is a good partner, number one, a good -- make sure you're culturally aligned and you're aligned in what you want to accomplish, starting very early before the integration -- before the actual closing to the extent you can, getting alignment there was a huge thing so you can get out of the gates. Paying attention to the cultural impact is very important. Just to touch on the revenue side, Terry, too, we've said all along that there's a couple of things that are going to impact the revenue synergies, particularly I'm starting with Mr. Cooper is the recapture rate.

We knew it all along. We've exceeded our expectations in bringing up that blended recapture rate between Rocket and Mr. Cooper and the isolated Mr. Cooper recapture rate quite substantially. But I'll tell you the thing, Terry, that I'm actually most excited about. One of the things that we learned at Rocket, just doing recapture, we think, pretty well, was there's always a different recapture rate on the clients that you acquire versus the clients you originate yourself. One of the reasons Rocket's recapture is and was so well is because we did buy some servicing over the time, but our portfolio was largely originated by Rocket, meaning the client went through the experience of getting a loan through Rocket.

They got onboarded to servicing. They had already gone through our experience. They hopefully had a really high NPS and an award-winning experience. And then it was kind of a no-brainer for them to come back and do their next loan with us because they had such a good experience the first time and we have built a relationship in between loans. But what has always been much more challenging in the industry is what about the MSRs you acquire? What about the MSRs that you might have gotten through correspondent lending or a bulk acquisition or just you didn't do the loan. That's how Mr. Cooper really grew, right? They grew through acquisition of MSRs.

They, of course, had a direct-to-consumer business and originated some of their own, but the majority of their portfolio was purchased either through a company or a bulk acquisition. And so seeing those recapture rates go up is a huge unlock, not just for the Mr. Cooper portfolio itself, but when you think about our ability to grow MSRs and acquire MSRs, to the extent we can continue to almost double or triple the industry recapture rates on those purchased MSRs, that is just such an unlock because in a simple way, that just means the MSR should be worth more to us than anyone else because we have the best return because we are able to do that next loan, even on clients that didn't go through our process.

Not to mention, by the way, that we are the lowest cost of service. So that gives us a major ROI advantage right out of the gate given our scale and our proprietary system. So I'm very proud of the work we've done on the integration side, both on revenue and the expense side. But I would equally say I'm even more proud of just how these cultures have come together, and we continue to find success.

Got it. Maybe just a quick follow-up. What's driving that performance on Mr. Cooper's MSRs? Like what's the special sauce you've been the client?

Yes. Great question. Well, I'll start with something that sounds obvious, but I promise you in the industry, it doesn't happen every day. It all starts with the transfer onto the new platform when you acquire the MSR, and that's not any different than onboarding the Mr. Cooper loans or the Rocket Loans on to the Mr. Cooper platform. But going through someone selling your servicing or selling your loan, if you've ever experienced it before, is absolutely horrible. In most cases, you're having to update your auto pay.

In most cases, the acquiring servicer is contacting you and asking you for information on a loan that you did 5 or 7 or 10 years ago. So you could imagine how that phone call goes. Like, what loan are we talking about here? That's crazy. So building this technology that Mr. Cooper really invested in and Rocket was also simultaneously investing in to make sure the transfer goes really well or the first experience the client has with you as the acquiring servicer is so important. So we do things to get well ahead of that. We've built the technology to make it as seamless as possible, but introducing yourself to the client early, giving them a white glove treatment with specific client relations folks to reach out to, making sure they never have to update their autopay, making sure their escrow carries over.

It's kind of the nuts and bolts. It doesn't sound sexy, but it's very important. That's the first aspect. The second aspect comes back to something we were talking about earlier, which is really just the data and information, bringing that data over and the data attributes over that you know are important to your propensity models and your marketing engine to be able to message and personalize messages to that client base is really, really important. Mr. Cooper was good at that. They were probably second in line in recapture after Rocket and then a big drop off after them. But I would argue the Rocket propensity models were much more fine-tuned and conversion obviously was better.

So incorporating the right attributes and the right data right off the bat to be able to have the right personalized marketing to them. And the last thing, Terry, is, again, something that I think we have that you just don't see others. You can imagine having marketing and messaging going to those service clients about Redfin and the Redfin search property. If we get a service client to use Redfin, we have better signal and better intent than anyone else in the world because we now know what that client is looking for. We now know are they saving certain homes? Are they just searching because they're interested in their neighbor's home? Or are they searching because they actually have high intent? Are they liking homes? Are they saving homes? How many times are they coming to the platform?

And now we have the ability to not only get in front of them on Redfin, but bring some of that experience into Rocket Mortgage servicing in an integrated way. So it's not a simple answer because it is never just one thing. There's a bunch of inches around there, but we built a servicing platform different than others. We built it as a marketing platform and a relationship platform and a CRM platform. Most people built it as an accounting platform to try to lower the cost to service. So I think you add all those things up, and that translates to those industry-leading recapture rates.

Got it. That's great color. Maybe just switching gears, let's talk about channel mix and market share. Purchase market share reached 6.2%, refinance share reached 14.3% last quarter. Both of those are approaching your long-term targets of 8% and 20%, respectively. How should investors think about the path to achieving those targets?

Well, one, it's a lot of what we talked about, about the synergy values between these companies and the business combinations that happened. But -- the other thing is it's just channel diversification, right? I get asked a question often around Rocket participates in all of these different channels and don't you have channel conflict? And it's a fair question. I don't take it lightly. However, going back to our earlier point about the market, the market is still huge, right? It's really, really big, and no one has reached saturation yet.

So surprisingly, we don't deal with channel conflict quite as much as you might expect just because no one -- no single player is that big yet. So it allows us to, in certain geographies, really, really lean into the wholesale business and the broker business and drive purchase -- profitable purchase volume that way allows us to do things like partner with Compass agents and in some cases, pair them with brokers that are in our ecosystem and in other cases, pair them with our centralized loan officer, whatever makes the most sense for that particular agent or for that particular client they're working with.

It allows us to lean on things like correspondent volume that we were talking about to acquire MSRs that way and build a book of business that we can recapture later and that we can have really good free cash flows coming off of the servicing business. It allows us to do -- once they're boarded on servicing, do really good recapture. And it allows us to leverage the Rocket brand, which no one has a brand that's this strong and tests this well and unaided awareness in the space to just acquire new clients out in market. The interesting part about where the world is going and you think about first-time homebuyers today is that so many first-time homebuyers want a couple of things. They -- where do they start looking for a home? It's always on a search portal that makes sense, right? They go to Redfin and they look around just like all of us do.

But the second thing they need to do is figure out how much they can afford. So the amount of first-time homebuyers that come to the mortgage company well before they ever get connected with a realtor grows every single month. And it kind of makes sense because a lot of these Gen Zs and in there I see even millennials, they don't want to talk to someone yet. They don't -- the agent is important, and they're an important adviser and they're the way to get in the house. But first, they want to see what they like. Second, they want to see what they can afford.

That provides a really nice opportunity for Rocket and then we can connect them with an agent in our network. So to answer your question, the channel diversification is important. When I get asked, how are you going to achieve your market share goals? I never give one answer because as you can tell, we're growing share in each of these channels individually and respectfully. And that's all part of the plan all along is that it's going to take a multichannel approach to achieve our goals, which makes sense given our size and scale.

Got it. So I want to touch on AI. You said before that AI changes the shape of Rocket's business model, and it creates a foundation for "infinite capacity." What do you mean by that? And how does AI contribute to Rocket's durable cost advantage?

Yes. It comes back to that innovation and the velocity of innovation that we've been achieving. And a question, Terry, you may be alluding to that we do get asked a lot is, yes, but doesn't that benefit everyone else, too. And I think the simple answer is yes, it definitely should. And I'm imagining it does. I haven't seen that totally come to fruition in some of our competitors, but I imagine they're up here saying a very similar thing. But I can say with a lot of confidence, there's one major differentiation, which comes back to that data layer that we have and the amount of data that we have on our clients.

And the second thing is the proprietary systems of which we operate. Most people in this space are on a third-party LOS and they're on a third-party servicing system. And when I say most people, I mean 90-plus percent. You know who the big players are and which systems they're using. I think in this case, at least from what we found, that's a disadvantage. There's probably some advantage in terms of cost leverage and theoretically, everyone using the same system driving the cost down. But from our own experience, and as you guys know, before Mr. Cooper, we were on some of these systems, particularly the servicing system, being able to control your product road map and make it AI-ready and do the right APIs matters a lot.

And for us, given we're the biggest player with the most scale, waiting on a third-party system to get the product road map right or allowing us to API in the right way is just unacceptable. We need to be able to control our destiny. So when you combine the data layer that we have, which is the richest in the space and you combine the aspect that we own and build and engineer these systems ourselves, I think that gives us a major advantage.

Everyone, like we said, they are using the same LLMs. We've talked a lot about a partnership we have with Sierra, which has been very fruitful and helpful mostly because of the data that we can train it on. Everyone could be using it and a lot probably are. That's kind of an equal playing field. But when we have 60 million call logs and we have 9.5 million clients that we're interacting with, and we're saving that data and mining that data and using the models to train on that data, we come up with a different experience than other people.

Got it. Again, super helpful. So in closing, it's been a busy and transformative year for Rocket. As investors look ahead, what should they expect from the company over the next 12 months? And what excites you most about what's ahead?

I think what excites me the most is we are through these integrations for the most part. And now we can really look ahead. We talked a lot about the balanced business model. We talked about the fact that this rate environment is actually good for Rocket and we think tougher on our competitors. So I have never been more excited in my seat, and I've been at Rocket for over 11 years. The leadership team is firing on all cylinders. It's an excellent blend of folks that have come from the West Coast and Silicon Valley with a lot of technologists with true mortgage professionals that have been in this business a long time, working side by side.

We have the assets and capabilities. We have assets and capabilities that no one else in the space has. We have to execute on them. And that's a challenge that I'm willing to accept because over the years, if we proved one thing, we are an operational monster. We can execute at a high level, and I'll take that any day.

Okay. Great. I think we'll end it on there, a positive note.

Thanks, Terry. Appreciate it.

Thanks, everyone.

Thank you.

Good day, everyone, and welcome to the Rocket Companies Second Quarter 2026 Earnings Conference Call. Just a reminder that today's conference is being recorded. At this time, I would like to hand the call over to Ms. Sharon Ng. Please go ahead, ma'am.

Good afternoon, everyone, and thank you for joining us for Rocket Companies earnings call covering the second quarter 2026. WIth us this afternoon are Rocket Companies CEO, Varun Krishna; and our President and CFO, Brian Brown. Earlier today, we issued our second 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 second 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 the 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 our 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'll turn things over to Varun Krishna to get us started. Varun?

Good afternoon, everyone, and thank you for joining our second quarter 2026 earnings call. Today, I'll cover the market, our second quarter results and Rocket's performance. Let's go ahead and start with the market. The industry expected a normal spring home buying season. Instead, affordability deteriorated as mortgage rates moved higher through May and June. Purchase and refinance demand as a result weakened during what is typically the strongest quarter of the year, and industry forecast moved lower as the quarter progressed.

Simply said, it was one of the toughest spring housing markets in years. Now against that backdrop, Rocket delivered one of its strongest quarters in recent memory. We gained market share in both purchase and refinance. We delivered our most profitable quarter in 4 years. We expanded adjusted EBITDA margins and integration of Redfin and Mr. Cooper are well ahead of plan.

Adjusted revenue was $2.8 billion, near the midpoint of our guidance adjusted EBITDA margin expanded to 28%, up from 26% in the first quarter. Adjusted diluted EPS increased to $0.16 and, now our North Star is profitable market share growth, and we reached a new record this quarter. purchase share increased to 6.2%, up from 5.5% in Q4 of last year. Refinance share increased to 14.3%, up from 12.2%. This performance was not a coincidence. It was the result of years of deliberate investment, focused execution and a business model that has fundamentally evolved. A, more than 70% of our revenue comes from recurring or less rate sensitive businesses. servicing provides a durable recurring revenue foundation, purchase mortgages, home equity, personal loans and Redfin diversify us across broader parts of the housing market.

Today, Rocket is the largest in both servicing and origination and our recapture engine connects to these two things. Just as importantly, all of our businesses reinforce 1 another. Redfin brings clients into the Rocket ecosystem earlier. Mortgage helps them finance one of life's biggest decisions. Servicing keeps that relationship alive for years. Additional products allow us to continue serving these same clients as their needs evolve.

Artificial intelligence strengthens every step of that journey. It improves productivity, personalization and conversion across the entire platform. So the important point isn't that we've added new businesses, it's that we've changed the economics of the business fundamentally. Our recurring revenue base is larger. Our client relationships last longer. Our acquisition costs improved as these businesses reinforce one another, and our operating leverage expands as AI increases productivity across this platform.

This is the business we've been building, one with a stronger floor in difficult markets and significantly more upside when housing activity returns. That's what gives us confidence that Rocket's long-term earnings power is fundamentally stronger than it was just a few years ago.

Now let me take a second and show you how that came to life during the second quarter. homeownership begins long before a mortgage application. It begins with home search. That's what makes Redfin such an important part of Rocket's strategy. Historically, Rocket entered the relationship when a client decided to finance a home. Today, we're increasingly entering months earlier while they're still searching. That completely changes the economics of client acquisition.

Redfin reaches roughly 50 million monthly active users with some of the highest engagement and retention in online real estate. Those users aren't casualty browsing. They're actively preparing to buy or sell a home. We're turning that intent into action product improvements and proprietary AI models have increased lead conversion by roughly 30% over the past year, helping more clients move from searching to touring, financing and closing. And when buyers are ready to finance Rocket is already part of the experience.

Eligible servicing clients who buy and sell through Redfin and finance with Rocket mortgage can save up to $20,000. That's a meaningful affordability advantage in today's market, and we're seeing it translate into results. In June, mortgage leads from Redfin more than ever year-over-year. The mortgage attach rate with Redfin agents reached 47%, approaching our synergy target of 50%.

Inventory is yet another differentiator through our Compass partnership, Redfin continues expanding unique inventory that isn't available on other major home search portals. In markets like Chicago, that advantage is already driving meaningful increases in both homeware and mortgage leads. Nationally, Redfin now offers approximately 25,000 exclusive listings.

More inventory attracts more serious buyers. More serious buyers create more financing opportunities. That's why Redfin matters. It allows us to build relationships earlier, convert them more effectively and increase the lifetime value of every client who enters the Rocket ecosystem. -- the advantages we're creating upstream continue through mortgage origination.

Sales is still very much a human craft. It takes judgment, empathy and timing. Technology doesn't replace that. It just makes our people better at it. Our loan officers provide judgment, advice and trust, and they are the best in the business. Artificial intelligence only makes them better. by removing administrative work and helping our teams focus on the right opportunities at the right time, AI allows our loan officers to spend more time helping clients and less time managing processes. We are already seeing significant impact.

Compared with just 1 year ago, our loan officers are serving nearly 40% more clients while delivering double-digit improvements in conversion at the same time. Those gains really matter today, and they matter even more as the market recovers. As mortgage volumes increase, we believe we can expand profitability faster without growing our cost structure at the same pace.

This is one of the biggest structural changes happening inside Rocket. AI isn't simply making people more productive. It's actually increasing the earnings power of the business through operating leverage. We're applying that same approach across the entire company. Servicing remains one of Rocket's greatest competitive advantages. It generates durable recurring revenue while creating long-term relationships with millions of clients. Those relationships become more valuable every year they remain inside the Rocket ecosystem.

During the second quarter of this year, we completed one of the largest servicing migrations in our industry's history, bringing our servicing clients onto a single platform. That milestone is about so much more than technology. It creates one foundation for how we serve clients, deploy AI and identify opportunities across the business. Earlier this year, we launched voice AI for inbound servicing calls. It has now handled more than 1 million calls with more than half resolved without requiring a servicing specialist.

Clients receive faster service and our servicing experts spend more time solving the complex situations where human judgment matters most. Every interaction improves our understanding of the client and helps us identify opportunities to refinance, access home equity, purchase another home or use another Rocket product. That's what makes our servicing different. It isn't just a recurring revenue business. It's the engine that continuously creates future origination opportunities.

Today, Rocket is both the nation's largest mortgage servicer and the nation's largest mortgage lender. Very few companies have both. That combination allows us to deepen client relationships over time instead of rebuilding them with every new transaction. So the economics are fundamentally different. Every year, we keep a client. We improve the probability of serving them again while reducing the cost of doing so.

Artificial intelligence simply accelerates that advantage by improving client experiences, strengthening recapture and increasing productivity across the entire platform. The result is a business with a stronger recurring earnings base today and even greater operating leverage when housing activity recovers. The power of this business model is what it allows us to build on top of this platform. Because we already have trusted client relationships, servicing scale, AI capabilities and distribution, we can expand into adjacent businesses faster and more efficiently than any company starting from scratch.

Home equity is one great example. We entered the category just 4 years ago. Today, Rocket is the nation's largest home equity lender. Since launch, we have helped more than 250,000 homeowners access over $24 billion of their home equity. Rocket is the first independent mortgage company to lead the category. That milestone demonstrates something far larger than just success in a single product. It shows the advantage of building new businesses on top of an existing client base rather than acquiring every new customer from the beginning.

Rocket loans tell us a very similar story. Loan volume nearly doubled year-over-year during the first 6 months of 2026, culminating in a record month in June. More than half of those loans come from existing Rocket servicing clients that simply reinforces the strategy we've been executing for years. Each additional product strengthens the client relationship. Each stronger relationship creates another opportunity to serve that client over time. Lifetime value increases, while future acquisition costs decline, that's the economic engine we are building.

We are not assembling a collection of products. We're building a business where every product makes every other product more valuable. The same dynamic extends to our partner ecosystem. Through our Compass partnership, Rocket Pro brokers have originated more than $2 billion of net rate lock volume. Consumers, agents and brokers all benefit from a more connected experience and every additional participant strengthens that network. Those advantages compound over time.

I'll close with this. The second quarter tested the housing industry. Higher rates reduced affordability, demand softened, the spring market fell well short of expectations, but against that backdrop, Rocket reached record market share in both purchase and refinance delivered its most profitable quarter in 4 years and continued executing ahead of plan.

Those results reinforce what we've been building for years. Rocket today is fundamentally different from the company we were just a few years ago. We have a larger recurring revenue base, longer client relationships higher operating leverage and more opportunities to serve clients throughout the homeownership journey. We can't control where mortgage rates go next quarter. We can control the business we build. Quarter after quarter, we're building one with a stronger floor in difficult markets and significantly more upside when housing activity returns.

Competitors may have pieces of this model. No one has integrated it the way that Rocket has. That's why we believe Rocket long-term earnings power is stronger than at any point in our history. And with that, Brian, over to you.

Thank you, Varun, and good afternoon, everyone. Today, I'll discuss our second quarter results and the record market share gains we delivered in a challenging market. I'll also cover capital position and integration progress. I'll close with our outlook for the third quarter.

Let's start with the second quarter's results. Adjusted revenue was $2.8 billion, near the midpoint of our guidance range. We generated $47 billion in total net rate lock volume and $49 billion in total closed loan volume. Gain on sale margin, excluding correspondent was 311 basis points. That's compared to 322 basis points in the first quarter. Adjusted EBITDA was $766 million, representing an adjusted EBITDA margin of 28%, up from 26% in the first quarter.

Adjusted diluted EPS was $0.16, up from $0.15 in the first quarter, making this our most profitable quarter in 4 years. Our market share gains in the second quarter were impressive. In fact, we achieved our highest ever quarterly market share in both purchase and refinance. Based on industry estimates, purchase market share came in at 6.2% and refinance market share was 14.3% in the second quarter. This represents a 13% increase in purchase market share from the fourth quarter and a 17% increase in refinance market share.

These results reflect the structural advantages of our business model. First, a diversified revenue base that provides stability with built-in upside. Second, unique assets, including the industry's largest servicing portfolio in Redfin's purchase funnel that drive share gains at a very low cost of acquisition. Third, a cost advantage across origination and servicing where scalable capacity and expense synergies keep fixed costs flat while volume grows.

Let me unpack each of these a little more. Starting with our balanced revenue model. More than 70% of our revenue is recurring or less rate sensitive. Servicing fee income and Rocket money subscription revenue are recurring. The purchase business, cash-out refinance, home equity loans as well as the Redfin business operate in a large and less rate-sensitive category.

The remaining 30% includes rate and term refinance, which carries the most rate exposure, but it's also our greatest source of upside when rates fall. And the good news is we have over $300 billion of origination capacity that's primed to capture this upside. In Q2, this balanced business model drove our operating results. Servicing generated $1 billion of steady cash flow while less rate-sensitive products, including purchase, cash out refinance and home equity loans contributed to the majority of gain on sale revenue.

Let's turn to our unique assets. The industry's largest servicing portfolio connected to a powerful recapture engine in Redfin's purchase top of funnel. These assets are hard to replicate, and they allow us to acquire clients at a fraction of the industry's average cost because these clients are already in our ecosystem. Those assets delivered in the second quarter. On the purchase side, the Redfin integration is paying dividends.

Mortgage leads from Redfin in June doubled year-over-year. Mortgage attachment, the percentage of Redfin buy-side clients who finance with Rocket Mortgage has reached 47%, approaching our 50% target. That momentum helped drive the direct-to-consumer purchase volume up 45% year-over-year. And on the refinance side, our servicing portfolio drove share gains across rate and term, cash out and home equity loans. Existing service clients accounted for 57% of refinance closed volume, up from 54% in Q1 and those closings come with near 0 client acquisition costs.

Recapture rates on the Mr. Cooper portfolio reached another record, and we are more than halfway to realizing our Mr. Cooper revenue synergy target on an annualized run rate basis. The clearest example of these assets working together is preferred pricing. Service clients who buy and sell with Redfin and finance with Rocket Mortgage can receive up to $20,000 in combined savings. We can offer an incentive of the size for one simple reason.

We own the search portal, the real estate brokerage, the mortgage financing, the title and closing and the servicing. Historically, these are 4 or 5 separate companies, all with different experiences and different client acquisition models. As I mentioned, our cost to acquire these clients is nearly 0. We pass these structural advantages right back to the client directly addressing affordability, which is the biggest barrier in today's housing market, while deepening relationships across the ecosystem.

This brings me to the third advantage. We operate origination and servicing at a significant cost advantage when compared to industry averages. And that gap is widening. Technology advancements are expanding the capacity of every production team member. Our tools help loan officers drive double-digit conversion improvement while working with nearly 40% more clients than just one year ago. This allows us to keep fixed costs flat while volume grows.

And once fixed costs are covered, incremental revenue drops to the bottom line at a very high rate. Expense synergies are amplifying this advantage. We realized $100 million of annualized Mr. Cooper expense synergies in the quarter, in line with our expectations. We remain on track to achieve the full $400 million target by year-end. This is how our business model delivers in tough markets and in more favorable ones, since completing the Redfin and Mr. Cooper transactions in the back half of last year, we have grown share and expanded profitability for three straight quarters across both rising and falling rate environments.

Everything I just described runs on a foundation of balance sheet strength. In a market like this one, capital is not just defense, it's offense. It is what allows us to invest through the cycle and move quickly when opportunities arise, while others are forced to pull back. We ended the quarter with $11.2 billion of liquidity, up $1.8 billion from the first quarter. In June, we refinanced existing debt through a successful senior note offering that execution was supported by our investment-grade rating and credit profile that keeps getting stronger.

Net corporate leverage ended the quarter at 0.9x, 20% lower since year-end. Part of maintaining that balance sheet strength is treating our MSR portfolio as the strategic asset it is, actively managed, not passively held. During the quarter, we sold a portion of our low coupon MSRs at attractive market prices, but we didn't sell off the client relationship. We retained the subservicing on those MSRs. And even more importantly, we retain the ability to do recapture and the related economics.

