They, too, will want to pass the loans through their books and then sell the loans to other firms. More companies will attempt to operate in the fast pre-approval market and each of them will be racing to gain market share. They have first-mover advantage and will likely capture some more of the market share but they won’t be in the position of being the only company to offer these mortgages for long. Quicken Loans becomes a pass-through their profit will come on the flow of mortgages that they process, not on the profit the loans produce. If they go the route of not holding the mortgages on their own balance sheet, the re-selling is where the real risk to the financial market comes. The market for residential mortgage backed securities has shrunk massively, but with enough volume it’s possible that the Rocket Mortgage could create a market to provide an incentive for more players to re-enter that market (let’s hope this time the CFTC regulates them). They could bundle their mortgages into residential mortgage backed securities (see, The Big Short). Capital reserves will limit Quicken’s ability to capture a larger share of the mortgage market. The app provides nothing but a clever (and expensive) marketing device to drive more people to their mortgage product.Īt some point, having so many mortgages housed with a single company will be dangerous unless one of two things happens: Quicken Loans holds much more capital in reserve or they find a secondary market to which to sell the mortgages. The problem derives from the fact Quicken loans wants to increase the market share of people using the actual Rocket Mortgage (not the app). That does not mean, however, that the Rocket Mortgage does not cause problems for the economy. Rocket Mortgage: Let’s do the financial crisis again, but with apps! While it’s true that lax underwriting standards helped cause the financial crisis, if the Rocket Mortgage app does not actually provide a mortgage then the critique of the app as leading to lax underwriting standards falls short. The fact that the app is not, itself, a mortgage application undermines many of the criticisms that came out of the commercial, like Dave Weigel’s hilarious (but incorrect) tweet below. (If I am wrong about actually granting a mortgage not based on underwriting the underlying collateral, then this is a huge problem.) But Quicken Loans realized that most people do not shop around after getting pre-approval they just apply with the institution who pre-approved them. Rocket Mortgage seems to want to do the same. And just as pre-approval from a bank does not lock consumers into a loan from that bank, most people end up using the bank from which they get pre-approval. Because underwriting must be at least somewhat dependent on the underlying collateral - the house the borrower is purchasing - the app seems more like bank pre-approval than a guarantee of a loan. The Rocket Mortgage app draws data from a number of databases to let potential borrowers know how much they could likely get in the form of a mortgage loan.
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