Item 1A. Risk Factors
Risk Factors Summary
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. Risks that we deem material are described under “Risk Factors” in Item 1A of this report. These risks include, but are not limited to, the following:
• The success and growth of our business, results of operations and financial condition will depend upon our continued ability to adapt to and implement technological changes to meet our business needs and the changing demands of the market and our clients.
• Issues related to the development, proliferation and use of AI could give rise to legal and/or regulatory action, damage our reputation or otherwise materially harm our business. Cyberattacks, security breaches, or a failure to comply with information security laws or regulations could result in serious harm to our reputation and adversely affect our business.
• Reliance on digital platforms and app marketplaces poses growing risks to client acquisition and business growth.
• We are, and intend to continue, developing new products and services and our failure to accurately predict their demand or growth could have an adverse effect on our business.
• We may not be able to continue to grow our loan origination business or effectively manage significant increases in our loan production volume, both of which could negatively affect our reputation and business, financial condition, and results of operations.
• We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances, and some of the loans we service are higher risk loans, which are more expensive to service and may lead to liquidity challenges.
• Our counterparties may terminate our servicing rights and subservicing contracts under which we conduct servicing activities.
• Our origination and servicing businesses and operating results may be adversely impacted due to a decline in market share for our origination business, a faster than expected increase in payoffs of serviced loans and an inability to recapture loans from existing serviced clients.
• We depend on our ability to sell loans in the secondary market to a limited number of investors and to the GSEs, and to securitize our loans into MBS through the GSEs and Ginnie Mae. If our ability to sell or securitize mortgage loans is impaired, we may not be able to originate mortgage loans.
• We may be required to repurchase or substitute mortgage loans or MSRs that we have sold, or indemnify purchasers of our mortgage loans or MSRs.
• We rely upon the accuracy and completeness of information about borrowers and any misrepresented information or fraud could result in significant financial losses and harm to our reputation.
• Redfin is reliant on real estate listing data and may be unable to obtain and provide comprehensive and accurate real estate listings quickly, or at all.
• Redfin is subject to the rules, terms of service, and policies of realtor associations and MLSs, and any non-compliance may restrict or terminate their access to and use of listings data.
• We may be unable to make acquisitions and investments, successfully integrate acquired companies (including Redfin and Mr. Cooper) into our business, or our acquisitions (including Redfin and Mr. Cooper) and investments may not meet our expectations, any of which could adversely affect our business, financial condition and results of operations.
• We may not achieve the intended benefits of our acquisition of Redfin and acquisition of Mr. Cooper, and the Redfin Acquisition or the Mr. Cooper Acquisition may disrupt our current plans or operations.
• Negative public opinion could damage our brand and reputation, which could adversely affect our business and earnings.
• Our risk management efforts may not be effective at mitigating potential losses resulting in increased costs or business disruption.
• We face intense competition that could adversely affect us.
• Our business is significantly impacted by interest rates. Changes in prevailing interest rates, U.S. monetary policies or other macroeconomic conditions affecting interest rates have had and may in the future have a detrimental effect on our business.
• Our Rocket Mortgage business relies on our loan funding facilities to fund mortgage loans and otherwise operate our business. If one or more of such facilities are terminated, we may be unable to find replacement financing at commercially favorable terms, or at all, which could be detrimental to our business.
• A disruption in the secondary home loan market, including the MBS market, could have a detrimental effect on our business.
• Our business is highly dependent on Fannie Mae and Freddie Mac and certain U.S. government agencies and any changes in these entities or their current roles could be detrimental to our business.
• We rely on internal models to manage risk and to make business decisions. Our business could be adversely affected if those models fail to produce reliable and/or valid results.
• We are subject to various legal actions that if decided adversely, or if viewed unfavorably by the public, could be detrimental to our business.
• We and our vendors have operations in India that could be adversely affected by changes in political or economic stability or by government policies.
• The collection, processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
• If we cannot maintain our corporate culture, we could lose the innovation, collaboration and focus on the mission that contribute to our business.
• Loss of our key leadership could result in a material adverse effect on our business.
• Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities.
• We are controlled by Mr. Gilbert, whose interests may conflict with our interests and the interests of other stockholders. Further, because we are a “controlled company” within the meaning of the NYSE rules, we qualify for and intend to rely on exemptions from certain corporate governance requirements.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and cash flows.
Risk Factors
In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to our industry and the Company could have a material and adverse impact on our business, financial condition, results of operations and cash flows. You should carefully consider the risks described below and in our subsequent periodic filings with the SEC. The following risk factors should be read in conjunction with “ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ” and the Consolidated Financial Statements and related notes in this Annual Report.
Risks Relating to Technology and Cybersecurity
The success and growth of our business, results of operations and financial condition will depend upon our continued ability to adapt to and implement technological changes to meet our business needs and the changing demands of the market and our clients.
The markets in which we operate are characterized by rapid technological advancement and innovation, with continuous introduction of new technology-driven products and services to meet growing and changing client demands. We rely on our proprietary technology to deliver products and services to clients, to elevate our lending origination loan application process and service loans. We have made significant investments in new technology-driven products and have become increasingly reliant on AI in our core businesses and activities, including our mortgage origination and servicing offerings and in our competitive plans for attracting potential customers, hiring and retaining lead agents and introducing new products, expanding our current products into new markets and continuing to streamline various financial service related products, services and processes. The origination and servicing processes, as well as key capital markets activities are increasingly dependent on technology and our business relies on our continued ability to process loan applications over the internet, accept electronic signatures, provide instant process status updates, conduct secondary market transactions, process payments, provide electronic statements and other client and loan applicant-expected conveniences.
Maintaining and improving our current technologies, network capacities and computing power to meet evolving industry standards and customer and agent expectations and data growth, as well as developing commercially successful and innovative new technology, requires significant capital expenditures and skilled personnel. These technology initiatives might not provide the anticipated benefits, or may provide them on a delayed schedule or at a higher than forecasted cost. We must continue to monitor and choose the right investments and implement them at the right pace in order to maintain our competitive position and to continue to deliver a superior client experience. Failing to effectively implement new technology-driven products and services as quickly as our competitors, or to successfully market these products and services to our customers, could result in decreased demand for our offerings and adversely impact our growth and results of operations. Additionally, to the extent we are dependent on any particular technology or technological solution (whether developed internally or by a third-party vendor), we may be harmed if such technology or technological solution becomes non-compliant with existing industry standards, to meet or exceed the capabilities of our competitors’ equivalent technologies or technological solutions, becomes increasingly expensive to service, retain and update, becomes subject to third-party of intellectual property , or other , or or functions in a way we did not anticipate that results in loan potentially requiring repurchase and/or indemnification.
Issues related to the development, proliferation and use of AI could give rise to legal and/or regulatory action, damage our reputation or otherwise materially harm our business.
We currently incorporate AI technology in many of our products and services and in our business operations, and we believe the proliferation of AI will have a significant impact on customer preference and market dynamics in our industry. Our proactive research and development of such technology remains ongoing and our ability to develop or otherwise deploy effective and responsible AI technology will be critical to our financial performance and long-term success. We may be unable to develop and implement AI, both for internal operations and external support, that keeps pace with the rapid proliferation of AI systems by competitors in our industry, which may negatively impact our business and financial performance.
The integration of AI across our business functions can result in operational complexity and potential risks, including ensuring appropriate employee usage guidelines and maintaining effective human oversight of automated processes and mitigating the risks associated with unexpected and inaccurate results that AI technologies can generate. We may not be able to control how third-party AI technologies that we choose to use are developed or maintained, or how data we input is used or disclosed, even where we have sought contractual protections with respect to these matters. Our deployment of large language models, generative AI and other AI technologies may increase our exposure to risks related to data privacy and security, intellectual property rights, the generation of inaccurate, misleading, biased or inappropriate content, or the misuse or misappropriation of our data. As we expand the scope of AI systems that support or influence business decisions, we face growing challenges related to maintaining appropriate levels of accountability, explainability and oversight procedures across different applications and use cases.
The regulatory landscape surrounding AI remains uncertain and complex, with potential new requirements that could restrict our ability to utilize AI technologies in their current form or require significant modifications to our existing systems. AI output might present ethical concerns or violate current and future laws and regulations, including licensing laws and a variety of federal and state fair lending laws and regulations such as the FHA, ECOA, the Home Mortgage Disclosure Act, and the prohibition against engaging in Unfair, Deceptive, or Abusive Acts or Practices pursuant to the Dodd-Frank Act. Further, while we aim to develop and use AI responsibly and attempt to identify and mitigate legal issues presented by its use, we may be unsuccessful in identifying or resolving issues before they arise. AI-related issues, including potential government regulation of AI, deficiencies and/or failures could give rise to legal and/or regulatory action, damage our reputation or otherwise affect our business.
Cyberattacks, security breaches or a failure to comply with information security laws or regulations could result in serious harm to our reputation and adversely affect our business.
We are dependent on internal and external information technology networks and systems of Rocket and third parties to securely collect, process, transmit and store electronic information. In the ordinary course of our business, we receive, process, retain and transmit proprietary information and sensitive or confidential data, including public and non-public personal information of our clients, loan applicants, agents and team members (collectively defined as “Rocket Information”). Despite devoting significant time and resources to ensure the integrity of our information technology systems, we may not be able to anticipate, detect or implement effective preventive measures against all cyberattacks, security breaches or unauthorized access to our information technology systems or those of third parties that support our business. The technology and other controls and processes designed to secure Rocket Information and to prevent, detect and remedy any unauthorized access to that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any access is identified and addressed appropriately. Such controls have not always detected and may in the future to prevent or detect, access to Rocket Information. Risks that could directly result from the occurrence of a cyber include operational , financial , to the relationship with customers and private data exposure. In addition to implementing processes, procedures and controls to address cyber , we maintain insurance coverage to help mitigate these risks. However, such preventative measures may not be sufficient in all circumstances to prevent, mitigate or timely detect all potential risks. For example, on October 31, 2023, Mr. Cooper experienced a cybersecurity in which an third party access to certain of its technology systems and obtained personal information relating to substantially all of its then-current and former customers/clients. Additionally, if a company that Rocket has recently acquired or a third-party service provider on which we rely experiences a cybersecurity , we may not learn of such in a timely manner, which may inhibit our ability to mitigate its impacts and can the risks described in this risk factor.
Cybersecurity risks for companies in our industries have significantly increased both in severity and volume in recent years and the techniques used to obtain unauthorized, improper, or illegal access to systems, third-party vendors, our clients’, loan applicants’ and team members’ data or to disable, degrade, or sabotage service are constantly evolving and have become increasingly complex and sophisticated and therefore more challenging to prevent and/or detect. Security attacks can originate from a wide variety of sources, including third parties such as computer hackers, hacktivists, nation state-backed hackers or persons involved with organized crime or associated with external service providers. Those parties may also attempt to fraudulently induce clients, loan applicants, team members or other users of our systems to disclose sensitive information to gain access to our systems or data. Any successful cyber-attack or use of Rocket Information could result in to our business or operations including increased costs to address and remedy and/or , , or other liabilities from impacted parties.
The introduction of AI has also reduced the level of difficulty for bad actors to submit high quality fraudulent content as part of a cyber-attack, which could make it more difficult for us to contain cyber breaches, identify bad actors and fraudulent activity. AI-orchestrated cyberattacks may be launched with minimal human involvement, potentially increasing both the frequency and sophistication of future attacks. We also may not be able to anticipate or implement effective preventive measures against security breaches, especially because the methods of attack change frequently or may not be recognized until after such attack has been launched. Additionally, cyberattacks on local and state government databases and offices, including the rising trend of ransomware attacks and of as a tactical risk of modern warfare, us to the risk of access to data and the ability to provide services to our clients, including but not limited, to issuing title insurance policies and on properties located in the affected counties or states.
We are bound by numerous privacy and cybersecurity-related laws and requirements which can require us to alter or deploy new business or technology practices which can increase operating costs, impact the development of new products, and reduce operational efficiency. These laws continue to be refined in response to increasing cybersecurity-related risks and new requirements which may require changes to our business practices or have a significant impact on our current and planned privacy, data protection, and information security-related practices, including the collection, use, sharing, retention, and safeguarding of personal information of our clients and/or employees. If we are unable to properly safeguard data or meet new or evolving applicable regulatory requirements, we could be subjected to substantial legal fees, additional disclosure requirements, judgments, fines and negative impacts on our brand. As a result of the increasing awareness concerning the importance of safeguarding personal information, the potential misuse of such information and legislation that has been adopted or is being considered regarding the protection, privacy and security of personal information, information-related risks are increasing.
A cyber incident such as a security breach or a violation of privacy or data security laws or industry standards could also require us to notify members, customers, employees, federal, state, provincial or foreign authorities or governmental entities or other groups, result in adverse publicity, loss of sales and profits, increase fees payable to third parties, and result in penalties or remediation and other costs. If information is inappropriately accessed and used by a third party or a team member during a cyberattack or breach for illegal purposes, the affected individuals may attempt to hold us responsible for any losses they may have incurred because of misappropriation. In such an instance, we may also be subject to regulatory action, investigation or liable to a governmental authority for or associated with a in the and security of Rocket Information. Security could also significantly our reputation with existing and prospective clients and third parties with whom we do business. Any publicized security affecting our businesses and/or those of such third parties may impact the market perception of our products and clients from doing business with us. We may be required to expend significant capital and other resources to protect and remedy any potential or existing security and their consequences. In addition, our remediation efforts may not be and we may not have adequate insurance to cover these . While the Company has experienced non-material cyber involving third party vendors, the Company’s continued use of third parties in its business yields the potential for cybersecurity that may business operations.