Even after these sales, our servicing portfolio ended the second quarter at $2 trillion of unpaid principal balance. These sales also rebalance the composition of our portfolio toward higher average note rates. Today, 26% of our owned MSR portfolio or $320 million of unpaid principal balance carries a note rate above 6%. This is a large pool of clients who are first in line to refinance when rates fall and hours to recapture. Looking ahead, we expect the housing market to remain challenging in the near term. In recent weeks, expectations of higher future inflation pushed the 30-year fixed rate to 6.8%, 50 basis points higher than the average rate during the first half of the year and the highest level in more than a year.

These pressures are weighing on both purchase and refinance activity. Existing home sales remain near $4 million on an annualized basis, while pending sales and purchase applications continue to decline. The expected housing recovery in 2026 has not materialized as increasing rates continue to pressure affordability. Last quarter, we told you our real-time data indicated a tougher market than industry forecasts adjusted, and that is exactly how the second quarter played out. Today, the same data leads us to expect the third quarter mortgage market to be smaller than the second, something the industry has not seen since 2022.

With that context in mind, we expect adjusted revenue to be between $2.5 billion and $2.7 billion in the third quarter. This guidance implies continued market share gains in both purchase and refinance. At the midpoint of the guidance, we expect expenses to be approximately $2.35 billion, that includes approximately $110 million of intangible amortization, $90 million of stock-based compensation and $100 million of onetime acquisition-related costs.

Excluding those items, expenses are expected to decrease approximately $100 million quarter-over-quarter. I'm also happy to report that our progress on integration synergies will continue beyond the third quarter. With the major Mr. Cooper integration milestones complete, we now have line of sight into approximately $100 million of annualized expense savings above our original goal of $400 million.

We expect to realize these in the first half of 2027. Let me close with this. Rocket's platform is performing as designed. We expanded profitability in a volatile market. We gained share. We realized synergies and increased our goal. We strengthened the balance sheet, and we continue to invest through the cycle. Rocket is built to perform today and accelerate when the market recovers. With growth converting into operating leverage, margin expansion and stronger earnings power.

With that, I'll turn it back to the operator.

[Operator Instructions] Your first question will come from Ryan McKeveny from Zelman.

Thank you for the detail. Maybe just a high-level one. You called out the tough industry conditions in the second quarter that have continued into the third quarter. rates, as I think Brian just mentioned, are now up year-over-year. So can you talk a bit more about just the macro backdrop that you see playing out right now, the macro backdrop that's embedded within the within the guidance? And lastly, maybe just on the expense side, probably also for Brian. I think what I just heard you say is that the expectation for 3Q is for expenses to be down $100 million sequentially from 2Q.

Obviously, the revenue guide down sequentially as well. So should we think about that step down in the expense is that just a function of the revenue side? Or should we think of that 3Q as a decent run rate going forward?

Ryan, thanks for the question. It's great to hear from you. Let me start with the market and kind of macro backdrop. And then I'm going to ask Brian to talk us through the quarter in our guide as well as your question around expense. I'll start by saying, look, there's no question that Q2 was tougher than the industry expected. You had rates rising 26 basis points from their April lows. You had rate and term refinance under more pressure.

And we all saw that this normal spring and summer purchase season was just weaker than in prior years. But I think what I would emphasize is the bottom line is that this was not a huge surprise to us. And on our last call, we shared with all of you that this market was shaping up to be smaller than the forecast. And that's pretty much exactly what happened. I think the good news that I would share is that we saw this coming, we were ready, and I would argue that our results show it unequivocally. We gained share in purchase and refi expanded profitability for the third quarter in a row. And I think what you're starting to see is what's unique about Rocket is really separating it from the rest of the industry.

More than 70% of our revenue is now less rate sensitive. That allows us to keep investing while others are actually forced to react. And so we expect that to become a structural advantage that will continue to be a strength for us in Q3, and that's why we feel pretty good about our guide that we put out for Q3. And so with that sort of market backdrop, Brian, maybe you can unpack the Q2 performance and guide and expenses.

Yes. Thanks, Varun. Brian, good to hear from you. Yes. Let me double-click on Q2 real quick because I do think it was impressive for many reasons, but particularly, as Rud mentioned, the increase in market share, coupled with the increase in profitability, so it's probably just worth spending a second on those market share gains. If you look at it on the refinance side, which had significant increases, it was largely attributable to the recapture increases and being ahead of goal on that synergy value.

So of course, that's great to see. And then the purchase side, it's really twofold. One is the additional lead flow coming from the Redfin site to Rocket Mortgage. We talked about that being up double year-over-year, which continues to fuel those share gain.

And then finally, the Compass partnership. We've talked to you guys about that before, but particularly in the Pro space has really gained some traction. So that's also contributing to some of those purchase share gains. But let me transition over to Q3 in the guidance to answer the second part of your question, Ryan.

We always include what we're seeing in real time. We told you last quarter that we thought Q3 -- or excuse me, Q2 was going to be down. And look, it's a challenging market. most of the industry forecasters have the second half being smaller and that feels right based on what we're seeing. But the guide of $2.5 billion to $2.7 billion, we still feel is a very strong guide, and all else being equal, that will be another quarter of significant share gains.

On the gain on sale margin perspective, it's probably worth noting we're seeing margins hold steady and even some improvements at the channel level. So all in all, we expect Q3 to be another strong share gain quarter for Rocket. I mentioned on the expenses, yes, I think expenses will be down in the second half of the year, as I said. The $100 million from Q2 to Q3 is really primarily a result of that synergy value coming through the P&L.

There is a little volume, the variable expenses associated with volume in there. So to answer your question on the baseline perspective, remember, we said we're about halfway through the realization of the $400 million goal as of the end -- and the other $200 million, we expect to be realized in the second half of this year. So that hopefully gives you a little more color on the expense side.

The next question will come from Jeff Adelson, Morgan Stanley.

I was hoping you could maybe talk about the competitive state of the market today. Are you seeing any market share come your way, perhaps given a bit of a tougher backdrop out there and the pressures on your larger peers. Or do you think more of that is a result of the execution, Brian, you just talked about of Redfin as well as the recapture from the Cooper deal. And just maybe related to that, it looks like you've been pretty productive in the Rocket approach and year-to-date, you had the PowerPlay initiative, the 12 business a guarantee closing. Can you talk about how that is also maybe driving your market share as well? .

Jeff, it's great to hear from you. Look, I think I'd start by saying that we believe that competition and really in any market is healthy, right? It pushes companies to do their best. It creates better outcomes for clients. We respect our competitors, but honestly, we don't spend a lot of time really thinking about them. We focus on building the company, we believe, should exist. But with that said, I think it's important to also highlight that this particular market and the tough market that we're in, what it does expose is where a competitor's business model is narrowed.

And to give you like a couple of examples, if you only originate, then have an Achilles feel, which is that you get exposed where rates rise and when volume falls. If you only service, but you don't have recapture, then you don't get to participate fully in that next transaction and you have likely a retention problem. If you only have traffic and you cannot commit into a mortgage, then you will only own a small fraction of the economics, and I could keep going, right?

If you don't bet big on technology as we have, you will be commoditized. If you don't manage your capital well, you will become distressed. And so what you're starting to see is that separation. You're starting to see this happen across the competitive landscape. And that's really why Rocket is built very differently, right? We originate, we service, we recapture, our technology makes the entire platform work as one.

Our capital structure is extremely robust. And so what you're starting to see is that separation, and we actually think that separation will accelerate as the market improves. And so that's kind of the core answer. I think in terms of the Pro business, Brian, maybe you want to add some more commentary.

Yes, of course. I do just want to touch on your capital point because I think that's an important point, particularly this quarter. Just as a reminder for the group, we're the only mortgage company with an investment-grade rating. And when I look across the publicly traded mortgage companies, we're the only publicly traded mortgage company with less than 1x leverage.

We have over $11 billion of liquidity, and we just strengthened that liquidity position through a successful $1.5 billion senior note offering. So the capital differentiation keeps widening in our space. And I think that's important for both these and offense. But Jeff, to answer your question on the Pro side, yes. Look, the Pro business gives a very important part of our ecosystem. Varun mentioned in his prepared remarks that we've done over $2 billion in locks related to that Compass partnership. That's great to see.

We are offering a pricing incentive, which is the right thing to do when you enter a big partnership, and we need to get the Compass agents excited about the partnership. But the momentum we're seeing in terms of signing up new brokers, Rocket has never been greater than what we're seeing right now. And the beautiful part about this is the brokers were signing up, are brokers that are coming to us from Compass in a lot of cases, they have relationships with Compass agents. So the more compass agents we work with, the more brokers we have and the more brokers we have, the more compass agents, we have a true demonstration of network.

Next, we'll hear from Ryan Nash, Goldman Sachs.

So obviously, there's a lot of moving pieces on the 3Q guide. Costs are coming down with revenues and maybe there's some cost saves and I know the company was very aggressive in managing costs during the '22 to 2025 time frame when the market was pretty challenging. So as we enter this next phase of higher rates, maybe just talk about what's left to do on the cost side and given all the AI investments. How meaningful can you bring down costs or revenues proved to be more challenging than expected? .

Yes. Thanks, Ryan. I'll jump on that one. I mean, I think Look, the biggest takeaway from this call is the additional $100 million of synergy value that we talked about at the end of the prepared remarks. That's over and beyond the $400 million in our previously stated goal, and obviously, a pretty significant increase. The question maybe where is that coming from? Well, as Varun mentioned, we've just completed the biggest servicing loan integration in recorded history.

And now that we're beyond a lot of those big milestones, we have a line of sight to some more synergy value. that's first and foremost, what's on our mind in achieving that in the first half of 2027. But as you know and you mentioned, we've always taken a very disciplined approach to the cost side of the house, our technology advancements and AI advancements are only increasing that. But one thing I do want to leave with because I think it's important, we've seen others sort of react to the market sizing and their cost pat. And of course, there's nothing wrong with that, but this is true synergy value from the three companies coming together, and it's not impacting our capacity. So we still have over $300 billion of capacity to take advantage of upside if and when rates move.

Got it. And maybe if I could squeeze in a follow-up. It's good to see the market share increases that you've had with over 6 in purchase and over 14 in refinance. And I know you mentioned further gains here. But can you maybe just talk about the drivers of reaching the 8 and 20 you had laid out several years back. Maybe just how does the new rate environment impact your ability to achieve.

Yes, absolutely. I'd start by just saying we feel very good about the progress toward our market share goals. And I'm going to try to break down some of the key building blocks and levers. But first off, obviously, purchase shares under the right reaching 6.2% from 5.5% in Q4. Refi share has increased to 14.3%. That's up from 12.2%. So we are making progress. But the other thing I would share is the share number in an absolute sense is the outcome. It's how we keep score. But I think the bigger question behind the question is like what building blocks are actually producing that growth. And I would highlight a couple.

The first one is what we call Recapture. And connecting servicing and origin is obviously a very core, very differentiated part of our strategy. And the reason for that is simple, we know the client, we already service the loan. And that creates a meaningful advantage when that client is specifically ready for their next transaction. And as we shared, Mr. Cooper refinance recapture reached another record.

And obviously, as Brian shared earlier, we remain very well on track against our revenue synergy target. But the second building block for market share is Redfin and we think of Redfin as the doorway to all of Rocket. And the evidence is there, right? Mortgage leads have doubled year-over-year. The attachment rate for mortgage is approaching nearly 50%. Redfin is a high-quality CIS homeowner app, and it's bringing more high-intent purchase clients into the Rocket ecosystem. And that's where our Rocket Mortgage engine achieves lift off.

The third thing I'd also just highlight very quickly is home equity. We are the largest home equity lender in the country. So you look at these building blocks, recapture, Redfin, home equity, and these are 3 major levers of our progress. And we're still early in the journey, right? This is not a market where you have saturation dynamics among different players. So what I would pay close attention to is we gain share in purchase and refi we expanded profitability for the third quarter in a row.

We're also not sacrificing profitability to chase share, like potentially many others are doing. So we're building the business the right way for the long term. We feel great about our progress. The other thing I would also say is we're not relying on the market to grow our share. We're taking share in a difficult environment. And historically, when rates do cooperate, we tend to take even more share. So if rates stay elevated, we think the industry will continue to consolidate, and we expect to be a beneficiary of that. But our NorthStar goal of profitable market share growth, it does not change based on the market. So -- we feel very good about the progress. We think we're building the business the right way, and that's independent of the market dynamics.

Your next question is from Bose George, KBW.

You noted just that there's -- on the refinance recapture loans, there's no consumer -- no customer acquisition cost. Just wanted to -- how do you guys think about the CAC on purchased loans that you acquired through Redfin or Compass? And when you offer the incentive, like how is that reflected in your P&L?

Yes. Thanks for the question, Bose. Yes, on the -- let me start on the recapture side. We say near 0 acquisition cost. There's a little bit that comes into that. But of course, it's much lower than the new client acquisition cost. On purchase, regardless of the channel, frankly speaking, we think about it all the same way in terms of the return. There's different ways to acquire the client. In some cases, it's a performance marketing cost. .

And then the pricing incentive to answer your question directly, really just comes out of the gain on sale margin, but you're thinking about it the right way in terms of it is sort of the cost of acquiring that buy-in. So it doesn't change how we think about it. There could be a little bit different P&L logistics in terms of marketing versus gain on sale margin. But to be clear, at the end of the day, we have a desired return on a unit basis, and we're striving to achieve that return will flex across the different channels, and a lot of it also is meeting the consumer where they are.

For example, some of our purchased businesses we talked about right now is coming from referrals from Compass agents. That's a great way to acquire clients and put them in our ecosystem. Some of it from people coming directly to Rocket Mortgage, the direct-to-consumer channel, that's another great way and we can flex that up and down. And then more and more so, the servicing business is starting to contribute to purchase growth as well.

Actually, just a quick follow-up on the earlier market share discussion. I mean you guys had solid growth in correspondent as well. I mean, could we see that continue and also support of market share growth?

Yes, absolutely. Thanks for the question. Yes, it was a good quarter for correspondent. And as we've talked about on this call before correspondent is really a way to grow the MSR portfolio. There are certain levers like bulk acquisitions correspondent or, of course, just our organic-driven business. And we did see a lot of opportunity this quarter in the correspondent space.

I mean the one thing I think is worth just restating is it comes back to those recapture rates, and we have the best recapture rates in the business, on loans that we've originated, but we also have the best recapture rates in the business in correspondent or bulk acquisition loans. So that best recapture rate turns into best returns, which allows us to be more aggressive in the correspondent in other channels in terms of acquiring those clients because we see the best returns through recapture.

Mark DeVries, Deutsche has the next question.

Yes. Thanks. The past quarter was a particularly challenging environment for hedging MSR you guys seem to kind of emerge on scale. Could you discuss kind of your latest thoughts on how to hedge the MSR. I mean, the challenges of your peers incline you don't want to rely primarily on recapture. Or do you see a place for derivatives?

Yes. Thanks, Mark. I'm glad you asked that question. I was hoping to talk about this. Our hedge strategy is simple and consistent. I want to be very clear on that. Our goal is to hedge the interest rate volatility in the asset. And you can see, particularly when you look at both Rocket and Mr. Cooper over time, that the head strategy has performed well in both environments, high rates and low rates. We only use low-cost instruments like mortgage TBAs and treasury futures, and the thing that's probably different when you look at Rocket compared to others is what you were alluding to that our coverage ratio.

The recapture business provides a really nice natural hedge. So we don't target the same 80% to 100% coverage because that would actually make the hedge ineffective when you include the recapture rate. So that helps us lower the cost of hedging, I guess, you could say. But the point I would just leave you with is that we are not placing any bets on rates going up or down. We're not placing any market. That's to be clear. We're simply hedging the interest rate volatility in the asset itself.

The next question is from Mihir Bhatia, Bank of America.

I wanted to talk about two regulatory changes that seem to favor Rocket maybe a little bit, namely the Vantage core and the trigger lead ban? And like, if I can ask us specifically like on Vantage call, you were among the first to put it into production. What have you seen with it? What share maybe of your volume is coming through it? Is the payoff modules lower credit cost on that one. Just trying to understand like how that's benefiting you?

And then similarly, on the trigger lead band, given your servicing work, Redfin funnel, -- is that now put you in a more advantageous position? Are you seeing it show up yet in lower lead costs or better recapture as competitors that couldn't costs get higher.

Yes. Thanks, Mihir. I'll start on the Vantage score side, and I'll start by saying, look, it is early. We're all early to your point, we were able to participate in the pilot. So we're farther along than other folks. There's two, I would say positive things about Vantage. One is just a element to it in the credit scoring models themselves largely because we've all seen the cost increases that have come from FICO over the years. So having a competitive score is a good thing from a driving down costs and welcoming of competition.

But the second piece of it is, I think, where you were alluding to, there is a benefit, even aside from cost of Vantage, and that is that we do have thousands of clients that come through the system that don't have a FICO profile or so differently, they don't have a FICO score effect cost because as you guys know, we weren't a big user, I guess, you could say, of credit triggers.

But like other lenders, we were -- our clients were getting calls from other people. And so when you kind of look at the mid-section of the funnel as you're getting people down the funnel and in process, we are seeing better conversion rates because those clients aren't giving those calls and getting harassed by other lenders at the time we pull credit. So both of them, I agree with you, are positive, a little bit early days advantage for, but the credit triggers are they're good for the consumers, and they're good for businesses that want to take care of their consumer.

Your next question comes from Kyle Joseph from Stephens.

I just wanted to dig in on the MSR sales. Was that just kind of opportunistic? It sounds like it was a little bit of portfolio rotation and remind us kind of what your appetite is for that going forward, recognizing that it's kind of pending market conditions.

Yes. Thanks for the question, Kyle. Yes. For those of you that have followed Rocket from time, this isn't a new thing. We have done some rebalancing. We've done some best backs. And it is all -- to your point, it's all about just optimizing the portfolio you'll see those prices come through in the queue, but it was a really good trade for Rocket.

We focused on the low WACC MSRs. And the good news is something to the tune of 80% of those sales went to our partners. And when I say partners, I mean folks that we already do the subservicing and recapture abilities for us. So it's sort of a win-win. We took advantage of the opportunity to sell and collect those proceeds. But most importantly, we will still be the subservicer of those loans, and we'll still collect the recapture economics on those loans, too, which is a win for us and a win for our partners.

I think now if you look at -- there's $320 billion of unpaid principal in our book that has a note rate north of 6. So that's a great opportunity. That's your rebalancing point. Given when rates move, that will provide a great rate and term first recapture opportunity.

Thanks everyone. That's all the time we have for questions today. I'd like to hand the conference back to Varun Krishna for any additional or closing remarks.

Well, thank you, everybody, for listening, and we look forward to seeing you next quarter.

And once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

I'm Rick Shane with JPMorgan. Please join me in welcoming Varun Krishna, CEO of Rocket. Varun joined in 2023 and in that time, has really embarked on a journey taking Rocket from what I think we all saw as a mortgage company to what I think is fairly described as a homeownership platform. Along the way, acquired Redfin, acquired Mr. Cooper and most recently announced a new partnership with Compass.

Interestingly enough, Varun really does come to this from a technology background, having been a tech executive throughout his career. I think personally, we are on the cusp of transformation in one of the most important sectors and one of the most important industries within financial services. So delighted to have Varun join us today. Thank you for being here.

Of course, my pleasure. Good to be here, Rick.

Look, 3 years ago you joined, a lot has changed, not only in the industry, but at Rocket. Walk us through the changes that you've implemented and where you see this is going?

Yes. I mean I'll start by saying that Rocket is a very, very special company. I don't think that -- I've been at a lot of companies through my career, tech, consumer, fintech, enterprise, B2B and it's a very special place. And when I came to Rocket, there were a couple of just key observations for me. Having meandered a little bit around fintech through most of my career, I kind of saw that homeownership in some ways is like the last frontier of fintech. It's why you have a savings account. It's why you make payments. It's why you try to build your credit.

At some point, homeownership is kind of the ultimate purpose. It's not a coincidence that it's the bedrock of the American dream. And Rocket is one of the few companies that has the scale and kind of the power to make a real difference. And so that's what attracted me to Rocket. At the same time, when we think about the concept of TAM, total addressable market, housing itself is the largest TAM that there is. It's 20% of the GDP. Whether the mortgage market is up or down in any given year, it's still $1 trillion TAM. No player has more than low single-digit percentage market share. It's antiquated, and it's kind of ripe for technological transformation. And so those were kind of the big reasons that I came to Rocket, and I've been having a blast since.

And a big part of our strategy is to connect the pieces and to bet big on technology. When you think about the different parts of homeownership, there's the front end of the funnel where consumers are searching for a home, working with a realtor or mortgage broker. There's the middle part of the funnel where consumers go through the financing aspect, that's where most of the margin and profitability comes from. And then there's the bottom part of the funnel, which is the servicing experience where you have lifetime value. And in most typical consumer products, concepts like LTV to CAC ratios are very standard. But in housing, these things have not been recognized, understood or implemented.

And so that's been our strategy is over the past 2, 2.5 years, we experimented with the top of the funnel with Rocket Homes. We experimented with our servicing book with a concept called recapture, where if we do a good job with servicing, we earn the right to generate repeat business. And so this thesis was very sound for us, and it allowed us to make a pretty big bet on 2 big acquisitions. We did them very quickly, both public company deals, both back-to-back and both done with all stock, which gives you a sense of just the commitment that both companies have to the shared future that we're building together now that they're a part of Rocket.

And the vision is simple. We want to connect these parts and build a super funnel. We want to turn Rocket into a platform and an ecosystem. We can acquire clients from Redfin that are searching for homes. Redfin has 50 million consumers at the top of the funnel. We can provide financing and an integrated experience through the Rocket Mortgage flagship experience. And then we can serve those clients for life in our servicing book and earn the right to generate new business for them, whether it's new cash out refinance, rate and term refinance, a home equity loan or a new purchase.

So the vision is to create a self-sustaining ecosystem around housing, something that has never been done before. And then the foundation of that is obviously technology. I mean, we've been a technology company for 40 years. We were the first to bring mortgages to the Internet. We were the first to put them on a mobile phone, and we are now the first to bring them into the realm of artificial intelligence. So a lot has changed, but it's all in service to the client. It's all about building an experience that's better and faster with lower rates and lower fees, and we're just executing.

You clearly are, and it really is interesting. So I've followed the mortgage industry for close to 25 years. I remember when Dan moved everybody to Detroit and how transformational that was for the industry. It's a fascinating business because to your point, the TAM is enormous. It's roughly $2 trillion a year. It is very profitable, it is also incredibly fragmented, and it is incredibly fragmented for 2 reasons. And I'd love to explore those 2 reasons and how you're addressing them.

One is historically, the business has scaled poorly. The second is that the business is incredibly cyclical. And I'll share something with investors in the room. In a 2-year window, cyclical compression of TAM, the market shrank by 60%. Find me anywhere, an industry that saw a 60% compression of TAM simply due to cyclicality. Fine, we see that all the time from secular decline. But find me a real industry where you see 60% decline. So what I'd love to talk about is how you're changing both the scalability of the industry and ultimately, how you address the cyclicality.

And I'll throw out one buzz phrase for you to start the scalability conversation. Back in December, you said something on your earnings call that made everybody on my team, our heads jumped up. And you know what it was. You talked about infinite capacity. Talk about how you guys are approaching the scalability issue of mortgage and what this means long term?

Yes, great question. So let's start with scalability. And I think there are a couple of different components to what is, I would say, very unique about Rocket. I think the first thing is you have to remember that this company didn't come out of nowhere. It's been around for a long time. So a part of the scalability is just the investment in foundational infrastructure over many, many, many years, being able to do compliance and licensing in 50 states and 3,000 counties and parishes. That takes a long time. Being able to have the capital markets infrastructure to be able to hedge and price every single day and update pricing and rate sheets relative to margin that's taken decades to build. And so a lot of this predates me.

But there's a foundational component of scalability that really is just a moat to not overuse that word because I know it's a bit of a cliche. But these are things that are going to be very difficult for an AI platform to disrupt just because a capital markets infrastructure, a hedging relationship, the relationship with the government-sponsored exchanges, Fannie, Freddie, Ginnie, the compliance infrastructure, the money movement infrastructure, there's no substitute for experience, right? That's one.

