Rocket Companies, Inc. Q4 FY2025 Earnings Call

Thank you for waiting, and welcome to the Rocket Companies Fourth Quarter and Full Year 2025 Earnings Conference Call. I would now like to hand the call over to Sharon Ng, Head of Investor Relations. You may proceed.

Good afternoon, everyone, and thank you for joining us for Rocket Companies' earnings call covering the fourth quarter and full year 2025. With us this afternoon are Rocket Companies' 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 two 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 homeownership. 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 two 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 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, 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 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 lack 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 doubled 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; 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 could 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 create 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, real AI applied 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 two-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 and 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 homeownership 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 and 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 serviced clients. For context, in the fourth quarter of 2020, this number was 30%. This is the flywheel effect. These clients come with near zero 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 and unlocked pent-up demand. Homeowners who took rates in the high 6% or 7% 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 surged 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 drop 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 two 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 three 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 homebuyers 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 $2.6 billion and $2.8 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 $2.6 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 one-time acquisition-related costs. Excluding these items, underlying expenses are expected to be roughly $2.2 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 expect the mortgage origination market to grow meaningfully this year. But no matter where the market lands, we are built for growth.

Your first question today comes from 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 standalone Compass obviously has a $1 million plus ASP and some of the Anywhere brands, whether it's Sotheby's or Corcoran 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 one 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 two of the big ones, one is supply. Like 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 that 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 are three 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 and coming soon listings into broader visibility, accessible by everyone and expanding that access and unlocking more sellers. The second one, as you mentioned, is lead flow, 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. Brian, 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 million active users. One of the things we were pretty clear about when we acquired Redfin is we're 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 point skewed higher than Rocket's originally too, and 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. You can go see it, and we're really excited about it.

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

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?

It's great to hear from you, Ryan. Thank you for your question. I'll start by discussing the overall market outlook for 2026, and then I'll ask Brian to provide additional insights on our guidance. We strongly believe that 2026 will be more robust than 2025. Various forecasts indicate that the mortgage market could grow by as much as 25%. The main question isn't whether the market will improve, but rather how much it will grow. Most industry predictions suggest double-digit growth in the mortgage sector, and we are observing several positive indicators supporting this trend. Rates are currently at their lowest point in three years, and we're beginning to see rates in the low fives, which is significant. Inventory is gradually increasing, and we aim to expedite that growth, with our partnership with Compass being a key part of that strategy. Additionally, wage growth continues to enhance affordability, which we expect will lead to increased refinancing, especially as rates stabilize at current levels. These are critical macro signals. However, it's essential to understand how Rocket operates in this context, or any context, since we are developing an integrated ecosystem. We generate demand not only from the broader market but also through our own search, origination, and servicing efforts. This allows us to retain and recapture clients at a scale that is significantly higher because clients tend to stay with us due to our service quality. We have reshaped our purchase strategy into a more sustainable growth lever and expanded our distribution network to include retail, mortgage brokers, Redfin, Mr. Cooper, and now Compass. This strategic foundation is deliberate, as we believe it provides us with operating leverage across various market conditions. We don't require perfect market conditions to grow; when the environment improves, we can simply accelerate our efforts. We see this as a structural advantage that reinforces our confidence heading into 2026. With that, Brian, please share your insights on our guidance and the specifics.

Sure, thanks, Brian. It's great to connect with you. I'll start by discussing Q4 as it provides context for our Q1 guidance. Typically, Q4 is a seasonally slow quarter for mortgages, but this time it was different. We believe that Q4 showcased Rocket's strong performance. Several factors contributed to our overachievement, notably the recapture rates on the Mr. Cooper portfolio, which is essential for revenue synergies. I'm pleased to share that we exceeded our targets, reflected in the results, where over 50% of our refinance volume in Q4 came from our servicing book. Additionally, our Direct to Consumer purchase business saw double-digit growth compared to the previous quarter, and we have a robust pipeline heading into March, marking the start of the purchase season. Closed-end seconds reached a record high in December, with $1 billion closed that month. Importantly, gain on sale margins hit a four-year high for fourth quarters, driven by favorable rates that usually support margins. Moving into Q1, I share Varun's optimism. The quarter is trending positively, mirroring the performance of Q4. When I focus solely on production from Q4, it's up in Q1, which is encouraging. Direct to Consumer continues to excel, and we’re observing strong purchase activity that continues into Q1. Our Pro segment is also performing well, mainly oriented towards purchases, which is expected. I mention this for Q1 because gain on sale margins are holding strong for individual channels, although the blended margins are slightly decreasing due to Pro’s growth in purchase. Overall, gain on sale margins are very healthy and nearly at historical levels. In summary, Q4 was an excellent starting point. It marked the first quarter after consolidating all three companies, and it was a remarkable quarter. We anticipate Q1 will be equally strong, if not better.

Your next question comes from the line of Jeff 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 billion to $2.6 billion. Obviously, there's a reclassification of $150 million 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 two public companies, really three public companies is a 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 $2.6 billion, but that's before the one-time costs and other items. So 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 one-time 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 two 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 call it I'd give you, Jeff, is just stock compensation expense. 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 one-time 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 ease 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. We have been closely monitoring the situation and the comments made about it. The reality is that we have invested significant time with our important banking partners. There are a few reasons banks have not ramped up their mortgage activities. One reason may be the capital requirements, and there could be some relief on that front. However, I would also point out that banks have not seen this as a productive area and have not invested in it. The unit economics typically haven't worked out in their favor. Considering their current position and what is needed to be significant players in this market, it seems like it could be a long journey. For us, this is our primary focus. We invest in it every day, and it doesn't cause me much concern.

