Mark Lennihan/AP Photo
A Rocket Companies sign is displayed on the exterior of the New York Stock Exchange, August 6, 2020, in New York.
The business world thought Donald Trump would usher in a boom, only to get chaos and uncertainty. Businesses don’t like to make big plans when everything can change in an instant. That’s why merger activity in the U.S. has fallen by 18 percent in the first quarter of this year, despite the belief that pent-up dealmaking would soar once Biden’s aggressive antitrust enforcers were sidelined. The relative continuity in antitrust enforcement among Trump officials probably also has something to do with it.
If a company in this environment is pursuing not one but a series of mergers, you have to wonder why they’d risk it. The reward payout must be significant: for example, moving toward a monopoly of the means by which Americans locate, buy, and pay for a home.
Rocket is America’s third-largest mortgage lender, with $1.8 trillion in loans originated. Mr. Cooper is America’s largest mortgage servicer, with seven million borrowers making mortgage payments to it. The former is buying the latter in a $9.4 billion deal.
If the deal clears, 1 in every 6 mortgages in America will be serviced by the new company, to go along with millions of mortgage originations. And Rocket already has secondary businesses on which to bolt that combination. Rocket Homes helps people search for housing, and the recently announced $1.75 billion purchase of Redfin will bolster that. Rocket Close provides title insurance and other settlement services to close mortgage loans. “We like to say that ‘we eat our own dog food,’” boasts a statement on the Rocket website. “We’ve grown from a single mortgage lender to an ecosystem of businesses that create new opportunities for our clients.”
We actually know how Rocket plans to leverage the power resulting from this kind of vertical combination. The details of that ambition were spelled out in a lawsuit by the Consumer Financial Protection Bureau filed last December, which accused the company of illegally steering home borrowers to its other mortgage products. But on February 27, the new regime at the CFPB, under the direction of Project 2025 architect Russ Vought, dropped that Rocket case. Just days after that, Rocket’s buying spree began, confident that it can use cross-selling techniques and surveillance tactics to gouge customers and grow profits with relative impunity.
That’s what antitrust officials have to look at in reviewing this merger. And it’s yet another dangerous consequence of Donald Trump deciding to issue corporate pardons and not enforce laws against white-collar crime.
BEFORE I ELABORATE, INDULGE ME a moment to discuss Mr. Cooper (no relation to my Prospect colleague), a cute name that obscures a dark past. When mortgages were issued and immediately sold and pooled into securities during the mid-2000s housing bubble, the servicer became the day-to-day point of contact for the borrower. Servicers took monthly payments and distributed them to the owners of the loan, who might be anyone from California pension funds to German investment bankers. When the crisis emerged, these companies not only could not handle the surge of requests for loan modifications, but their financial model actually incentivized foreclosures over modifying loans. So employees were instructed to lie to borrowers, swamp them with unreasonable paperwork requests to delay modifications, and do whatever necessary to push people into foreclosure. In one infamous instance, gift cards were given out to the employees who foreclosed on the most borrowers.
In the aftermath of the 2008 crash, servicing mostly switched from arms of big banks into non-bank specialists, including a company called Nationstar. There’s an assumption that the unfortunate history was left in the past, and servicing became a different business. Nationstar puts the lie to that assumption. In 2020, it paid $91 million to the CFPB for a host of servicing violations spanning a period from 2012 to 2015, years after the financial crisis. The violations included claiming to modify loans permanently and then increasing payments, reneging on agreements to modify, and illegally foreclosing on borrowers, all hallmarks of the financial crisis era.
So Nationstar cleaned up its act. Mainly by, well, changing its name to Mr. Cooper (isn’t that fun?). It became the largest servicer in America, until selling this week to Rocket.
This is leading toward Rocket using every scrap of data it knows about you to personalize selling you a mortgage, and make it impossible to get that mortgage anywhere else.
Now why does Rocket want to grow in servicing, where it already had a presence? After all, servicing is a low-margin slog of a business, where a downturn can expose a company to massive reputational risk. Last year, Rocket was trying to figure out how to use AI to service loans, because the economics simply don’t make proper staffing levels feasible, at least if you want fat profits. And that’s leaving aside how high interest rates have damaged the mortgage business in general.
