Rocket Companies, Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Rocket Companies Incorporated Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I will now turn the call over to the company. You may begin your conference.

Good afternoon everyone. I'm Jason McGruder, Vice President of Investor Relations. Thank you for joining us for Rocket Companies earnings call covering the third quarter of 2020. We are excited to share the results of another very strong quarter with you. Before I turn things over to Jay Farner, I will read our disclaimers. Today's call is to provide you with information regarding our third quarter 2020 performance in addition to our financial outlook. This conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued today, as well as risks described in filings with the SEC, particularly in the section of these documents titled Risk Factors. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued today, as well as in our filings with the SEC. And with that, I'll turn things over to Jay Farner to get us started. Jay?

Good afternoon and welcome to our third quarter earnings call. I'm pleased to report Rocket Companies' six consecutive quarters of record-breaking volume, highlighting the power of our platform and the strength of the Rocket brand. We're demonstrating true leadership at a critical time for our industry and our clients. I'm extremely proud of our 22,000 plus team members whose dedication and drive have helped deliver the results we will share with you today. First, I want to congratulate our team on being named the number one company for client satisfaction in mortgage origination by JD Power yesterday. This marks our 11th straight year being named to the top of the list. And when you add in our seven consecutive number one rankings for mortgage servicing, we've taken home 18 JD Power awards in the last 11 years. This one in particular is special to us; however, it's proof that our platform is so powerful that we can more than double loan originations year-over-year and still deliver on our commitment to servicing our clients at the highest levels. Again, team, congratulations. Our industry has reached an important moment. The COVID-19 pandemic has fundamentally changed the way Americans think of their homes. For decades, many of you viewed your house as your most important investment. Today, a home is so much more. It is now where we work, where we teach our children, and where we gather with friends. Bringing new meaning and significance to the place where we live, our home. This enthusiasm around the value of home is clear in the numbers. For instance, the National Association of Realtors' existing home sales report shows that September sales of previously owned homes were more than 20% higher than the same month in 2019. Also, recent reports in the New York Times and San Francisco Chronicle tell of residents moving from city centers to buy homes in the surrounding suburbs in search of more space. Homeownership is on the rise across the country led by a new generation of first-time homebuyers. As a result of shifting demographics and the ongoing pandemic, we are seeing a rapid acceleration in the long-term shift from physical to digital transactions across the industries where we participate. Consumers today don't just prefer—they demand a completely digital experience. At the same time, the digital transformation of the lending process has become more important than ever. As an unprecedented number of consumers look to leverage today's favorable interest rates, we are seeing the strongest growth among our most digitally engaged clients. Application volume through our self-serve digital experience has grown significantly faster than overall volume year-to-date. This trend accelerated earlier this year and continued through the third quarter. The Rocket Mortgage platform is particularly powerful for first-time homebuyers, who can receive loan approvals within minutes. In the third quarter, we delivered more purchase approval letters through our digital experience than in any quarter in our company's history. In addition to becoming the overwhelming choice for millennial homebuyers, Rocket Mortgage has continued to serve a large number of clients looking to take cash out of their homes, reduce their loan terms, or refinance due to changes in life situations such as divorce. These clients, who are not rate sensitive, remain an important population when you consider Rocket Companies' incredible footprint, serving all 50 states and more than 3,100 counties in the United States, and a growing presence in Canada. Our marketplace has reached a significant inflection point due to consumers demanding a simple digital experience. And I'm proud to say Rocket Mortgage is executing at enormous scale. In the third quarter, we delivered a record performance with $89 billion of closed loan volume, representing a 122% increase year-over-year. The growth we're achieving is unmatched. In Q3, we added nearly $50 billion of year-over-year closed loan volume. Consider this: our incremental volume in the third quarter is so large that it alone would have made us the second largest retail mortgage lender in the nation. To further illustrate the scale of this growth, Rocket Mortgage closed nearly $1 billion of origination volume each day in the third quarter. The scale and efficiency of our platform continues to drive substantial earnings power. We achieved a 69% adjusted EBITDA margin in the quarter and have generated $5.9 billion of adjusted net income in just the first nine months of 2020. The guidance that Julie will share with you today assumes we are among the most profitable FinTech companies in the world. And we're not stopping there. Our mission is simple: we will continue to lead from the front as the most admired brand and technology platform in our industry. Recently, we hosted TechCon, our in-house technology conference for all Rocket Companies technologists, drawing more than 4,000 of the brightest minds in the industry. One of the most important topics covered was ethical artificial intelligence and its ever-increasing role in business. We crossed an important milestone in Q3 by generating more than $60 billion in application volume over the last two years using data science and AI. Our data science teams are now generating organic lead flow at higher conversion rates than paid marketing channels. We are also using automation to improve the efficiency of our operations and are now making more than 1 million decisions per day using machine learning. All these processes get better with scale, strengthening our competitive lead and reinforcing the Rocket Companies flywheel. In