Technology disruptions or failures, including a failure in our operational or security systems or infrastructure, or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm, and adversely impact our results of operations and financial condition.
Many of our services are dependent on the secure, efficient and uninterrupted operation of our technology infrastructure, including computer systems, related software applications and data centers, as well as those of certain third parties and affiliates. Our websites, mobile apps (such as the Rocket Mortgage, Redfin and Mr. Cooper apps) and computer/telecommunication networks must accommodate a high volume of traffic and deliver frequently updated, accurate and timely information. The success of our mobile website and mobile apps also require seamless operation across multiple operating systems and devices and are susceptible to harm by factors outside of our control, including changes to the terms of service or requirements of mobile app stores and changes in mobile operating systems that disproportionately affect us, degrade the functionality of our mobile website or mobile app, require costly upgrades to our technology offerings, or give preferential treatment to competitors. We have experienced, and may in the future experience, service disruptions and failures caused by system or software , fire, power , telecommunications , human or , external attacks (e.g., computer hackers, hacktivists, nation state-backed hackers), of service or information, or code, as well as natural , health pandemics, strikes, and other similar events and while our mitigation and recovery processes are designed to reduce the impact of these types of , our contingency planning may not be sufficient for all situations. The implementation of technology changes and upgrades to maintain current and integrate new technology systems may also cause service . Any such could materially or our ability to provide services to our clients and loan applicants and could also the ability of third parties to provide services to us.
If our operations are disrupted or otherwise negatively affected by a technology disruption or failure, this could result in material adverse impacts on our business. Our business interruption insurance may not be sufficient to compensate us for all losses that may result from interruptions in our service as a result of systems disruptions, failures and similar events.
Reliance on digital platforms and app marketplaces poses growing risks to client acquisition and business growth.
We rely heavily on our ability to attract and convert online consumers into loan applicants and clients through our websites and mobile apps (such as the Rocket Mortgage, Redfin and Mr. Cooper apps) in a cost-effective manner. To do so, we depend on search engines, digital advertising platforms and other online sources to drive traffic. We appear in search engine results through both paid listings, where we purchase specific terms and unpaid (algorithmic) rankings. However, our ability to maintain this visibility is threatened by frequent algorithm updates and the rapid deployment of Generative AI in search engines (e.g., AI Overviews). These AI-driven features increasingly provide direct answers to financial queries on the search results page, potentially satisfying user intent without a click-through to our website with zero-click searches, thereby reducing organic traffic.
Our digital marketing capabilities depend on data signals derived from user activities on third-party websites, platforms and devices. The deprecation of third-party cookies by major browsers and the restriction of mobile advertising identifiers (such as Apple’s IDFA), ongoing changes in the regulatory environment, such as the California Consumer Privacy Act and other enacted U.S. state privacy laws, and evolving policies from mobile operating systems and browser providers have begun to restrict the data signals available for ad targeting and measurement. Additionally, growing consumer demand for privacy-centric online experiences and growing consolidation of user data from “walled garden” platforms (such as Google and Meta) is likely to further diminish these signals, limiting our ability to refine targeting, measure campaign effectiveness and maintain cost-efficient client acquisition.
We also rely on app marketplaces to connect consumers with our apps. Yet, intense competition within these marketplaces, along with potential changes in fee structures and ranking criteria, development, distribution and maintenance costs, changes to the terms of service or requirements of a mobile app store and changes in mobile operating systems that disproportionately affect us, may increase the costs associated with acquiring new mobile app users. Taken together, these challenges-including reliance on volatile digital channels, evolving privacy regulations, restrictive lead generation rules and competitive pressures in app marketplaces could impede our ability to attract new clients and achieve sustainable business growth.
Some aspects of our Rocket technology platform include open-source software and any failure to comply with the terms of one or more of these open-source licenses could adversely affect our business.
Certain aspects of our Rocket technology platform incorporate software covered by open source licenses and we may continue to use such software in the future. The terms of various open source licenses have not been interpreted by U.S. courts and there is a risk that such licenses could be construed in a manner that limits our use of the software, inhibits certain aspects of the platform or otherwise adversely affects our business operations. We may also face claims from others claiming ownership of, or seeking to enforce the terms of, an open-source license, including by demanding release of the open source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our software, any of which could adversely affect our business.
Some open source licenses subject licensees to certain conditions, including requiring licensees to make available source code for modifications or derivative works created based upon the type of open-source software used for no or reduced cost, or to license the products that use open source software under terms that allow reverse engineering, reverse assembly or disassembly. If portions of our proprietary software are determined to be subject to an open source license, or if the license terms for the open source software that we incorporate change, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our platform or otherwise change our business activities, each of which could reduce or eliminate the value of our platform and products and services. In addition to risks related to license requirements, the use of open-source software can lead to greater risks than the use of third-party commercial software because open source licensors generally make their open source software available “as-is” and do not provide indemnities, warranties or controls on the origin of the software.
Risks Related to Our Business and Operations
We are, and intend to continue, developing new products and services and our failure to accurately predict their demand or growth could have an adverse effect on our business.
We are, and intend in the future to continue, investing significant resources in developing new tools, features, services, products and other offerings, including offerings of mortgage, other lending and financial products. Risks from our innovative initiatives include those associated with potential defects in the design and development of the technologies used to automate processes, misapplication of technologies, the reliance on data that may prove inadequate and failure to meet client expectations, among others. As a result of these risks, we could experience increased claims, reputational damage, or other adverse effects, which could be material. Additionally, we can provide no assurance that we will be able to develop, commercially market and achieve acceptance of our new products and services. In addition, our investment of resources to develop new products and services may either be insufficient or result in expenses that are in light of revenue actually originated from these new products and services.
The profile of potential clients using our new products and services may not be as attractive as the profile of the clients that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced. Failure to accurately predict demand or growth with respect to our new products and services could have an adverse impact on our business and there is always risk that these new products and services will be unprofitable, will increase our costs or will decrease our operating margins or take longer than anticipated to achieve target margins. Further, our development efforts with respect to these initiatives could distract management from current operations and could divert capital and other resources from our existing business. If we do not realize the expected benefits of our investments and development of new products and services, our business may be harmed.
We may not be able to continue to grow our loan origination business or effectively manage significant increases in our loan production volume, both of which could negatively affect our reputation and business, financial condition, and results of operations.
Our mortgage loan origination business consists of providing purchase mortgages to homebuyers, refinancing existing loans and originating second lien home equity loans. The origination of purchase mortgages can be influenced by other stakeholders in the home-buying process such as agents, realtors and builders. Therefore, our ability to acquire new purchase mortgage clients can be impacted by our relationships with such stakeholders. Our ability to grow our origination business has been, and may in the future be, adversely affected by conditions of the overall origination market, including elevated interest rates, which has in the past had, and may in the future have, an adverse effect on our results of operations. Our loan origination business also includes third-party mortgage brokers who operate on a more local basis and routinely work with agents, realtors and builders, but who are not contractually obligated to do business with us. Further, our competitors also have relationships with these brokers and actively compete with us in our efforts to expand our broker networks. We may not be successful in maintaining our existing relationships or in expanding our broker network. Our production and consumer direct lending operations are subject to overall market factors that can impact our ability to grow our loan production volume. For example, increased competition from new and existing market participants, reductions in the overall level of refinancing activity, growth in the level of new home purchase activity, of affordable housing, or inventory of homes for sale can impact our ability to continue to grow our loan production volumes and as such we have been and may in the future be to modify our cost structure or accept lower margins in our respective businesses in order to continue to compete and keep our volume of activity consistent with past or projected levels. If we are to continue to grow our loan origination business, this could affect our business.
We may experience significant growth in our loan origination business and MSRs, including the growth in MSRs associated with the acquisition of Mr. Cooper. If we do not effectively manage our growth through the deployment of resources including processes, technology and talent, the quality of our services could suffer, which could negatively affect our brand and operating results.
We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.
During any period in which one of our clients is not making payments on a loan we service we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements, pay property taxes and insurance premiums, legal expenses and other protective payment advances. If home values rise, we may be required to advance greater amounts of property taxes and insurance premiums. We also advance funds to maintain, repair and market real estate properties. In certain situations, we may elect to make certain payment advances knowing that we may not be reimbursed. In addition, in the event a loan serviced by us becomes delinquent, or to the extent a mortgagor under such loan is allowed to enter into a forbearance by applicable law, regulation, or investor/insurer guidelines, the repayment to us of any payment advance related to such events may be delayed until the loan is repaid or refinanced or liquidation occurs. A significant increase in delinquencies for the loans that we own and service could have a material impact on our revenues, expenses and liquidity and on the valuation of our MSRs. A in our ability to collect a payment advance may affect our liquidity and our to be reimbursed for a payment advance could be to our business. might increase due to a in the macro economy and as the loans in our servicing portfolio get older, which may increase our costs of servicing and could be to our business. Further, forbearance legislation or regulation, such as part of a natural response could increase the number of loans on which we must make such payment .
With delinquent VA guaranteed loans, the VA guarantee may not make us whole on losses or payment advances we may have made on the loan. If the VA determines the amount of the guarantee payment will be less than the cost of acquiring the property, it may elect to pay the VA guarantee and leave the property securing the loan with us (a “VA no-bid”). If we cannot sell the property for a sufficient amount to cover amounts outstanding on the loan we will suffer a loss which may, on an aggregate basis and if the percentage of VA no-bids increases, have a detrimental impact on our business and financial condition.
In addition, for certain loans sold to Ginnie Mae, we, as the servicer, have the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent greater than 90 days. Upon electing to exercise this unilateral right to repurchase the delinquent loan, we effectively regain control over the loan, meaning that we must recognize the loan on our balance sheet and recognize a corresponding financial liability. Any significant increase in required servicing advances or delinquent loan repurchases could have a significant adverse impact on our cash flows, even if they are reimbursable and could also have a detrimental effect on our business and financial condition.
Some of the loans we service are higher risk loans, which are more expensive to service and may lead to liquidity challenges.
Some of the mortgage loans we service are higher risk loans, meaning that the loans are made to less credit worthy customers, delinquent or for properties the value of which has decreased since origination. These loans are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight. Additionally, in connection with the ongoing mortgage market reform and regulatory developments, servicers of higher risk loans are subject to increased scrutiny by state and federal regulators and will experience higher compliance and regulatory costs, which may continue to increase over time. We may not be able to pass along any of the additional expenses we incur in servicing higher risk loans to our servicing clients. The greater cost of servicing higher risk loans, which may be further increased through regulatory reform, consent decrees or enforcement, could adversely affect our business, financial condition and results of operations. Our business has a portfolio of higher risk agency loans guaranteed by Ginnie Mae. In an adverse economic scenario, FEMA declared disaster area or a pandemic similar to COVID-19, where rise rapidly and , we may have funding since Ginnie Mae does not allow the separate utilization of as a form of collateral, and we may not be to secure financing for on acceptable terms or at all. If we are to obtain these financings, we may need to raise the funds required in the capital markets or through other means, any of which may increase our cost of funds.
As a result of changes implemented following the COVID pandemic and subsequent fluctuations in mortgage interest rates and updates to investor programs, most investors have updated their standard loss mitigation procedures and requirements to align with their current program offerings. These post-pandemic program updates and ongoing revisions to offerings require interpretation, implementation, and testing as they evolve over time, which are time intensive and are subject to operational risk. While we have extensive validation in place to ensure timeliness and accuracy of these updated loss mitigation programs, the continued changes and differences in programs announced by each investor creates risk of error. The risk subjects us to loss indemnification requirements.
Our counterparties may terminate our servicing rights and subservicing contracts under which we conduct servicing activities.
The majority of the mortgage loans we service are serviced on behalf of Fannie Mae, Freddie Mac and Ginnie Mae. These entities establish the base service fee to compensate us for servicing loans as well as the assessment of fines and penalties that may be imposed upon us for failing to meet their respective servicing standards.
As is standard in the industry, under the terms of our master servicing agreements with the Agencies and investors (including non-GSE loan purchasers), each has the right to terminate us as servicer of the loans we service on their behalf at any time and also have the right to cause us to sell the MSRs to a third party. In addition, failure to comply with servicing standards could result in termination of our agreements with the Agencies with little or no notice and without any compensation. If any of Fannie Mae, Freddie Mac, Ginnie Mae, or any private investor for which we subservice were to terminate us as a servicer, or increase our costs related to such servicing by way of additional fees, fines or penalties, such changes could have a material adverse effect on the revenue we derive from servicing activity, as well as the value of the related MSRs. These agreements, and other servicing agreements under which we service mortgage loans for non-GSE loan purchasers, also require that we service in accordance with GSE servicing guidelines, contain financial covenants and permit termination if we are as an approved servicer by a GSE. Under our servicing contracts, the primary servicers for which we conduct subservicing activities have the right to our subservicing rights with or without cause, with little notice and little to no compensation. If we were to have our servicing or subservicing rights on a material portion of our servicing portfolio this could affect our financial results.