The second thing I think that's really important is we've bet really, really big on technology. And I'm sure we can talk about AI, but we -- I suspect we will. But we had a goal to hit $300 billion of capacity by the end of '27, and we are there now, almost a full 2 years early. And a big part of that is just how we've implemented technology. We have dramatically increased that fixed capacity $200 billion, $300 billion, and we've had a reduction in our fixed costs, including headcount.

So we have created sort of an order of magnitude shift in capacity, and we've reduced headcount. And the simple reason for that is we're betting on technology. And I can give you a couple of examples. Lead prospecting is one such example where one of the reasons mortgage is hard is because there's a very complex sales motion around how you process leads, how you communicate with clients, how you process documents, especially in purchase where the sales motion can take place over many weeks or many months. AI does that for us now. And this is where the scale matters. I mean many companies will talk about AI, but these are real numbers that I'm sharing with you.

We prospect via AI 32,000 leads a day. Pulling credit, maybe another example. That used to be a manual process that required a person, sometimes multiple people. We pull credit 5,000 times a day automatically. When we look at closed loans per team member that works in production, that's another example of a really key metric that we track. That's up 74%. So we're closing 74% more closed loans per team member. So these are some examples of how we address the scalability challenge, but we do it very purely and very simply with technology.

And to your second question, and I think that was around the cyclicality.

We'll get there. We'll circle back on cyclicality. I want to talk about that a little more. I want to explore the theme of scalability first. And again, look, I got my first mortgage in 2000. And the process was we took our tax returns, drove to Kinkos, photocopied our tax returns, FedEx them and sent them to our mortgage lender. And the big innovation back then was optical character recognition that they didn't have to hand code 100% of our tax returns. They could code 50 -- or they could hand input 50%, but they could scan 50%.

I'd love to talk about scalability from 2 perspectives here. One is from the user perspective and also, again, how you guys are using AI tools, how your developers are using AI tools to do the equivalent of not hand input, photocopied, tax returns?

Yes. I mean the biggest one is, I would say, just investments in computer vision. And what used to be OCR, optical character recognition is now advanced to what's more generally known as computer vision. And the beautiful thing about computer vision is that unstructured data and structured data can be semantically analyzed, characterized, classified, extracted and applied. And so we can read through a machine that same package of documents. We can extract meaning from those documents, and we can apply them very simply to a loan or to an application. And so that's like one like very important investment. And we believe that computer vision technology over the coming 2 to 3 years is going to be nearly perfect.

And it used to be that when you do these OCR things, and I did this a little bit in the tax world, that there's always kind of some margin of error. And what's interesting now is just the technology is so good because it uses look-alike modeling, comparative modeling that it is able to process structured and unstructured data very, very easily. And so that takes a lot of the guesswork out of the process for both the client as well as the loan officer, the processor, the underwriter because you now move from just like having to scan documents or photocopy or find documents to actually sourcing them from digital places.

For example, with Rocket Money or with Rocket Loans or any of the other Rocket products, you have a financial identity. You wire up your accounts. So you don't really even have to do anything with your documents because they're automatically transferred via an application programming interface or an API. So that part of it is really simple.

But on the other side, we invest a lot in our document processing technology as well. So the loan officer or the underwriter spends very little time deduping, picking out information, applying it to a loan, which are manual, expensive, time-consuming and error prone. So this is just now the new way of working. And so what instead happens is the human-to-human connection becomes more important and the drudgery of just shifting bits and bites and atoms from point A to point B has sort of become automatic.

And so this is a brave new world. The world of paper -- and by the way, this extends all the way into the rest of the experience as well. You can sign and notarize documents digitally. You can schedule closings remotely. You can tour homes virtually, right? And so the -- essentially, what we're seeing is a total digitization of every single aspect of the experience. And it happens what happened on a computer, now happens on a mobile phone. What happened on a mobile phone is now happening more implicitly with AI. So it's pretty exciting.

So -- and this may -- I didn't prep you for this question. So if you don't have a good answer, fair enough. But if we think about the time line, the application time line 20 years ago, 5 years ago today, how much has the consumer experience improved in terms of how much more quickly do things happen?

I think it's improved by 95-plus percent. And to give you an example, you can do a fully digital refinance application on Rocket soup to nuts as a client without talking to a person in less than 30 minutes. That's a brave new world. And the best part of it is -- it's not just that you can do it from start to finish in 30 minutes, it's that there's no breaks.

What normally happens is, and you know this, is there's a workflow. You do something, information is transferred, you're waiting and wondering. Someone else has to do something, it comes back to you, then you take the next step. And so what was a more asynchronous back-and-forth process that -- and by the way, it's not just that it's 30 minutes, it's 30 minutes in one setting versus a couple of hours that are spread out over multiple days, where there's notifications waiting and wondering, one person is waiting for another person. And the best part of this is you can now do this 24/7 because with an experience like chat, which consumers, by the way, prefer 3:1, you can do it at 3:00 in the morning. You can do it on Saturday morning in your pajamas, right? And so the beautiful thing about this technology is it's not just efficiency for efficiency's sake. It's also just more delightful. It's more convenient. It's more simplified. And that's why more -- and it's what more clients are preferring.

Got it. Well, and just a little context. In May of 2020, we moved and we called the bank that we had worked with for 2 decades and said, "Hey, we're interested in getting a mortgage, and we're looking at the closing documents, and we're trying to -- you said 30 minutes. This was a high-touch, high-service banking relationship that goes dated 20 years, 2 decades. They asked us to aim for a 30-day close. So it is -- so that 95% reduction actually is within 2% of my own personal experience. Okay. So let's talk a little bit about the other part of the equation, which is, okay, we've talked about how you bring efficiency.

How do you -- again, 2021, mortgage market was $4.6 trillion, $4.7 trillion, and there were 3.5 or 4 points of origination fees associated with that. 2024, it was $1.6 trillion, and there were maybe 2, 2.5 points of origination. Again, we're talking a swing of between $100 billion revenue opportunity or more and a $30 billion. You saw $70 billion that you were competing with 1,000 other companies go away in 2 years, temporarily, but went away for 2 years. That's a tough way to run a public company. How do you approach that?

Yes. I mean I think -- this maybe goes a little bit back to your concept of cyclicality. And I'd say there's 2 things. I think the first thing is there's a saying that I love, which is when the going gets tough, the tough get going. And the nice thing about the mortgage market is that it's equally competitive for everyone. And for smaller players or weaker players, what we think of is in general, we just outcompete. And when we see a tough market or when we see a growing market, we look at it as an opportunity to capitalize and to take share.

And there's a couple of things that we've done really that our acquisitions are focused around because we can talk about technology all day, but we've obviously made a huge, huge investment in technology, $500 million over the past 5 years to build some of these infrastructure pieces so that we can capitalize on AI. But the other thing I think is important is, one, 70% of Rocket's revenue is now what we call less rate sensitive. It used to be a very different picture when Rocket primarily really focused on refi. But today, we are the largest servicer. We have a big purchase business. We have a big business with Redfin, and all of these represent revenue sources that don't depend as much on the rate environment. So that's like one.

The second thing that I would highlight is that we have a natural hedge inside of the company with origination and servicing working together. And servicing is a beautiful business because it gives you a pipeline of clients that you can refinance if and when rates move. But you can -- but it also creates an annuity that continues to fuel your business in a higher rate environment. But the other thing that Redfin and Mr. Cooper do for Rocket is that they provide us with a pipeline of clients.

The other dynamic that is sort of inherent in the housing and mortgage space is that the acquisition cost to acquire a client for mortgage is extremely expensive. It's thousands and thousands of dollars. But if you have 50 million clients that use Redfin every single day to search for a home, high-quality clients, high-intent clients, you have a self-sustaining lead pipeline. If you have a servicing book with 10 million clients that we serve, that's 1 in 6 mortgages that you see every single month paying their property taxes, paying their mortgage -- making their mortgage payments, paying for their escrows, you have a self-sustaining ecosystem.

And so this is how we deal with cyclicality is because we have a natural hedge now within the company by having both the origination business and the servicing business that act as a self-reinforcing mechanism. The servicing business actually feeds the origination business through recapture, but it also sustains itself during high rate environments as well. And so -- the way we think about this is we are not waiting for rates to recover or not recover. We know that it applies significant pressure on our competitors, but we have created a very, very unique business model with a combination of Redfin and Mr. Cooper and Rocket working together where we have a self-created lead flow. We have a self-created servicing book that we can recapture. And then we have the mortgage origination engine that sort of sits in between it.

And so these are -- think of it as like just pieces and parts of an engine that we have assembled with a great degree of intentionality by just studying the patterns of what work with other consumer platforms, platforms that have created things like network effects, platforms that leverage concepts like distribution. And we're simply taking those patterns and applying them to the housing industry. We also, in some ways, and I am biased here, but we were very specific in which companies we wanted to buy. We didn't just want to buy a home search portal. We wanted the best home search portal, and that's why we bought Redfin. We didn't just want to buy a servicer. We wanted the biggest, best and highest quality servicer. That's why we bought Mr. Cooper. And we wanted to do that because, one, the cultures of the different companies would integrate well. And then two, it just would allow our ecosystem to be very unique and in some ways, create a competitive advantage that would be impossible to replicate.

The intentionality comment really resonates with me. And one thing I didn't mention, but you've mentioned a couple of times is Rocket Money. And again, I think I see how that fits in the mosaic. Worth mentioning my daughter is a Rocket Money customer. I discovered when I was at your Investor Day a couple of years ago, and she asked me to get a picture with the founder, which was super fun. I also really recognize, and we've been very clear in print, of the strategic value of Mr. Cooper and the lead gen that, that brings. I think you said in the most recent quarter, 50% of your refi activity was generated through existing leads or existing servicing book, which predominantly is Mr. Cooper. Can you talk a little bit about how that integration is going?

Yes. I have been incredibly impressed by just how well it's going. And I think part of it is I have to give a lot of credit to our team because the thing about Rocket's culture that is unique is just there's a level of tenacity that when we set our direction, we just get after it, and we get after it tirelessly. This is a very complex integration. You're talking about the largest servicing migration in the known history of the universe, right? Millions and millions of clients, trillions of dollars of servicing, and it's not been without its complexities. I mean, just everything from the client experience to the technology behind moving the loans to making sure that there's a good onboarding experience for clients as they move from one back end to another front end or from a front end to a new back end. But we have completed like the biggest parts of the migration.

And the other thing I think that we shared on our earnings call is we are on track to recognize the synergies from the Mr. Cooper acquisition a full year ahead of schedule. So those are 2 data points. But the biggest data point that I would share, it's not where we are or where we have been, it's where we're going. And where we're going is really a function of one thing. It's our organization and its culture. And if your culture isn't there and the team isn't with you, it doesn't matter -- I've learned this after years of leadership. It doesn't matter how intellectually correct you are. It doesn't matter whether you have the right strategy. What really matters is that you have a team behind you that believes in where you're going, that believes in the company and is committed to its future.

And the reason I bring this up is because that is something that I do not take for granted, but I think that it is very much eroding into big tech companies right now is more of a fear-based culture, more of a worry about job longevity and things like that. It is a very, very real thing. We just did our -- what we call our outlet which is our annual -- quarterly basically a pulse survey where we gauge the engagement of the entire organization. And this outlet was particularly important for us is because we were creating a new baseline with Redfin, with Mr. Cooper. And so think about an organization that's grown by 60%, 60% new team members. There's about 10,000 people that are now part of Rocket.

And I was prepared for anything. Because you can imagine going through an integration as public -- 2 public companies coming together, and our engagement was 82, which is up 2 points. So it actually went up as a result of the integration. And that gives me a lot of confidence. So it's not just that the integration is going well. It's that the organization believes in the future direction of the company, and they sit in solidarity with leadership. And that gives me a lot of confidence that it's not just that we have the right strategy, but we have the right team. And when you put those 2 things together, I think that's where Rocket has separated itself and will continue to separate itself.

Got it. Okay. Look, one of the dynamic tensions here is that we get 35 minutes, and I would sit here and ask you questions about mortgage until tomorrow, happily. But we have an audience as well, and I should not be selfish. So right away, I got a couple of questions. Those 2, please.

So the implementation of all this technology, definitely transforming the industry, and I don't know exactly which comes first, the chicken or the egg, but of course, you vertically integrate with the servicing. It's changed the business a lot. And I'm curious like how we should really be thinking about the KPIs for the business because I'm not sure that just gain on sale is a good indicator. You have to do a lot more in the correspondent space and that kind of skews the numbers. So just tell me what do you think that the industrial structure looks like a couple of years? And how should we think about approaching Rocket? It seems to me maybe we should just look at on some type of return on invested capital, and that should be growing over time or growing through the cycle.

Yes, great question. I would say, first off, like I do think you're right that the typical margin profile approach of looking at a mortgage company is Rocket is starting to look less and less like that. And what I can share with you, candidly, is that here's how we look at internally, how we've decided to organize the entire company. We've decided to organize it around really 4 core KPI frameworks. The first one is what we call grow and grow is really simple. It's just are we growing the top of the funnel, which means are we introducing more client relationships to the Rocket Mortgage experience. And growth comes from Redfin, it comes from Mr. Cooper, but it's a self-sustaining growth pillar. So that's one -- you can imagine some of the sub KPIs around things like traffic generation, et cetera. Unique inventory would be another good one given our Compass partnership, which, of course, we can talk about.

The second one is very simply conversion. And conversion is a simple matter of when taking a prospect and turning it into a closed loan. And that is one of the more complex metrics. But essentially, what that means is everything from getting through the sales motion successfully to getting high-intent leads through the pipeline to basically being able to close on time. So the entirety of the conversion funnel and obviously, that going up into the right. The third one is around efficiency. And that's basically focused on what we think of as reducing the cost to originate a loan because if we become more efficient, and this is through the use of technology, it's by removing some of the fixed costs, it's by increasing turn times, reducing the cost to originate a loan obviously drives more efficiency in the business.

But the most important thing it does looking at the client is it allows us to deliver a lower cost experience in the form of lower rates and lower fees. A good example of that today is -- and this is the power of the Rocket ecosystem at work now, is we just announced a brand-new offering for Rocket ecosystem clients. So -- and it goes up progressively. If you are a client that uses Redfin to buy and list a home, you save a certain amount of money. If you're a client that use Redfin and Rocket Mortgage, you save more money. If you're a client from our servicing book who uses Redfin and Rocket, you save even more money up to $20,000. So these are examples of where our efficiency and the cost to originate a loan and that low CAC that I'm talking about with our lead flow, all are working together. And you can expect us to create more offerings like that.

And then the last -- so grow, convert, reduce. And then the last KPI that I would highlight is recapture. And recapture is simply our ability to harvest our servicing book to generate lifetime value for our clients. And so think of it as very simply our ability to target that massive servicing book, deliver automatic refinance experience, deliver a new purchase experience, even things like personal loans, home equity loans, cash out refinance and how do we continue to drive that recapture rate higher. So those are kind of the 4 top-level KPIs that we use to run the company, and I thought it would be helpful just to share that with you.

[indiscernible] what would that mean for the return on invested capital? I mean, if we're not looking at just gain on sale and we certainly don't want to just look at earnings because you can buy that.

I mean, I think it would just come down to EBITDA growth and margin expansion.

What about capital intensity?

Well, I mean, it depends on what you're -- like our capital allocation principles are pretty simple. I mean we -- our first goal is to invest in the business. Our second is to pursue organic and inorganic. And the third is to return capital to our shareholders. So we follow those principles.

Two quick ones. Could you talk -- touch on the Compass relationship and kind of what your expectations are there, strategic rationale? And then where does any blockchain technology fit on the road map?

Good questions. I'll start with Compass. And part of this relationship, which is very exciting is there's a lot of change happening in the industry right now. I'm sure those of you that are following this part of the funnel, every day, there's a new cycle that's breaking news. But fundamentally, this is all about tackling affordability. And one of the ways that we believe you tackle affordability is to create more inventory.

So the Compass relationship has 3 components to it. The first one is private exclusive and coming soon inventory. And Compass has a vast repository of unique listings that are not available anywhere else. And it's bringing those listings to the market on Redfin as the exclusive home search portal. So that's part one. A quick data point on that is we have about 10,000 listings now with the partnership with Compass that are unique to Redfin that are only available on Redfin. And we expect that number to go up significantly as Compass obviously continues to integrate with the Anywhere platform, which is what they've acquired.

The second one is a lead flow relationship to really shift the economics of Redfin and Rocket to make them more profitable and more successful. So today, Rocket, Redfin and Mr. Cooper are a lead generation pipeline. Today, we happen to consume most of those leads ourselves, but we're not in really the real estate business, right? And so with Compass, there's a virtuous cycle where we have a lead flow relationship with them.

And those are leads that come from Redfin, Rocket Mortgage and Mr. Cooper. Think of it as someone that has sort of the financing or the home search figured out, but they don't have an agent, which is a very common use case. A quick data point on that. We've delivered about 30,000 leads to Compass successfully to date, and we expect that to go up as well.

And then the third one, which I'm particularly excited about is a mortgage partnership with Compass as well. And what's unique about Compass is they have a vast distribution network of about 0.25 million agents in the U.S. So that's 250,000 agents. And these are high-producing agents, high-quality agents, and they all use a proprietary technology platform that Compass has built. And we are taking the Rocket Mortgage platform, and we are going to be plugging that into the Compass experience. So very similar to what we do with Redfin.

We will have exclusive products. We will have exclusive bundles, exclusive pricing. We will have dedicated turn times. We'll have a better workflow and we will allow the Rocket Mortgage platform to sort of breathe inside of the Compass platform and to be kind of a premier offering for the Compass agent network. So there's 3 different points of distribution. And really, what it's focused on is just how we can create better offering for clients, lower rates, lower fees, less friction. And Compass is the best in the business when it comes to real estate, and this is just how we're going after that.

In terms of blockchain, I would say, first off, like we do implement blockchain in a few different parts of our organization. Our account process would be one. I would say, the money movement processes would be another, but it's still kind of early. So I wouldn't say that we have like broad-scale implementation in many, many different places, but it is an area that we're continuing to experiment. Those are 2 places that I know we have implementations.

You stuck the landing, you got 3 seconds left. We'll count it down together. We're out of time. Varun, thank you very much. Thank you all for joining us. I know we have one other question from the room. Hopefully, you guys catch up. Terrific.

Thank you.

Hello, everyone, and welcome to Rocket Companies, Inc. First Quarter 2026 Earnings Call. Please note that this call is being recorded.

[Operator Instructions]

I'd now like to hand the call over to Sharon Ng, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us for Rocket Company's earnings call covering the first quarter 2026. With us this afternoon are Rocket Company's CEO, Varun Krishna and our President and CFO, Brian Brown. Earlier today, we issued our first 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 first 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 the 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 our 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'll turn things over to Varun Krishna to get us started. Varun?

Good afternoon, everyone, and thank you for joining our first quarter 2026 earnings call. There is a lot happening at Rocket. So I'm going to keep this simple. Three things matter this quarter. First, we delivered strong performance in a volatile market. Second, we are using AI, data and distribution to create opportunity instead of waiting for the market to hand it to us. And third, Rocket is no longer the same company that it was 3 years ago. The shape of our business has not just changed, it has fundamentally evolved.

So let's start with the quarter. Adjusted revenue came in at $2.8 billion, above the high end of our guidance range. That is not an accident. It reflects the durability of our model, the strength of our execution and the discipline and resilience of our team. We do what we say. We say what we do, and we have done that through some of the most volatile operating conditions this industry has ever seen. That consistency is not cosmetic. It defines Rocket. Our $2.1 trillion unpaid principal balance stands out for both scale and quality. In Q1, we generated over $1 billion in income from servicing fees. The power of that portfolio is simple. It creates stable cash flow, it balances the company, and it gives us a built-in engine for future growth.

When you combine that with our origination business, you get a massive recapture platform that expands the top of our funnel without traditional client acquisition costs. That is a rare combination, recurring cash flow, deep client relationships and built-in upside when the market moves. Net rate lock volume was $49 billion, up 19% from last quarter. We gained market share in both purchase and refinance quarter-over-quarter and year-over-year.

Adjusted EBITDA reached $738 million, with margin expanding to 26% from 23% in the prior quarter. Adjusted diluted EPS was $0.15 compared with $0.11 in the fourth quarter. Now when I look at the housing market, there are 2 forces at work. The first is the market itself, rates, affordability, inventory, consumer confidence.

Q1 was a wild ride. Rates moved down through the early part of the quarter. The 30-year fixed rate went from 6.15% in January to just under 6% by the end of February. That helps spark both purchase and refinance activity. Then volatility returned. Rates moved back up to 6.5% in March. Affordability tightened, the spring season started unevenly. You can see it in the data. Existing home sales in March were down 1% year-over-year and nearly 4% from February. That's the market. It moves, it stalls, it surprises people. We do not build Rocket around being surprised.

The second force is much bigger, AI. AI is changing how every industry works and housing is one of those industries. For decades, housing has been slow, manual, fragmented and expensive. Consumers have carried too much of the burden. Agents, loan officers and servicers have fought through too much friction, too many steps, too many handoffs, to much waiting. Artificial intelligence fundamentally changes that. Real-time data, predictive insights and intelligent automation can make the homeownership experience faster, simpler, more personal and more affordable. A lot of companies are talking about AI right now. Some are still trying to find a strategy. Others are bolting tools on to businesses that were never built to use them properly. That is not Rocket. We have been building towards this for years.

Over the last 6 years, we have invested more than $500 million in AI, automation and the infrastructure underneath it. So when people ask what AI changes for Rocket, the answer is clear. It helps us scale what we already do well. That distinction matters. AI without proprietary data is not much of an advantage. AI without distribution is not much of an advantage. AI with a workflow integration, not much of an advantage.

The advantage really comes from putting it all together. At Rocket, we have the client's data, servicing relationships, brand, technology, loan officers, agent network, marketing engine and operating discipline to put AI to work where it actually matters. Not in a demo, not in a lab, in the business at national scale. When AI is woven into the homeownership experience, we can do things others simply cannot match. A client can describe their dream home to Redfin and find listings that fit what they actually mean, not just what they typed. A servicing client can be notified when it's time to refinance, understand their options and move through the process in minutes. A homebuyer can get preapproved when it is convenient for them, not when the industry feels like picking up the phone.

That is where this gets extremely powerful. Let me give you 2 examples. First, agentic AI is now managing client prospecting and outreach at the top of the funnel. That includes helping clients find homes through conversational search, reaching servicing clients when they are in the money and prequalifying purchase clients. This gives us the ability to contact, engage and qualify our entire book along with new leads across chat, voice and text.

Prospecting used to be one of the most time-consuming and lowest-converting activities for our loan officers. In some cases, a loan officer might dial 14 clients just to get 1 on the phone. Now AI works those leads with precision. It knows the client's preferred time and channel. It uses our proprietary data to personalize the experience. It helps us reach the right client with the right message at the right moment. When you service 1 in 6 mortgages in America, speed and scale matter. When the market moves, we need to move at a level most of the industry cannot touch. AI prospecting has reduced loan officer prospecting time from up to 2 hours per day down to 0.

And that time is now being used with clients who are already engaged and prescreened driving conversion higher by double digits. That is not theory. That is production. Here is the second example. In late February, we launched AI-powered purchase pre-approval letters. The process is fast, simple and it's available 24/7. No loan officer assistance is required. Clients can get preapproved when it works for them, and they are doing exactly that. 40% of our digital pre-approvals are now completed outside of traditional business hours.

In just a few months, agentic pre-approvals have grown to 10% of all pre-approvals. We are generating more pre-approval letters overall with a lower percentage requiring loan officer involvement while driving 33% higher conversion through AI. That is the model, automate the work that should be automated, let our people spend more time where judgment, expertise and human connection matter most create a better experience for the client and better economics for the business.

Last quarter, I talked about an incremental $1 billion in monthly volume driven by our AI innovations. With our latest launches, we have added another $1 billion in volume per month. Our launch velocity has also changed fundamentally. We are now pushing out new features and experiences 5x faster than we were just 2 years ago. That means faster scale, higher conversion, more capacity and better unit economics.

