Rocket Companies, Inc. Securities Fraud Class Action

Case Background:

Rocket is an online mortgage lender that operates the Rocket Mortgage online platform, which allows clients to apply for and service mortgages through the Internet or by using Rocket’s proprietary mobile phone app. Ninety percent of Rocket’s revenues are derived from originating, closing, selling and servicing home mortgages.  Rocket operates two primary segments: (1) the Direct-to-Consumer segment; and (2) the Partner Network segment. In its Partner Network, Rocket partners with third parties who utilize its platform to provide their clients with mortgage solutions. The Partner Network has lower operating margins because Rocket shares profits with its partners.

The Class Period commences on February 25, 2021, when Rocket issued a press release titled, in part, “Rocket Companies Experiences Explosive Growth,” which announced Rocket’s financial results for the fourth quarter and full year of 2020.  Rocket reported, among other things, closed loan origination volume of $107.2 billion and gain on sale margin of 4.41% for the fourth quarter. Rocket emphasized that it had “[i]ncreased gain on sale margin by 100 basis points year-over-year” during the quarter and “[i]ncreased gain on sale margin by 127 basis points year-over-year to 4.46%” for the full-year period.  Throughout the Class Period, Rocket continued to tout its business operations and downplayed the effects of competition on Rocket’s gain on sale margins.

The truth was revealed on May 5, 2021, when Rocket issued a press release announcing its first quarter results and second quarter outlook. Rocket reported that it was on track to achieve closed loan volume within a range of only $82.5 billion and $87.5 billion and gain on sale margins within a range of only 2.65% to 2.95% for the second quarter of 2021. At the mid-point, this gain on sale margin estimate equated to a 239 basis point decline year-over-year and a 94 basis point decline sequentially, which represented Rocket’s lowest quarterly gain on sale margin in two years.   Following this news, the price of Rocket’s Class A common stock dropped from $22.80 per share when the market closed on May 5, 2021 to $19.01 per share when the market closed on May 6, 2021, a nearly 17% decline.

The complaint alleges that throughout the Class Period, the defendants made false and/or misleading statements and/or failed to disclose that: (1) Rocket’s gain on sale margins were contracting at the highest rate in two years as a result of increased competition among mortgage lenders, an unfavorable shift toward the lower margin Partner Network operating segment and compression in the price spread between the primary and secondary mortgage markets; (2) Rocket was engaged in a price war and battle for market share with its primary competitors in the wholesale market, which was further compressing margins in Rocket’s Partner Network operating segment; (3) the adverse trends were accelerating and, as a result, Rocket’s gain on sale margins were on track to plummet at least 140 basis points in the first six months of 2021; (4) as a result of the above, the favorable market conditions that had preceded the Class Period and allowed Rocket to achieve historically high gain on sale margins had vanished as Rocket’s gain on sale margins had returned to levels not seen since the first quarter of 2019; (5) rather than remaining elevated due to surging demand, Rocket’s gain on sale margins had fallen materially below recent historical averages; and (6) as a result of the foregoing, the defendants’ positive statements about Rocket’s business operations and prospects were materially misleading and/or lacked a reasonable basis. 

If you wish to discuss this action or have any questions concerning this notice or your rights or interests with respect to these matters, please contact Kessler Topaz Meltzer & Check, LLP: James Maro, Esq. (484) 270-1453; or via e-mail at info@ktmc.com. If you would like additional information about the suit, please click on the link "Submit Your Information" above and fill out the form as promptly as possible.