We are also subject to minimum financial eligibility requirements established by the Agencies. These minimum financial requirements include net worth, capital ratio and/or liquidity criteria in order to set a minimum level of capital needed to adequately absorb potential losses and a minimum amount of liquidity needed to service Agency mortgage loans and MBS and cover the associated financial obligations and risks. To meet these minimum financial requirements, we are required to maintain cash and cash equivalents in amounts that could impede us from growing our business and place us at a competitive disadvantage in relation to federally chartered banks and certain other financial institutions. These seller/servicer obligations have financial covenants that include capital requirements related to tangible net worth. The FHFA and Ginnie Mae updated their minimum financial eligibility requirements for GSE seller/servicers and Ginnie Mae issuers to modify the definitions of tangible net worth and eligible liquidity, modify their minimum standard measurement and include a new risk-based capital ratio, among other changes. While we believe we are currently in compliance with these updated requirements, to the extent that these capital and liquidity requirements are not met, the applicable agency may suspend or terminate these agreements, which would prohibit us from further servicing these specific types of mortgage loans or being an approved servicer. If we are to meet these capital and liquidity requirements, this could affect our business, financial condition and results of operations.
A failure to maintain the ratings assigned to us by a rating agency could have an adverse effect on our business, financial condition and results of operations.
Our mortgage origination and servicing platforms, as well as certain of our debt and securitization instruments, are routinely rated by national rating agencies for various purposes. These ratings are subject to change without notice. Any downgrade of our ratings could restrict our access to sources of capital on terms satisfactory to us or at all, increase the cost of any debt or equity financing, adversely affect our ability to maintain our status as an approved servicer by Fannie Mae, Freddie Mac, Ginnie Mae and other investors, lead to the early termination of existing advance facilities and affect the terms and availability of advance facilities that we may seek in the future, cause our termination as servicer in our servicing agreements that require that we maintain specified servicer ratings and be otherwise detrimental to our business.
Our origination and servicing businesses and operating results may be adversely impacted due to a decline in market share for our origination business, a faster than expected increase in payoffs of serviced loans and an inability to recapture loans from existing serviced clients.
If our loan origination business loses market share, loan originations otherwise decrease, or the loans in our servicing portfolio are repaid or refinanced at a faster pace than expected, we may not be able to maintain or grow the size of our servicing portfolio, including our subserving portfolio, as our servicing portfolio is subject to “run-off” (i.e., mortgage loans serviced by us may be repaid at maturity, prepaid prior to maturity, refinanced with a mortgage not serviced by us, liquidated through foreclosure, deed-in-lieu of foreclosure, or other liquidation process, or repaid through standard amortization of principal). As a result, our ability to maintain the size of our servicing portfolio, in part, depends on our ability to originate loans with existing serviced clients.
Additionally, in order for us to maintain or improve our operating results, it is important that we continue to extend loans to returning clients who have successfully repaid their previous loans at a pace substantially consistent with the market. Our repeat loan rates may decline or fluctuate as a result of our expansion into new products and markets, because our clients are able to obtain alternative sources of funding, or because new clients we acquire in the future may not be as loyal as our current client base. Furthermore, clients who refinance have no obligation to refinance their loans with us and may choose to refinance with a different originator. If borrowers refinance with a different originator, this potentially decreases the expected cash flows from our MSRs because the original loan will be repaid and we will not have an opportunity to earn further servicing fees after the original loan is repaid. If we are not successful in recapturing our serviced clients paying off their existing loan and getting a new mortgage, our MSRs may become increasingly subject to run-off, and in order to maintain our servicing portfolios at consistent levels, we may need to purchase additional MSRs on the open market to add to our servicing portfolio, which could increase our costs and risks and decrease the of our servicing business.
We depend on our ability to sell loans in the secondary market to a limited number of investors and to the GSEs, and to securitize our loans into MBS through the GSEs and Ginnie Mae. If our ability to sell or securitize mortgage loans is impaired, we may not be able to originate mortgage loans.
Substantially all of our loan originations are sold into the secondary market. We securitize loans into MBSs through Fannie Mae, Freddie Mac and Ginnie Mae. Loans originated outside of Fannie Mae, Freddie Mac and the guidelines of the FHA, USDA, or the VA (for loans securitized with Ginnie Mae) are sold to private investors and mortgage conduits, including our loan securitization company, Woodward Capital Management LLC, which primarily securitizes such non-GSE loan products. For further discussion, see Risks Relating to the Financial and Macroeconomic Environment - Our business is highly dependent on Fannie Mae and Freddie Mac and certain U.S. government agencies and any changes in these entities or their current roles could be detrimental to our business.
The gain recognized from sales in the secondary market represents a significant portion of our revenue and net earnings. Demand in the secondary market and our ability to complete the sale or securitization of our mortgage loans depends on a number of factors, many of which are beyond our control. A decrease in the prices paid to us upon sale of our loans could be detrimental to our business, as we are dependent on the cash generated from such sales to fund our future loan closings and repay borrowings under our loan funding facilities. If it is not possible or economical for us to complete the sale or securitization of certain of our loans held for sale, we may lack liquidity to continue to fund additional loan originations and our revenue and margins on new loan originations could be materially and negatively impacted.
Further, there may be delays in our ability to sell future mortgage loans which we originate, or there may be a market shift that causes buyers of our non-GSE products-including jumbo mortgage loans, closed-end home equity loans and other non- agency mortgage loans to reduce their demand for such products. These market shifts can be caused by factors outside of our control including, but not limited to macroeconomic changes, market shifts and changes in investor liquidity, availability, or appetite for such non-GSE products. Delays in the sale of mortgage loans, loss in confidence in the debt, obligations or in the U.S. government, increased borrowing costs or increased hedge risk also increase our exposure to market risks, which could adversely affect our profitability on sales of loans. Any such delays or failure to sell loans could have a materially adverse effect on our business.
We may be required to repurchase or substitute mortgage loans or MSRs that we have sold, or indemnify purchasers of our mortgage loans or MSRs.
We make representations and warranties to purchasers when we sell them a mortgage loan or an MSR, including in connection with our MBS securitizations. If a mortgage loan or MSR does not comply with the representations and warranties that we made with respect to it at the time of its sale, we could be required to repurchase the loan or MSR, replace it with a substitute loan or MSR and/or indemnify secondary market purchasers for applicable losses. If this occurs, we may have to bear any associated losses directly, as repurchased loans typically can only be resold at a discount to their repurchase price, if at all. We also may be subject to claims by purchasers for repayment of a portion of the premium we received from such purchaser on the sale of certain loans or MSRs if such loans or MSRs are repaid in their entirety within a specified time period after the sale of the loan. As of December 31, 2025, we had accrued $129 million in connection with our reserve for repurchase and indemnification obligations. Actual repurchase and indemnification obligations could materially exceed the reserves we have recorded in our financial statements. Any significant repurchases, substitutions, indemnifications or premium recapture could be detrimental to our business.
Additionally, we may not be able to recover amounts from some third parties from whom we may seek indemnification or against whom we may assert a loan or MSR repurchase demand in connection with a breach of a representation or warranty due to financial difficulties or otherwise. As a result, we are exposed to counterparty risk in the event of non-performance by counterparties to our various contracts, including, without limitation, as a result of the rejection of an agreement or transaction in bankruptcy proceedings, which could result in substantial losses for which we may not have insurance coverage.
Our underwriting may not accurately predict the likelihood of default for all loans, which can result in substantial losses that could adversely affect our financial condition.
We originate mortgage loans according to GSE and other investor/insurer and regulatory guidelines, as applicable to the related mortgage loan product, using automated underwriting engines from Fannie Mae and Freddie Mac that predict a borrower’s ability and willingness to pay. Despite these standards, our underwriting guidelines may not always correlate with, or accurately predict, the underlying mortgage defaults. A client’s ability to repay their loan may be adversely impacted by numerous factors, including a change in the borrower’s employment, financial condition or other negative local or macroeconomic conditions, including but not limited to, increased property tax rates and increased costs for homeowners’ insurance. Deterioration in a client’s financial condition and prospects may be accompanied by deterioration in the value of the collateral for the loan.
Self-employed clients may be more likely to default on their loans than salaried or commissioned clients and generally have less predictable income. In addition, many self-employed clients are small business owners who may be personally liable for their business debt. Deterioration in self-employed clients’ businesses or economic changes may result in increased defaults on the loans we originate or service.
Some of the loans we originate or acquire have been, and in the future could be, made to clients who do not live in the mortgaged property. These loans secured by rental or investment properties tend to default more than loans secured by properties regularly occupied or used by the client. In a default, clients not occupying the mortgaged property may be more likely to abandon the property, increasing our financial exposure.
The above referenced loans may be more expensive to service because they require more frequent interaction with clients and greater monitoring and oversight. Additionally, these higher-risk loans may be subject to increased scrutiny by state and federal regulators and lead to higher compliance and regulatory costs, which could result in a further increase in servicing costs. We may not be able to pass along any of the additional expenses we incur in servicing these higher-risk loans to our servicing clients or the related investors. The greater cost of servicing higher-risk loans could adversely affect our business, financial condition and results of operations.
We rely upon the accuracy and completeness of information about borrowers and any misrepresented information or fraud could result in significant financial losses and harm to our reputation.
We use automated underwriting engines from Fannie Mae and Freddie Mac to assist us in determining if a loan applicant is creditworthy, as well as other proprietary and third-party tools and safeguards to detect and prevent fraud. We are unable, however, to prevent every instance of fraud that may be engaged in by our clients or team members, and any seller, real estate broker, notary, settlement agent, appraiser, title agent, or third-party originator that misrepresents facts about a loan, including the information contained in the loan application, property valuation, title information and employment and income documentation submitted with the loan application. If any of this information was intentionally or negligently misrepresented and such misrepresentation was not detected prior to the acquisition or closing of the loan, the value of the loan could be significantly lower than expected, resulting in a loan being approved in circumstances where it would not have been had we been provided with accurate data. A loan subject to a material misrepresentation is typically or subject to repurchase if it is sold before detection of the . In addition, the persons and entities making a are often to locate and it is often to collect from them any monetary we have . The technology and other controls and processes we have created to help us identify information in our loan origination operations were designed to obtain reasonable, not absolute, assurance that such information is identified and addressed appropriately. Accordingly, such controls may to detect all information in our loan origination operations.
High profile fraudulent activity also could negatively impact our brand and reputation, which could impact our business. In addition, certain fraudulent activity could lead to regulatory intervention and/or increased oversight, which could increase our costs and negatively impact our business.
Failure of vendors to perform to contractual agreements embedded in our products and services and our failure to effectively oversee vendor operations could adversely affect our business.
The performance and oversight of our vendors and service providers are crucial to the success of our business. We engage with numerous vendors and service providers, including affiliates and third parties, who offer essential services such as software and hardware support integral to our products. Any disruption in these services, or a loss of our right to use them, could result in decreased functionality or availability of our products or services. This could persist until an equivalent solution is developed internally or sourced ex t ernally, which could have an adverse impact on our business.
Furthermore, errors or defects in these third-party services might translate into flaws in our own products, causing failures that are costly to rectify and could damage our reputation. It is important to note that our third-party providers often depend on additional vendor services and any disruption in those could affect their service delivery. Many third-party providers seek to limit their liability for such issues, and if upheld, we might bear additional liabilities, consequently increasing our operational costs.
Additionally, there is a risk that vendors and service providers might not comply with applicable laws, rules and regulations despite our efforts in vendor management and oversight. Noncompliance, whether due to failure on the part of our vendors or from lapses in our oversight practices, could lead to fines, penalties and other liabilities arising from vendor errors and omissions.
Vendors and service providers frequently access sensitive information, including customer data, intellectual property and proprietary business details. Although we enforce strict vendor selection protocols and ensure agreements incorporate robust data privacy and security measures, vendors may experience data breaches . Future breaches could result in unauthorized access to or other personal sensitive information, leading to financial, reputational and operational repercussions.
Lastly, our operations, have in the past, and may in the future may be disrupted if vendors fail to fulfill their obligations or cease their services, be it temporary or permanent and replacing such vendors promptly and under similar conditions may not always be feasible.
Redfin is reliant on real estate listing data and may be unable to obtain and provide comprehensive and accurate real estate listings quickly, or at all.
We believe that users of Redfin’s website and mobile app come to us primarily because of the real estate listing data that Redfin provides. Accordingly, if Redfin were unable to obtain and provide comprehensive and accurate real estate listings data, its primary channels for meeting customers will be diminished. Redfin sources listings data primarily from MLS in the markets it serves. Redfin also sources listings data from public records, other third-party listing providers, and individual homeowners and brokers. Many of Redfin’s competitors and other real estate websites also have access to MLSs and other listings data, including proprietary data, and may be able to source listings data or other real estate information faster or more efficiently than Redfin. Since MLS participation is voluntary, brokers and homeowners may decline to post their listings data to their local MLS or may seek to change or limit the way that data is distributed. There are industry participants working to change local MLS rules to allow brokers and homeowners to exclude more listings from the MLSs. A competitor or another industry participant could also create an alternative listings data service, or their own exclusive listings database, which may reduce the relevancy and comprehensive nature of the MLSs. If MLSs to be the predominant source of listings data in the markets that Redfin serves, it may be to get access to comprehensive listings data on commercially reasonable terms, or at all, which may result in fewer people using its website and mobile app.
Redfin is subject to the rules, terms of service, and policies of realtor associations and MLSs, and any non-compliance may restrict or terminate their access to and use of listings data.