Turning now to integration. We are tracking very well against our major milestones. We now expect Mr. Cooper expense synergies to be fully realized by the end of 2026, 1 year ahead of the original plan. That is a major proof point. Integration is not putting logos next to each other, it is making the company work better, faster and with more force.

That brings me to who Rocket is today. 3 years ago, we began reconstructing the company we made aggressive moves to restructure, refocus and reorganize Rocket into something much larger than a mortgage lender. In 2025, we built the foundation, we expanded the ecosystem. We strengthened the platform. We widened the top of funnel. We improved distribution. In 2026, we are bringing it all together across search, origination, servicing, data and of course, artificial intelligence. That is how we create our own opportunity. We are not waiting for a perfect rate environment. We are not waiting for the market to normalize. We are building a company that can win in the market we have and take even more ground when the market improves.

So when you think of Rocket today, you should think of 3 things: platform, distribution engine and ecosystem. These are not slogans, they are the machinery of the company. No one matches our top of funnel when you combine home search, marketing and servicing recapture. No one matches the combination of our brand, scale, distribution and data. We have hundreds of thousands of real estate agents in our network and more than 10,000 loan officers and broker partners.

We have a technology platform custom built for this industry. We have proprietary data that gets smarter with every client interaction. That is very hard to copy. Others may copy pieces, a feature here, a workflow there, a marketing claim, a model, a partnership, but a piece is not the system and the system is what matters. Scale matters, servicing matters, recapture matters, distribution matters, data, compliance and execution all matter. Without those things, AI is just a tool. With those things, AI becomes leverage.

And then there is culture. Culture is still one of Rocket's sharpest advantages. Whether someone came from legacy Rocket, Redfin or Mr. Cooper, they're here because they believe in the mission to help everyone home. That matters more than people think. We are ambitious. We are competitive. We want to win badly, but we also care deeply about the client and we care about each other. That combination is rare. Hard edge, real heart that has always been Rocket. For 40 years, our culture has helped us move through change before others were ready. It helped us lead through the Internet era. It helped us lead through mobile, and it is helping us lead again in artificial intelligence.

We do not wait for change. We engineer it. That is who Rocket is today. This quarter shows the model is working. The AI work shows the model is getting stronger and the company has built to take around in whatever market shows up. And with that, Brian, over to you.

Thank you, Varun, and good afternoon, everyone. Today, I'll discuss Rocket's strong first quarter results, which reflect the power of the Rocket ecosystem and platform. I'll also provide an update on how we continue to make progress on our fixed cost and walk through our outlook for the second quarter.

Let me start with our financial performance. Over the past year, we've intentionally transformed Rocket and it's showing up in the numbers. In Q1, we beat guidance, expanded EBITDA margins and grew market share in both refinance and purchase. Adjusted revenue grew to $2.822 billion surpassing the high end of our guidance range. Adjusted net income was $422 million or $0.15 of adjusted EPS. Adjusted EBITDA rose to $738 million up from $592 million last quarter, with margins expanding to 26%.

This was our most profitable quarter in 4 years. This performance was a direct result of deliberate strategy in sustained investment. Rocket was built to perform their volatility across every rate environment in every market cycle. The industry experienced a favorable origination environment in January and February as rates cooperated followed by a sharp reversal in March as energy prices surged with the outbreak of the conflict in the Middle East. Rocket navigated both environments with strength. Net rate lock volume reached $49 billion, a 19% increase quarter-over-quarter, driven by growth across all origination channels. The service client recapture and Rocket Pro channels led the way. The combination of the Rocket brand, more personalized experiences and AI-powered origination capabilities, drove recapture on Mr. Cooper originated clients to an all-time high.

The gains we have seen in the first 2 quarters since closing have exceeded our internal expectations and the numbers reflected. Closed loan volume from our servicing portfolio hit an all-time high with 54% of refinance closings coming from existing service clients. On the wholesale side, Rocket Pro built momentum throughout the quarter. A big catalyst came from Rocket Ignite, our large-scale event, bringing our mortgage broker partners across the country together. At Ignite, we launched Jupiter, a white-labeled loan origination system we're offering to our broker partners at no cost. Jupiter streamlines workflow, automates follow-ups and manages the loan life cycle from registration to closing.

We also announced an expansion of our partnership with Compass and launched a special pricing incentive for Rocket Pro partners working with Compass agents. The market response has been immediate. In just the last 2 months, we've already added nearly 180 new Rocket Pro partners, which collectively represent a $5 billion opportunity in annual closed loan volume. The pace at which we're adding partners continues to increase. Cutting across all channels was the growth of our home equity and jumbo loan products, with both doubling year-over-year.

This growth translated directly into market share expansion quarter-on-quarter and year-on-year. These increases were accompanied by healthy margins. Gain on sale margin, excluding correspondent, was 322 basis points in the first quarter, our highest since the first quarter of 2021. But what makes these results particularly meaningful is not just their scale and magnitude, it's the foundation upon which they are built. With the acquisition of Mr. Cooper and Redfin, the composition of Rocket's revenue is more diverse than ever.

In the first quarter, roughly 70% of Rocket's revenue came from recurring or less rate-sensitive sources. We think about our business across 3 distinct revenue categories. First, recurring revenue, which includes the servicing business and the Rocket Money subscription business. This category represents our durable fee-based foundation. Second, are less rate-sensitive revenue, which includes purchase mortgages, cash out, closed-end seconds and the Redfin business is primarily driven by housing activity and client demand. While these products have some relationship to rates, they offer an addressable market that is large and relatively stable.

The third category is rate-sensitive revenue, consisting of rate and term refinances and other items. Our rate-sensitive revenue has the most direct exposure to rate movements, but it's also our greatest source of upside when rates decline. This is what a balanced business model looks like. More than 2/3s of our revenue provides stability and predictability through the cycle. Rocket is no longer solely a rate-driven business, we are a business with durable recurring revenue streams that also retain significant upside when rates fall.

Now let me share an update on integration synergies. Integrating a business of this scale demands disciplined execution. Our teams have moved with speed and precision with a strict focus on protecting the Rocket client experience. The Mr. Cooper integration is running well ahead of schedule. As we mentioned last quarter, we identified the full $400 million target for annualized expense synergies with full realization expected by the end of 2026. That puts us an entire year ahead of our original plan.

Here is how we expect these savings to phase in between now and the end of the year. Through the end of the first quarter, we have realized $75 million in annualized run rate savings. By the end of the second quarter, we expect to capture another $100 million in annualized savings, and the remaining $225 million of annualized savings, we plan to capture in the second half of this year. These synergies flow directly into our fixed cost structure, primarily through the elimination of overlapping vendor contracts and the rationalization of duplicative functions.

On a related note, I'd like to give an exciting update on our origination capacity. At our September 2024 Investor Day, we shared that at that time, Rocket had the capacity to originate up to $150 billion without adding fixed costs. We also shared that we expected to double that capacity to $300 billion by the end of 2027. Since then, the pace of deployment has accelerated materially with the power of AI end-to-end digital refinancing, digital pre-approvals for purchase mortgages, voice AI and SMS texting for prospecting clients, AI underwriting agents. These capabilities backed by sustained investment are live at scale today in driving real operating leverage.

The result is that we now have up to $300 billion of origination capacity with several hundred fewer production team members than we had back in 2024. And we've done this 2 years ahead of federal while actively reducing fixed costs through synergies. March is the clearest proof point. We ramped up volumes quickly from January and February's levels closing nearly $20 billion in volume without straining the platform. Loans closed per team member were up 75% compared 2 years ago. AI is sharpening our unit economics and widening our competitive moat.

Now turning to our outlook for the second quarter. Before getting into the numbers, let me frame up the current market environment. Since the outbreak of conflict in the Middle East in late February, rising energy prices have weighed on consumer sentiment and raised concerns about the future of inflation. Mortgage rates are approximately 50 basis points higher than their February lows. Homes are taking longer to sell, averaging 51 days on market, the longest stretch since 2019. The spring home buying season is off to a slow start. Our real-time market indicator suggests that the mortgage market will not see the same sort of uplift in Q2 that historical seasonality would typically suggest.

Our guidance reflects this reality and reflects our ability to outperform within it. For the second quarter, we expect adjusted revenue to be between $2.700 billion and $2.900 billion. The midpoint of this range reflects our confidence in continued share gains. On the expense side, we anticipate approximately $2.430 billion at the midpoint of the revenue range. This includes $110 million in amortization of intangible assets, $100 million for stock-based compensation and $20 million in estimated onetime acquisition costs.

Excluding these items, expenses are expected to be $2.200 billion or approximately $60 million lower from the first quarter due to the realization of synergies and ongoing benefits of our AI initiatives. As a reminder, this Q2 expense guidance reflects the reclassification of warehouse interest expense from a contra revenue account to an expense line item, which is consistent with the Q1 financials in the earnings release. The net result implies higher profitability in the second quarter and what we expect to be a tougher market.

2026 is a pivotal year, and this platform is built for it. Our top-of-funnel reach, distribution network, massive servicing portfolio and technology platform for a durable self-reinforcing competitive engine. Today, these strengths drive profitable growth regardless of how the macro environment shifts. With that, operator, we're ready to take questions.

[Operator Instructions]

Your first question comes from the line of Mihir Bhatia of Bank of America.

In terms of the guide, you're guiding a little bit below where 1Q ended up. And I was just wondering if you could maybe talk through some of the internals a little bit, just what's driving that? Is it volume margins? I know rates have backed up a bit, but if anything [indiscernible] in contents?

Yes, Mihir, thank you for the question. Why don't I start by just talking a little bit about our market outlook. And then I'm going to ask Brian to unpack a little bit more detail on the specifics of our actual guide because I think that context is important. So let me start by just saying that Q1 started extremely strong. Rates were cooperating and what you really see is Rocket's business model snapping into action exactly as designed. And this is really what's unique about our ecosystem and platform working.

Obviously, what happened later in the quarter is that a major conflict in the Middle East exploded. With the war, oil prices went up, inflation pressure increased, and then rates moved up. And that certainly changed some of the trajectory as we move into Q2. I think the industry forecasts are expecting a step-up in Q2, but I would say that we're just not seeing that. What we see is that Q2 is probably going to look a little bit more like Q1. It's still healthy, but I expect that the forecasts are going to catch up to that reality. And that's what we're seeing in our real-time data.

So yes, the environment has shifted. But I would say the underlying demand is still resilient, and that's the most important thing. And just speaking specifically about Rocket, when you have an ecosystem and a platform that's built for this environment, when you could convert demand at scale, you have more of a self-perpetuating ecosystem with servicing that's really built for this exact moment. All of that is reflected in our guide, which is strong. And obviously, when the conflict resolves, we expect to benefit further. So just with that backdrop, let me hand it over to Brian to unpack a little bit more about Q1 and the guide of Q2.

Yes. Thanks, Mihir. Let me double click on Q1 first. I think January and February, and really even the beginning of March, really demonstrated our ability to capture the upside when rates cooperate. All of our channels outperformed that includes recapture, our new client acquisition and especially the Pro business. But to Varun's point, today, the rate environment is just completely different. The 10-year is hovering somewhere around 440 basis points. You have to go all the way back to July of last year to see rates that high. So we've seen an expected pullback from rate and term refinance. There's no doubt about that. But the good news is as we move into Q2, our less rate-sensitive products like cash out and closed-in seconds, continue to perform at those Q1 levels. And the other thing that's worth mentioning is servicing amortization. It slowed down, which really demonstrates this balanced business model in action. And just to comment on the purchase side for a second. It has been a slow forming season. But it's important to note the pipeline of preapproved purchase clients is at our highest level of all time, proving that there are clients in market that want to buy homes, they just need a little bit of cooperation for rates. So I'll kind of end on a little bit more detail on the Q2 guidance.

As Varun said, we think the market is tougher than the industry forecast would say. We think the Q2 numbers that you can see in some of the energy forecasts are just wrong. But from a volume perspective here at Rocket, we expect volumes to be similar to Q1, which is really impressive when you think about rates being more than 50 basis points higher than those Q1 levels. And on the gain on sale margin front, gain on sale margins, we're happy to report are holding very steady. In fact, on an individual channel level we're seeing gain on sale margins so far in Q2 hold consistent with Q1. We are seeing a little bit of downward pressure just from mix shift to more Pro during a heavier purchase season, but overall, really healthy margins on the channel levels.

Your next question comes from the line of Jeff Adelson of Morgan Stanley.

Just wanted to get focused a bit on expenses here. It looks like your expenses came down quite a bit this quarter. I think they came in about 2% or maybe $60 million below your guide. You talk a bit about what drove that beat? Was this the synergy execution, something else happening? I know you've kind of historically talked about when you comment at the higher end of your revenue guide, your expenses tend to go above the guide you gave for the quarter. So just maybe what happened there? And then your incremental margin also stepped up a little bit this quarter. Can you maybe just dive into how you're thinking about the businesses, incremental margins over time?

I know you talk a lot about the 70% on the Rocket stand-alone side, but just maybe helping us unpack a little bit the different incremental margins for the 2 big parts of the business you now have?

Yes. Thanks, Jeff. Appreciate the question. Look, really proud. I'm glad you asked it of the work we've done on the expense side. And just a reminder for folks on the call, our goal is really simple. It's take fixed cost out of the system while increasing efficiency in capacity, essentially growing operating leverage. And just since we've talked about capacity, we have $300 billion of origination capacity right now and that's more than doubled in 2 years. It's kind of crazy to think about. If you take a step back, where could our capacity be 2 years from now at this velocity? And then to your point, just to touch on the margin piece. Remember, when we're doing recapture loans, which is a big part of our business, you have a cost of acquisition that's pretty close to 0 and you're generating 50% to 70% incremental EBITDA margins after amortization when we fill up that capacity.

But to your point on the better-than-expected expenses in Q1 and notice to the Q2 guidance expenses is down as well, it is the synergies. It's taking fixed cost out of the system and it's being ahead of our plan. The Q2 guide at the midpoint has expenses down about $60 million versus Q1 after adjustments, that's almost $0.02 of EPS. So you can see the operating leverage increasing. And you can see the EBITDA margins expanding.

And it's just worth mentioning, we said this in the prepared remarks, but we're a full year ahead of our original goal on the synergy on the expense side. We said $400 million by the end of '27 and we'll have that in the books by the end of '26. So we're doing everything we set out to do. We're decreasing fixed costs, we're increasing operating leverage, and we're getting more efficient along the way.

Your next question comes from the line of Chad Larkin of Oppenheimer.

You gave a couple of really good examples of how AI is benefiting your business today. How should we think about kind of future AI benefits to the business? I would think that you know it should help you be able to drive better long-term recapture rates over time for one and then how should we think about AI benefits to margin kind of over like, I don't know, medium and long term?

Yes. Thanks for the question, Chad. I think the simple answer to your question is we expect the benefits of our technology and artificial intelligence investments to compound in a nonlinear way. But just stepping back for this, I think there's a lot of hype in the market right now around AI. And most of what you're seeing from other players in our industry are really narrow use cases. They work for one loan, they work for one scenario. You might see a demo here or there. But what we find is that these competitive claims aren't really translating into real cloud like outcomes, and it's more like marketing hype. And that's just not how a real business operates.

I've been a technologist for a long time. And I think what matters in AI, it's not the model, it's the system that's attached to the model that feeds it. And that's where Rocket is very special, right? We have the intent with Redfin, 50 million monthly active users at the top of the funnel. We have the economics in the financing with Rocket Mortgage, right? That's scale to operate in 50 states, 3,000 counties, we have the ongoing servicing relationship with Mr. Cooper. All of this is to say that this creates a proprietary data set across the entirety of the home ownership life cycle. And to your point, we're operating that system at scale. And I think that's a key point.

Like our chat pulls credit 4,000 times per day, our prospecting for AI has more than -- processes more than 32,000 outbound leads every single day. And that's like real productivity. To give you a sense, just March of 2024 to March of 2026, closings per production team member, thanks to AI, is up 74%. So there is literally no one else in this industry that's operating with AI at that level. And we're building the system that AI runs on scale from day 1 and the thing that I would just -- I would leave you with is just sort of, as you assess other players, I mean, just ask the simple question, like what are the outcomes that these are driving at scale? How many clients benefit, how much cost comes out, what is the net conversion improvement? How many loans are actually closed?

And I think that's where the difference starts to show up, but I expect the benefits across every aspect of our company from how we acquire and grow demand at the top of the funnel to how we drive conversion to how we reduce the cost to originate a loan and then ultimately, how we force multiply recapture to increase and compound in a nonlinear way over the coming years.

Your next question comes from the line of Mark DeVries of Deutsche Bank.

Yes. Thank you. Just had a question on how it looks like you're tracking on recapture on the Mr. Cooper servicing book. I thought I heard something in the prepared comments about a 50% -- or 54% recapture. Was that just for Mr. Cooper Group and could you just talk about your optimism of ultimately getting to kind of the low 60% range that was kind of assumed in the deal economics.

Yes. Great question, Mark. We're going to -- I want to get to the specifics of recapture and where we see the synergy opportunity, but we're very, very bullish. I think it's probably just helpful for me to just give a high-level overview of just where we are with integration. And then I'll ask Brian to go a little bit deeper into synergies. And the first thing I would just say is, look, we are in the midst of a pretty massive integration of 2 big public companies, but I could not be more proud of the progress that we've made. You have multiple companies, systems, cultures, all coming together at scale, and it impacts thousands of our team members. But let me just share with you all just 3 key data points that give me a lot of confidence in our progress.

The first one is complexity. We've just completed the largest servicing transfer in industry history, bringing our servicing platforms and our client base into one unified experience. So that's millions of clients, trillions of dollars of principal balance unpaid, thousands of workloads that are now fully unified into a single system, which is pretty impressive.

The second is simply culture. Integrations only work if the culture works, and we're definitely seeing that. We just did a baseline survey of the entire new Rocket organization, inclusive of Redfin, inclusive of Mr. Cooper, and engagement, which I think, as you know, is a key measure of pride, desire and belief in the company's strategy is at 82% and that's up 2 points. That's across the entire integrated organization. And that gives me a lot of confidence that our team and our org is with us. And then the third thing is just execution. And I'm going to give this to Brian in a minute, but we are well ahead of plan. We originally guided to 2027 for Mr. Cooper expense synergies. We now expect to achieve that in '26. We're doing that while increasing capacity while continuing to invest in the platform and while running the business quarter-over-quarter meeting or beating our guidance.

So it's not just about taking out cost, it's about building an efficient system that's more scalable, more efficient and really bringing a team along that journey that believes in the future of the company. So overall, we feel very good about the progress. We're very bullish on recapture ahead of schedule and then, Brian, maybe you can just unpack some more detail on the synergies and recapture?

Sure. Yes. I think we touched on the expense side, but Mark, let me answer your question on recapture and get into the revenue side of the synergies. Yes, 54% of our closings were from the service portfolio. That's inclusive of Rocket and Cooper all in, just to clarify. But on the recapture rates specifically, we're ahead of plan in terms of what we set out to do. And actually, when we look at the Cooper portfolio, and we look at the Cooper originated portfolio, we're seeing recapture rates that are the highest in the history of Cooper so that's really good to see. But actually, the thing that I'm really excited about, even maybe more so, is on the Cooper portfolio that was acquired or purchased. We're seeing really nice increases in that [ reception ].

And as we've talked about in previous calls, both of those are important because to the extent we can continue to convince ourselves that we have better recapture on purchased portfolios, that opens up many different ways of acquiring MSRs and putting them on the portfolio and increasing the LTV through great recapture. So ahead of plan on the Cooper recapture, which is, as you know, the lion's share of the revenue synergies and it is just worth saying, too. Remember on the Redfin side, it was all about attach rates. And we have line of sight into 50% attach rates already in the Redfin side. We're hovering around 45%. And that's continuing to increase. So we're seeing really nice revenue synergies on the Redfin side as well.

Your next question comes from the line of Ryan McKeveny of Zelman.

So I wanted to dig in a bit on the Compass partnership. I know it's only been a couple of months. But can you talk about what you're seeing thus far out of the partnership? And I guess I'm curious both on the Redfin side in terms of traffic to the website, just lead generation, those dynamics, but also on the Rocket side being embedded as the digital mortgage provider within the Compass platform. Anything you could share in terms of what you're seeing thus far out of the relationship there?

Yes, of course. Thank you for the question, Ryan. I'll start by just saying that this partnership is very exciting to us. This is about skating towards where the puck is going. And the purpose of this partnership is really to impact the way that this industry fundamentally works. The issue today is that the home buying process is extremely fractured, right? You have inventory and real estate. You have traffic, mortgage and servicing and they're all separate. That is not good for consumers, whether you're a buyer or a seller that creates friction, it makes things more expensive. And frankly, it's antiquated. And so what we're trying to do is just bring these things closer together and connect them so that the end consumer, the end client, the buyer, the seller can benefit.

And the idea is pretty simple. Inventory drives traffic. Traffic drives leads, leads drive mortgage, mortgage leads to servicing and that creates recapture. So as you mentioned, in terms of the specifics of the partnership, it is early days. But just a couple of months in, we're very pleased with the signals and the productivity of the teams. And I'll just give you a couple of key data points we've already generated nearly 10,000 exclusive listings on Redfin. So that's inventory that drives traffic. And that's really helping to drive more inventory and discovery.

We've delivered just shy of 30,000 leads into the Compass ecosystem as an evolution of the Redfin business model. And what's also really exciting is 1 in 4 of our purchase loans in our TPO broker channel are actually coming from Compass. And so all of these are promising, but this is just the beginning. These are just the early days. And with any large-scale enterprise partnership, we've got more work to do. But this is an extension of the platform that we're building. One system benefits the client, better, faster, lower rates, lower fees. So those are just some early indicators. The teams are working really well together. We're very connected. And we're just going to keep sharing more progress as this continues.

Your next question comes from the line of Don Fandetti of Wells Fargo.

Varun, I was wondering if you can provide your updated thoughts on the competitive landscape? I mean it just seems like some of the other originators services are struggling to keep up with some of the expense and AI investment? And then sort of related to that, how are you feeling about tracking towards your market share goal?

Yes. Thank you for the question, Don. I mean I'll start by talking about competition and then I can move into market share. To be honest with you, we don't spend a ton of time focused on competition. I mean we respect our competitors. We learn from them but our maniacal focus is on the client. It's on executing. It's building a fully integrated platform across search, mortgage and servicing. And that's what you see with Rocket, Redfin and Mr. Cooper coming together, you sort of see that in our outcomes. I would say across the industry, a key factor is the average time to close a loan, it's something that we pay a lot of attention to. That's like 45 days today. In March of this year, Rockets days to close was less than half of that and almost half of our loans even within that close in 15 days or less.

And I think what that tells me is it sort of validates your thesis, which is that for some of these competitors, the technology investments are just not translating into like real operational performance. It's more of a marketing architecture that I think gives you some headlines. It gives you some PR value, but for us, this is like really different. I mean, our technology is built for scale. It's built to benefit millions of clients on day 1.

And as I said earlier, I just think there's a lot of claims in the market specific to AI and when you really dig into it, you realize that they operate in extremely narrow use cases. And so again, I would just sort of ask these basic questions, like at what scale does it operate? How many loans are actually closed? How much revenue is actually generated, how much cost is taken out. I think that's where the difference really shows up. And so as you heard in our prepared remarks, we talk about the scale, we talk about the impact. And look, at the end of the day, I come from a school of thought where you always respect your competitor, but you have to be very clear on your strategy. You set the direction, and that's our plan is we're just going to keep building. It's interesting to see how the reacting to it and following suit and replicating it, but we're going to -- we're a game plan.

In terms of market share, I'll just say really quickly, we feel really good about our progress and our ability to achieve our market share goals. Q1 is a good example of that. We gained market share in both purchase and refinance quarter-over-quarter and year-over-year. The thing I would just say is that, candidly, consistently growth is not going to be perfectly linear. Like it's going to ebb and flow depending on a large number of factors that we've talked about, but look, the fundamentals and the underlying drivers of our share in our model are all working, right? We see runway with Redfin in terms of attach rate and how traffic is converting into mortgage.

