Rocket Companies (“Rocket” or the “Company”) is an online mortgage lender that operates the Rocket Mortgage online platform, which allows clients to apply for and service mortgages through the Internet or by using Rocket’s proprietary mobile phone app. Rocket operates two primary segments: (1) the Direct-to-Consumer segment; and (2) the Partner Network segment.
Throughout the Class Period, Rocket continued to tout its business operations and downplayed the effects of competition on Rocket’s gain on sale margins.
On May 5, 2021, Rocket issued a press release announcing its first quarter results and second quarter outlook. Rocket reported that it was on track to achieve closed loan volume within a range of only $82.5 billion and $87.5 billion and gain on sale margins within a range of only 2.65% to 2.95% for the second quarter of 2021.
On this news, shares of Rocket Companies plummeted nearly 17% to close at $19.01 per share.
A securities class action has been filed against Rocket on behalf of shareholders that purchased Rocket shares between February 25, 2021 through May 5, 2021. This case has been filed in the U.S. District Court for the Eastern District of Michigan.
The complaint alleges that throughout the Class Period, the defendants made false and/or misleading statements and/or failed to disclose that: (1) Rocket’s gain on sale margins were contracting at the highest rate in two years as a result of increased competition among mortgage lenders, an unfavorable shift toward the lower margin Partner Network operating segment and compression in the price spread between the primary and secondary mortgage markets; (2) Rocket was engaged in a price war and battle for market share with its primary competitors in the wholesale market, which was further compressing margins in Rocket’s Partner Network operating segment; (3) the adverse trends were accelerating and, as a result, Rocket’s gain on sale margins were on track to plummet at least 140 basis points in the first six months of 2021; (4) as a result of the above, the favorable market conditions that had preceded the Class Period and allowed Rocket to achieve historically high gain on sale margins had vanished as Rocket’s gain on sale margins had returned to levels not seen since the first quarter of 2019; (5) rather than remaining elevated due to surging demand, Rocket’s gain on sale margins had fallen materially below recent historical averages; and (6) as a result of the foregoing, the defendants’ positive statements about Rocket’s business operations and prospects were materially misleading and/or lacked a reasonable basis.
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