Redfin must comply with the rules, terms of service, and policies of realtor associations and MLSs to access and use MLS listings data. Redfin belongs to numerous realtor associations and MLSs, and each has adopted its own rules, terms of service, and policies governing, among other things, how MLS data may be used and how listings data must be displayed on our website and mobile app. These rules typically do not contemplate multi-jurisdictional online brokerages like ours and vary widely among markets. They also are in some cases inconsistent with the rules of other realtor associations and MLSs such that we are required to customize our website, mobile app, or service to accommodate differences between rules of realtor associations and MLSs. Complying with the rules of each realtor association and MLS requires significant investment, including personnel, technology and development resources, and the exercise of considerable judgment. In October 2023, Redfin began exiting local realtor associations and the NAR in some jurisdictions. Redfin could be deemed to be noncompliant by not having these realtor association memberships, or by having both realtor and non- realtor agents working at the same brokerage.
We may be unable to make acquisitions and investments, successfully integrate acquired companies (including Redfin and Mr. Cooper) into our business, or our acquisitions (including Redfin and Mr. Cooper) and investments may not meet our expectations, any of which could adversely affect our business, financial condition and results of operations.
We have acquired and may continue to acquire or invest in new or complementary businesses, technologies, services, products, or teams. Most notably, in 2025, we acquired Redfin and Mr. Cooper. Acquisitions and investments pose various risks to our business including: unanticipated costs or liabilities associated with the acquired entities, such as claims related to their products, technologies, or offerings; failure of acquired business or assets to perform as expected, leading to an inability to generate sufficient revenue to offset the associated costs; unforeseen complexities in accounting, internal controls, or regulatory requirements associated with the acquired business or assets; delays in the integration of newly acquired businesses and assets could lead to inefficiencies; harm to existing business relationships with partners due to the acquisition; and an inability to maintain quality, security and internal control standards within acquired entities, consistent with industry practices and internal requirements.
Further, we have relied, and will rely in the future, on third-party service providers to facilitate parts of our due diligence on acquisition and investment targets. If we are unable to identify issues through the due diligence process, we may face obstacles in achieving anticipated synergies or integrating acquisitions into our operations, which could result in an inability to realize the expected benefit of such acquisitions or investments. The capital expense of acquisitions or investments, diversion of management’s time and allocating team members, or other resources, needed elsewhere in the business could negatively impact our business. We also may be unable to retain key team members or customers/vendors of acquired entities, which could undermine the acquisition value proposition. Furthermore, disputes and negative outcomes may arise from earn-outs, escrows and other performance-related arrangements from acquisitions. with shareholders of a company in which we have invested may also occur, particularly concerning governance or operations. Any of these risks have the potential to affect the company's business, financial condition and results of operations.
We may not achieve the intended benefits of our acquisition of Redfin and acquisition of Mr. Cooper, and the Redfin Acquisition or the Mr. Cooper Acquisition may disrupt our current plans or operations.
There can be no assurance that we will be able to successfully integrate Redfin or Mr. Cooper’s assets or otherwise realize the expected benefits of the Redfin Acquisition or the Mr. Cooper Acquisition. Difficulties in integrating Redfin or Mr. Cooper into our existing operations may result in our business performing differently than expected, in operational challenges or in the failure to realize anticipated synergies and efficiencies in the expected timeframe or at all. The integration of the companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining or attracting business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; increased complexity and cost in consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; unanticipated issues in integrating information technology, communications and other systems; as well as potential unknown liabilities, expenses relating to integration or associated with the Redfin Acquisition or the Mr. Cooper Acquisition.
Negative public opinion could damage our brand and reputation, which could adversely affect our business and earnings.
We are highly dependent on the positive perception and recognition of the brands that make up Rocket Companies in order to attract new clients. Negative public opinion can result from our actual or alleged conduct in any number of activities, including loan origination, loan servicing, debt collection practices, rebranding campaigns, negative events (e.g., data breaches, executive misconduct and violations of law), deficient corporate governance and other activities adverse to us, such as lawsuits against us. Negative public opinion could also result from actions taken by government regulators and community organizations in response to our activities, from consumer complaints, including in the CFPB complaints database and from media coverage - whether accurate or not. Our ability to attract and retain clients is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. perceptions or publicity regarding these matters-even if related to seemingly isolated , or even if related to practices not specific to the origination or servicing of loans, such as debt collection-could trust and confidence and our reputation among existing and potential clients. In turn, this could decrease the demand for our products, increase regulatory and affect our business. In addition, consumer advocacy groups and some media reports have advocated for governmental actions placing additional requirements on non-bank consumer lenders which could result in more restrictive laws and regulations and/or changes in consumer perceptions and preferences. Such changes in consumer perceptions and preferences could, in turn, result in significant decreases in demand for our consumer loan products.
Instability caused by acts of violence or war may affect the lending industry and capital markets generally and our business, financial condition and results of operations.
Instability caused by terrorist attacks, the anticipation of any such attacks, political or domestic instability, the consequences of any military or other response by the United States and its allies and other armed conflicts globally and geopolitical events stemming from such conflicts, have in the past caused, and in the future may cause, consumer confidence and spending to decrease, and have resulted, and may in the future result, in increased volatility and disruption in the United States and worldwide financial markets and economy.
If such events lead to a prolonged economic slowdown, recession or declining real estate values, they could impair our ability to originate and service loans on profitable terms and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. In addition, the activation of additional U.S. military reservists or members of the National Guard may significantly increase the proportion of mortgage loans whose interest rates are reduced by application of the Service Members Civil Relief Act or similar state or local laws. As a result, any such attacks or armed conflicts may adversely impact our performance.
Our business is subject to the risks of natural disasters and other natural catastrophic events and to interruption by man - made issues such as strikes.
Our systems and operations are vulnerable to damage or interruption from natural disasters (e.g., earthquakes, tornados, fires, floods), man-made issues (e.g., telecommunications failures, strikes), natural catastrophic events (e.g., health pandemics) and similar events or the effects of any of the foregoing (e.g., power losses, damage to property). Further, we recognize the inherent risks related to weather and the climate wherever our business is conducted. Our primary locations may be vulnerable to extreme weather conditions which may disrupt our business and may cause us to experience additional costs to maintain or resume operations and higher attrition. For example, a significant natural disaster in Detroit, such as an earthquake, tornado, fire or flood, could have a material adverse impact on our business, operating results and financial condition and our insurance coverage may be to compensate us for that may occur. Disease outbreaks have occurred in the past (including acute respiratory syndrome, or SARS, avian flu, H1N1/09 flu and COVID-19) and any occurrence of infectious disease or other public health developments could have a material effect on the macro economy and/or our business operations. In addition, strikes and other geopolitical could cause in our business and lead to , or of data. These types of events could also affect our loan servicing costs, increase our recoverable and our non-recoverable servicing , increase servicing due to impacted clients and affect the value of our MSRs. We may not have sufficient protection or recovery plans in certain circumstances, such as natural affecting the Detroit, Phoenix, Cleveland, Charlotte, Seattle or Dallas areas and our business insurance may be to compensate us for that may occur.
Our risk management efforts may not be effective at mitigating potential losses resulting in increased costs or business disruption.
We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk and other market-related risks, as well as operational, compliance and legal risks related to our business, assets and liabilities. We also are subject to various laws, regulations and rules that are not industry specific, including employment laws related to team member hiring and termination practices, health and safety laws, environmental laws and other federal, state and local laws, regulations and rules in the jurisdictions in which we operate. Our risk management policies, procedures and techniques may not be sufficient to identify all of the risks to which we are exposed, mitigate the risks we have identified, or identify additional risks to which we may become subject in the future. Expansion of our business activities may also result in our being exposed to risks to which we have not previously been exposed or may increase our exposure to certain types of risks, including our exposure to third-party credit, servicer and counterparty risks from our consumers, counterparties, servicers and correspondents, and we may not effectively identify, manage, monitor and mitigate these risks as our business activities change or increase.
We face intense competition that could adversely affect us.
Competition in the mortgage and other consumer lending space is intense and has experienced substantial consolidation. Our competitors, such as correspondent lenders who originate mortgage loans using their own funds, may have more operational flexibility in approving loans. Additionally, we operate at a competitive disadvantage to U.S. federal banks and thrifts and their subsidiaries because they enjoy federal preemption and, as a result, conduct their business under relatively uniform U.S. federal rules and standards and are generally not subject to the laws of the states in which they do business (including state “predatory lending” laws). Unlike our federally chartered competitors, we are generally subject to all state and local laws applicable to lenders in each jurisdiction in which we originate and service loans. To compete effectively, we must have a very high level of operational, technological, legal, compliance and managerial expertise, as well as access to capital at a competitive cost.
Competition in our industry can take many forms, including the variety of loan programs being made available, interest rates and fees charged for a loan, convenience in obtaining a loan, client service levels, the amount and term of a loan and marketing and distribution channels. In addition, our competitors seek to compete aggressively on the basis of pricing factors. To the extent that we match competitors’ lower pricing, we may experience lower gain on sale margins. Fluctuations in interest rates and general economic conditions may also affect our competitive position including during periods of rising rates, competitors that have locked in low borrowing costs may have a competitive advantage.
Furthermore, the mortgage industry has experienced significant cyclicality in recent years. A decline overall level of originations and decreased demand for loans due to fluctuations in the interest rate environment, have in the past led, and may in the future lead, to increased competition for the remaining loans. Although interest rates have began to moderate, any periods of increase in these competitive pressures could be detrimental to our business.
Risks Relating to the Financial and Macroeconomic Environment
Our business is significantly impacted by interest rates. Changes in prevailing interest rates, U.S. monetary policies, or other macroeconomic conditions affecting interest rates have had and may in the future have a detrimental effect on our business.
Our financial performance is directly affected by prevailing interest rates. For example, we are particularly affected by the policies of the U.S. Federal Reserve, including changes to the federal funds rate and its balance sheet, specifically its MBS portfolio. Increases in inflation during 2022 and 2023 led to increases in interest rates, which in turn led to lowered transaction volumes for new purchase mortgages and refinancings. Such events may occur again in the future. Increases in interest rates may cause increased delinquency default and foreclosure. Increased mortgage defaults and foreclosures may adversely affect our business as they increase our expenses and reduce the number or mortgages service fees that are collected.
Sustained elevated interest rates in 2022 and 2023, coupled with increases in home prices, made homeownership more expensive for borrowers and materially reduced the size of the refinance market. Although interest rates have began to decline, the size of the refinance origination market continues to be subject to significant fluctuations as a result of interest rate changes since refinancing an existing loan that has a lower interest rate could be less attractive and make qualifying for a loan more difficult. The volatility of the interest rate environment has in the past and may continue to adversely affect us and our revenues or require us to increase marketing expenditures to increase or maintain our volume of mortgages and/or cut costs to maintain margins.
Changes in interest rates are also a key driver of the performance of our servicing business, particularly because our servicing portfolio is composed primarily of MSRs related to high-quality loans, the values of which are highly sensitive to changes in interest rates. Historically, the value of MSRs has increased when interest rates rise, as higher interest rates lead to decreased prepayment rates; the value of MSRs has decreased when interest rates decline, as lower interest rates lead to increased prepayment rates.
Borrowings under our financing facilities are at variable rates of interest, which also exposes us to interest rate risk. As interest rates remain elevated, our debt service obligations on certain of our variable-rate indebtedness will also increase. In the future, we may enter into interest rate swaps, which involve the exchange of floating for fixed-rate interest payments, to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable-rate indebtedness and any such swaps may not fully mitigate our interest rate risk, may prove disadvantageous, or may create additional risks and could impact our ability to operate our business.
Our Rocket Mortgage business relies on our loan funding facilities to fund mortgage loans and otherwise operate our business. If one or more of such facilities are terminated, we may be unable to find replacement financing at commercially favorable terms, or at all, which could be detrimental to our business.
We fund a significant portion of the mortgage loans we close through borrowings under our loan funding facilities. Our borrowings are in turn generally repaid with the proceeds we receive from mortgage loan sales. We are currently, and may in the future continue to be, dependent upon lenders to provide the primary funding facilities for our loans. As of December 31, 2025, we had twenty-one loan funding facilities which provide us with an aggregate maximum principal amount of $28.5 billion in loan origination availability, nineteen of which allow drawings to fund loans at closing and are primarily with large global financial institutions. Included in these twenty-one loan funding facilities are two loan funding facilities with GSEs. Additionally, we are parties to agency MSR backed master repurchase agreement facilities, which provide us access to $5.0 billion of liquidity. As of December 31, 2025, we also had available to us $1.4 billion of financing capacity through servicing advance receivable backed facilities and up to $2.3 billion available through a syndicated unsecured revolving credit facility. Of the nineteen existing global bank loan funding facilities, all facilities are on an either evergreen or two-year tenor, with maturities staggered in 2026 and 2027. Approximately $19.5 billion of our loan funding capacity are uncommitted and can be terminated by the applicable lender at any time. Moreover, one of our loan funding facilities requires that we have additional borrowing capacity so that such facility does not represent more than a specified percentage of our total borrowing capacity. If we were to maintain the required ratio with availability under other facilities, our funding availability under such facilities could also be .
In the event that any of our loan funding facilities are terminated or are not renewed, or if the principal amount that may be drawn under our funding agreements that provide for immediate funding at closing were to significantly decrease, we may be unable to find replacement financing on commercially favorable terms, or at all, which could be detrimental to our business. Further, if we are unable to refinance or obtain additional funds for borrowing, our ability to maintain or grow our business could be limited. In addition, a significant adverse development (such as a bank run, insolvency, bankruptcy or default) with one or more national or regional banks, financial institutions or other participants in the financial or capital markets may cause the customers of such institutions to lose their savings, absent action by the US government, which may increase mortgage loan default rates, and may spread to other institutions, including our lenders, and have significant effects on such institutions or the markets generally, which could in turn limit our ability to obtain additional funds for borrowing on terms acceptable to us or at all and limit our ability to maintain or grow our business. Such significant development, particularly in the current interest rate environment, could result in changes in legislation or regulatory requirements that could materially affect our business, financial condition and operating results.