addition to leveraging our rich data insights, we continue to expand the ways we are reaching consumers through innovations, partnerships, and marketing. In the last 30 days alone, we have announced enhancements to our Rocket Pro platform, that grant real estate professionals never-before-available insights into their clients’ mortgages. Now they can help guide homebuyers through the mortgage process from approval to closing using the Rocket Pro mobile app or website. Rather than calling one of our mortgage bankers, we're asking the client real estate agents to now use Rocket Pro insight to check in on a loan status; that leaves more time for Mortgage Bankers to help other homebuyers, and the agent can focus on showing and closing houses with their clients. The reaction from those in the real estate community has been overwhelming. In fact, in the first day, more than 1,100 agents joined Rocket Pro Insights, and the momentum has only increased. We anticipate nearly 15,000 real estate professionals will sign up to use the platform by the end of the year, providing a significant touchpoint with one of the largest influencers in the home purchase lifecycle. Another program to help both homebuyers and their agents was launched in early October. We kicked off a new relationship with Realtor.com that allows the tens of millions of homebuyers visiting their website to seamlessly apply for a Rocket Mortgage. The new venture was quickly followed by an announcement highlighting Rocket Mortgage's partnership with Intuit’s Mint Personal Finance tool. Now Mint users can easily import their personal financial information into a Rocket Mortgage loan application with the tap of a finger, allowing them to lock in a mortgage rate in as little as eight minutes—all while staying in the Mint app. Quicken Loans Mortgage Services, which serves the needs of our mortgage broker partners, recently rebranded to Rocket Pro TPO. This transition allows our partners to continue to meet the needs of their clients while also providing them with the ability to leverage the best-known brand in consumer lending with Rocket Mortgage. To celebrate, we provided 10,000 fresh purchase leads to Rocket Pro TPO partners—something that's never been done before in the industry. As part of the rebranding, we've also announced new AI and machine learning innovations in partnership with Google technology. Additional tech-focused enhancements to our platform and new ways to align with and support our brokers. Overall, the feedback we've received about the rebrands and technology rollouts has been extremely positive. In addition to all the fantastic partnerships we've already shared with you, we are proud to announce that as of last week, we have forged a relationship with one of the largest financial services companies in the world. This collaboration, similar to the program we created with Charles Schwab, will allow us to originate mortgages for a new base of clients. We anticipate that we'll share more information in the New Year. Our exceptional brand marketing also continues to be a true differentiator in the industry. Our Rocket campaign has been incredibly successful. We're proud to soon be rolling out a new slate of ads, including our first exclusively targeting the growing 'what next' community. We continue to also leverage well-known talent like Jason Momoa, star of our Super Bowl ad, and future NFL Hall of Fame wide receiver Larry Fitzgerald in our marketing to appeal to a broad consumer base. The fact is Rocket Companies is leveraging the scale and flexibility of our platform to deliver first-to-market innovations with the best partnerships in real estate, technology, and finance, all while reinforcing our brand with best-in-class marketing. Outside of mortgage, innovation is taking place throughout our entire ecosystem. In the last several months, Nexus, our title and closing technology company, announced it had partnered with insurance leaders Farmers and Lemonade to simplify homeowners insurance verifications using its Clear HOI platform. These companies joined others, including Allstate and Liberty Mutual, in helping provide a digital solution to lenders looking to confirm the presence of an insurance policy in real-time, eliminating the need to manually call to confirm a process that is deceptively tedious. At Amrock, our title company, we closed more than 100,000 mortgage transactions in September, a record that proves the scalability of our platform. In addition, Amrock continues to be a trailblazer, digitizing the title industry, much like Rocket Mortgage did for loan originations. In the first three quarters of 2020, the company is responsible for 90% of all eClosings in the industry, providing safety and convenience to our clients amid the ongoing pandemic. Additionally, Amrock is implementing machine learning and ethical AI into its workflow through its proprietary titled decision engine, or TDE. This tool, which is currently being used on more than 30% of Amrock title work, automates the traditionally manual process of reviewing documents, maps, and records of sale, cutting down the time our team members spend working on files by nearly 70%. This frees us up to work on other, more specialized items, significantly increasing our productivity. Finally, I'd like to take a moment to talk about our approach to client retention, an increasingly important driver of our business. After we originate a loan, we maintain monthly touchpoints with our clients and generate recurring revenue by processing their payments and servicing their loan over its lifetime. Julie will give more detail in a moment, but we are sharing today that Rocket Mortgage consistently retains over 90% of our total servicing clients on an annual basis. Retention at these levels has never been seen in the mortgage business and rivals any subscription-based model across industries, including cable, streaming, and wireless services. Before I turn things over to Julie, I wanted to announce an addition to our Board of Directors. Our Board has voted unanimously to make Jonathan Mariner, the Founder and President of TaxDay, an Independent Board member and new Chair of our Audit Committee. Prior to TaxDay, Jonathan spent 23 years in professional sports serving as the Chief Financial Officer for Major League Baseball, the Florida Marlins, the Florida Panthers, and Dolphins Stadium. In addition to our Board, he also serves as an Independent Board Member for Tyson Foods, McGraw-Hill Education, Major League Baseball, and several others. We are very excited to have him join us. And with that, I'll ask Julie to share with you the details of our financial performance this quarter.