On the servicing side to recapture is a very strong driver and a lever that will continue to increase in value. We continue to acquire new clients through great brand marketing and prospecting. So if you kind of step back, I would say the inputs that drive share are performing. And when those inputs work, the share will follow. That gives us confidence in our path forward and our long-term goals.

The last thing I would just say is that we are very principled in how we invest and drive growth. We are not going to sacrifice profitability to chase share. We're focused on growing share the right way for the long term. That's how we think you run a company.

Our last question comes from the line of Bose George of KBW.

Actually, I was going to ask about the market share as well. But just to follow up on that, how do you guys feel about growing the correspondent channel is also a way to increase your market share?

Yes, thanks for the question. Yes, listen, we really like the correspondent channel. Obviously, that wasn't a big deal to Rocket before, but that was one of the attractive points of Mr. Cooper. And there are several different ways as we know to acquire MSRs. Of course, the way we like the most is just acquiring the client and doing the first loan, doing it organically. Rocket has traditionally participated in the bulk market, and we'll continue to look at that. But the correspondent channel is a really efficient way to fill that servicing funnel. And kind of going back earlier to those recapture rate discussions, we know our recapture rate even on acquired MSRs is higher than what the industry experience is, and it's still going up every single day. So it allows us to be very thoughtful in the ROI equation. So it's definitely a big part of our capital waterfall in a place that we'll continue to invest. But it ultimately just comes down to a best execution decision that we make almost every single day between acquiring clients out in the market, bulk acquisitions, correspondent and even the co-issue business is also a very attractive way to acquire MSRs.

Thank you. I would now like to hand the call back to Varun Krishna for closing remarks.

Thanks, everybody, for listening, and we look forward to seeing you next quarter.

Thank you for attending today's call. You may now disconnect. Goodbye.

Thank you for standing by, and welcome to the Rocket Companies Fourth Quarter and Full Year 2025 Earnings Conference Call.

[Operator Instructions]

I'd now like to turn the call over to Sharon Ng, Head of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us for Rocket Company's earnings call covering the fourth quarter and full year 2025. With us this afternoon are Rocket Company's CEO, Varun Krishna and our newly appointed President and CFO, Brian Brown. Earlier today, we issued our fourth quarter and full year 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 fourth quarter and full year 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 our 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'll turn things over to Varun Krishna to get us started. Varun?

Good afternoon, everyone, and thank you for joining our fourth quarter and full year 2025 earnings call. By now, you've seen the news of our partnership with Compass, which is exciting. Everything that we have done in the past is now leading us to what's happening next. Every move is deliberate and focused on a new vision for homeownership in this country.

Before we get into that, I'll cover several topics today. First, I'll walk through the numbers and results as well as our progress on the 2 major acquisitions that were completed this past year. Then I'll dive a little deeper into how our differentiated ecosystem drove those results in a dynamic environment and how that was enabled by our unique technology platform. And finally, I'll return to Compass and why this partnership represents the future of search and home ownership.

So let's get into it. 2025 was where Rocket demonstrated who we are. We acquired Redfin, we acquired Mr. Cooper. We executed and delivered against our goals in every quarter. Speaking of quarters, Q4 was our first quarter fully consolidating both Redfin and Mr. Cooper's financial results. We reported $2.4 billion in adjusted revenue, beating the high end of our guidance by $140 million. Excluding correspondent, we reported $36 billion in net rate lock volume and gain on sale margin of 320 basis points. That was the highest net rate lock volume and gain on sale margin for the fourth quarter since 2021. Adjusted diluted EPS was $0.11 per share, adjusted EBITDA increased from $349 million in Q3 to $592 million in Q4, with margins expanding from 20% to 24%. For the full year, we generated $6.9 billion of adjusted revenue. Adjusted EBITDA margin increased to 19%, up from 18% the previous year. Adjusted diluted EPS was $0.28 compared to $0.23 in 2024. We have been steadfast in our pursuit of purchase. We formed our strategy 3 years ago, and we are executing on it now. We grew market share to 5.5% in Q4, up from 3.8% the year prior. This is no coincidence. It is the result of strategy and disciplined execution.

Let me now quickly share an update on our integration progress. We closed the Redfin and Mr. Cooper acquisitions in the back half of last year, and every single work stream is ahead of schedule. We're hitting every key milestone. We fully realized our Redfin expense synergies 6 months ahead of plan, and we're on track to fully realize Mr. Cooper synergies well ahead of the original target of 2027. Brian will provide more detail on that in just a moment. What makes Rocket unique is 2 simple words: Ecosystem and platform, Rocket's ecosystem stands apart. We connect serious buyers with agents, loan officers and brokers. We make homeownership easier. We move the needle on affordability and access, and our platform technology delivers the best client experience period. We are the only player that spans home search mortgage origination, servicing, title and closing. We have the largest origination and servicing business in the industry. They are connected by a refinance recapture rate that is 3x higher than the industry average. That is a relationship. That is trust. That is scale working as it should. And we don't take that for granted. We earn it every day inch by inch by inch, exceptional experiences in servicing and origination, low rates and fees continuous focus on improvement, lifetime commitment to clients.

So when they are ready for their next purchase or a refinance, they come back to Rocket, not because they have to but because they want to, time and time again. This past quarter is a clinical example. We activated in full during the fourth quarter and into the new year as rates dropped towards 6%, hitting the lowest level in 3 years, millions of homeowners with loans above 6.5% saw an opportunity to save. Homebuyers on the sidelines saw new possibilities, and we met that moment head on. This stands in stark contrast to other mortgage lenders. Some have large servicing books but lock recapture and scaled origination. So when rates fall, loans repay and clients leave, that is a missed opportunity for others as their business cannot scale with demand.

Some make AI and technology claims and create hype, but we see no other mortgage company at scale with a proprietary loan origination and proprietary servicing system period. These past few months are where our deliberate decades-long investment in technology shows how Rocket distances itself from the pack and shows why it's built differently.

When rates are elevated, our servicing business benefits from slower prepayment speeds and generates $5 billion in annualized recurring cash flow. We retain the majority of the clients that we originate. The portfolio grows and with it, so does the pipeline for future recapture. Our integrated homeownership ecosystem puts Rocket in a category of one. Our scale is unmatched. We reached 62 million monthly active users across Rocket and Redfin. We served 460,000 homebuyers and homeowners through origination in 2025. We support 9.5 million clients in our servicing portfolio. This distribution creates its own economy in which many people thrive, 3,000 loan officers, thousands of mortgage broker partners and now hundreds of thousands of real estate agents who succeed in our ecosystem every single day. Any one of these would be hard to replicate, we have all of them. Layered on top of all of this is proprietary technology. Mortgage is deterministic. It's heavily manual. It requires precision and repetition at scale. Artificial intelligence is tailor-made for these challenges, allowing us to lift conversion across our massive lead funnel and unlock infinite capacity.

The proof of this lies in our Q4 results. We just delivered nearly $50 billion in loan volume. That is an annualized run rate of $200 billion, effectively double our full year 2024 volume. To put this scale in further perspective, the last time we originated this level of volume was the first quarter of 2022, but here is the critical difference. Today, we delivered that same volume with half the headcount. We didn't just work harder. We structurally double the capacity of every production team member through technology. This is the definition of AI-driven operating leverage. Traditionally, mortgage companies would hire more loan officers to drive volume and add underwriters to close more loans, Rocket flips that script.

Let me share with you some specific examples of our technology at work. Today, our loan officers aren't calling clients to find out if they qualify. AI does that. They don't follow up manually, AI does that. They don't review documents, AI does that. And the result, our loan officers spend their time writing loans and helping clients.

Let's take purchase pre-approval letters. Historically, this process relied on a loan officer's availability, calls, document exchanges, waiting for someone to manually generate a letter. Even at its best, it was limited by business hours and human capacity, but in a competitive market every second counts. And now Rocket purchase pre-approvals are fully digital. In minutes, anytime, anywhere, clients receive a credit-qualified pre-approval letter. No loan officer help needed, clients can complete it from home while touring a property with their agent or on the spot as an offer is being made. We are available 24/7/365 and our clients know it and appreciate it. That's flexibility buyers and agents can feel. It's seamless on demand, and we're delivering it at national scale. It is also driving results. By automating qualification and pre-approvals, loan officers spend time with clients ready to transact where their expertise matters. Conversion rates are 2.5x higher compared to leads going directly to a banker before qualification.

We are right on the heels of purchase season, and this will help us focus loan officer capacity on clients who have a higher propensity to transact. Automating communication is another example. Every month, we automatically handle 800,000 chats, send more than 1.8 million text messages, place 2 million outbound calls and process over 5 million documents. These tools are delivering higher conversion rates and fueling incremental refinance and purchase volume. As a result, we're capturing more than $1 billion in incremental volume per month that may have otherwise gone untouched.

Now I can share endless stats with you. What it all comes back to is a few key things. Infinite capacity, lowering rates, fees and friction and delivering for every client in the country. This is how Rocket's proprietary data and technology creates separation. Our models anticipate, intent and predict behavior, machine learning guides every step, knowledge engineering informs decisions and natural language processing powers interaction. Automation at scale, personalization at scale, really apply to real problems. This is what differentiates Rocket. I joined this great company to transform homeownership. We are systematically solving the barriers to real change in the industry, one by one.

We've already bridged the gap between search, origination and servicing. The next step in our journey is focused on fixing the next part of the problem, home affordability. Home affordability is a multifaceted existential challenge. There is no quick fix. This is a 2-sided market, buyer demand and seller inventory and meaningful progress requires improvement on both fronts. On the supply side, not enough inventory is coming to market because too few sellers are moving.

On the demand side, Americans want to buy, but affordability barriers keep too many on the sidelines. That's the reason for today's exciting partnership news. We're tackling the challenge directly, partnering with the biggest and best brokerage in the business. Rocket and Compass have formed a historic strategic alliance designed to strengthen both sides of the market, built around a lead funnel unique inventory, distribution and mortgage expertise. Redfin brings 50 million monthly active high-intent buyers in the most comprehensive home listings platform in the industry. Compass offers a network of 340,000 real estate agents and unique inventory. Rocket Mortgage drives affordability through our preferred integrated pricing bundle.

Our goal is simple and unifying, expand inventory and create a more streamlined, affordable home buying and selling experience for American families. Our alliance with Compass is proof that we're far from done. We believe homebuyers and homeowners deserve more. This is bigger than affordability or inventory. It's about sparking more sellers, enabling more buyers and creating a new standard for the home ownership experience. That concludes my comments on the quarter and the full year. And with that, I'll turn things over to Brian.

Thank you, Varun, and good afternoon, everyone. Today, I'll walk through Rocket's strong fourth quarter and full year results underscoring the strength of our business model. I'll also provide an update on our integration synergies and walk through our outlook for the first quarter. 2025 was a pivotal year in executing the AI-driven homeownership strategy we set in motion 3 years ago. We acquired Redfin and Mr. Cooper. We made bold moves in AI and automation. We continue to invest in our brand and technology platform. All of this fuels our strategy and sets us apart. The result is a homeownership platform with unrivaled scale across search, origination and servicing powered by leading technology and prime to disrupt a $5 trillion market. Rocket is one of one. In 2025, we matched that strategic ambition with operational discipline and focus. For the full year, we generated $6.9 billion in adjusted revenue and $132 billion in total net rate lock volume. Full year gain on sale margin landed at 283 basis points.

Our adjusted EBITDA margin for the year was 19% with adjusted diluted EPS at $0.28. And in the fourth quarter, our first fully combined period with Rocket, Redfin and Mr. Cooper, the power of this platform was on full display. In the fourth quarter, adjusted revenue hit $2.44 billion, beating the top end of our guidance range by $140 million. We delivered $42 billion in net rate lock volume. Excluding the correspondent channel, net rate lock volume was $36 billion, with a robust gain on sale margin of 320 basis points.

Adjusted net income for the quarter was $316 million, translating to $0.11 of adjusted diluted EPS. Now I'd like to highlight a few of the key drivers of outperformance this quarter. The first was a meticulous rollout of an integration plan that was 6 months in the making. Upon the closing of the Mr. Cooper transaction early in October, we unified Mr. Cooper clients under the Rocket brand. We transitioned Mr. Cooper Loan Officers to Rocket's proprietary origination system in suite of AI tools. We overlaid our propensity models against Mr. Cooper's portfolio to identify immediate opportunities, routing those clients into Rocket's personalized digital experience. The impact was near instant. We saw a meaningful uptick in conversion rates, driving higher recapture on the Mr. Cooper portfolio compared to pre-closing levels. This momentum accelerated throughout the quarter resulting in our largest fourth quarter for refinance since 2021.

Our output in the fourth quarter highlights a critical milestone. In Q4, closed loan volume from our service portfolio hit an all-time high. More than half of our refinance closings came from service clients. For context, in the fourth quarter of 2020, this number was 30%. This is the flywheel effect. These clients come with near 0 client acquisition costs and retaining them for life generates client lifetime value that is worth multiples beyond the book value of an MSR asset. Our closed-end second product continues to resonate. Volume nearly doubled year-over-year. In fact, the month of December was our largest month ever for the product, surpassing $1 billion of origination volume.

On the purchase side, our Redfin preferred pricing bundle is gaining traction. Volume increased by 40% quarter-over-quarter. This was the leading driver in the double-digit growth we saw in the direct-to-consumer purchase closings year-on-year. In the fourth quarter, jumbo loans grew nearly 70% year-over-year as we expanded the jumbo products available to our loan officers and mortgage broker partners to address more specialized needs. This performance came against a market where mortgage rates tested the bottom of their 3-year range, an unlocked pent-up demand. Homeowners who took rates in the high 6s or 7s in recent years moved quickly to refinance and lower their monthly payments, and we were ready for them. The market's momentum has continued into the first quarter.

In January, the population of homeowners benefiting from a rate and term refinance surge to $4.8 million or over $1 trillion in unpaid principal balance. That's a 4-year high. We have reached a tipping point. For the first time in this cycle, the cohort of mortgages with rates at or above 6% now exceeds those below 3%. Our unique business model is engineered to perform across every phase of the rate cycle. When rates are elevated, our servicing portfolio serves as our foundation, generating recurring cash flow.

When rates dropped suddenly, like they did in the fourth quarter, the same portfolio ignites our recapture engine. We ended 2025 with a portfolio of $2.1 trillion in unpaid principal balance. Our portfolio does 2 things: First, it generates approximately $5 billion in recurring annual cash revenue; second, it provides a massive captive audience for new originations. Today, over $300 billion of our own portfolio carries a note rate above 6%. These in the money clients stand to lower their monthly payment through a rate and term refinance. Paired with a recapture rate that is over 3x the industry average, we operate the industry's largest recapture engine.

What others view as prepayment risk, we view as a massive origination opportunity. This means we define our own trajectory regardless of macroeconomic conditions. While the performance of legacy originators and servicers is tied closely to rates, Rocket has built a business model that is durable and can grow across market conditions. With our robust capital position, we will continue to invest for growth. we ended the year with $2.8 billion in available cash and total liquidity of $10.1 billion, including available cash and undrawn lines of credit.

Let me shift gears to the historic partnership with Compass we announced today. Rocket and Compass stand together to help solve home affordability, an issue that has kept so many Americans from owning the dream. The partnership rests on 3 strategic pillars: First, Redfin is now the exclusive home search portal for Compass' private and coming soon listings, inventory that exists nowhere else. This gives our platform a distinct data advantage that drives consumer traffic.

Second, Compass becomes Redfin's largest brokerage partner. This immediately expands our distribution footprint, complementing Redfin's W-2 agent network with Compass' 340,000 agents. Third, Rocket Mortgage becomes Compass' digital mortgage partner. We have already demonstrated our ability to integrate and deliver value to home buyers through our preferred pricing bundle with Redfin. Now we're scaling that playbook with deeper integrations with Compass. Ultimately, this is about the consumer and tackling affordability. It's about bringing more inventory to market and better mortgage pricing for consumers at scale.

Turning to integration. Redfin and Mr. Cooper are progressing ahead of schedule and are on track with all major milestones. We've already captured $140 million in Redfin expense synergies in under 6 months, and we're on pace to exceed our initial goal. In roughly 5 months after closing, Mr. Cooper synergies are on track and ahead of plan. We expect expense synergies to be fully realized ahead of the original time of the end of 2027. Furthermore, Rocket and Mr. Cooper service clients are now united under the Rocket Digital Experience and brand, marking a key integration milestone. We recently migrated an impressive 600,000 loans in a single day to a united servicing platform and the transfer went off without a hitch. Revenue synergies are pacing well. Redfin mortgage attach rates are on track to surpass 50%. And in the first quarter after the deal closed, our recapture engine is already lifting recapture rates on the Mr. Cooper portfolio.

Before providing our forward outlook, I want to point out a change in our financial presentation due to the acquisition of Mr. Cooper, to standardize our reporting starting in the first quarter, we will be reclassifying warehouse interest expense on loans held for sale. It will move from a contra-revenue account to a direct expense. This has no impact on profitability. It's simply a reclassification on the face of the P&L.

Turning to our guide. In the first quarter, we expect adjusted revenue to be between $2.600 billion and $2.800 billion. This guidance range includes $150 million related to reclassifying that warehouse interest expense. The midpoint of our guidance reflects our conviction in continued mortgage origination market share gains.

Turning to expenses in the first quarter. We anticipate approximately $2.600 billion, assuming the midpoint of our revenue guidance range. This figure includes an estimated $150 million reclassification of warehouse interest expense, $110 million in amortization of intangible assets, $85 million of stock compensation and $50 million in estimated onetime acquisition-related costs. Excluding these items, underlying expenses are expected to be roughly $2.200 billion in the first quarter. We also expect $50 million of seasonal items in the first quarter that were not present in the fourth quarter. This includes the reset of payroll taxes and 401(k) matching and Rocket Money's January marketing campaign that drove record subscriber growth.

As always, our forward-looking guidance reflects our current outlook and visibility in the quarter. 2025 set the stage for 2026, and we're just getting warmed up. Forecasters expected mortgage origination market to grow meaningfully this year. But no matter where the market lands, we are built for growth. Operator, we're ready to turn it over for questions.

[Operator Instructions]

Your first question today comes from the line of Ryan McKeveny from Zelman.

Congrats on the results. Would love to dig in a bit more on the strategic alliance with Compass. So a couple for me on that. First one, the release mentions the high-intent lead pipeline and giving Compass International Holdings agents more than 1 million buyer inquiries. Can you talk a bit more about the structure there? Should we think of that as similar to kind of the legacy Redfin partner business, but seemingly more exclusive to Compass. And maybe you can just talk through the mechanics and monetization opportunity there? Would it be structured as kind of a referral fee that comes back to you on those deals. So that's kind of question one.

And then question two on the mortgage side. I know anywhere is more nationally diversified, but stand-alone Compass obviously has a $1 million-plus ASP in some of the anywhere brands, whether it's [indiscernible] or [indiscernible] SKU high end. So on the mortgage side, any thoughts on the mix of jumbo conventional government, like seemingly that business skews a bit more towards jumbo. So maybe you can talk about whether the mortgage offerings from Rocket today need to expand at all whether that's necessary? Or do you guys have the product today to meet that customer.

Ryan, great to hear from you, and thank you for the question. I'm just going to start by just framing the context around the partnership and then Brian is going to jump in to talk a little bit more about some of the economic structures. So at the end of the day, I mean, we're doing this for 1 reason, and that's to tackle the biggest problem in housing, which is affordability. And today, the way we view the world is that affordability is constrained on many fronts, but 2 of the big ones. One is supply. We just don't have enough supply and inventory is the key to doing that. And then the second is on the other side, demand, the transaction process is too expensive and too fragmented. So we believe that you cannot solve home affordability without at least addressing both of those things.

So we see this every single day in our approval pipeline. The demand exists, but what buyers really lack is just access to quality inventory. And just to give you one factoid, about half of the homes that are for sale in this country have been on the market for 60 days or more. That's like 3x higher than what it was 5 years ago. So there is some supply, but it's not efficiently matched with demand, and it's not nearly as much as it should be. So there's 3 aspects to this partnership that I'll just highlight, and then Brian will jump in a little bit deeper.

The first is inventory, right? Compass will bring private exclusives coming soon listings into broader visibility accessible by everyone and expanding that access and unlocking more sellers. The second one, as you mentioned, is [indiscernible] where Redfin generates high intent buyer demand and combining that demand with differentiated inventory, we create more match efficiency across the ecosystem, which is very similar to the way that the Redfin partner network works today. And then the third is the mortgage integration, where Rocket will embed its origination platform into the Compass experience which will reduce friction and also deliver a better experience for clients in the form of preferred pricing, which includes up to 1% off the first year of the mortgage or up to $6,000 off of closing costs.

So this is really about structurally improving how buyers and sellers connect. It's about improving inventory, creating a more efficient lead flow and business model and then driving a more seamless mortgage integration. And so in terms of the economics, I'm just going to ask Brian to just jump in and just add a couple of more points of color.

Sure. Thanks, Ryan. Good to hear from you. Yes. Your first question on leads, that's right. It's going to be the traditional referral model. And just a couple of things to point out there. We have 2,000 Redfin agents that are some of the most powerful agents. And of course, they work those leads. But we generate a lot of demand from the Redfin site with the 50 million MAUs. And one of the things we were pretty clear about when we acquired Redfin is we were going to increase that demand, and that's happening right now. So the 1 million leads is over the 3-year period of the contract, but we strongly believe that we'll have ample demand to pass out to both the Redfin agents and the Compass agents. And it's not new for Redfin either. I should mention Redfin's had a partner network and worked a referral program for some time now. And then you asked about mortgage products, which is a good question. If I look at just our jumbo production and remember that Redfin's price points skewed higher than Rockets originally to when we got that question. Now we've seen a 70% increase in our jumbo production.

So it's something we're very comfortable doing because, of course, the Compass price points are higher. But you're exactly right on anywhere. Anywhere matches Rocket's traditional price point much, much closer. So the biggest thing we're excited about is offering this preferred pricing to the Compass and Redfin agents because we know that makes a material difference in this affordability equation. So we have all of this ready to go. It's actually launched today and go see it, and we're really excited about it.

Our next question comes from the line of Ryan Nash from Goldman Sachs.

Good afternoon, everyone. Maybe to start off, just wanted to talk a little bit more about your expectations for 2026. Clearly, the 1Q revenue guide is stronger than expected. But I just wanted to kind of flesh out expectations. How are you thinking about the size of the market, share gains, operating leverage or any sort of margin expectations on EBITDA that you're expecting in '26?

Ryan, great to hear from you. Thanks for the question. I'm going to just start by just zooming out and talking a little bit about the overall market outlook for '26. And then I'll ask Brian again just to jump in and provide some more color on our guide. So I mean, there's no question that we believe that '26 is going to be stronger than '25. I think when you look at the different forecasts, on the high end of the range, up to 25% bigger mortgage market. And so I think the real question isn't the upward direction to the right. It's really just the magnitude. And I would say most industry forecasts are calling for double-digit growth in the mortgage sector. And we're seeing a lot of constructive signals in support of that. Rates are at the lowest level in 3 years. We're starting to see rates have a 5 handle, which we think is huge.

Inventory starting to creep up a little bit. We obviously want to accelerate that and Encompass partnership as a part of that. And then we're also seeing wage growth continue to support affordability. And so we expect refinance to expand, especially as rates start to stabilize near the current levels. And these are really important macro signals. But the thing I would just highlight before I pass it over to Brian is it's more important to understand how Rocket is built in that context or really in any context because we are really creating more of an integrated ecosystem. We generate demand not just from the market but across our own search, our own origination, our own servicing. And for that reason, we obviously retain and recapture clients at a completely different level of scale because clients just -- they don't leave us because of what we do and how good we do it. So we've rebuilt purchase into a more durable growth lever. We've expanded distribution across retail, mortgage broker partners, Redfin, Mr. Cooper and now Compass. And that foundation is very intentional because we think it gives us operating leverage across any kind of cycle, no matter what happens in the market. So the thing I would say again is we don't need perfect markets to grow. And when conditions improve, we simply accelerate and we see that as a structural advantage that underpins our confidence going into '26. So with that, Brian, maybe you can just jump in on the guide and some more specifics.