Our ability to refinance existing debt and borrow additional funds is affected by a variety of factors.
Our funding facilities and financing facilities contain covenants, including requirements to maintain a certain minimum tangible net worth, minimum liquidity, maximum total debt or liabilities to net worth ratio, pre-tax net income requirements, litigation judgment thresholds and other customary debt covenants. A breach of the covenants can result in an event of default under these facilities and allow the lenders to pursue certain remedies. In addition, certain of these facilities include cross default or cross acceleration provisions that could result in most, if not all, facilities terminating if an event of default or acceleration of maturity occurs under any facility. If we are unable to meet or maintain the necessary covenant requirements or satisfy, or obtain waivers for, the continuing covenants, we may lose the ability to borrow under all of our funding and financing facilities, which could be detrimental to our business. Additional risks related to our funding and financing facilities include imposed on us under existing and future financing facilities that contain restrictive covenants and borrowing conditions that may limit our ability to raise additional debt, including more financial covenants in such refinanced facilities, which we may not be to , a in liquidity in the credit markets, increases in the prevailing interest rates, changes in the financial of our lenders, the decision of lenders from whom we borrow to reduce their exposure to mortgage loans and MSRs due to a change in such lenders’ strategic plan, future lines of business, regulatory restrictions or otherwise, the amount of eligible collateral pledged on advance facilities, which may be less than the borrowing capacity of the facility, the larger portion of our loan funding facilities that is uncommitted, versus committed, and accounting changes that impact calculations of covenants in our debt agreements.
If the refinancing or borrowing guidelines become more stringent and such changes result in increased costs to comply or decreased mortgage origination volume, such changes could negatively impact our business.
Our loan origination and servicing revenues are highly dependent on macroeconomic and U.S. residential real estate market conditions.
Our success depends largely on the health of the U.S. residential real estate industry, which is seasonal, cyclical and affected by changes in general economic conditions beyond our control. Economic factors such as increased interest rates, slow economic growth or recessionary conditions, supply chain disruptions, the pace of home price appreciation or the lack of it, changes in household debt levels, inflation and increased unemployment or stagnant or declining wages affect our clients’ income and thus their ability and willingness to make loan payments. National or global events including, but not limited to, supply chain disruptions, geopolitical conflicts, natural disasters, natural events or man-made disruptions, affect all such macroeconomic conditions. Weak or a significant in economic conditions reduce the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified potential clients to purchase new homes or make large purchases that require financing. As a result, such economic factors may affect loan origination volume.
Additional macroeconomic factors including, but not limited to, rising government debt levels, increase of global trade barriers, prolonged government shutdowns, the withdrawal or augmentation of government interventions into the financial markets, changing U.S. consumer spending patterns, changing expectations for inflation and deflation and weak credit markets may create low consumer confidence in the U.S. economy or the U.S. residential real estate industry and could also negatively impact the overall economy, government revenues, the real estate industry and us in ways that cannot be reliably predicted. Excessive home building or high foreclosure rates resulting in an oversupply of housing in a particular area may also increase the amount of losses incurred on defaulted mortgage loans. Furthermore, several state and local governments in the United States are experiencing, and may continue to experience, budgetary strain. One or more states or significant local governments could on their debt or seek relief from their debt under the U.S. code or by agreement with their creditors. Any or all of the circumstances described above may lead to further in or of the credit markets at any time and affect our financial condition.
Any uncertainty or deterioration in market conditions that leads to a decrease in loan originations will result in lower revenue on loans sold into the secondary market. Lower loan origination volumes generally place downward pressure on margins, thus compounding the effect of the deteriorating market conditions. Such events could be detrimental to our business. Additionally, origination of loans can be seasonal. Historically, loan origination increases in the second and third quarters and decreases in the first and fourth quarters as home buyers tend to purchase their homes during the spring and summer in order to move to a new home before the start of the school year. As a result, our loan origination revenues vary from quarter to quarter.
Moreover, any deterioration in market conditions that leads to an increase in loan delinquencies will result in lower revenue for loans we service for the GSEs, Ginnie Mae and other investors because we collect servicing fees from them only for performing loans. Current economic uncertainties and market volatilities may contribute to a reduction in economic activity and housing affordability, which could lead to increasing mortgage delinquencies or defaults and increase losses from our representations and warranties. A prolonged federal government shutdown could increase loan delinquencies, delay the processing of government loan applications and make it more difficult for some customers to procure government-backed insurance. While increased delinquencies generate higher ancillary revenues, including late fees, these fees are likely unrecoverable when the related loan is . Increased may also increase the cost of servicing the loans for all market participants. The decreased cash flow from lower servicing fees could decrease the estimated value of our MSRs, resulting in recognition of when we write down those values. In addition, an increase in lowers the interest income we receive on cash held in collection and other accounts and increases our obligation to advance certain principal, interest, tax and insurance obligations owed by the mortgage loan borrower. An increase in could therefore be to our business.
If the value of the collateral underlying certain of our loan funding facilities decreases, we could be required to satisfy a margin call and an unanticipated margin call could have a material adverse effect on our liquidity.
Certain of our funding and financing facilities, early buy-out facilities, and MSR-backed facilities are subject to margin calls based on the lender’s opinion of the value of the loan collateral securing such financing and certain of our hedges related to newly originated mortgages are also subject to margin calls. A margin call would require us to repay a portion of the outstanding borrowings. A large, unanticipated margin call could have a material adverse effect on our liquidity.
A disruption in the secondary home loan market, including the MBS market, could have a detrimental effect on our business.
Demand in the secondary market and our ability to complete the sale or securitization of our mortgage loans depends on a number of factors, many of which are beyond our control, including general economic conditions, general conditions in the banking system, the willingness of lenders to provide funding for home loans, the willingness of investors to purchase home loans and MBS and changes in regulatory requirements. Any significant disruption or period of illiquidity in the general MBS market could directly affect our liquidity because no existing alternative secondary market would likely be able to accommodate on a timely basis the volume of loans that we typically sell in any given period. Accordingly, if the MBS market experiences a period of illiquidity, we might be prevented from selling the loans that we produce into the secondary market in a timely manner or at favorable prices, which could be detrimental to our business.
Our business is highly dependent on Fannie Mae and Freddie Mac and certain U.S. government agencies and any changes in these entities or their current roles could be detrimental to our business.
We originate loans eligible for sale to Fannie Mae and Freddie Mac and government-insured or guaranteed loans, such as FHA and VA loans eligible for Ginnie Mae securities issuance.
In 2008, the FHFA placed Fannie Mae and Freddie Mac into conservatorship and, as their conservator, FHFA controls and directs their operations. Uncertainty remains regarding the future of the GSEs, including with respect to the duration of conservatorship, the extent of their roles in the market and what forms they will have and whether they will be government agencies, government-sponsored agencies or private for-profit entities.
In September 2021, FHFA and the U.S. Department of Treasury suspended certain provisions added to the PSPAs with Fannie Mae and Freddie Mac. Among other limitations, the suspended provisions previously limited the acquisition of loans with higher risk characteristics, second homes and investment properties and limited the GSEs cash windows. In January 2025, FHFA and Treasury amended the PSPAs to eliminate these previously suspended PSPA restrictions in their entirety, including the limits on higher-risk, investment property and second home loans and the GSEs cash window usage. In addition, the 2025 PSPA amendments restored Treasury’s right to consent before the GSEs can be released from conservatorship, which could affect the timing, structure and conditions of a potential exit. It remains to be seen how FHFA and Treasury potentially further amend the PSPAs. Changes to the PSPAs may have significant implications on the GSEs’ market footprint, lender access to the secondary market and GSE capital and conservatorship milestones.
In November 2021, under new leadership, FHFA issued its 2022 Conservatorship Scorecard for the GSEs and CSS, reflecting an ongoing shift in the regulators’ priorities. Since then, FHFA has continued to issue annual scorecards, and recent Conservatorship Scorecards have routinely de-emphasized exiting the GSEs from conservatorship, de-emphasized CSS’ potential shift to a market utility and reiterated the importance of credit risk transfer. The ongoing recapitalization of the GSEs, higher affordable housing goals, increases to the GSE conforming loan limit, continued review of and volatility in GSE pricing and potential revisitation of the PSPAs will materially impact the GSE’s guarantee obligations and market footprint. In addition, legislative proposals to reform the U.S. housing finance market may materially impact the role of the GSEs in purchasing and guaranteeing mortgage loans. Any such proposals, if enacted, may have broad adverse implications for the MBS market and our business. It is possible that the adoption of any such proposals might lead to higher fees being charged by the GSEs and/or lower prices on our sales of mortgage loans to them. Moreover, recent changes to the composition of the GSEs’ boards of directors and senior management have resulted in, and may in the future result in, modifications to GSEs policies and pricing frameworks, eligibility standards or risk-management directives. FHFA and the GSEs have recently revised certain operational, governance and underwriting directives, rescinded or modified select policy requirements and signaled that additional updates may occur as the GSEs continue to build capital, adjust their risk-management frameworks and align their practices with FHFA’s evolving objectives.
The extent and timing of any regulatory reform regarding the GSEs and the U.S. housing finance market, as well as any effect on our business operations and financial results, are uncertain. It is not yet possible to determine whether such proposals will be enacted and, if so, when, what form any final legislation or policies might take or how proposals, legislation or policies may impact the MBS market and our business. Our inability to make the necessary adjustments to respond to these changing market conditions or loss of our approved seller/servicer status with the GSEs could have a material adverse effect on our mortgage origination operations and our mortgage servicing operations. If those agencies cease to exist, wind down, or otherwise significantly change their business operations or if we lost approvals with those agencies or our relationships with those agencies are otherwise adversely affected, we would seek alternative secondary market participants to acquire our mortgage loans at a volume sufficient to sustain our business. If such participants are not available on reasonably comparable economic terms, or if changes in GSE or FHFA policy materially alter loan eligibility standards, capital or reserve requirements for borrowers (including updates recognizing certain additional asset types), the above changes could have a material effect on our ability to sell loans we originate that are securitized through Fannie Mae, Freddie Mac or Ginnie Mae.
When servicing or originating GSE and U.S. government agency loans, we are required to follow specific guidelines and eligibility standards that impact the way we service and originate such loans, including guidelines and standards with respect to: credit standards for mortgage loans; our staffing levels and other servicing practices; the origination, servicing and ancillary fees that we may charge; our modification standards and procedures; the amount of reimbursable and nonreimbursable advances that we may make; and the types of loan products that are eligible for sale or securitization.
These guidelines outline directives from FHFA to GSEs and directives published by other government agencies. Under these directives, Fannie Mae and Freddie Mac may offer financial rewards to well-performing servicers. Conversely, compensatory penalties may be imposed on servicers for failing to meet specified timelines related to delinquent loans and foreclosure proceedings, as well as other violations of servicing obligations. The GSEs also have the authority to levy additional fees on acquired loans. Further, negotiations related to the guidelines with these agencies are generally not possible and the terms are subject to change without our prior consent. Any significant alterations to these guidelines, particularly those that reduce our fees or necessitate increased resources for mortgage services, could negatively impact our revenues and costs. Given the evolving conservatorship framework, GSE policy changes may occur with greater frequency, and we may be required to implement additional systems, operational updates or resource commitments to maintain compliance with amended GSE or FHFA directives.
In addition, changes in the nature or extent of the guarantees provided by Fannie Mae, Freddie Mac, Ginnie Mae, the USDA or the VA, or the insurance provided by the FHA, or coverage provided by private mortgage insurers, could also have broad adverse market implications. Any future increases in guarantee fees or changes to their structure or increases in the premiums we are required to pay to the FHA or private mortgage insurers for insurance or to the VA or the USDA for guarantees could increase mortgage origination costs and insurance premiums for our clients. These industry changes could negatively affect demand for our mortgage services and consequently our origination volume, which could be detrimental to our business. We cannot definitively predict whether the impact of any proposals to move Fannie Mae and Freddie Mac out of conservatorship would require them to increase their fees.
Challenges to the MERS® System could materially and adversely affect our business, results of operations and financial condition.
MERSCORP, Inc. is a privately held company that maintains an electronic registry, referred to as the MERS® System, which tracks servicing rights and ownership of home loans in the United States. MERS, a wholly owned subsidiary of MERSCORP, Inc., can serve as a nominee for the owner of a home loan and in that role initiate foreclosures or become the mortgagee of record for the loan in local land records. We have used in the past and may continue to use MERS as a nominee. The MERS® System is widely used by participants in the mortgage finance industry.
Several legal challenges in the courts and by governmental authorities have been made disputing MERS’s legal standing to initiate foreclosures or act as nominee for lenders in mortgages and deeds of trust recorded in local land records. These challenges have focused public attention on MERS and on how home loans are recorded in local land records. Although most legal decisions have accepted MERS as mortgagee, these challenges could result in delays and additional costs in commencing, prosecuting and completing foreclosure proceedings, conducting foreclosure sales of mortgaged properties and submitting proofs of claim in client bankruptcy cases.
Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates.