Thank you, Jay, and good afternoon everyone. Thanks to the hard work of the entire Rocket Companies team, we achieved another quarter of incredible results. In the third quarter, we achieved year-over-year quarterly adjusted revenue growth of 163% to $4.7 billion and adjusted net income growth of 365% to $2.4 billion. We also produced another quarterly record in closed loan volume, which was up 122% year-over-year to $89 billion. Based on what banks and mortgage lenders have publicly reported, we believe that our closed loan volume growth was substantially higher than the overall industry in the three and nine months ended September 2020 compared to a year earlier. We generated record quarterly net rate lock volume of $94.7 billion, which represented a gain of 101% year-over-year. As a reminder, we recognized revenue at the time when we lock the interest rate with our client. Rate lock typically occurs approximately 30 to 45 days prior to the closing of a loan. We produced robust growth in both of our segments. Funded loan volume in our direct-to-consumer channel was up by 131% to $53.5 billion, an increase in our partner network by 127% to $29.6 billion both compared with the year-earlier quarter. We consider a loan funded when it is sold to investors on the secondary market. While we continue to benefit from the low interest rate environment, we also produced strong year-over-year growth in the quarter from less rate-sensitive products. Demand for these products are driven by factors including clients wanting to purchase a home, take cash out of their homes, and reduce the terms on their mortgages, as well as changes in their life situations and the demand for investment properties. Although rate-term refinancing activity has been very high in 2020, we have historically had a balanced mix of origination. For example, from the first quarter of 2017 through the third quarter of 2020, more than half of our overall volume was from less rate-sensitive products. Gain on sale margin of 4.52% increased substantially from 3.29% in the prior year period and remained strong by historical standards. The sequential change from record gain on sale margins of 5.19% in the second quarter was driven primarily by changes in channel and product mix. As a reminder, record gain on sale margins in the second quarter reflected our ability to rapidly scale our direct-to-consumer volume during a period of pandemic-related market disruption, particularly during April and May. Breaking down the 67 basis point variance in gain on sale margins sequentially, changes in loan pricing represented less than 10 basis points of the quarter-over-quarter difference in our gain on sale margins. Approximately 40 basis points of the change resulted from differences in channel and product mix, particularly the strong growth of our partner network volume during the quarter. Overall, our margins exceeded the high end of our expectations and remained at historically elevated levels throughout the third quarter. In the past, we have typically seen primary and secondary spreads normalize within a month or two. However, since March, these spreads have remained well above historical averages. We believe this speaks to the strength of demand in the current environment as you heard from Jay. Managing gain on sale margins is an important advantage of the Rocket Mortgage business model; our centralized technology-driven operating model allows us to dynamically price our products on a real-time basis. As the largest mortgage lender in the country, we also benefit from the scale and sophistication of our capital markets capabilities, including superior hedging and secondary market execution. Client retention is another key differentiator of the Rocket Companies ecosystem. We've spoken to many of you about our ability to recapture clients who pay off out of our servicing portfolio because of our unique business model; our recapture is more than four times the industry average based on the latest figures from Black Knight. Today, we are also introducing a new metric called our net client retention rate. This metric is intended to be comparable with retention figures across multiple industries, including cable and wireless service providers. Our new metric is calculated based on the clients