Yes, sure. Thanks, Ryan. Good to hear from you. So I think it's probably helpful if I start a little bit on Q4. That's the -- that's how we get to the Q1 guide. So for -- as a reminder for the group, the fourth quarter is typically a seasonally low quarter in mortgage, but in this particular quarter, that was not the case at all. And we think that the fourth quarter was a good example of Rocket coming out in full force. And there was a couple of things that drove the overperformance, one of which is -- probably the first one I'm most proud of is recapture rates on the Mr. Cooper book. Now this is the key driver of revenue synergies, and we're happy to report that we're ahead of plan. You can see that in the results because over 50% of our refinance volume in Q4 came from the servicing book. The other good news to report is the direct-to-consumer purchase business is up double digits quarter-over-quarter in Q4. And we have a really strong pipeline going into March, which is, of course, when purchase season really kicks off.

Closed-end seconds actually had a record month in December. We continue to break records and closed-end [indiscernible]. We closed $1 billion of closed [indiscernible] in December. And then finally, something that's getting a lot of attention, gain on sale margins were the highest they've been in 4 years when I look at fourth quarter and it's not a surprise because rates have been cooperating and traditionally, that's a tailwind for margins. So kind of onto the first quarter to Varun's point, we're pretty bullish.

The first quarter is picking up right where the fourth quarter left off. Rates are cooperating, so that's good to see. From a production if I just isolate strictly production from Q4, it's up in Q1. So that's really good news. Direct-to-consumer continues to perform well. And like I said, we're starting to see a really nice pickup in purchase and that's continuing into Q1. The other good news is Pro is doing really well. Now we know Pro SKUs heavier to purchase, so that's expected. But the reason I bring that up here in Q1 is because when we get to gain on sale margins on an individual channel basis, I'm seeing gain on sale margins hold really nicely with Q4, but on a blended basis, because Pro's picking up steam on purchase, I'm seeing it come down just a bit. But gain on sale margins are very healthy, and I would say, almost at historical levels. So all in all, I think Q4, Ryan, is a good jumping off point. It was the first quarter of consolidation with all 3 companies. It was a pretty outstanding quarter and we expect the first quarter to be very similar, if not better.

Your next question comes from the line of Jeffrey Adelson from Morgan Stanley.

I was hoping you could maybe just unpack the expense outlook a little bit in the next quarter. I think you said the [ 2.2 to 2.6]. Obviously, there's a reclassification of [ 150 ] in there. Maybe just help us understand a little bit like what's driving the numbers under the hood. And just in terms of like how you're thinking about the operating leverage going forward as you put on new mortgages from the Cooper acquisition, et cetera. How you're thinking about that incremental operating leverage and variable expense costs.

Yes. Thanks, Jeff. I'll take that one. I appreciate the question. I think when we talk about expenses, it's probably important to start with integration. And we continue to make really nice progress there. integrating 2 public companies, really 3 public companies is pretty monumental undertaking and I'm really proud of the team for the planning. And now execution phase. So I just want to make sure it was clear what we said in the prepared remarks is that we're well ahead of plan for both Cooper and Redfin. Our original target was to recognize those expense synergies by the end of 2027 and I'm sitting here today, and I think we can do that by the end of 2026. So that is really good news. For the first quarter, to your point, I expect expenses to shake out at roughly to $2.6 billion, but that's before the onetime costs and other items.

Let me just break those down because obviously, there's some moving parts with the acquisitions. So I expect about $50 million of that to be onetime acquisition expenses. And then keep in mind, we're also amortizing those acquisition intangibles. That's about $110 million, I expect to hit in the quarter. But there's 2 other things. One is just to be clear, the reclassification of the warehouse interest expense, that was a contra revenue. Cooper did it the other way, and we adopted the way they do it. So there's no net P&L impact, but that is just something to be mindful of. And then lastly, one other comment I'd give you, Jeff, is just stock compensation, Q4 had elevated comp stock because of the acquisition, just acceleration of awards and such that happens with acquisitions.

In Q1, I think that's going to be closer to $80 million or $90 million for the first quarter, and that's probably a better run rate. But just to kind of conclude on your point around margins, keep in mind, while we're ahead on the synergy goals, these aren't fully realized yet. So I think there's room to go. We've talked a lot that even beyond expense synergies and fixed expenses, we're really starting to see some of the efficiency gains around the AI and technology investments we've made and if you look at the first quarter guide, we're growing the top line and we're growing gain on sale margin. So that's why I kind of come back to. I think Q4 is a good jumping off point. But if you just kind of do the math and remove these onetime items, you're looking at expanded profitability margins.

Okay. Great. That's helpful color. And maybe if I could just follow up -- or as my follow-up, ask a question on the regulatory environment. I think we've had a lot of conversations with investors over banking regulators pushing to these capital requirements for banks and mortgage the regulators have been vocal about wanting banks to get back in the game here. Do you view this as a risk in the long term? Or how do you think Rocket is positioned for potential reentry by banks into the space here?

Yes. Thanks for the question. Look, we obviously heard the comments and we watch those things closely. But I think the reality is, and we spend a lot of time with our very important banking partners is that there's a couple of reason banks haven't put their foot to the gas in mortgage. Maybe 1 is the capital requirements. And I don't know, maybe there's some relief for that. But I would also say they just haven't seen it as a productive channel, and they haven't invested in it. The unit economics generally haven't penciled out. And I think about where they stand at least from our view and where they need to go to be big in that space. And I think it'd be a long road. So obviously, this is our bread and butter. This is what we invest in every single day, and it's not something that gives me a lot of pause or concern.

Your next question comes from the line of Mihir Bhatia from Bank of America.

Congratulations, Brian, on the expanded role. I wanted to -- wanted to go back to Ryan's question about and just focusing for a second on just market share in particular. Just any updated expectations on market share in purchase and refi for 2026 we should be thinking about? And I guess I'll just ask my follow-up at the same time just relatedly, you gave a lot of stats excluding correspondent and I understand why. But I'm just wondering, is that an indicator that that's not a business you see Rocket playing in long term? I know Cooper -- Mr. Cooper was active in it. But just wondering if there's any clarification or any thoughts -- updated thoughts around that correspondent business there? And then just on market share expectations here.

Let me start by just talking about market share in general, and then I'll ask Brian to click down into correspondent and specific. So look, just stepping back for a second, we set ambitious goals around market share very deliberately with a clear time horizon through the end of '27. And this is really our guidepost for long-term leadership in this space. And we're excited because we feel like we're very much on track to achieve those goals. So we're reaffirming those goals. I would just say it's important to understand that progress in our industry is not linear, right? And I think when markets grow fast, we take share more rapidly. But when markets compress, what you end up seeing sometimes as competitors will pursue growth that's uneconomic, frankly. And we will not participate in that. So our focus is very simple. It's profitable market share expansion. So we will not sacrifice returns just to chase volume. But what gives us confidence and our goal is the structural evolution of our platform.

We've strengthened purchase -- we've expanded servicing and recapture it. We've broadened the distribution across retail. Our Pro and broker channel, as Brian talked about, Redfin, Mr. Cooper and now Compass. And so distribution to us is really key. We view these distribution channels as durable. And we think over time, they compound and the value that they will return to Rocket. So we feel very much that we're on track to achieve our goals. And we think our acquisitions, our partnerships and our distribution strategy is only going to accelerate that. And that's how we plan to achieve those objectives. So very much feel like we're on track. We think our strategy is allowing us to accelerate that trajectory further. And then, Brian, maybe you can just comment a little bit on the correspondent piece.

Sure. Yes, listen, no, that's not how we think about [indiscernible]. We think about correspondent as an important channel. I want to be very clear about that. I mean it's kind of similar here. We've talked a lot about bulk acquisitions of MSRs and how valuable that asset is to us because it's really just a lifetime value equation. And we should have the highest LTV on the correspondent channel because we have the best recapture rate. So it is a very interesting channel. We look at it as an MSR acquisition tool. By the way, that and co-issue are interesting to us. And the way we go about that is just the simple allocation of capital based on expected returns and the way we calculate those expected returns are based on our estimate of lifetime value. There's no doubt that the organically originated loans have the highest LTV and correspondent lower than that. But we're still higher than everyone else in the space. At least that's our estimation. So it's a channel we like.

Your next question comes from the line of Mark DeVries from Deutsche Bank.

I was hoping to go a little deeper on some of the benefits you're deriving from all the investments in technology. I appreciate all the comments, Varun, that you made earlier. But is there anything you can kind of any new specific or additional specific examples you can give? And anything kind of quantifiable. I think you alluded to things like improved conversion rates. And if any you can kind of quantify in terms of savings and/or incremental revenue generation.

Thank you, Mark. Thanks for the question. Let me talk a little bit about just AI and technology in particular. I'll start by saying it's probably no surprise. There's a lot of volatility around AI right now. Some companies are obviously being repriced because expectations in some ways, ran ahead of what I would say are fundamentals. But what's interesting is Rocket is just very different. We're not a pure software company. we're not an AI company. We're not even really a mortgage company anymore. We're in the business of home ownership and a home is physical. It's a heavy asset. It's a hard asset. It must be toward it, it must be financed and it exists in the real world. And I think for us, that's something that gives us tremendous confidence because it creates durability. So that's one.

I think the second thing that I think is important to understand is that our industry is very deeply regulated and it's structurally complex, right? You have licensing, you have capital requirements, hedging, risk management. You have to figure out compliance across thousands of counties and states and we have spent years and years and years building that machine. And our underwriting is based on historical data. It's based on judgment. So it's not an industry that I think can be disrupted by an AI platform or people working in a garage not to be tried. So we don't view AI as a disruption risk to Rocket at all. We view it very much as an accelerant. Mortgage is rules-based, it's repetitive, and that makes it very uniquely suited for automation at major, major scale.

So AI increases capacity, it improves conversion. It removes friction. It expands lifetime value and these are games that were very visible in Q4, and that's because we own our technology stack. So we embed AI deeply to the system. We don't layer it on top. And so when you step back, we're pretty anchored to a durable asset class. We think AI strengthens our economics rather than threatening them. We are fully automating every single aspect, whether it's how we integrate with leads at the top of the funnel, how we drive distribution and conversion how we reduce the cost to originate a loan and how we drive recapture.

And those metrics are baked into how we actually run the company and how we hold our leaders and our teams accountable. So that's probably -- maybe that's a good place just to pause and we feel very good about our investments. We feel very good about our positioning. And we think we stand somewhat unique in the category and in the industry itself.

Your next question comes from the line of Don Fandetti from Wells Fargo.

I just wonder if you could dig in a little bit more on -- it sounds like the recapture of the Mr. Cooper book continues to come in a little bit better than expected. Can you sort of quantify that or give us a little more detail?

Yes, happy to do it. So there's 2 big drivers or 2 contributors that I would point to, one of which we talked about on previous earnings call and one that I'm happy to report as newly new thing. But the first is just remember that -- right from the get-go actually at the time of close within the first month, we were able to get the Mr. Cooper loan officers on to the Rocket proprietary [indiscernible] system. And we started immediately working the leads from the Mr. Cooper book from that centralized model that's obviously been our bread and butter with our CRM tools, our marketing tools and our AI tools to support that. So we saw that initial lift that we talked about right off of the gate.

But the second thing is we've started transferring loans over, and that was a really, really big milestone for us. There's a lot of efficiencies, there's a lot of propensity model gains that you get, and you can put all of these loans on one single system and run single models over them to develop the client needs. So we actually transferred 600,000 loans over. I think that might be the largest transfer of loans ever and it went off without a hitch. So we're really proud of that. So these -- the integration, to say it simply, is ahead of plan.

We are farther along on the recapture goals. And frankly speaking, I thought we would be at this time, and it's happening at a perfect time because rates are cooperating, clients are in the money, that's been 3 years of production where rates have been north of 6. And looking at mortgage rates today, you could end up in a 5 handle. And we know that consumers are high intent. They're interested in saving money on their monthly payment. Buyers are very concerned about affordability to lower rates, equal lower mortgage payments. So timing was right, and that's why we knew we had to move so fast on integration efforts because you have to make hay when the sun is shining, as they say.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Varun Krishna for closing remarks.

Well, thank you, everybody, for listening, and we're looking forward to seeing you next quarter. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Great. Thanks, everyone, for joining us today. My name is Doug Harter. I am the mortgage finance analyst at UBS and happy to be joined up here on stage with Brian Brown, Chief Financial Officer of Rocket Companies.

Brian, you've been with Rocket for 11 years. How have you seen Rocket evolve during your time at the company?

Yes, great question. Thanks, Doug, and thanks for having me. I appreciate being here with everyone. Yes, a lot has happened in 11 years at Rocket. We've obviously experienced a lot of growth. And for those of you that have followed the mortgage and fintech space for a while, there's been a lot of change in the space. We went through the COVID period, of course. Two years ago, Rocket's got a brand-new CEO, first CEO outside, what we would say our family of companies, Varun Krishna. Varun joined us from Intuit. He led the consumer products group there, ran TurboTax. And that brought a lot of good clarity. A couple of things happened with that.

Number one, we doubled down on our core business, our core business being mortgage and homeownership. We exited some of the ancillary businesses that we were in, in that time. And we really said, look, there is enough market share and enough TAM available in our core business to make that our priority. So that's really been, in my opinion, a really good thing. It drives the management team. It drives the execution. And now we're just laser-focused on what is most meaningful. But a couple of things haven't changed. One is our commitment to technology-first.

Our Founder and Chairman, Dan Gilbert, much before it was popular, always said, we're a technology company that happens to do mortgages. So even when I got here 11 years ago, doing mortgages by the way of technology and automation was always a priority because mortgage has been a very human capital workflow-intensive business. And so it's just ripe to be solved with technology. So that's always been in our DNA and part of who we are and our culture, but now we have a new leadership team and a new focus, which is really on mortgage and homeownership.

Great. And as CFO, how do you navigate the extreme changes that seem to be inherent in this industry and kind of with that, the cyclicality of the business?

Yes. So first, it starts with flexibility and adaptability. When you're doing your planning and forecasting, you have to have, of course, several scenarios. You have to run it through sensitivity. I think the best way to say it is plan for the worst and hope for the best, but we've been -- at Rocket, we've taken a different approach because we have a really strong balance sheet. We've always retained capital levels that allow us to invest in good times and tough times, something that really hasn't been the case in mortgage. There were mortgage companies that IPO-ed after Rocket in 2020 and raised some capital then, but primarily, people kept the capital in the business that was sort of required from a regulatory standpoint. And we've always looked at that a bit different because we know investing during good times and bad times, it allows us to win in the space.

You've talked about a couple of times now how mortgage is the core to your business. And obviously, I look at you guys coming from a mortgage lens, but you and Varun have sort of talked about, especially this year, right, how you guys are a homeownership company, really the only one. What do you mean by that?

Yes. So if you think about the process of buying a home, for example, and the number of different companies you're going to interact with as part of that process, just to name a few that come to mind, you're going to work with a realtor. That realtor is going to be, generally speaking, employed by a brokerage or work, be attached to a brokerage. You have a mortgage or financing company, you'll have a title company, sometimes a title insurance company, sometimes a different closing company. And then when you're all said and done, you're going to move to a servicing experience. And for most players in that space, that means that they're going to sell your servicing to another company.

So I think just off the top of our head, Doug, we named probably 5 or 6 companies that you're going to interact with. And the problem with that is a couple of things. Number one, it's a terrible consumer experience. Each one of those companies has a different model, a different way of communicating with the consumer, a different way of acquiring the consumer, and they have different fixed cost base that they have to cover. So they all have to make money. So one, it's just a terrible experience. It shouldn't feel like that. And secondly, it's extremely costly, partly because all of those companies have to get their slice of the pie.

So our goal has been bringing that into one platform, one homeownership platform to serve the clients' needs. And if you think about Rocket through Redfin, we have a search portal. We have our own realtors. We have our own loan officers. We have our own title company. And then one of the superpowers of Rocket is the servicing and retaining that servicing, enjoying those cash flows, but being there for when the client does their next loan.

So we feel that we can reimagine that consumer experience to make -- take friction out of the system, make it better, but also make it more cost effective, and we believe we're in a unique position to do that because we own many of those assets along the value chain.

And obviously, it's still early in that transformation, but kind of any feedback as to kind of how consumers are kind of reacting to this new unique proposition?

Yes. I think one of the best examples I can give is the Redfin acquisition. And if you think about it, we've talked a lot about part of the opportunity for Rocket is when a client comes through the Redfin portal, and they look for a home, and they find one they like, they get connected to a realtor. And that was Redfin's legacy business. Now they can also get connected to Rocket Mortgage to that same exact experience and never have to leave the property. The Rocket Mortgage digital experience is APIed into the Redfin experience. And if any of you have been on the property recently, you can see you can get preapproved for a mortgage right there on the site.

That's one example of a huge difference. What does that mean? Well, that means that before we bought Redfin, the chances of a client using a Redfin Realtor and then attaching to mortgage was about 25% in their historical business. Right now, at Rocket, it's already up to north of 40%, and we've set a goal for ourselves as part of our synergy numbers of 50%, and we're exceeding that. So that's just one example of consumers want that experience. Consumers don't want to then leave and go shop around at different mortgage companies, but there hasn't been a process or a platform designed to allow them to stay in one place, get a really good rate and a great experience. Now they have that.

Great. And we've sort of touched on this, but maybe just to take a little half step back. Clearly, 2025, you guys have been busy, and it's been a kind of an impactful year, simplifying your corporate structure, the 2 acquisitions, which has also allowed the public float to be significantly larger. Can you just maybe talk -- you talked a little bit about it, but just a little bit more of the strategic rationale for Redfin, and maybe you spend a little bit more time than on the Cooper acquisition, which you haven't touched on yet.

Yes, sure, of course. So I think, first of all, the way we view this is acquisitions in themselves or inorganic growth in itself is not a strategy. You sit down, you develop your strategy, you understand what your clients and consumers want and then you work your way back from that. So I always look at it like what were our challenges to executing the strategy we just talked about.

One, we want to grow purchase. We want to do more in the home-buying space, we know that. We only have single-digit low share in purchase and as Dan Gilbert always said to me, I have good news and bad news for you. The good -- the bad news is you have 5% market share. The good news is you only have 5% market share. There's 95% to go out and get, but what's the challenge? Why is that so hard to do? Well, one of the reasons it's very hard to do is the cost of acquisition. Most companies in our space are trying to acquire that consumer that's buying a house right at the time they put in an offer, because that's like the best client, right, the highest intent client right at that time.

The problem is everyone is trying to acquire that same client. All those companies that we just mentioned, Doug, are also into brokers, realtors, title companies. They all want to acquire that client, too. So we knew that we had to start building relationships with consumers looking for homes much earlier in their process and their experience, and we were investing in a property called Rocket Homes.

We had a search portal. The problem with that search portal was we were getting about 1 million MAUs a month, and we all see Zillow's numbers. We see Redfin's numbers at 50 million, and scaling that was going to be an uphill battle, and it was going to be an expensive battle. So enter Redfin into the equation. They have 50 million MAUs that come to the property every single month. They all have different levels of intent, right. As a user of Redfin, sometimes I'm just down there for curiosity, and other times, we have consumers that are there, and they're closer to the home-buying experience, and they're actually looking.

So being able to start building relationship with them earlier in the process is a much better cost of acquisition proposition. And by the way, we're getting to those consumers much earlier than all those other companies I mentioned that don't have that advantage. So that's one problem, partly solved by the Redfin acquisition.

The other thing, and you know this, Doug, but one of Rocket's superpowers is what we call recapture on the servicing portfolio. So for those of you that haven't spent as much time following mortgage, one of the earning assets of a mortgage company is the ability to collect and process the mortgage payments on behalf of Fannie or Freddie or Ginnie, and you collect maybe 25 to 30 basis points to do that. What's a really nice cash earning stream, combined Rocket and Mr. Cooper, it's close to $5 billion of cash flow coming off that servicing book. And that's exactly how most companies thought about it. They thought about it as a really nice cash flow. It's a hot -- you have to put some costs against it. You have to do some work, but it's a pretty high-margin business.

And it is great, and we think we do that the best, but what's worth even more than the value of that servicing right is being able to do that client's next loan or as we call it, recapture that client's next loan, because the beauty of that is you have a servicing asset, you replace it with the next one, but you get all the economics on doing the next loan. So we are the best in the business at that where about 80% of the time, those clients will come back to us for their next loan.

The industry average is almost inverted. It's almost maybe 20% to 30% of the time, the client will come back to their traditional lender to do their next loan, which goes back to that bad experience problem. So if you were in my seat, you would say, well, that's great. Let's do more of it. Let's get more servicing. And that was our goal, and it is our goal -- but again, similar to the story on Redfin, it's a hard thing to do, too, because it's a very competitive market. There's a lot of other people that are trying to acquire servicing. So we are really good at doing it through our organic business and just generating new client loans, but going out and buying it in bulk or doing it through these correspondent or other channels is challenging because it's a competitive market. Enter Mr. Cooper into the equation. Mr. Cooper is the largest servicer of mortgages in the United States. On a combined basis, we have 10 million loans that we service. So we instantly gained scale, but we gained a couple of other things.

Mr. Cooper also is one of the only servicers that has a proprietary servicing system. Most things, and you'll see this as a theme in this space. Most companies have not invested. Other than Rocket, Mr. Cooper in proprietary technology. Most companies use vendors and you've heard of ICE and people like that. They buy those technologies. And there's nothing wrong with that, but if you're going to own your own destiny and do some of the things that we want to do, having a proprietary system is an important part. So Mr. Cooper was the lowest cost servicer and the largest servicer. That's a major advantage. If you can have better economics than your competitors, it opens up a ton of option value. And then they were also pretty good at recapture. They weren't as good as Rocket, but they sat about in second place with about 50% of the time, clients coming back to them to do their next loan. So both of those things were very appealing to us, the scale.

And the last thing I'll say is the management team, too. If you've had a chance to follow them at all, -- there -- they've been in business for a very long time. They've had success. They've had growth, and they have a very deep bench, led by Jay Bray, the CEO, who is now the CEO of Rocket Mortgage. So for those reasons, again, Mr. Cooper solved the problem of being able to bring down our cost to service on a combined basis, have more access to distribution to do more recapture. I think that's why these 3 companies come together so well. They really do form -- they solve each other's problems in some ways, and they form this really nice homeownership platform.

So kind of laying that out kind of seen as Rocket is kind of doing something unique. Like how does that change? And how does the industry kind of respond to that from a competitive dynamic?

Yes, it's a fair question. I think a little bit to be determined. But one of the challenges that we talked about in the beginning of this space is that there hasn't been heavy capital and investment to it. And I think there's a view out there that if rates were to stay a bit higher for longer, there are some companies out there that are challenged and aren't necessarily driving the profits and cash flows of Rocket, and Mr. Cooper, for example, and even Redfin for that matter. So it's our view that there probably will be some consolidation.

You started to see it a little bit in the real estate and brokerage space. You've seen it on a smaller note in mortgages. And then what we're also seeing is just not necessarily consolidation, meaning companies combining or going away, but you're definitely seeing companies in this space pull back. And the reason we know that is because we don't see them marketing. We don't see them trying to go out and acquire new clients. So they're not necessarily in a growth mode. They're in a stay in, let's see what happens mode. We think that's a big opportunity for us to help more clients.

And then probably thirdly, Doug, and we've talked about this, but we just also don't see banks leaning into the space as we once would. We all know the story around wells and some of the comments there, but we haven't seen banks out trying to acquire and do mortgage as a core product anymore like they once did.

So I think all that means that you probably end up with fewer companies in the space and I think more opportunity for Rocket.

Got it. And then, just as you think about providing kind of that, that whole homeownership experience. As you look at kind of the new Rocket, is there anything else that's kind of missing from that ecosystem today? Not that I want to put any more integration on your plate, but like just how are you thinking about the completeness of your product offering today?