We use various derivative financial instruments to provide a level of protection against interest rate risks related to both our MLHFS and IRLCs and our MSRs, but no hedging strategy can protect us completely. The nature and timing of hedging transactions influence the effectiveness of these strategies. Poorly designed strategies, improperly executed and documented transactions or inaccurate assumptions could increase our risks and losses. In addition, hedging strategies involve transaction and other costs. Our hedging strategies and the derivatives that we use may not be able to adequately offset the risks of interest rate volatility, and our hedging transactions may result in or magnify losses. Furthermore, interest rate derivatives may not be available on favorable terms or at all, particularly during periods of heightened volatility or economic downturns. Any of the foregoing risks could affect our business, financial condition and results of operations.
We rely on internal models to manage risk and to make business decisions. Our business could be adversely affected if those models fail to produce reliable and/or valid results.
We make significant use of business and financial models in connection with our proprietary technology to measure and monitor our risk exposures and to manage our business. For example, we use models to measure and monitor our exposures to interest rate, credit and other market risks including models utilized in hedging. The information provided by these models is used in making business decisions relating to strategies, initiatives, transactions, pricing and products. If these models are ineffective at predicting future losses or are otherwise inadequate, we may incur unexpected losses or otherwise be adversely affected.
We build these models using historical data and our assumptions about factors such as future mortgage loan demand, default rates, home price trends and other factors that may overstate or understate future experience. Our assumptions may be inaccurate and our models may not be as predictive as expected for many reasons, including the fact that they often involve matters that are inherently beyond our control and difficult to predict, such as macroeconomic conditions and that they often involve complex interactions between a number of variables and factors.
Our models could produce unreliable results for a variety of reasons, including but not limited to, the limitations of historical data to predict results due to unprecedented events or circumstances, invalid or incorrect assumptions underlying the models, the need for manual adjustments in response to rapid changes in economic conditions, incorrect coding of the models, incorrect data being used by the models or inappropriate application of a model to products or events outside of the model’s intended use. In particular, models are less dependable when the economic environment is outside of historical experience, as was the case during the 2008 financial crisis and the COVID-19 pandemic.
As a result of the time and resources, including technical and staffing resources, that are required to perform these processes effectively, it may not be possible to replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions.
A substantial portion of our assets, including our MSRs, are measured at fair value. Fair value determinations require many assumptions and complex analyses and we cannot control many of the underlying factors. If our estimates prove to be incorrect, we may be required to write down the value of such assets, which could adversely affect our earnings, financial condition and liquidity.
We measure the fair value of our MLHFS, derivative financial instruments, MSRs, and excess spread financing on a recurring basis and we measure the fair value of other assets, such as mortgage loans held for investment, certain impaired loans and other real estate owned, on a non-recurring basis.
Fair value determinations require many assumptions and complex analyses, especially to the extent there are not active markets for identical assets. For example, we generally estimate the fair value of loans held for sale based on quoted market prices for securities backed by similar types of loans. If quoted market prices are not available, fair value is estimated based on other relevant factors, including dealer price quotations and prices available for similar instruments, to approximate the amounts that would be received from a third party. In addition, the fair value of IRLCs, a derivative financial instrument, is measured based upon the difference between the current market prices of securities backed by similar mortgage loans (as determined generally for mortgages held for sale) and the price at which we have committed to originate the loans, subject to the estimated loan financing probability, or pull-through factor (which is both significant and highly subjective).
The value of our MSRs is based on the cash flows projected to result from the servicing of the related mortgage loans and continually fluctuates due to a number of factors. These factors include changes in interest rates; historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates and refinancings. Other market conditions also affect the number of loans that are refinanced, and thus no longer result in cash flows, and the number of loans that become delinquent.
We use internal financial models that utilize market participant data to value our MSRs for purposes of financial reporting and for purposes of determining the price that we pay to acquire loans for which we will retain MSRs. These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of MSRs are complex because of the high number of variables that drive cash flows associated with MSRs, including the expectation of delinquencies, and because of the complexity involved with anticipating such variables over the life of the MSR. Even if the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the results of the models.
Additionally, MSRs do not trade in an active market with readily observable prices and, therefore, the fair value of MSRs is determined using a discounted cash flow model that incorporates prepayment speeds, OAS, cost to service, delinquencies, ancillary revenues, recapture rates, among other assumptions.
If our estimates of fair value prove to be incorrect, we may be required to write down the value of such assets, which could adversely affect our financial condition and results of operations. In addition, accounting rules for valuing certain assets and liabilities are highly complex and involve significant judgment and assumptions, which could lead to a delay in preparation of financial information and the delivery of this information to our stockholders and also increase the risk of errors and restatements, as well as the cost of compliance.
Risks Relating to Regulatory Compliance and Litigation
We operate in heavily regulated industries and our activities expose us to risks of non-compliance with an increasing and inconsistent body of complex laws and regulations at the U.S. federal, state and local levels, as well as in Canada.
Due to the heavily regulated nature of the financial services industry, we are required to comply with a wide array of U.S. federal, state and local laws and regulations and Canadian federal and provincial laws that regulate, among other things, the manner in which we conduct our loan origination and servicing businesses and the fees that we may charge and the collection, use, retention, protection, disclosure, transfer and other processing of consumer personal information. Governmental authorities and U.S. federal and state agencies have broad oversight and supervisory authority over our business. Because we originate mortgage loans, installment loans and provide servicing activities nationwide and have operations in Canada, we must be licensed in all relevant jurisdictions that require licensure and comply with each such jurisdiction’s respective laws and regulations, as well as with judicial and administrative decisions applicable to us. Such licensing requirements also may require the submission of information regarding any person who has 10% or more of the combined voting power of our outstanding common stock. As a result of the voting provisions of our certificate of incorporation, a person could have 10% or more of the combined voting power of our common stock even though such person holds less than 10% of our outstanding common stock if certain conditions are met.
In addition, we are currently subject to a variety of, and may in the future become subject to, additional Canadian federal and provincial laws, and U.S. federal, state and local laws that are continually evolving and developing. These laws and any regulations implementing such laws directly impact our business and require ongoing compliance, monitoring and internal and external audits as they continue to evolve and may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions. Furthermore, changes in governmental regulations could result in, among other things, a pause or end to federally funded loans, grants and other financial assistance programs. Certain federal and state regulators are also promulgating new and revised regulations that impact our business. Additionally, the interpretation of these regulations and their overarching laws is rapidly evolving, making implementation and enforcement, and thus compliance requirements, ambiguous, uncertain and potentially inconsistent. Our interpretations and such measures may have been or may prove to be insufficient or incorrect.
We must also comply with a number of federal, state and local consumer protection laws. These statutes apply to loan origination, marketing, use of credit reports, safeguarding of non-public, personally identifiable information about our clients, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features and mandate certain disclosures and notices to clients.
In particular, various federal, state and local laws have been enacted that are designed to discourage predatory lending and servicing practices. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in federal law. In addition, under the anti-predatory lending laws of some states, the origination of certain residential loans, including loans that are not classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the related borrower. This test may be highly subjective and open to interpretation. As a result, a court may determine that a residential loan, for example, does not meet the test even if the related originator reasonably believed that the test was satisfied. Our failure to comply with these laws, or the failure of residential loan originators or servicers to comply with these laws, to the extent any of their residential loans are or become part of our mortgage-related assets, could subject us, as a servicer or, in the case of acquired loans, as an assignee or purchaser, to monetary and could result in the borrowers rescinding the affected loans. Lawsuits have been brought in various states making originators, servicers, assignees and purchasers of high-cost loans for of state law. Named in these cases have included numerous participants within the secondary mortgage market. If our loans are found to have been originated in of or lending laws, we could be subject to lawsuits or governmental actions, or we could be or incur .
In July 2020, it was announced that the Financial Stability Oversight Council will begin an activities-based review of the secondary mortgage market. The FHFA has expressed support for this review. In September 2020, the Council released a statement containing key findings from its review, which focused on the FHFA’s June 2020 proposed capital regulation for the GSEs. The Council’s statement encouraged the FHFA and other regulatory agencies to coordinate on capital requirements for market participants, encouraged the FHFA to tailor the GSEs’ capital buffers and encouraged the FHFA to implement regulatory capital definitions for the GSEs similar to those in the U.S. banking framework. In November 2023, FHFA adopted a final rule to amend several provisions in the Enterprise Regulatory Capital Framework for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac, and with Fannie Mae, each an Enterprise). The final rule includes modifications related to guarantees on commingled securities, multifamily mortgage exposures secured by government-subsidized properties, and derivatives and cleared transactions, among other items. Any further changes to the GSEs’ capital requirements could affect secondary mortgage market activities in a manner that could have an adverse effect on our business.
Both the scope of the laws and regulations and the intensity of the supervision to which our businesses are subject have increased over time, in response to the 2008 financial crisis, the COVID-19 pandemic, as well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. We expect that our business will remain subject to extensive and changing regulation and supervision. These regulatory changes could result in an increase in our regulatory compliance burden and associated costs and place restrictions on our origination and servicing operations. Our failure to comply with applicable U.S. federal, state and local consumer protection, Canadian federal and provincial laws, and data privacy laws could adversely impact our business including loss of our licenses and approvals to engage in our servicing and lending businesses, damage to our reputation in the industry, governmental investigations and enforcement actions, administrative fines and penalties and , ability to sell loans that we originate or purchase and to raise capital.
As these U.S. federal, state and local laws, and Canadian federal and provincial laws evolve, it may be more difficult for us to identify these developments comprehensively, to interpret changes accurately and to train our team members effectively with respect to these laws and regulations. In addition, these laws may conflict with each other, and if we comply with the laws of one jurisdiction, we may find that we are violating laws of another jurisdiction. These difficulties potentially increase our exposure to the risks of non-compliance with these laws and regulations, which could be detrimental to our business. In addition, our failure to comply with these laws, regulations and rules may result in reduced payments by clients, modification of the original terms of loans, permanent forgiveness of debt, delays in the foreclosure process, increased servicing advances, litigation including class actions, enforcement actions, and repurchase and indemnification obligations. A failure to supervise service providers and vendors, including outside counsel, may also have these results.
The laws and regulations applicable to us are subject to administrative or judicial interpretation, but some of these laws and regulations have been enacted only recently and may not yet have been interpreted or may be interpreted infrequently. Ambiguities in applicable laws and regulations may leave uncertainty with respect to permitted or restricted conduct and may make compliance with laws, and risk assessment decisions with respect to compliance with laws difficult and uncertain. In addition, ambiguities make it difficult, in certain circumstances, to determine if, and how, compliance violations may be cured. The adoption by industry participants of different interpretations of these statutes and regulations has added uncertainty and complexity to compliance. We may fail to comply with applicable statutes and regulations even if acting in good faith due to a lack of clarity regarding the interpretation of such statutes and regulations, which may lead to regulatory investigations, governmental enforcement actions or private causes of action with respect to our compliance.
To resolve issues raised in examinations or other governmental actions, we may be required to take various corrective actions, including changing certain business practices, making refunds or taking other actions that could be financially or competitively detrimental to us. We expect to continue to incur costs to comply with governmental regulations. In addition, certain legislative and executive actions and judicial decisions can give rise to the initiation of lawsuits against us for activities we conducted in the past. Furthermore, provisions in our mortgage loan and other loan product documentation, including but not limited to the mortgage and promissory notes we use in loan originations, could be construed as unenforceable by a court. We have been, and expect to continue to be, subject to regulatory enforcement actions and private causes of action from time to time with respect to our compliance with applicable laws and regulations.
As licensed real estate brokerages, our Redfin business is currently subject to a variety of, and may in the future become subject to, additional, federal, state, and local laws that are continually changing, including laws related to: the real estate, brokerage, title, and mortgage industries; mobile- and internet-based businesses; and data security, advertising, privacy and consumer protection laws. For instance, we are subject to federal laws such as the FHA and RESPA. These laws can be costly to comply with, require significant management attention, and could subject us to claims, government enforcement actions, civil and criminal liability, or other remedies, including revocation of licenses and suspension of business operations.
In some cases, it is unclear as to how such laws and regulations affect Redfin based on our business model that is unlike traditional brokerages, and the fact that those laws and regulations were created for traditional real estate brokerages. If we are unable to comply with and become liable for violations of these laws or regulations, or if unfavorable regulations or interpretations of existing regulations by courts or regulatory bodies are implemented, we could be directly harmed and forced to implement new measures to reduce our liability exposure. It could cause our operations in affected markets to become overly expensive, time consuming, or even impossible.
Regulatory changes and the final outcomes of industry-specific litigation may require us to expend significant time, capital, managerial, and other resources to modify or discontinue certain operations, limiting our ability to execute our business strategies, deepen our presence in our existing markets, or expand into new markets. In addition, any negative exposure or liability could harm our brand and reputation. Any costs incurred as a result of this potential liability could harm our business.
As a licensed title and settlement service provider, and an appraisal management company, Rocket Close is currently subject to a variety of, and may in the future become subject to, additional, federal, state, and local laws and regulations that are continually changing, including laws and regulations related to: the real estate, title, mortgage, and valuation industries; mobile- and internet-based businesses; and data security, advertising, privacy and consumer protection laws. For instance, Rocket Close is subject to federal laws such as GLBA and RESPA and state insurance laws. These laws can be costly to comply with, require significant management attention, and could subject us to claims, government enforcement actions, civil and criminal liability, or other remedies, including revocation of licenses and suspension of business operations.