who remain active with Rocket as a percentage of the total starting client base. As we show in today's press release, our net client retention rate has consistently been about 90% over the past few years. Retention at these levels drives substantial lifetime value advantages for the company. Our high net retention rate allowed us to benefit from continued cash flow from our servicing portfolio and also have the opportunity to partner with our clients throughout our ecosystem. This metric reflects the high lifetime value of our portfolio. The unique strength of our business is that when the net client retention rate falls, it is generally the result of lower interest rates leading to higher refinance activity. Because our recapture rate is 4.6 times the industry average, we generate even more revenue from increased loan origination volume. Our unique business model acts as a natural hedge to our retention rate. In the current environment, we are driving strong repeat transaction activity, which represented 42% of overall mortgage volume in the third quarter. We are also adding hundreds of thousands of new clients into our ecosystem, creating and expanding a foundation for future growth. Our total Q3 expenses increased by 46% year-over-year, primarily driven by higher variable compensation and an increase in team members in production roles to support our growth. Turning to our balance sheet, we remain in a strong liquidity position, with total liquidity of $6.9 billion, which included $3.5 billion of cash as of quarter end. We define total liquidity as cash and cash equivalents plus drawn and undrawn lines of credit and self-funded mortgages that can be transferred to our funding facilities at our option. These figures reflect the strong underlying cash generation of the company and our recent issuance of $2 billion in senior notes at substantially lower interest rates than the notes refinanced. After the end of the quarter, we repaid the $1.25 billion of senior notes due 2025. Overall, we are extremely proud of our long-term track record of delivering profitable growth at scale and our record performance in the quarter and year-to-date. To illustrate just how significant our scale is, the company has been consistently profitable on an annual basis, having generated double-digit GAAP pre-tax income margins every year from 2015 through 2019. Over just the first nine months of 2020, we produced approximately $6.6 billion in GAAP pre-tax income, which represented a dramatic improvement compared with a year earlier. Our strategic objective remains to achieve 25% market share of the mortgage market by 2030 while continuing to generate industry-leading profitability over the long run. To achieve these long-term objectives, we are investing in our brand and technology so that we can profitably grow through all market environments. For example, over the 12 months ended September 30th, 2020, we leveraged more than $500 million invested in technology and approximately 2,900 technology team members to further increase monthly loan production capacity and enhance efficiency, including some of the enhancements Jay discussed. We also invested approximately $900 million in marketing over the same timeframe. Moving on to our outlook, we currently expect closed loan volume of between $88 billion and $93 billion, which would represent an increase of 73% to 83% compared to $50.8 billion in the fourth quarter of 2019. We expect net rate lock volume of between $80 billion and $87 billion, which would represent an increase of 82% to 98% compared to $43.9 billion in the fourth quarter of 2019. Lastly, we expect gain on sale margins of 3.8% to 4.1%, which would be an improvement of 11% to 20% compared to 3.41% in the fourth quarter of 2019. Lastly, the company's Board of Directors approved a $1 billion share repurchase program effective today. The authorization reflects the Board's and senior leadership's confidence in Rocket Companies' long-term prospects. The program gives us the flexibility to take advantage of opportunities if we believe the market is undervaluing our business. We are committed to using our substantial cash generation to create long-term value for our shareholders. With that, we are ready to turn it back to the operator for questions.