We feel really good. We feel really good. Obviously, 2 public company acquisitions in 1 year, both announced in 1 month. As a matter of fact, does put a lot on your plate. But again, they -- these acquisitions really fulfilled the strategy. They weren't acquisitions for acquisition's sake. We would have been doing this stuff anyways. We just couldn't have done it probably at scale as fast.

So we feel really good about the asset classes that we have today and the growth opportunities. And it really comes down to just the number of consumers that we can interact with. Because, again, traditionally, you're out there buying these consumers, trying to find them like everyone else's. We have 50 million right on Redfin. We have 10 million right in our own servicing portfolio. So as we measure that I'll call it, SAM or that opportunity against what we have today, we feel really good about our chances of growing.

Got it. Just to pivot a little bit to kind of -- you guys talk a lot about AI. Why is it so important to Rocket, and how are you deploying that into the business?

Yes. Well, if I think about what AI does best, it's almost hard for me to think about a better case study than a mortgage company for a couple of reasons. Number 1 is it's just traditionally been a human capital-intensive business. It's a workflow business, right? It's almost like a manufacturing plant, but rather than manufacturing a widget, you're manufacturing data, and you're manufacturing data in a way that gets delivered to the GSEs to the Fannies, to the Freddie's in a way or is said in our language, you're underwriting that data in a way that the GSEs will accept it, turn it into a mortgage-backed security that hopefully performs.

So if you think about the use case, there's a couple of really interesting things. One, you know what the end product needs to be because you have guidelines that tell you, I will accept loans that have this LTV, and I won't accept loans that have this LTV. I will accept loans that have this DTI, and I won't accept loans that have this DTI. So what a great use case because you have the answer to the test.

Now collecting the data and information and packaging it in a way that I can submit it is a challenge, but that's what AI is really, really good at. So that's number one. And then the question we get a lot, Doug, is, well, that's great, Brian, but then why can't everyone else do it? And I do think it will impact everyone in the business, but I don't think it will impact everyone equally. Because the other thing that's really important when you're talking about AI, even if you were -- if we were to go out tomorrow and try to build an LLM, all the LLMs competing today, what's the -- their advantage is usually the data that they have. And what the model is trained on. And that's again where you bring Rocket and Redfin and Mr. Cooper together, and we're talking 30 petabytes, 30 petabytes of proprietary data that we can train these models.

And so if you use a few examples, 60 million call logs that we have client interactions that we've saved, we can train this model on to make our sales teams more effective. Millions and millions of loans that have been delivered to the GSE and underwritten that we now have historical performance on that we can train the underwriting models on to know that, hey, it's not just DTI and LTV. These other factors matter. And then the third thing that I think we have a major advantage on is something we talked about before.

If we were a traditional company in this space, we're likely using outsourced systems, we're likely buying the systems that everyone else is buying and that's great. But we own these systems. These are proprietary loan origination system, our proprietary servicing system. So we're not waiting on other product road maps to API in new technology. We're building our own product road maps, we own our own destiny, owning the proprietary system makes a big difference in terms of the speed at which you can launch and ship new products, at least in our humble opinion.

So we think we have a major advantage because of the data. And we think we have a major advantage because we're one of the only companies that built its own systems. But thirdly, the actual business in the industry is ripe for disruption because it's so fragmented because it's so data intensive and it's so human capital intensive, and we're seeing the fruits of that every single day, because the way we look at it, every -- in mortgage, every transaction today, if it's going to be eligible for Fannie or Freddie, still requires a licensed loan officer and a license or certified underwriter.

So those are your pinch points. Those 2 roles, that's your pinch points because you need a sign off on every single loan. So when we wake up, and we obsess over this stuff, it's how to make those roles more efficient. And the way to make those roles more efficient is solve all the challenges that can be solved with AI and technology, and then allow those loan officers, and allow those underwriters to do what they do best, which is to, if you're a loan officer, to talk to clients and have empathy and sales techniques. And if you're an underwriter, only working exceptions, only working the really hard stuff.

So the easy stuff should be done for them, and it just shows up. So that's why we're so interested in it. That's why we're investing, but that's also why we're seeing a lot of fruits of that labor.

Got it. And you kind of touched on this here, but like as we think about the impact on your business, should we be thinking about it on kind of a cost side? Should we be thinking on the revenue side? Like how are you looking? And what metrics should we be looking at to kind of measure the success?

Yes. It's a good question. So I think it's both. But I think on the cost side, it's definitely more valuable. And a good way to measure that is the number of loans per team member that we do. And again, that goes down to finding all the things that these folks do, that isn't a good use of their time and continuing to eliminate those roles or eliminate those functions so that they can do the things that they do best. And we're seeing that today.

So that comes out in a couple of ways. It comes out in increased capacity, meaning you can do more loans per person. And then, of course, you're driving and bringing option value to. If the market doesn't cooperate or if the capacity gains come faster than our estimate of what we can do, there's obviously a major cost play. But on the top line and revenue, this is important, too, because again, going back, just as an example to those loan officers, their time is extremely valuable. So you want them interacting with clients at the right time when the client is ready to be engaged and has high intent. That's when you want a loan officer. You don't want a loan officer working a pipeline of low intent clients and wasting time.

So using AI to work that conversion funnel and do some of the things that you would do for lower-engaged clients with technology and telling loan officers and identifying loan officers when clients become more engaged or become higher intent and using AI to tell them this is the next best action you should take loan officers.

Just as a quick example, when we started this journey a couple of years ago, we started having some AI technology look back at historical sales data and said, what was successful and what was not. And one of the big things is like texting your client, that seems obvious, right, but texting them at the right time with the right information.

And at first, AI was saying, this is your next best action, text the client, right? Then AI said, we analyzed all the text messages, ones that worked well and one that didn't. Then it's a text your client this information because this works. And now AI is doing the texting for you. So you're actually not even doing anything. So just in a quick example of the evolution, but that, Doug, is mostly a top line play right there.

Got it. An then, just I want to shift towards your growth potential. At your Investor Day last year, you laid out some market share goals that would achieve pretty rapid growth. I would assume pretty rapid growth from here just specifically going up to 8% on purchase and up to 20% on refi. Can you just talk about kind of how -- what drives you to get from where we are today to those goals?

Yes. Well, again, the nice thing is we still have single-digit share. So there's a lot to go to get. So we're not running up against the ceiling. But the couple of things that give me personally a lot of conviction are going back to some of the things we said. Number one, on the recapture side of the house, there's still room to grow, especially on the Cooper book, but even on the Rocket book, especially in the purchase side of recapture. And now we have 10 million clients. So that gives me a lot of conviction that we will increase the recapture rate that comes with share gains I think the Redfin, the ability to build those relationships with 50 million people, and have a reason to interact with them on a monthly and daily basis.

We have a brokerage. We have realtors who know that Rocket Mortgage is the best option for their clients, and we have technology and API built in gives me a lot of conviction too.

And then going back to a couple of other things. One, last year, you noticed that we did a brand rehaul or restage. And the focus was after we did a lot of brand survey and information, who our brand resonated with wasn't -- while it had great brand awareness and resonated with many hundreds of millions of consumers, it wasn't all the consumers that were fitting the demographics of consumers that would be buying homes. So that was a big initiative last year, and we're starting to reap some of those benefits. And then some of the things are just -- again, when you have 50 million clients and 10 million clients you're servicing, getting that conversion funnel, is perfected as you can because increasing conversion by 1 or 2 or 3 percentage points in that funnel makes a significant difference on your revenue and makes a significant difference on the cost side of the house because you're focusing on the clients that are actually going to convert. And obviously, that turns into share gains, too. So we have a lot of opportunity in front of us on the share side.

Got it. And as you think about share, you guys operate multichannel business, the direct-to-consumer, where we've been spending most of our time, but also the partner channel, and then with Cooper, you have correspondent as well. How important are those partner channels? And kind of how do you manage the conflicts of operating multiple channels?

Yes. The way I look at the multiple channel aspect of our businesses is really option value. There's a couple of ways to think about it. But the way I think about it, and I think where you're headed, Doug, is Rocket was built as a direct-to-consumer business. There's no question about it, and we think we do that the best, and then we also have a broker business or as we call it a TPO or wholesale business where we work through brokers. And a couple of things come to mind. One is, again, going back to our share comments, there's plenty of mortgages and plenty of growth opportunity in both channels. You don't actually get as much conflict, as you might think.

What it really comes down to for us is the experience that the consumer is looking for. If the consumer is the type that wants to come to a digital property, fill out an application and go through a digital experience all the way to get their rate locked and do that in, I don't know, 10 or 12 minutes, then coming to the direct-to-consumer channel is the best experience for that client. But if the client is looking for more of a relationship experience, looking for someone that maybe lives in their local community, then the broker experience is a great experience for them, and they're going to get that.

And I should say, as it relates to the broker experience, we believe in choice. We believe these brokers should consider Rocket as an option, and we think we're a great option for them, but they have other options, too, and we empower that. The other channels, I would say, Doug, the way I think about correspondent or Cooper did a lot of co-issue before, those are really MSR growth channels, right? Those are a way to take -- be opportunistic and grow your MSR, your servicing book. And the reason that I like those channels is because those are things you can either put your foot on the gas or take your foot off the gas.

And we should do really well in those channels because if you think about the act of acquiring an MSR and trying to fair value that asset and say, what can I pay for it? Well, we should theoretically be able to pay the most, but have the best returns because we can do so well on that recapture assumption, right? We do so well on doing that client's next loan.

Now what we know is that we do the best on the clients next loan when we've done their first one. No surprise there, right, because they get to experience, the Rocket experience and then they go to the servicing experience, and they like what they see, and they come back to us. And industry-wide, we know correspondent is lower, but we also know that our Rocket and Cooper combined have some of the best recapture even on those correspondent loans. So the way I think about those channels is that it's opportunistic. It's option value. We can put our foot on the gas, we can take it off depending on what we're seeing on those recapture rates. But as I think about the main growth opportunities in taking share, I think it's direct-to-consumer and that partner channel.

Great. And unfortunately, it looks like we are out of time, so I can't continue this. But thank you for joining us. It's been a pleasure.

Thanks for having me, Doug. Appreciate it.

Thanks.

Thank you for standing by, and welcome to the Rocket Companies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Sharon Ng, Head of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us for Rocket Companies earnings call covering the third quarter 2025. With us this afternoon are Rocket Companies CEO, Varun Krishna; and our 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 our 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'll turn things over to Varun Krishna to get us started. Varun?

Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings call. Today, I'll walk through 4 key areas: Third quarter results, continuing progress on AI, integration with Redfin and Mr. Cooper, and finally, the new Rocket we're building for the future.

The third quarter was a defining moment for Rocket, and I am so proud of our team. We gained market share, we beat our adjusted revenue guidance, and we brought 3 public companies together. This performance reflects our ability to balance short- and long-term execution. You know a company and a team are special when they don't take their eye off the ball while still dreaming big. Only the best can deliver today while shaping tomorrow, and this team proves it every single day.

Let's start with our Q3 execution in the context of the market. We operate in a complex housing environment. Affordability is slowly improving as rates ease. In the third quarter, the 30-year fixed rate dropped by 40 basis points to 6.3%, giving those buying and refinancing some much-needed rate relief. Home price growth also continued to moderate, slowing to 3.1% year-over-year in Q3, down from 5.5% in January. These trends signal a purchase market that's beginning to thaw, but that recovery still has a ways to go.

Existing home sales continue to hover around 4 million units, putting 2025 on track to be the slowest year for existing home sales since 1995. Despite this, people want to buy homes. That pent-up demand is very real. Buyers are watching the market closely, they're waiting for clear signals and increased affordability before making their move.

The true measure of a company is its ability to grow in a challenging market. Rocket's Q3 results demonstrate exactly that. We delivered $1.783 billion in adjusted revenue, exceeding the high end of our guidance. We generated $36 billion in net rate lock volume, up 26% over the second quarter and $32 billion in closed loan volume, up 11% over the second quarter. We gained market share in both purchase and refinance. And in fact, Q3 was our strongest purchase and refinanced quarter in the last 3 years.

Gain on sale margin remained stable sequentially. Adjusted EBITDA reached $349 million, expanding margins to 20% from 13% in the prior quarter. Adjusted diluted EPS came in at $0.07. Our guidance beat was driven by a surge in refinance activity as rates move lower and our execution that drove our market share gains. Rocket's platform enables our team to shift into overdrive and capture market opportunities on a dime. We consistently gain market share when these opportunities arise. We also closed the Mr. Cooper transaction on October 1, and will consolidate their financials in the fourth quarter.

Let me now turn to AI. The reason that we are so obsessed with this technology is because it helps us with every single aspect of our business. It helps us grow the top of the funnel. It helps us lift conversion rates. It helps us reduce production costs, and it helps us increase recapture. The Agentic era of AI has been particularly impactful. This quarter, we launched three AI agents that have changed the game. First, our Pipeline Manager Agent, ranks banker leads in real-time, highlights who to call next, and drafts custom texts based on past conversations to drive responses. Managing our massive and complex sales pipeline is critical. That's exactly what this agent helps our loan officers do using our own data and market knowledge to surface the right leads and engage them instantly. During the September refinance wave, this agent drove a 9-point jump in client follow-ups and a 10% lift in conversion for both daily credit pools and refinance applications directly increasing locked loan volume.

Second, we deployed a purchase agreement review agent, previously reviewing a single purchase agreement required more than 80 manual steps, ranging from extensive paperwork and data entry to countless validation and compliance checks. This agent cuts processing time by 80% and achieves accuracy that exceeds the legacy review process. This translates into more than 150,000 team member hours saved annually.

Third, our Rocket Pro broker underwriting agent gives our mortgage broker partners speed and certainty. It verifies documents, checks e-sign compliance, confirms eligibility, and creates task summaries. What took 4 hours now happens in less than 15 minutes. What gets me excited is that we build each of these enterprise-grade agents in less than 3 weeks with some even going live the same day. This is thanks to proprietary technology. as we extend these tools across all our teams and partners, we expect the impact on capacity, conversion and volume to keep accelerating.

This quarter was also significant as we began integrating 2 public companies into the Rocket family. The true value of these acquisitions lies in combining distinct strengths to create something greater than the sum of its parts. In a nutshell, Redfin brings a low-cost, high intent lead pipeline that enhances the top of our funnel, while Mr. Cooper adds an ongoing servicing revenue stream that expands our ability to drive recapture. Now recapture means turning servicing clients into repeat borrowers by proactively offering new loans when they're ready to refinance or purchase a new home. Combined, we now have relationships with approximately 60 million clients and prospects who are now part of the growing Rocket ecosystem. We've seen momentum accelerate 4 months into our integration with Redfin, giving homebuyers on Redfin the ability to get prequalified with Rocket is fueling engagement. In September, over 500,000 Redfin users started applications for home financing. That's more than double the number we saw in July.

The combined power of Redfin and Rocket is driving Redfin's mortgage attach rate, defined as the percentage of Redfin buy-side clients who use Rocket Mortgage for their home purchase, from 27% to nearly 40%. Homebuyers are seeing the benefits, better matches with agents and loan officers, bundled pricing through Rocket preferred and a stronger mortgage platform offering for more products and greater scale. And the results speak for themselves. In September, 13% of Rocket Mortgage retail purchase closings came from clients who use both Redfin and Rocket. We expect this to only increase.

Now let's talk about Mr. Cooper. We are combining the industry's largest servicer and the top originator to create a massive recapture engine. Making this integration a success has been a top focus for our team. We closed the transaction on schedule, and we were ready to hit the ground running from day 1. On October 1, we rolled out our co-branded identity, Mr. Cooper powered by Rocket Mortgage, and set the pace for everything that followed. Our servicing and origination platforms connected seamlessly, data and documents move smoothly between systems, no disruption, no hiccups for clients. On day 9, 40,000 leads for Mr. Cooper's servicing book flowed directly into the Rocket pipeline. By day 12, we closed our first Mr. Cooper client start to finish in just 3 days. And just this week, 400 Mr. Cooper loan officers are fully onboarded into Rocket Mortgage, leveraging our technology and tools to raise the bar for service.

With a combined servicing portfolio nearing 10 million clients, we're now running the largest, most powerful recapture engine in the industry, fully integrated and delivering right here at Rocket. The recipe for success is simple. When you get the people right, strategy and solid execution follow. With a combined team across Rocket, Mr. Cooper and Redfin, we've got the best team in the business, bar none. This team represents experience, capability and the best track record on the planet. If there's one thing I hope you take away from today, it is simply this, that Rocket is in a category of one.

Historically, our industry has operated in silos. Companies have typically been either originators, servicers or real estate companies, each focused on a narrow slice of the client experience. Rocket breaks that mold. We are not just one part of the process, we are all of them. We are a homeownership company, bringing end-to-end integration to housing at a scale the industry has never seen. Our platform is vertically integrated by design, powered by AI, and it represents the future of home buying.

This platform also reflects a new type of business model. Traditionally, each of these business models, originator, servicer, real estate, has its own strengths and limitations. Servicers tend to excel in higher rate environments with predictable recurring cash flows that attract value investors. But growing and replenishing mortgage servicing rights often require significant capital. Origination companies shine when rates are low, capturing market growth, but they can struggle with volatility, high client acquisition and capacity costs. Real estate companies excel at attracting millions of consumers to the top of the funnel, but they often fall short on monetizing that traffic effectively, lacking a comprehensive monetization engine.

So by bringing together Rocket, Mr. Cooper and Redfin, we've created something unique, one company solving the industry's most complex challenges in three transformative ways. First, we've built a business model that thrives in any interest rate environment. When rates rise, our servicing portfolio, the largest in the industry delivers stable, recurring cash flow and increased value in our mortgage servicing rights. And when rates fall, portions of our portfolio become eligible for recapture, generating significant refinance and purchase opportunities. Meanwhile, our origination business continually replenishes and strengthens our servicing pipeline.

Second, we've cracked the code on unit economics by transforming how we acquire clients and manage capacity through the combined lead funnel of Redfin, Rocket and our servicing book, we attract high intent clients at scale and we do it efficiently. Our AI-powered tools further amplify our impact unlocking team member capacity, so our team members can serve more clients with greater efficiency, driving higher client lifetime value and a better, faster experience.

And finally, speaking of clients, what matters most is the consumer. Everything we build, every integration we pursue centers on delivering for our clients. When we execute on this vision, our brand comes to stand for speed, certainty and low rates in fees. That is the new Rocket. We take care of every client, every time, which earns us lifetime value and the privilege of being their lender for life. We are setting a new standard for homeownership and the journey is just beginning.

And with that, I'll turn things over to Brian.

Thank you, Varun, and good afternoon, everyone. We are executing with focus and intensity at Rocket, and I'm excited to share our progress with you today. I'll recap our third quarter performance, provide updates on the Redfin and Mr. Cooper integrations, and discuss how the Rocket business model is transforming. Finally, I'll conclude with our outlook for the fourth quarter.

Q3 was a standout quarter for Rocket. We delivered strong operating results while moving full speed ahead on the Redfin integration and completing the largest acquisition in our industry, right on schedule. And even though we're just 30 days into the Mr. Cooper integration, we're already seeing the kind of traction that gives us tremendous confidence in what's ahead.

Let's start with our third quarter results. Adjusted revenue was $1.783 billion, exceeding the high end of our guidance range. Net rate lock volume totaled $36 billion, up 26% quarter-over-quarter and 20% year-over-year. This growth outpaced the broader market in both purchase and refinance, resulting in market share gains and our largest purchase and refinance quarter in over 3 years. Gain on sale margins remained healthy, coming in at 280 basis points, right in line with the previous quarter. Redfin revenue performed in line with expectations.

Total expenses for the quarter came in at $1.789 billion, up $450 million from the second quarter, driven by 3 factors: one, the inclusion of Redfin's expense base; two, higher variable costs tied to the increase in production; and finally, roughly $90 million in onetime costs. We delivered $349 million in adjusted EBITDA or a 20% adjusted EBITDA margin. We reported adjusted net income of $158 million and adjusted diluted EPS came in at $0.07. All of this took place against the backdrop of a housing environment and the third year of a gradual recovery. As Varun shared, when the going gets tough, the strong standout. And the results of this quarter are clear proof of that.

The third quarter began with the 30-year fixed rate at approximately 6.7% in early July, easing to 6.5% by early September. During a 2-week period in September, ahead of the Fed's first rate cut of the year, the 30-year fixed edged down another 20 basis points to reach 6.3%. This favorable rate move sparked a surge in our refinance volumes. We moved swiftly to capitalize on this opportunity, leveraging AI tools that enable us to rapidly scale up our capacity. This execution drove our outperformance and market share gains. For those of you that have followed Rocket for a while, this shouldn't be a surprise. We have a track record of outpacing our competition during market shifts.

It's also worth noting that our home equity product continued its momentum, doubling year-over-year. And on the purchase side, the third quarter marked our strongest performance in over 3 years, as Redfin is already contributing meaningfully to our retail channel. Redfin's source purchase closings make up 13% of our direct-to-consumer purchase closings today, and that's a number we're excited to keep growing.

Now I'd like to provide an update on our capital position. In June, we proactively issued $4 billion of unsecured notes in anticipation of refinancing Mr. Cooper's unsecured debt and pay down of existing MSR debt. Upon closing, $3 billion of Mr. Cooper's legacy unsecured notes were refinanced with the proceeds from that issuance while the remaining $2 billion were refinanced through an exchange offer. Importantly, the total combined corporate debt balance remains unchanged with a simplified capital structure. In addition, we upsized our revolving credit facility from $1.150 billion to $2.300 billion, further enhancing our liquidity profile. As of October 1, inclusive of Mr. Cooper, Rocket Companies pro forma available cash was approximately $4 billion, and total liquidity stood at approximately $11 billion.

Next, let me highlight the progress we're making with the Redfin. Our integration is exceeding expectations and showing strong momentum. Redfin's robust lead funnel of nearly 50 million MAUs, the related mortgage experience and the real estate brokerage are now fully integrated with Rocket Mortgage. Since launching in July, we've seen the number of Redfin users going directly to home financing through the get prequalified button more than double, surpassing 0.5 million by September. Mortgage attach rates, which are the primary driver of revenue synergies, have climbed from 27% to 40% today, that's ahead of our goal in just the first 4 months since closing, and puts us well on the way to hit our 50% target attachment rate.

The feedback from Redfin agents has been extremely positive in the months since closing, and the power of the Rocket preferred pricing bundle is helping to drive up those attach rates. These early results reinforce our confidence in achieving $60 million of revenue synergies over the course of 2026, with full run rate realization expected in 2027.

And on the expense side, I'm pleased to share that we have already executed the majority of our $140 million annual expense synergy as measured against Redfin's Q1 2025 cost structure. We realized a portion of these savings in the third quarter, and we expect to see the full run rate benefit in the fourth quarter results.

Turning now to the Mr. Cooper integration. Our planning began well before day 1, and executing a seamless integration remains our top priority. For six months, leading up to our October 1 close, our leaders and integration teams from both organizations work side by side to ensure we're ready to hit the ground running. To lead this process, we tapped Kurt Johnson, Mr. Cooper's former CFO. Kurt is a seasoned leader with deep industry expertise and a proven track record of managing large complex integrations. We are fortunate to have him guiding these efforts.

The integration connects Mr. Cooper's servicing portfolio directly into Rocket's recapture engine. Rocket Mortgage and Mr. Cooper loan officers are working side by side and have access to a massive lead pipeline and deep client insights. Just 30 days in, we're already seeing strong momentum in an increased conversion on Mr. Cooper's servicing portfolio leads. While more work remains, we are even more confident in our ability to capture the full value of our planned synergies.

With those integrations underway, let me take a step back and look at how Rocket's business model is transforming. This is a stronger rocket, a company in a category of one. By combining Redfin's broad real estate consumer reach, Rocket's origination engine, and Mr. Cooper's servicing expertise, we have unified three industry leaders to unlock even greater potential at scale. Rocket has a more durable business model grounded in three pillars: Stability through recurring cash flow, a larger platform for growth, and a cost advantage that creates sustainable operating leverage and superior unit economics.

