Rocket Mortgage outlook revised to positive at S&P following Mr. Cooper acquisition

Investing.com -- S&P Global Ratings has revised its outlook for Rocket Mortgage LLC from stable to positive, following the announcement of Rocket Companies Inc.’s planned acquisition of Mr. Cooper. The acquisition is expected to significantly enhance Rocket’s diversification, market position, earnings, and stability.

Rocket, the largest residential retail direct mortgage originator in the U.S., intends to buy Mr. Cooper, the largest mortgage servicer in the country, in an all-stock deal valued at $9.4 billion. The deal is expected to close in the fourth quarter of 2025. This move follows Rocket’s announcement three weeks prior that it would acquire digital real estate broker Redfin (NASDAQ:RDFN), as part of its strategy to play a larger role in the end-to-end process of buying and selling homes.

The acquisition of Mr. Cooper is expected to boost Rocket’s strategy, increasing its servicing clients to nearly 10 million, representing about one out of every six mortgages in the U.S. The company sees servicing as a crucial component in building long-term client relationships. The success of this acquisition will depend in part on Rocket’s ability to attract more originations from these clients and potentially sell them additional services such as real estate brokerage and title services.

Rocket has been investing heavily in artificial intelligence and plans to leverage the extensive data associated with Mr. Cooper’s servicing platform. The acquisition is also expected to reduce Rocket’s dependence on origination volumes, particularly for refinancings, which should lead to greater stability in its revenue and EBITDA.

Despite the potential benefits of the acquisitions of Mr. Cooper and Redfin, there is a likelihood of an initial moderate increase in leverage and associated integration risks. Rocket will finance the purchase in stock, but will also absorb Mr. Cooper’s debt, which has been somewhat more leveraged than Rocket.

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The integration of Mr. Cooper and Redfin could pose challenges for Rocket, such as shifting its servicing activity to Mr. Cooper’s larger servicing platform and absorbing Mr. Cooper’s origination activity on its own platform. It will also need to merge many teams, technology systems, and separate cultures while eliminating duplicative expenses.

The positive outlook reflects the potential benefits the Mr. Cooper acquisition could bring to Rocket’s diversification, market position, earnings, and stability. However, the outlook could be revised back to stable if Rocket fails to complete the acquisition of Mr. Cooper, faces significant integration challenges, or manages its balance sheet less conservatively.

In contrast, S&P Global Ratings could raise its rating on Rocket Mortgage in the next two years if Rocket successfully integrates Mr. Cooper without significant operational or financial challenges, reduces its debt to EBITDA to comfortably below 4x on a sustained basis, and maintains conservative balance sheet metrics with robust liquidity.

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