Your first question comes from the line of James Faucette from Morgan Stanley; you may proceed.

Thank you very much. Good afternoon, Jay. Good afternoon, Julie. I'm wondering if we could start with the new retention metric that you highlighted. And maybe you can just spend a minute or two helping us understand how you look at that and how that's different than the other net retention metrics you've used in the past, maybe, Jay, in particular, if you look at that 92%, what goes through your mind in terms of the different ways that you can look to take advantage of that and increase the lifetime value of those customers?

Yes, thanks for the question. I know we talked a lot about this during the IPO process and Bob Walters, in particular, about our recapture capabilities, which are now referencing north of 4.5 times the industry average. So if someone's going to be paying off in our portfolio, we are recapturing that client, which is great because it generates very good revenue for us. And that recapture rate is one of the reasons we can have this very high retention rate. When you just touched on it, when the retention rate is high, we have longer client lifetimes. When you think about the lifetime value of a client, there are more opportunities to help them with the refinance, as well as buying more opportunities to help them with other products such as auto or personal loans, and even something different for us; we benefit from out of a lot of the other retention type businesses that we're profitable on the first transaction, as you saw today very profitably. But if this is actually more unique for us because in our business when the retention rate rises, you're probably looking at increased interest rates. And so as servicers, we collect those monthly payments while also having the ability to market to those clients for other services. But if rates are falling and we might see the retention rate drop a bit, the rate today here in the low '90s, which is still incredible. We're still benefiting because of that recapture rate. This allows us to generate significant revenue on the refinance of their mortgage. So, retention rate and recapture rate work together, but also function like a natural hedge. I think Julie referenced that earlier, really allows us to win—whether interest rates are rising or falling. That supports that broader ecosystem that we're building, as I touched on before—keeping the client in our ecosystem to be able to offer additional products and services to them, that's how I like to think about it.

That's really helpful. And then I guess to build on that, one of the key things that we look at is how quickly can you get people into the Rocket ecosystem and can you do that at kind of the beginning of their professional and working careers as and when they are buying their first homes. I think you made some comments that you're seeing some success there. But maybe you can talk a little bit about where you are seeing success and how we should think about the trajectory on that initial purchase volume and how that can contribute to the lifetime value, particularly if you're able to maintain most high retention rates? Thanks a lot.