First, our combined servicing portfolio, the largest in the industry, generates $5 billion in stable recurring annual cash flow, providing a dependable earnings base in any environment. Origination and servicing naturally offset each other as rates move. Lower rates drive origination, while higher rates increase MSR value, stabilizing earnings. Even in the toughest mortgage market in decades, a combined Rocket and Mr. Cooper would have delivered positive GAAP earnings every quarter from early 2023, through the third quarter of 2025, on a pro forma basis. This shows our resilience through cycles.

Second, our opportunity for origination growth is even bigger. Redfin and Rocket together have the industry's largest purchase funnel, 62 million monthly active visitors, reaching 1 in 5 prospective homebuyers. We have a robust recapture engine tied to our servicing portfolio of nearly 10 million homeowners. Recapture means turning servicing clients into repeat borrowers by proactively offering new loans when they are ready to refinance or move. With advanced data and AI, we target the right client at the right time. Rocket's recapture rate is 3x the industry average. Here's an example. If the 30-year fixed rate falls to 5.5%, 25% of our servicing portfolio or about $300 billion in unpaid principal would be positioned to refinance, representing significant growth potential and all at a very low cost of acquisition resulting in strong operating margins.

Third, we have a clear cost advantage in both origination and servicing. Historically, the bulk of origination expenses come from client acquisition and supporting production capacity. By leveraging Redfin's MAUs, Rocket's brand, and our servicing recapture capabilities, we efficiently attract high intent clients at scale. Our AI-powered platform further expands our lead funnel and improves conversion, driving even greater efficiency.

AI unlocks capacity of our production team members so that we can grow origination while keeping fixed costs flat. Every loan requires a licensed loan officer and a licensed underwriter. With AI, our production team members can now handle 63% more loans than they could just 2 years ago. We're building the foundation for infinite capacity at Rocket, allowing us to scale without limits and pursue growth unconstrained by human capacity. As we scale, our structural advantages and client acquisition and capacity provide sustainable operating leverage. Once fixed costs are covered, 70% of additional revenue goes to EBITDA, supporting further margin expansion.

In servicing, Mr. Cooper operated at a cost to service roughly 1/3 lower than the industry average. With our larger combined service portfolio, focused on recapture and low servicing costs, we are optimizing the strengths of both companies. With this new Rocket, we define our own future, and a resilient business model thrives in any market environment.

Looking ahead to the fourth quarter, Q4 will be the first quarter that both Mr. Cooper and Redfin are fully consolidated into our operating results. We expect adjusted revenue, inclusive of these acquisitions, to range between $2.100 billion and $2.300 billion. On a Rocket stand-alone basis, excluding Mr. Cooper and Redfin, we expect adjusted revenue at the midpoint of the range to be up roughly 7% year-over-year. This guidance reflects our expectation for continued market share gains and the typical seasonality we experienced in the fourth quarter with softer housing activity and slower mortgage demand during the holidays. As always, our forward-looking guidance reflects the latest market data in our current visibility.

Now switching to expenses. On a consolidated basis, including Redfin and Mr. Cooper, we expect total expenses of approximately $2.300 billion. This figure includes $140 million of onetime transaction-related costs and $120 million of new amortization of intangible assets associated with the Redfin and Mr. Cooper acquisitions. Excluding these items, underlying expenses are expected to be roughly $2 billion in the fourth quarter. This expense guidance includes $215 million of interest expense related to unsecured debt in MSR facilities.

To wrap up, we are executing at a high level. Integrations are on track. Our teams are focused and we're delivering results. We are well positioned to finish the year strong and carry this momentum into the New Year. Rocket's future is bright, and we are in control of our destiny. With our AI-powered vertically integrated homeownership platform, we're setting a new standard for homeownership in America, helping everyone home in driving long-term shareholder value.

Operator, we are now ready to open it up for questions.

[Operator Instructions] Your first question comes from the line of Jeff Adelson from Morgan Stanley.

I guess just maybe to dig in on the revenue guidance a little bit more closely here, appreciate the breakout of what the ex-Redfin, Cooper guide would look like up 7%. At the midpoint, I guess just a couple of questions there. Could you maybe help us understand how the core ex-Redfin, Cooper, what's trending this past quarter and how that relates to the 7% at the midpoint for the fourth quarter? And maybe just what's embedded in your outlook for the Cooper and Redfin business in the fourth quarter as well. And then as you think about the momentum you're highlighting from all the businesses and the Cooper transaction so far, how are you thinking about the 2026 outlook as it relates to the market and the combined entity today?

Jeff, thanks for your question. So let me start with just a little bit on Q4, and then I'll comment on the outlook for '26, and then Brian is going to unpack just some specifics on our guide for Q4. So just as a reminder, obviously, we're in Q4, but as always, historically in Q4 in the mortgage market, it's a little bit softer traditionally, and that's just for some basic reasons. You've got fewer working days. You've got Thanksgiving, Christmas, New Year's and the holidays, and consumers in general are just not as focused on the housing market. But the great news is that even with that seasonality taken into account, our purchase pipeline is at record levels. And so that gives us a lot of confidence in the quarter, which is reflected in our guide. And again, Brian will unpack that in just a minute on why that guide is not just strong, but it also reflects taking share.

But what gets me pumped up about 2026 is that when we look ahead, we think it's going to be a very strong year for Rocket. And what gives us confidence, in particular, is when you look at like the Fannie Mae forecast, they're expecting the market to grow 25% year-over-year. And there's also some forecast that has rates potentially dipping below 6%. And I think as you know, that is a great thing for Rocket when you consider both the purchase and the refinance funnels that we have at scale. And that's a stand-alone observation. So what's particularly interesting is when you look at Rocket with Redfin, with Mr. Cooper, all of this becomes force multiplied because you have significantly improved lead flow, you have this recapture pipeline between origination and servicing, and you also have these new revenue streams. So we feel very excited about 2026. We see our momentum just continuing to accelerate.

But just coming back to Q4, Brian, maybe you can unpack the quarter in some more detail.

Yes, sure, happy to do it. Jeff, thanks for the question. Good to hear from you. Let me actually start a little bit with Q3 and build on that because I think that will help understand the transition from Q3 to the outlook. But the third quarter was really strong. Obviously, you heard the numbers, we did great on a revenue perspective, but I'm actually more impressed with the share gains in the third quarter. We got a little help in the month of September from rates. There's no surprise there. But the good news is we capitalized on that, and we took share using AI and technology. So we believe that the fourth quarter was one of our biggest share gains. So looking forward to the fourth quarter, Varun mentioned it, but we do expect some of that traditional seasonality to come through, particularly the week around Thanksgiving and the two weeks around the Christmas holiday, consumers get distracted.

When I look at some of the mortgage forecasts in the fourth quarter, I see some that have it about flat with Q3, some that have Q4 actually up. And that's just not normally what we see. So that's probably worth pointing out. Even on the purchase side, it kind of makes sense because consumers aren't necessarily looking for homes during those times, but even on the -- I'd argue on the rate and churn and cash outside, consumers are just focused on other priorities. So the range, as we said, was $2.100 billion to $2.300 billion.

And just a little color, Jeff, on October. The purchase pipeline that we have that Varun mentioned is at record highs, and Redfin is starting to contribute to that in a meaningful way. About 13% of our purchase pipeline today is generated from Redfin clients, clients that were searching for homes on Redfin and looking to connect with the real estate agent and then connect to mortgage. So that gives us a lot of excitement there as you can see that synergy value starting to transpire.

And then when I look at the refi side in the month of October, the beginning of the quarter started really nice from rates. Obviously, the Fed meeting didn't necessarily help yesterday. So there's more to be seen. But the thing I look forward to is on the Cooper side. As we mentioned, we are starting to work the servicing portfolio of Mr. Cooper on the Rocket platform, and we're starting to see a really nice conversion lift there.

And I mentioned this in the prepared remarks, but to give you a little more transparency on Rocket on a stand-alone basis, if I look at Q3 Rocket only, the results would be up 14% year-over-year. And if I take the midpoint of the guide in Q4, that's 7% up year-over-year. So look, we think both the jumping off point of Q3 is really impressive, and we think the Q4 guide is very strong and incorporates market share gains.

Your next question comes from the line of Mihir Bhatia from Bank of America.

Maybe just going to the Mr. Cooper acquisition. Can you just talk a little bit more about the confidence and timing of the synergies associated, maybe both on the revenue and cost side? And then while you're on that note also just in terms of the OpEx for Q4, just a stand-alone Rocket OpEx or just to be able to track that.

Thanks, Mihir. So I think we'll jump into the synergies in a minute, but I think it probably -- maybe it would be helpful for me to just give a general integration progress update as well. So I'll start there.

So look, we closed the deal on October 1. And this deal was transformational, not just for Rocket, but we think for the housing industry itself. It's the first time that origination and servicing have ever been connected at this scale. And the combined companies have a balanced business model, as we shared earlier, to thrive in any market and rate environment. And so we've been executing pretty strongly right out of the gate, very similar to the Redfin acquisition. And it is a large integration, but we've made pretty significant progress.

And I just want to give you a few highlights. Day 1, we had a co-branded identity, Mr. Cooper powered by Rocket Mortgage. By day 9, 40,000 leads were flowing through our pipeline from the Mr. Cooper servicing book, and that number only continues to increase. Day 12, we had our first Mr. Cooper client close a loan with Rocket Mortgage, and the turn time on that was unbelievable, it was 3 days. And just within 30 days now, we've integrated the servicing and origination platforms. We've onboarded our loan officers and mortgage bankers and we've had zero client disruption. And so with an acquisition of this scale, that's something that we're very proud of.

And look, there is obviously a lot of hard and fun work ahead, and we're taking it seriously. Right now, we're focused on the system integrations, the data integrations, the culture integrations. But the good news is this is what we do. And it's why we're good at what we do and what we do best. So the teams are clicking very well. The leadership is deeply integrated. The culture is already starting to feel very strong. And that gives me a lot of confidence in our synergy and our goal targets. And so we're very pleased with the progress thus far. And that's probably a good time, Brian for maybe to go a little deeper on to the synergies.

Yes. Thanks, Mihir. I mean, I think you said it well. On the Cooper side, Mihir, the only thing I'd add is the work, Varun mentioned, around the pre-closed planning is really key to hitting those synergy numbers. And we talked about $500 million in total synergies, $400 million is expenses and $100 million is revenue. And you can see all that laid out in the IR deck. But I mean I'd tell you at this point, I'm happy to report that we have line of sight to the $400 million of expenses, and that's been identified. Probably just on the revenue side, what I can say is just take you back to those comments about the lead flow to the Rocket platform from the Cooper servicing book and the increase in conversion there, that really will translate to the enhanced blended recapture rate that will drive those revenue synergies. So we feel really good. It's early days. We're only a month in, but we feel really good.

And just, Mihir, to make sure you caught the comment, I can go more into the expenses as well. But on the Redfin side of the house, we talked about $140 million of synergy numbers, and that is all identified and will be realized in the fourth quarter. So you're talking about $35 million of full quarter realization in Q3.

If I just kind of zoom back out, excuse me, in Q4, Mihir. But if I kind of zoom back out just to give you color on expenses, we said we expect Q4 to be about $2 billion, that's all three companies combined, and that's net of onetime costs and the purchase price amortization.

There's probably a couple of call outs for you as you're thinking about your models. In Q4, I have about $140 million of onetime expenses. These are things like severance and deal-related expenses. That compares to about $90 million in Q3. And then remember, the other thing to think about is this purchase price accounting amortization. In the fourth quarter, I expect it to be about $120 million, that's the amortization of both Redfin and Mr. Cooper. That was $50 million in Q3, which was just the amortization around Redfin.

And the last thing, just in terms of unique items, remember, in June, we issued about $4 billion of additional debt, and that was in anticipation from triggering the change of control provisions on Cooper's unsecured debt stack. So for about 4 months, which was all of Q3, you had $4 billion of additional unsecured debt, and you have that cash. So the net expense, which is essentially the difference from your earnings rate on the cash and the note rates, the interest expense on the debt was about $10 million. That will all go away in Q4.

And just to give you a little more color, I expect about $140 million of unsecured debt expense sort of on a run rate go-forward basis, that will come through in Q4. But I think the important takeaways are, look, we continue to be very disciplined on the expense side of the house. We are focused on realizing our synergy values and now even exceeding those, and that's even before AI and technology really unlocking capacity and efficiency for us.

Your next question comes from the line of Doug Harter from UBS.

I was hoping to talk a little bit more about the revenue progress at Redfin. Can you talk about what you see as kind of what's going to be the driver to get from the 40% attach rate to kind of the target 50% that you had? And whether that's -- I guess, first, whether that 40% was kind of the exit rate for the quarter or the full quarter average.

Yes. Maybe I can use this opportunity, Doug, just to give a quick overall update on Redfin, and then we can dive into some of the specifics. So I think it's important to highlight that it's just been a fast 4 months since closing, and I'm very, very pleased with the execution.

We've got momentum. We're building fast. And a few things that I would just highlight on the execution progress that drive just revenue and client growth. First thing is, we've added a prequalification experience and a funnel to every listing on Redfin. So that's millions of access points that represent every single home listing that's on Redfin. And because of that integration, because of the optimization, the number of clients that actually have started applications using that access point that get prequalified button has doubled. So about 0.5 million clients have started applications in September, and that's doubled since July, where it was around $0.25 million.

And what's great about that is, this is the start of what we think is a very performance funnel. So that is the top of the funnel. It's obviously very big. But as you take that funnel down, it represents leads that we can nurture, right? Those are clients that we have long relationships with, not just in days or weeks, but really over months because that's typically how the purchase pipeline works.

And what's also important to call out is that Redfin is becoming a very big part of Rocket's purchase pipeline. It's already contributing to 13% of our total retail purchase closings. And for a company of Rocket size and scale, it's obviously a very significant number, and we expect that to grow.

And then as you pointed out, we also have our mortgage attach rate, which we talked about, and that's basically Redfin clients that choose to work with Rocket via a Redfin agent. And that's climbed from 27% to 40%, which is ahead of our plan, and we expect to see that continuing to grow. And we think that that's going to exceed expectations. And there are really 2 things that are driving that. The first one is the strength of the integrated brand, Redfin powered by Rocket. And the second is we have a very compelling bundle that's competitively priced, and that's unique to the Rocket-Redfin ecosystem, and it delivers value to clients, and it's something that our agents really like.

And what's exciting for me is that moving forward, this is just a lot of progress in a very short period of time. We've only been doing this for 4 months. And we think about next year, we want to blow the doors off this, right? We want to add the refinance funnel into our Redfin ecosystem. We want to take more of the mortgage application process and bring it up into the Redfin app so you can start and finish inside of the Redfin experience. And so we think that, that's going to increase opportunity. We think that, that's going to optimize the funnel and we have a lot of room to grow there.

And then lastly, I think similar to Mr. Cooper, strategy is one thing, but these integrations are also really about cultural integration as well. And I'm really pleased with just how well the leadership teams are working together. You just can't tell where one company starts and the other company finishes. Culture is strong, engagement is high, the agents and team members are very engaged. And that just gives me a lot of confidence in what we're going to do next year. So in summary, we've made pretty solid progress in four months, but I really think that's a drop in the bucket compared to what's ahead in '26.

I guess, Varun, on the top of the funnel, the number of leads that are kind of going through the prequel, I guess are you seeing -- or do you have any data as to like how those are moving through or some falling out and going to competitors or the ones that are falling out just because they're not -- they haven't actually transacted on a home yet. Just any more color on kind of how that -- how leads are moving through that funnel would be helpful.

I mean, Doug, it's typical to, I would say, a regular mortgage funnel where -- I mean, the thing we know is happening today in the home buying world is that there's a lot of intent, but the time to buy is extended when we compare to historical periods. We're seeing the same thing as Redfin is we're seeing the same thing in Rocket stand-alone, which is you have consumers coming in, they have high intent. By the time they're ready to get prequalified, that means they either have started searching in a lot of cases, they're about to start searching for the home, they want to know how much they can afford and they want to be serious about it. So we see them go take the exercise to get preapproved, and then they're in our pipeline, and we start nurturing them.

But we also know that in most cases, they're not getting the home, the first home they find and the first offer they make, at least in a lot of the geographies, and we also know that sometimes what they get qualified for isn't quite as exciting as they might have thought just given where interest rates and inventory are. So I wouldn't necessarily call it fall out. I would call it just clients that are very interested. They find out how much they can afford. They begin their shopping experience, but that shopping and looking experience for home is definitely in an extended period, at least compared to historical levels.

Your next question comes from the line of Bose George from KBW.

Actually, can you give us an update on how you're feeling about the market share targets that you provided last year at Investor Day? And then can you also remind us, is the Cooper market share going to be additive to that?

Thank you for the question, Bose. So I'll comment on our growth targets in purchase and refinance, and Brian, feel free to jump in. So I mean, in short, we feel really good about our growth targets. We talk a lot about refinance, and that's obviously something that we're very good at. But let me just drill down on purchase in particular because that is a newly declared durable growth lever for the future of our company.

And so over the past 2 years, we've been very consistent around our message around transforming our company, to make purchase something that is durable for the long term. And when you think about Mr. Cooper and Redfin joining Rocket, we obviously expect that progress to accelerate.

And we have basically three very simple building blocks around how we're going to win and purchase. I think the first one is, you have to have a strong top of the funnel as we talked about earlier. And that's really what Redfin represents. 50 million monthly homebuyers, thousands of local agents. And what's great about Redfin is just the quality of the traffic. Many of those consumers are higher intent, more serious home buyers that use the app every single day. Redfin has the highest weekly to monthly app engagement ratio in that space. And so that represents not just the lead flow. But as Brian shared earlier, it's a pipeline of clients that you can nurture over days, weeks and months, which is the nature of purchase.

And then the second building block is the actual funnel itself. And that's where artificial intelligence and automation are so significant to us because we can nurture leads in a low-cost manner. We can improve conversion. We can automate every single part of the experience to make it more efficient, more personalized. We can have better underwriting, better pipeline management, and we could just make the whole experience faster and more accurate. And as a result, we can pass on that savings and value to the client in the form of lower rates, lower fees, and faster turn times.

And then the third building block, which we're really excited about is the power of our servicing portfolio. And that is something that is a big unlock for us. With Mr. Cooper, when you have 10 million clients in your servicing portfolio, that is effectively a prebuilt pipeline of high intent buyers that trust Rocket. And the best part of this is when you consider the macro environment, these are the types of clients that are most likely to participate in a purchase, especially in today's housing climate, because they're either a move-up buyer or they're going through a life change. And so we expect a lot of that pipeline and client base to be where these purchase transactions happen, and we have an advantage because we have a relationship with those clients.

So these three building blocks are critical to our purchase, but they're also very unique to Rocket and Rocket only. And so when you put them together, we're pretty confident that it's a growth engine for purchase market share. And then coming back, not just for purchase but also for refinance because as rates inevitably change, we can harvest that same lead funnel to drive automated personalized refinance activity as well. So we feel very confident. We're on track to achieve our goals. And these acquisitions and the client distribution they represent, just give us more leverage points to achieve this. And I think the best part is that is agnostic of any potential market tailwinds in like potential rate relief. And so if you add those dynamics and those tailwinds, it just boosts our confidence in achieving and exceeding our market share goals.

Okay. Great. And just to clarify, so will the Cooper share be sort of incremental to the numbers that you provided earlier?

Yes. Thanks, Bose. We're going to come back out in the coming quarters and talk a little bit about the revision around the market share goals after the acquisitions. But right now, our focus is integration, achieving synergy numbers, and we'll have more to report there later.

Your next question comes from the line of Terry Ma from Barclays.

Do you guys have any more color on the 20% servicing cap from the FHFA and what that pertains to? And if it is on total servicing, can you maybe just talk about how that changes, how you think about the overall business?

Yes. Thanks, Terry. I'll take that one. So I think, first of all, for the group, it's important to understand that caps are not unusual in our industry, particularly when they result from acquisitions, and they can change over time. The regulators want to see a couple of things. They are very focused on the integration and making sure you take care of the consumer. And then, of course, capital and liquidity levels are king. So they want to see that you maintain the appropriate capital and liquidity levels.

And the agreements between the GSEs and the counterparties or firms like us are confidential. But what I can tell you is that since the deal was announced in March, we've had really productive conversations with the GSEs and FHFA. And our capital and liquidity levels are well beyond the required standards. So we believe that the current agreement gives us sufficient room to grow and achieve and even exceed our synergy target. So in summary, I'd just say it's not something we're worried about.

Your next question comes from the line of Ryan McKeveny from Zelman.

Congrats on the results and on closing the Cooper deal. On the technology and AI initiatives, encouraging to hear the updates on the three AI agent -- examples you gave and the benefits of those. I think each of those were origination related. I guess now that Cooper has closed and the size of the servicing book has meaningfully expanded, can you talk about the technology and AI strategy more broadly? How that can play into the servicing side of the business as well to provide productivity, efficiency, cost savings? Obviously, you've given a lot of updates on the origination benefits, but hoping you could maybe speak to the servicing side as well.

Yes. Thanks for the question, Ryan. This is an area that we are incredibly excited about. And I would go as far as to say the future of servicing is Agentic AI. And when you think about the use cases in servicing, a lot of it has to do with helping clients solve meaningful problems but also handling simple tasks and automation that drive day-to-day efficiency. So when you think about things like managing your payments, handling things like forbearance, property taxes, dealing with issues, escalations, those are all things that we have significant opportunities to automate, personalize and add value with AI.

And one of the things that I think is particularly exciting is that there's just a lot of technology evolution in the space. One of the things that we have recently done is we partnered with a company called Sierra. And Sierra is an AI-first company that builds native, fully automated digital assistance. And this is an opportunity for us to really drive massive innovation in the servicing space, not just an agent that can handle those day-to-day tasks and issues, the one that can anticipate things that may come down the line, one that can give advice to clients to help them manage their future, one that's available 24/7.

And so the great thing about this is, we think that the space is going through a pretty dramatic evolution. We're betting very big on technology here. And the thing that's important for us is that we care very deeply about owning and building our own technology. And so our servicing technology is proprietary. We have deep vertical integrations. They're built around data, and we're going to continue to evolve that with the expanded client base that we get with Mr. Cooper.

And then when we partner, we're very selective with who we partner, and we picked an example like Sierra because they are born of the kind of the AI world. And so lots of opportunity here, I think, for us to really transform the way servicing works from the ground up, and this is a big area of focus for us.

And your final question comes from the line of Mark DeVries from Deutsche Bank.

Sticking with AI theme, I was hoping you could drill down on some of the benefits you got from the investments you made in responding to the big surge in demand you saw in September and on a go-forward basis, how you're thinking about the real benefits you'll drive, whether it's just faster return times, higher efficiencies and anything else?

Yes, Mark, I can start on that one. I think particularly during that September window, like I said, it was a really nice case study because the thing I think people don't think about is you think about, hey, you have to have capacity to underwrite process and close loans. And there's no question that some of the AI initiatives have made a big impact to us there.

But on the loan office or the mortgage banker side, I would say equal, if not bigger impact because when you have those rate surges, you get an influx of clients coming into the pipeline. And so being able to interact with those clients through digital chat experiences where the relationship is not one to one, like a client on the phone really increases your capacity. Also leveraging AI to collect documents and follow-up items that traditionally loan officers and mortgage bankers would be doing in the time where they really should be understanding the client situation and helping them understand how they can save money on a rate and term refinance could be a distraction from the actual revenue generation opportunities.

So I think when I look at traditional mortgage companies and they have inbound leads coming, the only way they can do them is pick up the phone and work longer hours. When I think about how Rocket can handle them with the digital experiences, particularly on chat, interacting through our website in messenger, and then when we actually are making phone contact with the client, knowing that, that client is high intent, knowing that, that client, in some cases, has already provided some information so we can let the loan officers do what they do best. Those are the things that not only increase the capacity of the business, but in a meaningful way, also increases the efficiency of the business.

And that concludes our question-and-answer session. I will now turn the call back over to Varun Krishna for some final closing remarks.

Well, thank you, everyone, for listening to the call today, and we look forward to seeing you in the New Year.

This concludes today's conference call. Thank you for your participation. You may now disconnect.