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

Congratulations, Brian, on your expanded role. I wanted to revisit Ryan's question and focus specifically on market share. What are your updated expectations for market share in purchases and refinancing for 2026? Additionally, you provided a lot of statistics excluding correspondent lending, which I understand. However, does that indicate that Rocket doesn't see long-term potential in that business? I know Mr. Cooper is active in it, so I'm curious if you have any updated insights about the correspondent business and your expectations for market share.

Thanks, Mihir. I want to discuss market share broadly before inviting Brian to dive into the correspondent aspect specifically. To take a step back, we have set ambitious market share goals with a clear timeline extending to the end of 2027. This serves as our guide for long-term leadership in the industry, and we are excited because we believe we are on track to meet these objectives. We reaffirm these goals, but it's important to note that progress in our industry is not always steady. In fast-growing markets, we tend to gain share quickly, while in tougher markets, we may see competitors chasing growth that is not economically viable, and we choose not to engage in that. Our focus is straightforward: it's about profitable market share expansion. We will not compromise returns for the sake of increasing volume. Our confidence in achieving our goals comes from the structural evolution of our platform. We have strengthened our purchasing, expanded servicing and recapture efforts, and broadened our distribution across retail, our Pro and broker channels, including partnerships with Redfin, Mr. Cooper, and now Compass. Distribution is crucial for us, and we consider these channels to be sustainable. Over time, we believe they will significantly increase the value they bring to Rocket. Thus, we strongly feel that we are on the right path to meet our objectives. We think our acquisitions, partnerships, and distribution strategy will only enhance that progress. We see our strategy as a means to further accelerate our trajectory. Now, Brian, could you please provide some insights on the correspondent piece?

Sure. Mihir, good to hear from you as well. Yes, listen, no, that's not how we think about correspondent. We think about correspondent as an important channel. I want to be very clear about that. I mean it's kind of similar, Mihir. 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 a simple allocation of capital based on expected returns. And the way we calculate those expected returns is based on our estimate of lifetime value. There's no doubt that the organically originated loans have the highest LTV and correspondent is 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 explore further the benefits you are gaining from your technology investments. Thank you for your earlier comments, Varun. Could you provide any new or additional specific examples? Is there anything quantifiable, such as improved conversion rates or efficiency in savings and incremental revenue generation?

Thank you, Mark, for your question. I want to discuss AI and technology. There is considerable volatility in the AI space right now, and some companies are facing repricing as their expectations may have exceeded the underlying fundamentals. However, Rocket is quite different. We aren’t just a software or AI company, or even predominantly a mortgage company anymore; we focus on homeownership, which involves physical, heavy assets that require tours, financing, and exist in the real world. This gives us great confidence and creates durability. Additionally, our industry is highly regulated and structurally complex, involving licensing, capital requirements, hedging, and risk management, along with compliance across numerous jurisdictions. We have invested years in building a solid foundation in this space, relying on historical data and judgment for our underwriting. Hence, I don’t believe that our industry can be disrupted by an AI platform or small outfits. We see AI as an accelerant rather than a disruption risk to Rocket. The mortgage process is rule-based and repetitive, making it well-suited for extensive automation. AI enhances capacity, improves conversion rates, alleviates friction, and increases lifetime value. These benefits were notably visible in Q4 because we control our technology stack, integrating AI deeply within our operations rather than applying it superficially. Ultimately, we are grounded in a durable asset class, and we believe AI bolsters our economics instead of posing a threat. We are automating every aspect of our process, from lead integration and distribution to conversion and loan origination cost reduction, as well as recapturing opportunities. These metrics are central to how we manage the company and hold our teams accountable. We feel reassured about our investments and our unique position in the industry.

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

Could you provide more details on the recapture of the Mr. Cooper book? It seems to be performing better than expected, and I would appreciate any quantification or additional information you can share.

Yes, happy to do it. There were two major contributors that I would highlight. We previously discussed one, and I’m excited to share the new one. First, right from the start, shortly after closing, we successfully transitioned the Mr. Cooper loan officers onto the Rocket proprietary loan origination system. We immediately began working the leads from the Mr. Cooper portfolio using our centralized model, which has always been essential for us, supported by our CRM, marketing, and AI tools. This resulted in the initial increase we mentioned. Secondly, we commenced the transfer of loans, which was a significant milestone for us. Consolidating these loans onto a single system allows us to leverage efficiencies and utilize propensity models to better understand client needs. We actually transferred 600,000 loans, likely the largest transfer of loans ever, and it went smoothly. We are proud of this achievement. In simple terms, the integration is ahead of schedule, and we are making more progress toward recapture goals than I anticipated. This is timely because interest rates are favorable, and clients are looking to save on their monthly payments. After three years of rates above 6%, current mortgage rates may dip to the 5% range, which is encouraging for consumers. Buyers are increasingly concerned about affordability, so lower rates mean lower mortgage payments. The timing was right, which is why we knew we needed to expedite our integration efforts; you need to take advantage of favorable conditions when they arise.

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.