Yes. And thanks again for the question. As I referenced in the comments on the call here, the demand for the digital experience is stronger than ever, and we're seeing significant growth there, particularly for us on the purchase side. So, we're talking about millennials, we're referring to folks who've been thinking about buying a home, and as I touched on COVID has really driven these clients to accelerate their desire to be homeowners, moving from urban centers into suburban places and looking for homes. In fact, I think Q3 was one of our strongest purchase quarters, and we issued more verifiable approval letters than any other quarter in our company's history. So that's one way that we engage that client early on in their life cycle. And then I'd like to mention the Rocket Auto business, that we are excited about because that also tends to skew to a younger demographic. So if Mortgage or home isn't the initial purchase loan auto may be. All of those initiatives in our ecosystem that we're working on allow us to start that relationship building with the younger client base that then will retain for 20, 30, or even 40 years to come.

Your next question comes from the line of Timothy Chiodo from Credit Suisse; your line is open.

Thanks a lot. Thank you for taking the question. Wanted to bring up the topic that comes up often in investor discussions. It's around some of the technology advantages that you have that have taken clearly years and lots of investment to build up. The question is really around, can you bring to light some of these advantages that might be behind the scenes that may be tougher for the consumer to see by looking at the user interface, anything along those lines would be much appreciated?

Yes, thanks for the question. I believe Julie referenced this as we think about the investments that we've made here in the last 12 months, $500 million when it comes to our now nearly 3,000 technologists and the platform that we've been building. I think the best example that I can give you is the growth year-over-year. If we look at the first nine months of '19, I think $94 billion closed. Now we look at $213 billion in the same nine-month period in 2020. $94 billion is a huge base, the largest lender in the country and now more than doubling that demonstrates the power of that platform and those investments that we've made in technology across the board. So we talked about some of the more recent rollouts. One, I'll draw your attention to is the Rocket Pro Insight platform that's giving real estate agents real-time updates on the status of their clients' mortgages, and that's important to them, of course, because they feel in control. It's very important that loans close, but it also frees up time for our team members to focus more on the next loan or making us more efficient versus taking those calls. It also allows those referrals to drive business into our platform. Another one that I believe Julie referenced is the partnership with Intuit; we have been partners with them for a long period of time, but we've been working hand-in-hand to have a fully integrated Rocket Mortgage experience in the Intuit experience for their clients. They don't have to leave that app. We've launched it now and not only does that provide that experience to Intuit users, but the APIs that were built we can leverage across additional partnerships. I know another initiative that we referenced has been tech investments for us is the partnership with realtor.com where we're reaching now tens of millions of prospective homebuyers. And again, that takes good strong growth from our technology team to be able to do that. On the internal side, maybe other things are less evident. A significant portion of our underwriting process has been leveraging ethical AI as we talked about machine learning. A lot of our decisions surrounding verifications of assets, employee verifications, employment verification, and insurance are now done using automated systems. In fact, I think we referenced that there are over 1 million decisions each day being automated, bringing great efficiency to our platform, which is what makes it so scalable.

Your next question comes from the line of Ryan Nash from Goldman Sachs; your line is open.

Good evening, guys. So Jay, maybe to bring together a handful of things that you touched upon. I think a big part of the narrative with the ability to take market share. And I guess based on where you're running, I think you're about the 7.5% year-to-date, maybe closer to 8% in the quarter, although I know you don't manage to any one individual quarter. So with that as the backdrop, can you maybe just talk about the sustainability of volumes at these levels? And second, we're seeing rates moving up a bit and I think market expectations are for them to continue to increase. So can you maybe just talk about how you expect to drive market share in a more purchase-oriented market while leaning more heavily into the broker channel? Is cash out a big part of the volume, and can that help serve as an offset in a smaller refinance market? Thanks.

