Two major mortgage players to merge: What should borrowers know?

Rocket Mortgage, the nation’s second-largest originator of mortgages, announced Monday it will buy Mr. Cooper, the industry’s largest collector of mortgage payments.

The $9.4 billion deal reflects a challenging market for mortgage lenders in general and for Rocket in particular. As mortgage rates shot from 3 percent during the pandemic to as high as 8 percent in 2023, loan activity declined, translating to less business for lenders.

What’s more, Rocket relinquished what was once a commanding lead: After several years as the national leader in loan volume, it fell behind United Wholesale Mortgage in 2023, according to Home Mortgage Disclosure Act data.

The merger zeroes in on mortgage servicing, the post-closing process that involves collecting monthly mortgage payments, keeping track of escrow and working with borrowers in need of relief.

“This seems to be a play to dramatically increase their mortgage servicing rights,” says Guy Cecala, publisher of Inside Mortgage Finance, an industry trade publication. “History shows that to become a mega-servicer, you have to do large-scale acquisitions.”

What does the merger mean for mortgage borrowers?

Hard to say. The U.S. housing finance industry remains fragmented, with dozens of large players and hundreds of smaller ones. In 2023, the latest full year for which data was available, Rocket Mortgage originated 5.08 percent of all home loans, while Mr. Cooper’s marketshare was 0.5 percent. The combined companies would not significantly narrow consumers’ choices as they shop for loans.

“The mortgage market, particularly on the origination side, is so fragmented,” Cecala says. “There’s still going to be plenty of choice.”

The mortgage servicing piece of the deal adds a wrinkle. When the two companies’ servicing portfolios are combined, they’ll collect payments for “one in every six mortgages in America,” Rocket said in a news release.

Borrowers have little to no say over who handles servicing rights. Once your loan closes, most lenders sell off the servicing to a separate company, sometimes another lender. Mr. Cooper was the largest servicer in the U.S.

Will the mortgage process become easier?

Rocket’s latest deal follows another major acquisition to buy Redfin, a discount real estate brokerage. The lender has been leaning into one-stop shopping — what it termed in its news release the “end-to-end homeownership experience.” The idea is that a homebuyer would be represented by a Redfin agent, then take out a mortgage from Rocket, which would then service the loan.

However, it’s worth noting that the concept has gone in and out of style over the decades without gaining traction.

“No one has been successful in doing that, despite the attempts,” Cecala says.