The goal appears to be rolling back to an earlier era of mortgage lending. Your bank used to hold onto your mortgage, and you paid them. During the securitization run-up, that changed, and your lender and servicer were usually different. But though Rocket doesn’t hold onto loans, it wants to maintain a day-to-day relationship with borrowers, so if they need to refinance, Rocket can offer its own lending products. Rocket called this an “origination-servicing recapture flywheel” in its merger announcement, touting its own “recapture rate” of 83 percent (meaning that 83 percent of all Rocket servicing customers who get another loan get it with Rocket).
This explains Rocket’s move to buy Redfin, too. Redfin is often a first stop for prospective homebuyers as well as a broker for mortgages, and customer acquisition is the name of the game. Rocket explicitly wants to “own the client experience,” as its CEO said on a conference call announcing the deal this week. The goal is to find buyers through referral sites like Rocket and Redfin, sell them a Rocket mortgage, close the loan with Rocket Close, control the servicing with Mr. Cooper, and keep them inside the tent with refinances and lines of credit. That creates an “end-to-end transaction experience,” as it has been described by industry observers, for the entire homebuying experience, which would almost certainly shrink competition. “This isn’t a merger, it’s a moat,” said Amanda Orson of mortgage platform Galleon.
The strength of this lies in the ability to cross-sell, to use contacts and data in one line of the business to push other products and services from the others. And Rocket is very experienced at that. So much so that before Trump, regulatory enforcers found its tactics to be illegal.
THE CFPB LAWSUIT FOUND that Rocket Homes, which is Rocket’s brokerage and home search app—the very part of the business being bolstered by the Redfin acquisition—was steering its buyers into Rocket Mortgage in ways that limited competition. According to the suit, Rocket Homes dangled homebuyer referrals to outside brokers and agents, on the condition that they push borrowers toward Rocket Mortgage products and its affiliated title and closing services. Rocket Homes required agents to steer clients away from competing lenders, and blocked them from sharing information about competing products, like the availability of down payment assistance programs.
To show how this worked, the CFPB cited the Jason Mitchell Group, a real estate brokerage operating in 41 states and D.C., which offered $250 gift cards (there are those gift cards again) to its agents who made the most referrals back to Rocket Mortgage. Agents were instructed to tell borrowers that their closings could fall through if they tried to comparison shop, and were told that they needed at least an 80 percent “capture rate” to avoid punishment from Rocket.
Rohit Chopra, then the director of the CFPB, called it a “kickback scheme” that would “drive up the cost of housing.” And it looked like a strong case with a lot of documentary evidence, including documents from Rocket that stated flatly to agents, “Any purposeful steering away from Rocket Mortgage is prohibited,” and evidence of Rocket reprimanding agents whose clients went with another lender, or others who told clients they could get lower rates with someone other than Rocket.
But Russ Vought didn’t think much of the case; he dropped it with prejudice (meaning that it cannot be brought again). Within days, Rocket went on a merger buying spree. It’s not hard to see the relationship between these events: Rocket effectively got a pass on the legality of the vertically integrated mortgage empire they wanted to build, and as soon as they did, they set about building it.
This is leading toward Rocket using every scrap of data it knows about you—every click at Redfin, every personal bit of information on your social graph—to personalize selling you a mortgage, and make it impossible for you to get that mortgage anywhere else. Increasing the data set for purposes of “personalization” was a selling point in the merger announcement. It’s a combination of market power and technological supremacy, along with contracts that lock in brokers and every other step of the mortgage process. That cannot help but raise the price of homebuying by limiting competition.
None of this is really a secret. Rocket simply believes that its acquisitions have been blessed by the CFPB’s stand-down on enforcement. There is another potential enforcer, however: The Justice Department can review the Redfin and Mr. Cooper acquisitions. And it can take into account Rocket’s history, its stated goals of consolidating the mortgage purchasing process, and make a decision on what that will mean for competition.