Yes, great question, Ryan. Julie touched on over the last 2.5 plus years on the volume breakdown for the reasons for a refinance or a loan between purchase and cash out and term changes and life changes like divorce. More than 50% of our production is really not interest rate sensitive. So that's a critical component; we've demonstrated that for years, and that will continue to happen. Also, when we look at the clients that could save a substantial amount of money here in this environment, we're still in a situation where about 70% of the folks out there make sense to refinance. So we feel very good about continued strength in demand, not only on the refinance side but on the home purchase side. Homeownership is back to kind of pre-crisis levels. As I referenced before, millennials are very focused on homeownership moving from urban areas. It was great welcome news that a vaccine may be on its way. But we don't believe this will alter the course that has been set now for more work-from-home, leveraging the home for family and work. All those trends bode very well for homeownership. And so we imagine that will continue. And I think as Julie gave for guidance for Q4, really what you're looking at, if you back out a little bit of pressure we saw in October due to marketing spend for the election, which, of course, makes it a little bit more challenging for us from a marketing perspective. And the fact that Q4 has a few fewer what I'll call actionable business days, you know, the day before Thanksgiving, the day before Christmas Eve, which can be a bit more challenging. If you back that out and looked at what we're forecasting for production in Q4, it's very, very similar to what we accomplished in Q3. As you touched on, this is where our ability to reach into the market leveraging whether it's our partners at Schwab, realtor.com or our go-to partners, along with leading into our direct-to-consumer advertising, it really positions us to grow market share when others are pulling back due to changes in interest rates.

Your next question comes from the line of Rich Shane from JP Morgan; your line is open.

Good afternoon everybody and thanks for taking my questions. One sort of business-related and then one stock-related. As we look forward to the implementation of the GSE adverse market fees coming into place. I'm curious whether or not you think the primary markets are repriced or whether or not you think originators will start to absorb some of this, and that will adversely impact the margins?

This is Bob Walters, and thanks for the question. Largely, most of that pricing has been absorbed. You've got a test run at it before the changes that we made a month or so ago. So they've largely been absorbed at this point and are fairly fully priced into the margins.

Great. Okay, thank you. And then when many situations you guys have announced a $1 billion potential buyback. I am curious how that works with the combination of A and D shares? Are D shares eligible for repurchase as well?

Yes. That's probably a question for Julie; do you want to field that or push that to a different time?

Yes, I can just answer generally: no, the D shares are not eligible for repurchase. This would be a Class A share repurchase program that we have announced.

Your next question comes from the line of Ryan McKeveny from Zelman & Associates; your line is open.

Hey, thank you and congratulations on the results and guidance. So first question on gain on sale margins. Julie, taking some of your commentary about 4Q maybe a step further. I think one of the debates out there is really thinking about that outlook into 2021, 2022 and sort of theoretically, how much compression there could be on gain on sale margins, especially if the environment is such where rates do back up at some point and industry volumes begin to fade. So definitely not looking for specific guidance on volumes or gain on sale margins for next year, but I'm just hoping you could maybe elaborate on the puts and takes for the gain on sale margins. I appreciate all the color that you did provide around the differentiation with your recapture and dynamic pricing, but maybe you can share some color on what you've seen historically in periods that might be somewhat analogous to today, where you have 2020 is a pretty massive year, but effectively what happens after that and what the primary factors that we should think about for the puts and takes?

Yes, sure. If we look back at how we can kind of look at maybe more normalized gain on sale margins, you'll see our direct-to-consumer margins have clinched between 400 basis points and 450 basis points. Then on the partner network side of things, probably between 100 basis points and 150 basis points if you look back over time. So I think as I mentioned, that the demand that we're seeing now will continue to probably have a nice upward impact on those margins relative to the sort of historical levels that we have seen in the upcoming year. How long that will last is just to be seen. But there is quite a lot of demand still out there for the upcoming years.

Your next question comes from the line of Mark DeVries from Barclays; your line is open.

Thank you. Is there any color you can provide us today on the percentage of blocks you're getting from refinancing versus purchase, and also kind of broken down by your two channels?

Yes, that is not something that we have disclosed in the past. I think we disclosed our mix in our filing for 2019 and what that looks like, but that is something where we're still seeing very strong purchase demand here and something that we're very focused on. So we're just not providing those specifics right now.

Your next question comes from the line of Jack Micenko from SIG; your line is open.