RTIC, a title insurance underwriter, is heavily regulated by its domiciled state of Texas and by the department of insurance in each state where it holds a certificate of authority to transact title insurance. It is subject to state title insurance statutes and insurance codes as well as federal law. Title insurance rates are regulated differently in various states, with most states requiring RTIC to file and receive approval of rates before such rates become effective to be utilized by title agents. Other states set promulgated rates controlling the title insurance rates that can be charged. These regulations could hinder the underwriter’s and the agent’s ability to promptly adapt to changing market dynamics through price adjustments, which could adversely affect operations, particularly in a rapidly declining market. RTIC is also subject to regulations and reporting requirements imposed by the National Association of Insurance Commissioners. The laws and regulations governing insurance companies continue to evolve and vary by state, adding uncertainty and complexity to compliance. Financial conditions and claim management practices are subject to regulatory examinations and high scrutiny. Departures from compliance, sound underwriting practices or adequate reserves for unknown claims could result in , enforcement actions or of authority to insure.
More restrictive laws and regulations may be adopted in the future, and governmental bodies or courts may interpret existing laws or regulations in a more restrictive manner, which could render our current business practices non-compliant or which could make compliance more difficult or expensive. Any of these, or other, changes in laws or regulations could have a detrimental effect on our business or require extensive change to our compliance management system.
Regulatory agencies and consumer advocacy groups may assert claims that the practices of lenders and loan servicers result in a disparate impact on protected classes.
Antidiscrimination statutes, such as the FHA and the ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, ethnicity, sex, religion and national origin. States have analogous anti-discrimination laws that extend protections beyond the protected classes under federal law, extending protections, for example to gender identity. Various federal regulatory agencies and departments, including the DOJ and the CFPB have historically taken the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionate negative affect on a protected class of individuals).
These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, may assert “disparate impact” claims. In 2015, the U.S. Supreme Court confirmed that the “disparate impact” theory applies to cases brought under the FHA, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate, nondiscriminatory business objective of the defendant. In 2020, the HUD issued a final rule amending HUD’s interpretation of the FHA’s disparate impact standard to better align with the 2015 U.S. Supreme Court case; however, HUD more recently in March 2023 finalized a rule rescinding HUD’s 2020 final rule and restoring HUD’s 2013 disparate impact standard. Although it is still unclear whether the theory applies under the ECOA, regulatory agencies and private plaintiffs can be expected to continue to apply it to both the FHA and the ECOA in the context of home loan lending and servicing. To the extent that the “disparate impact” theory continues to apply, we may be faced with significant administrative burdens in attempting to comply and potential liability for to comply.
Furthermore, many industry observers believe that the “ability to repay” rule issued by the CFPB will have the unintended consequence of having a disparate impact on protected classes. Specifically, it is possible that lenders that make only Qualified Mortgages may be exposed to discrimination claims under a disparate impact theory.
Beyond exposure to potential fair lending or servicing claims under disparate impact theory, lenders face increasing regulatory, enforcement and litigation risk under the FHA and ECOA from claims of “redlining,” “reverse redlining,” and “digital redlining.” Redlining is the practice of denying a creditworthy applicant a loan for housing in a certain neighborhood even though the applicant may be otherwise qualified. Reverse redlining is targeting an applicant in a certain neighborhood for higher cost products or services. In the past, the DOJ launched a “combating redlining initiative” and partnership with other federal and state agencies, including the CFPB, to police these practices, making clear they are a high priority across the financial services regulatory ecosystem.
The U.S. Federal Government also previously formed an interagency task force to address concerns around improper bias in home appraisals. The CFPB, HUD and FHFA were all clear that policing such bias and working to develop new guidance for industry as to how it can reduce human discretion in the home appraisal and valuation process are key agency priorities. Such efforts could result in a change in our appraisal practices or expose us to liability under the FHA or ECOA.
In addition to reputational harm, violations of the ECOA and the FHA can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.
Relatedly, state legislatures and state financial regulatory agencies are becoming increasingly interested in implementing state level versions of the federal CRA. The federal CRA was enacted as part of several landmark pieces of legislation to address systemic inequities in access to credit, expand financial inclusion, and reverse the impact of decades of redlining in LMI communities and minority communities. The federal CRA currently only applies to federally insured depository banks and institutions, and evaluates their lending, services and investments in LMI and minority communities. However, certain state CRAs expanded the scope of application to include non-depository mortgage lenders, such as Rocket Mortgage. The lack of consistency and clarity on the scope of how the state level CRAs will be applied and how entities will be examined presents unknown compliance risks that may adversely impact our operations, and could inadvertently provide additional evidentiary support for potential disparate impact claims.
Government regulation of the internet, online marketing, data privacy, and other aspects of our business is evolving, and we may experience unfavorable changes in or failure to comply with existing or future regulations and laws.
We are subject to a number of regulations and laws that apply generally to businesses, as well as regulations and laws specifically governing the internet and marketing over the internet. These laws and regulations, which continue to evolve, cover privacy and data protection, data security, pricing, content, copyrights, distribution, mobile and other communications, advertising practices, electronic contracts, consumer protections, the provision of online payment services, unencumbered internet access to our services, the design and operation of websites and the characteristics and quality of offerings online. The expansion of future laws and interpretations of current statutes and regulations may impede the collection or use of certain data, which may in turn prevent or restrict growth and availability of certain internet and online based products and services, and creates additional compliance risk for our business. We cannot guarantee that we will be fully compliant in every jurisdiction, as it is not entirely clear how new or existing laws and regulations will be interpreted or enforced with respect to the internet and e-commerce. Moreover, regulation and enforcement efforts by federal and state agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations, or the imposition of other legal requirements, that adversely affect our digital marketing efforts could decrease our ability to offer, or client demand for, our offerings, resulting in lower revenue. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also require us to change our business practices, raise compliance costs or other costs of doing business and materially affect our business, financial condition and operating results.
Our mortgage business is exposed to heightened regulatory scrutiny by various governmental agencies impacting both loan origination and servicing. The agencies’ continued monitoring, rule issuance. published guidance, and enforcement actions increase our regulatory compliance burden and associated costs.
The CFPB, which oversees federal and state non-depository lending and servicing institutions, has intensified its examination, enforcement, and rulemaking authority over federal consumer financial protection laws applicable to mortgage lenders and servicers. As such, the CFPB poses a substantial regulatory risk to our operations.
The potential consequences of non-compliance with CFPB regulations and guidance include enforcement actions, administrative fines, penalties, and other regulatory measures. Routine examinations by the CFPB have increased administrative and compliance costs, influencing the availability and cost of residential mortgage credit. Additionally, the CFPB’s broad enforcement powers, including rescission or reformation of contracts, restitution, disgorgement, civil money penalties, and other remedies, pose a significant supervisory enforcement risk.
We are also supervised by regulatory agencies under state and Canadian law. State attorneys general, state regulators, and state and local consumer protection offices have authority to investigate consumer complaints and to commence investigations and other formal and informal proceedings regarding our operations and activities. In addition, the GSEs and the FHFA, Ginnie Mae, the FTC, the HUD, various investors, non-agency securitization trustees, warehouse line providers, and others subject us to periodic reviews. A determination of our failure to comply with applicable law or other relevant requirements could lead to enforcement action, administrative fines and penalties, or other administrative action.
Any failure to comply with federal consumer protection laws, whether actual or alleged, could result in enforcement actions, potential litigation liabilities, downgrades by one or more rating agencies, a transfer of servicing responsibilities, increased delinquencies, or other adverse events. The financial resources required to remediate non-compliance or implement changes to business practices may be substantial, impacting our overall business operations and potentially leading to modifications of our servicing standards.
If we do not obtain and maintain the appropriate state licenses, we will not be allowed to do business in some states, which would adversely affect our operations.
Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. In most states in which we operate, a regulatory agency regulates and enforces laws relating to loan servicing companies and loan origination companies such as us. These rules and regulations generally provide for licensing as a loan servicing company, loan origination company, loan marketing company, loan brokering company, debt collection agency or third-party default specialist, as applicable, and impose requirements as to the form and content of contracts and other documentation, licensing of employees and employee hiring background checks, restrictions on collection practices, disclosure and record-keeping requirements and enforcement of borrowers’ rights. In most states, we are subject to periodic examination by state regulatory authorities. Some states in which we operate require special licensing or provide extensive regulation of our business.
Additionally, due to the geographic scope of our operations and the nature of the services we provide, certain of our subsidiaries may be required to obtain and maintain certain licenses in all states where they operate, including:
• Rocket Mortgage and Mr. Cooper are required to obtain and maintain various licenses for their mortgage originations, mortgage servicing, real estate businesses, including licenses required for any third-party debt default specialists, auctioneers, employees and independent contractors with which the companies contract.
• Redfin is required to obtain and maintain licenses for its brokerage, mortgage, rentals and title businesses, including the licensing of its lead agents.
• Rocket Close is required to obtain and maintain various licenses as a title agent, settlement service provider, and appraisal management company. In addition, individual service providers must also maintain licenses to provide escrow, notary, and appraisal services. Many state licenses are renewed at a regular frequency, typically annually, in order to keep the license in good standing.
If we enter new markets, we may be required to comply with new laws, regulations and licensing requirements. As part of licensing requirements, we are typically required to designate individual licensees of record. We cannot ensure that we will always remain in full compliance with all licensing laws and regulations, and we may be subject to fines or penalties, including license revocation, for any non-compliance. If in the future a state agency were to determine that we are required to obtain additional licenses in that state in order to transact business, or if we lose an existing license or are otherwise found to be in violation of a law or regulation, our business operations in that state may be suspended until we obtain the license or otherwise remedy the compliance issue.
We may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could restrict our ability to broker, originate, purchase, sell or service loans. In addition, our failure to satisfy any such requirements relating to servicing of loans could result in a default under our servicing agreements and have a material adverse effect on our operations. The adoption of additional, or the revision of existing, rules and regulations could have a detrimental effect on our business.
We are subject to guidelines, laws and regulations regarding our use of telemarketing; a failure to comply with such laws and guidelines, including the TCPA, could increase our operating costs and adversely impact our business.
We engage in outbound telephone and text communications with consumers and accordingly must comply with a number of laws and regulations that govern said communications, including the TCPA and TSR. The FCC and the FTC have responsibility for regulating various aspects of these laws. Among other requirements, the TCPA and TSR require us to obtain prior express written consent for certain communications and to adhere to “do-not-call” registry requirements which, in part, mandate that we maintain and regularly update lists of consumers who have chosen not to be called and restrict calls to consumers who are on the national do-not-call list. Additionally, the FCC adopted new rules under the TCPA in December 2023, which took effect on January 27, 2025, that in part require comparison shopping websites and lead generators we work with to obtain a consumer’s prior express written consent one caller at a time, rather than having a single consent apply to multiple callers at once. Many states have similar consumer protection laws regulating telemarketing. These laws limit our ability to communicate with consumers and, as a result, may reduce the effectiveness of our marketing programs. The TCPA does not distinguish between voice and data, and, as such, SMS/MMS messages are also “calls” for the purpose of TCPA obligations and restrictions.
For violations of the TCPA, the law provides for a private right of action under which a plaintiff may recover monetary damages of $500 for each call or text made in violation of the prohibitions on calls made using an “artificial or pre-recorded voice” or an automatic telephone dialing system, which can be trebled up to $1,500 per violation if the violation is considered willful or knowing. There is no statutory cap on maximum aggregate exposure (although some courts have applied in TCPA class actions constitutional limits on excessive penalties). An action may be brought by the FCC, a state attorney general, an individual, or a class of individuals. Like other companies that rely on telephone and text communications, we are regularly subject to putative, class action suits alleging violations of the TCPA. If in the future we are found to have violated the TCPA, the amount of and potential liability could be extensive and impact our business. Accordingly, were such a class certified or if we are to such a suit, as we have in the past, then TCPA could have a material effect on our results of operations and financial condition.
We are also subject to the Messaging Principles and Best Practices created by CTIA, a trade association representing the wireless communications industry in the United States. A failure to comply with CTIA guidelines could result in us being temporarily unable to make communications over carrier networks, which could have a material adverse effect on our business.
Changes in tax laws may adversely affect us, and the IRS or a court may disagree with our tax positions, which may result in adverse effects on our financial condition or the value of our common stock.
On July 4, 2025, the U.S. enacted a budget reconciliation package known as the OBBBA. The OBBBA includes, among other things, the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, modifications to the international tax framework and the restoration and continuation of certain business provisions, including immediate expensing for domestic research expenditures paid or incurred beginning January 1, 2025 and a 100% first-year bonus depreciation deduction for certain assets. The OBBBA introduces other legislative changes, including the restoration of deductible net business interest expense under Code Section 163(j) to 30% of earnings before interest, taxes, depreciation and amortization and again allowing an addback of depreciation and amortization in the calculation of the interest deduction limitation. The OBBBA also enacted the repeal or acceleration of the sunset of certain tax credits under the Inflation Reduction Act of 2022. We do not expect the OBBBA to have a material impact on our Consolidated Financial Statements. Proposed and future provisions could have a material adverse impact on our tax rate, cash flow, and financial results. There can be no assurance that future tax law changes will not increase the rate of the corporate income tax significantly, impose new limitations on deductions, credits or other tax benefits, or make other changes that may adversely affect our business, cash flows or financial performance. In the of additional clarification and guidance from the IRS on certain tax matters, the Company will take positions with respect to a number of unsettled issues. There is no assurance that the IRS or a court will agree with the positions taken by us, in which case tax and interest may be imposed that could affect our business, cash flows or financial performance. In the future, additional guidance may be issued by the IRS, the Department of the Treasury, or other governing body that may significantly differ from our interpretation of the law, which may result in a material effect on our business or financial condition.
