By Telis Demos

A lot of borrowers feel stuck in their homes given today's still-high mortgage rates. But two giants of the home-lending business are moving in together-for just that reason.

Mortgage-making giant Rocket Cos. is acquiring mortgage-servicing behemoth Mr. Cooper Group in an all-stock, $9.4 billion deal. There are the usual synergies of combining companies mostly in the same business.

But mortgage servicing and making also have a specific fit, which is known as the "recapture" rate. When a lender makes a mortgage, it also creates the right to service that mortgage. This entails collecting payments from the borrower, then paying them out to the loan's ultimate investors, insurers and so on.

Not only does servicing earn a fee, it also keeps a company in close contact with borrowers. This offers the promise of being well placed, if and when the time comes, to refinance a loan, or to "recapture" the borrower. That enhances the value of a servicing right.

Rocket told analysts Monday that by improving Mr. Cooper's recapture rate-it is 83% at Rocket, versus Mr. Cooper's 50%-it can unlock incremental revenue. Mr. Cooper's servicing base is 6.7 million customers, versus Rocket's 2.8 million.

How much upside there is will ultimately depend on the direction of mortgage rates. Lower rates lead more people to refinance. If 30-year fixed rates are around 6.5%, the expected recapture uplift to revenue translates into $65 million. If rates are 6%, that jumps to $150 million.

This assumes a 65% recapture rate on Mr. Cooper's portfolio. That could rise further over time, and Rocket also is highlighting the role of its recent deal to acquire online brokerage Redfin. This could help it also keep up with people buying a new home.

Further mortgage-rate declines can boost that revenue further. Mortgage-refinance application levels have ticked up this year as long-term interest rates and mortgage rates have fallen. But activity is still around the lowest levels of this century.

Not only that, the stretched finances of some consumers may be making it harder for lenders to close loans. The New York Fed's most recent Survey of Consumer Expectations, for February, found almost 42% of applicants reported being rejected for a mortgage refinancing. That rejection rate was around 27% a year prior, and 16% two years ago.

Rocket shareholders are paying up today and its stock is down nearly 7%. But having more information about who might be willing, or able, to refinance may be worth it in a mortgage market that could be pretty static for the foreseeable future.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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March 31, 2025 12:15 ET (16:15 GMT)

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