Hey, wanted to revisit the buyback versus the special dividend. I'm curious about the buybacks, maybe half of the shares are trading at currently. What was the thought process between maybe a buyback versus a special dividend at this point?

I think really what's the best opportunity for us. If we see the stock price drop to a place that we think is advantageous, it would be a better reduced capital to buy those shares back.

Your next question comes from the line of Bose George from KBW; your line is open.

Hey, good afternoon. If you can give the recapture rates on borrowers who are paying off loans to make a purchase transaction, does that work into the retention metrics?

No, I don't think we give the specific number for that. But I will share with you as we think about the broader ecosystem: Rocket Homes plays a critical role in providing to our mortgage clients the homes they can afford, the equity that they have in their home, and even getting them what we call Rocket ready or verified approval. So someone in our servicing portfolio demonstrating behavior, looking at homes in their verified approval gives us a heads up or trigger to be able to work with that client to ensure that we're bringing them back from a purchase perspective as well. This is why this robust ecosystem is so important to us.

Yes. We have done some Ginnie Mae buyouts, and you can see that we have borrowed on our line of credit on our balance sheet, but this is an opportunity that we're continuing to evaluate for right now. The amount that we're going to do is kind of what you see in our balance sheet there, about $250 million so far.

Your next question comes from the line of Don Fandetti from Wells Fargo; your line is open.

Hi, good evening. I was just wondering if there's been a lot of activities with the non-banks staff. I'm just curious, I don't know you also want to take market share. I'm just curious if you thought the competitive dynamic would change competition and then also what you're seeing from some of the large banks?

We do see other folks who participate in the mortgage and real estate space, thinking about going public. I think when we think of Rocket Companies in our focus on helping consumers with some of the most exciting experiences as they have in their life, whether it's buying a home or refinancing their home or buying a car, we think we're uniquely positioned. Obviously, we've talked a lot about brand here today; we've become the household name when it comes to thinking about a great high-quality mortgage or now real estate experience. We're spending nearly $900 million close to $1 billion in marketing. Also, let me think about the client service we're providing and reference JD Power awards a few times here, but we believe that separates us from others that may be in a similar situation. And then, of course, the dollars that we're able to invest in technology to grow this platform to separate us from others. We've now reached 2 million clients on our servicing book with the retention rate north of 90% with a recapture rate that's 4.5 times the industry average, according to Black Knight. Watching this base grow how we think about this fintech platform is significant; we feel the growth that we're seeing is quite a bit different than some other folks that may be in the mortgage space.

Your final question comes from the line of Henry Coffey from Wedbush; your line is open.

Yes, good evening, and thank you for taking my question. I know on the last call, you talked about your objectives in terms of building capacity for next year. Maybe you could talk about that a little bit more and depending on where the refinance and the purchase market falls out? How do you see that affecting your channel mix between the independent brokers that partner network and your direct retail origination?

While progress is going very well, as you look at the closed volume we were able to achieve in Q3 and our projections for Q4, the technology to allow us to meet our target goal has been 25% of a normalized mortgage market. That's a $2 trillion market, give or take, which would be $525 billion at just about $40 billion a month. From a technology perspective and operations perspective, the platform is performing incredibly well. When we think about the future as we talk about the realtor.com partnership, we've talked about another very large partnership that we'll be announcing with more detail in 2021. We've talked about the rollout of Rocket Pro TPO, giving brokers that brand and that technology. All of these things will allow us to continue to lean into the market share regardless of interest rate conditions. We just continue on our path, building all of the right long-term strategies to allow the company to achieve that long-term goal of 25% market share by 2030.

The only thing I wanted to make sure that I clarified was regarding the share repurchase plan and the question about D shares. I just want to clarify since the share repurchase plan applies to both A and D shares.

Well, great. We appreciate everyone joining today. I think that's going to wrap up the questions, but thank you so much for taking the time.

That concludes today's conference call. Thank you everybody for joining. You may now disconnect.