Analysts split on what happens next with Rocket–Mr. Cooper servicing book

The Federal Housing Finance Agency (FHFA) signed off on Rocket Companies’ acquisition of Mr. Cooper Group but imposed a 20% cap on Fannie Mae and Freddie Mac servicing exposure — leaving analysts split on what comes next. 

BTIG analysts Eric Hagen and Jake Katsikas estimate Rocket controls $400 billion unpaid principal balance in Fannie and Freddie mortgage servicing rights (MSRs), while Mr. Cooper holds $560 billion. That’s less than 15% of the $7.5 trillion GSE market — leaving room to grow.

“Every other servicer is currently below 10% share. Having 5% headroom for Rocket to take additional market share is still considerable growth – $350+ billion UPB,” Hagen and Katsikas wrote in the report. “In the near-term, it could likely only get there with another acquisition of a top-5 servicer.”

Keefe, Bruyette & Woods analyst Bose George, however, put the combined market share at around 13%, but said including subservicing could push it “at or over 20%.”  

“While the combined entity could grow owned servicing, there might need to be an offset through reduced subservicing,” George added. “Given the more modest profitability of subservicing, we expect no discernible earnings impact relative to our estimates.” 

Bose highlighted that the FHFA was not clear about adding subservicing to the cap. If subservicing counts toward that limit, Rocket may be forced to pump the brakes.

That could shake up the subservicing sector, where Mr. Cooper is the largest player with an $820 billion portfolio as of year-end 2024 (20.7% of the volume across the top 25 subservicers). United Wholesale Mortgage has already shifted its business away from Mr. Cooper, and other clients are said to be reevaluating their relationships.

The FHFA said its staff reviewed the merger of “two of the Enterprises’ largest individual seller-servicer counterparties.” It concluded: “No market participant should have greater than 20% of Fannie or Freddie’s servicing market in order to ensure the safety and soundness of the mortgage market and the overall economy,” the statement reads. 

The FHFA has not responded to HousingWire’s request for clarification on how subservicing will be treated.

Meanwhile, a spokesperson for Rocket said they would not disclose anything beyond its statement: “We are pleased to have cleared FHFA’s review in our pending acquisition of Mr. Cooper Group which we expect to close in the fourth quarter.” 

Rocket’s servicing portfolio will include one in six U.S. mortgages

The servicing and subservicing spaces drew renewed attention in March when Rocket announced the $9.4 billion offer to acquire Mr. Cooper Group, the largest subservicer in the country. 

Analysts said the 20% cap does limit long-term growth, but investors already expected the deal to draw scrutiny. The acquisition is expected to give Rocket a $2.1 trillion servicing portfolio across nearly 10 million customers — roughly one in six U.S. mortgages.

Hagen and Katsikas said that while the 20% cap sets boundaries around longer-term growth, “we don’t think Rocket gets valued with an unbounded growth trajectory in mind, and expect investors anticipated the merger to draw at least some market-share scrutiny.”

“It could still slightly allay concerns we’ve heard from some MBS investors looking at systemic changes in prepayment speeds and borrower behavior tied to RKT or another lender/servicer ‘monopolizing’ the refi market.” 

Rocket remains ‘active’ in the servicing space

Brian Brown, Rocket’s chief financial officer, told analysts during a second-quarter earnings call that Rocket remains “active” in the servicing space, particularly for assets with “high recapture potential,” and the merger put the firm in a competitive bid process due to its capital levels and recapture abilities. 

“But it’s also nice because we have option value, and that option value really comes from the combined entities having a really good fulfillment engine for the servicing book through the Rocket organic growth, having a wholesale channel, a retail channel, correspondent channel, even a co-issue channel,” Brown said. “So, said differently, we don’t have to be active in the bulk market. It allows us to be opportunistic and stick to really high expected return thresholds that if we can meet them, we’ll be active and will bid at those levels.”