Our reported financial results may be materially and adversely affected by future changes in accounting principles generally accepted in the United States.
U.S. GAAP is subject to standard setting or interpretation by the FASB, the Public Company Accounting Oversight Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could materially and adversely affect the transactions completed before the announcement of a change. A change in these principles or interpretations could also require us to alter our accounting systems in a manner that could increase our operating costs and impact the content of our financial statements.
We are subject to various legal actions that if decided adversely, or if viewed unfavorably by the public, could be detrimental to our business.
We face multifaceted legal and regulatory risks that pose a significant threat to our business. Operating in an industry highly sensitive to consumer protection, we are subject to various legal actions, including those alleging improper lending, servicing, or marketing practices, as well as violations of consumer protection, securities, and other laws. We are routinely involved in legal proceedings that may allege issues such as abusive loan terms, disclosure violations, quiet title actions, improper foreclosure practices, common law fraud and breach of contract. Additionally, along with others in our industry, we are subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding alleged of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loan securitizations. We are also subject to various U.S. laws and regulations and may face actions brought by the FTC, the DOJ, any state attorney general or private parties, including in connection with our recent acquisitions of Redfin and Mr. Cooper. The resolution of these actions may not always be , to financial consequences and management attention from ordinary business operations. Certain of the pending or legal proceedings us include for substantial compensatory, and/or, statutory or for an indeterminate amount of . The legal landscape is complex, with numerous local, state, and federal laws and regulations continually evolving. Non-compliance with these regulations can result in remediation and substantial . Furthermore, even in cases of resolutions, we may still incur significant legal expenses.
In addition to legal and regulatory challenges, our business faces employment-related risks that could result in significant out-of-pocket losses, fines, and negative publicity. Team members and former team members may bring lawsuits, including by way of example lawsuits alleging discrimination, wage and hour issues, sexual harassment or a variety of other employment related issues. The increasing prevalence of discrimination and harassment claims, amplified by social media, heightens the potential for reputational harm. Incidents involving employment or harassment-related claims could lead to the termination of key personnel and adversely impact our brand image.
The combined effect of legal, regulatory, and employment risks poses a comprehensive threat to our business, impacting financial stability, operational efficiency, and overall reputation. It necessitates ongoing diligence in navigating the evolving legal landscape and implementing effective risk mitigation strategies.
Our share price has been, and may in the future be, volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities litigation. We have in the past been, and may in the future be, subject to securities litigation. Such lawsuits may result in other, derivative lawsuits, may be expensive to defend, and may divert our management’s attention from the conduct of our business, which could have an adverse effect on our business.
The conduct of the brokers through whom we originate loans could subject us to fines or other penalties.
For certain mortgage transactions, Rocket Mortgage operates as the wholesale lender and works with a third-party mortgage broker to facilitate the loan application. The brokers through whom we originate loans have parallel and separate legal obligations to which they are subject. While these laws may not explicitly hold the lenders responsible for the legal violations of such brokers, U.S. federal and state agencies increasingly have sought to impose such liability. The DOJ, through its use of a disparate impact theory under the FHA, and through its ongoing combating redlining initiative, is attempting to hold home loan lenders responsible for the pricing practices of brokers, alleging that the lender is directly responsible for the total fees and charges paid by the borrower even if the lender neither dictated what the broker could charge nor kept the money for its own account. In addition, under the federal and state disclosure rules, we may be responsible for improper disclosures made to clients by brokers. We may be subject to claims for fines or other penalties based upon the conduct of the independent home loan brokers with which we do business.
We and our vendors have operations in India that could be adversely affected by changes in political or economic stability or by government policies.
We currently have operations located in India, which may be subject to political and social instability and may lack the infrastructure to withstand political unrest or natural disasters. The political or regulatory climate in the United States, or elsewhere, also could change so that it would not be lawful or practical for us to use international operations in the manner in which we currently use them. If we or our vendors had to curtail or cease operations in India and transfer some or all of these operations to another geographic area, we would incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations. In addition, due to our international operations, we are subject to the laws and regulations of multiple jurisdictions, including laws and regulations, such as The Foreign Corrupt Practices Act of 1977, as amended, that prohibit certain business practices. Any violations of such laws by us, our subsidiaries or our local agents could have an effect on our business and reputation and result in substantial financial or other sanctions.
Risks Relating to Privacy and Intellectual Property
The collection, processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
In the processing of consumer transactions, our businesses receive, transmit and store a large volume of personally identifiable information and personally identifiable financial information, collectively referred to as Nonpublic Personal Information and other user data. The collection, sharing, use, disclosure and protection of this information are governed by the privacy and data security policies maintained by us and our businesses. Moreover, there are federal, state and international laws regarding privacy and the storing, sharing, use, disclosure and protection of NPI and user data. Specifically, NPI is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy and security of such information that is collected, processed, or transmitted related to consumers within their jurisdiction. These laws and regulations are also intended to give consumers more knowledge and control over the collection, processing, and transmission of their NPI. In the United States, regulations and interpretations concerning NPI and data security promulgated by state and federal regulators, including, but not limited to, the CFPB, FTC, NYDFS and CPPA (California’s regulatory body authorized to enforce California’s consumer privacy laws), could conflict or give rise to differing views of privacy and security rights around NPI. We could be materially and adversely affected if legislation or regulations are expanded to require changes in business practices or privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in ways that affect our business, financial condition, and results of operations.
Our failure, and/or the failure by the various third-party vendors and service providers with whom we do business, to comply with applicable federal, state or similar international laws and regulations could damage our reputation or the reputation of these businesses, discourage potential users from our products and services and/or result in fines and/or proceedings by governmental agencies and/or consumers, one or all of which could materially and adversely affect our business, financial condition and results of operations.
We could be adversely affected if we inadequately obtain, maintain, protect and enforce our intellectual property and proprietary rights and may encounter disputes from time to time relating to our use of the intellectual property of third parties.
Trademarks and other intellectual property and proprietary rights are important to our success and our competitive position. We rely on a combination of trademarks, service marks, copyrights, patents, trade secrets and domain names, as well as confidentiality procedures and contractual provisions to protect our intellectual property and proprietary rights. Despite these measures, third parties may attempt to disclose, obtain, copy or use intellectual property rights owned or licensed by us and these measures may not prevent misappropriation, infringement, reverse engineering or other violation of intellectual property or proprietary rights owned or licensed by us, particularly in foreign countries where laws or enforcement practices may not protect our proprietary rights as fully as in the United States. Furthermore, confidentiality procedures and contractual provisions can be difficult to enforce and, even if successfully enforced, may not be entirely effective. In addition, we cannot guarantee that we have entered into confidentiality agreements with all team members, partners, independent contractors or consultants that have or may have had access to our trade secrets and other proprietary information. Any issued or registered intellectual property rights owned by or licensed to us may be , , held unenforceable or in or other proceedings, including re-examination, inter partes review, post-grant review, and derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., proceedings), and such intellectual property rights may be or no longer provide us meaningful competitive . Third parties may also independently develop products, services and technology similar to or duplicative of our products and services.
In order to protect our intellectual property rights, we may be required to spend significant resources. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and could result in the diversion of time and attention of our management team and could result in the impairment or loss of portions of our intellectual property. Furthermore, attempts to enforce our intellectual property rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding that invalidates or narrows the scope of our rights, in whole or in part. Third-party misuse of our intellectual property in attempts to defraud our clients and others are often difficult to identify and costly to enforce . Our to address these third parties could result in material to our reputation. Our to secure, maintain, protect and enforce our intellectual property rights could affect our brands and impact our business.
Our success and ability to compete also depends in part on our ability to operate without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties. We have encountered, and may in the future encounter, disputes from time to time concerning intellectual property rights of others, including our competitors, and we may not prevail in these disputes. Third parties may raise claims against us alleging an infringement, misappropriation or other violation of their intellectual property rights, including trademarks, copyrights, patents, trade secrets or other intellectual property or proprietary rights. Some third-party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid all alleged , or other of such intellectual property rights. In addition, former employers of our current, former or future team members may assert that such team members have to us the confidential or proprietary information of these former employers. The resolution of any such or is to predict. Future may also involve non-practicing entities or other intellectual property owners who have no relevant product offerings or revenue and whom our ownership of intellectual property may therefore provide little or no or protection. An assertion of an intellectual property , or other claim us may result in judgments, settlement on terms or cause us to spend significant amounts to the claim, even if we ultimately prevail and we may have to pay significant money , significant revenues, be prohibited from using the relevant systems, processes, technologies or other intellectual property (temporarily or permanently), offering certain products or services, or incur significant license, royalty or technology development expenses. such could be , time consuming and could result in the of time and attention of our management team. In addition, although in some cases a third party may have agreed to indemnify us for such , or other , such indemnifying party may or be to uphold its contractual obligations.
Risks Relating to our Human Capital
We may not be able to hire, train and retain qualified personnel to support our growth, and difficulties with hiring, team member training and other labor issues could adversely affect our ability to implement our business objectives and disrupt our operations.
Our operations depend on the work and skills of our team members. Our future success will depend on our ability to continue to hire, integrate, develop and retain highly qualified personnel for all areas of our organization. Any talent acquisition and retention challenges could reduce our operating efficiency, increase our costs of operations and harm our overall financial condition. We could face these challenges if competition for qualified personnel intensifies or the pool of qualified candidates becomes more limited. We may also face these challenges as we integrate the Redfin and Mr. Cooper team members into the Rocket platform. Additionally, we invest heavily in training our team members, which increases their value to competitors who may seek to recruit them. The inability to attract, develop or retain qualified personnel could have a detrimental impact on cost and performance for our business.
If we cannot maintain our corporate culture, we could lose the innovation, collaboration and focus on the mission that contribute to our business.
We believe that a critical component of our success is our corporate culture and our deep commitment to our mission. We believe this mission-based culture fosters innovation, encourages teamwork and cultivates creativity. Our mission defines our business philosophy as well as the emphasis that we place on our clients, our people and our culture and is consistently reinforced to and by our team members and leaders. As we continue to innovate and change in response to market and environmental changes, we may find it difficult to maintain these valuable aspects of our corporate culture and our long-term mission. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain team members, encourage innovation and teamwork, and effectively focus on and pursue our mission and corporate objectives.
Loss of our key leadership could result in a material adverse effect on our business.
Our future success depends on the continued services of our senior leadership, including our Chief Executive Officer and Chief Financial Officer. The experience and expertise of our senior leadership team is a valuable asset to us and could take time and be difficult to replace if we experienced key senior leadership departures. We do not maintain “key person” life insurance for any of our personnel. Future senior leadership changes, departures or transitions could result in business disruption and have a detrimental effect on our business.
Risks Relating to our Corporate Structure
We are a holding company and accordingly we are dependent upon distributions from our subsidiaries to pay taxes and other expenses.
Rocket Companies Inc. is a holding company and its principal assets are its direct and indirect subsidiaries. As a result, Rocket Companies Inc. has no independent means of generating revenue and its ability to pay taxes and other expenses, including payments under the TRA is dependent on the ability of its subsidiaries to make distributions to us. Following the Up-C Collapse, as the sole member of Rocket GP, LLC, which is the General partner of Rocket Limited Partnership, we intend to cause Rocket Limited Partnership to make distributions to us in amounts sufficient to cover any payments we are obligated to make under the TRA for exchanges that have already occurred and other costs or expenses. However, certain laws and regulations may result in restrictions on Rocket Limited Partnership’s ability to make distributions to us or the ability of Rocket Limited Partnership’s subsidiaries to make distributions to it.
To the extent that we need funds, and Rocket Limited Partnership or its subsidiaries are restricted from making such distributions, we may not be able to obtain such funds on terms acceptable to us or at all and as a result could suffer an adverse effect on our liquidity and financial condition.
We may be required to pay RHI II and Mr. Gilbert for certain tax benefits we may utilize, and the amounts we may pay could be significant.
We are party to a Tax Receivable Agreement, dated as of August 5, 2020, with RHI and Mr. Gilbert that provides for the payment by us to RHI and Mr. Gilbert (or their transferees of common limited liability company interests (the “Holdings LLC Units”) of Holdings LLC or other assignees) of 90% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize (computed using simplifying assumptions to address the impact of state and local taxes) as a result of: (i) certain increases in our allocable share of the tax basis in Holdings LLC’s assets resulting from (a) the purchases of Holdings LLC Units (along with the corresponding shares of Class D common stock or Class C common stock) from RHI and Mr. Gilbert (or their transferees of Holdings LLC Units or other assignees) using the net proceeds from our IPO or in any future offering (subject to the terms of the Tax Receivable Agreement Amendment (as defined below)), (b) exchanges by RHI and Mr. Gilbert (or their transferees of Holdings LLC Units or other assignees) of Holdings LLC Units (along with the corresponding shares of Class D common stock or Class C common stock) for cash or shares of Class B common stock or Class A common stock, as applicable (subject to the terms of the Tax Receivable Agreement Amendment), or (c) payments under the TRA; (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA; and (iii) disproportionate allocations (if any) of tax benefits to Holdings LLC as a result of section 704(c) of the Code, as amended, that relate to the reorganization transactions undertaken at the time of our IPO. The TRA makes certain simplifying assumptions regarding the determination of the cash savings that we realize or are deemed to realize from the covered tax attributes, which may result in payments pursuant to the TRA in excess of those that would result if such assumptions were not made.
As part of RHI’s internal reorganization, RHI contributed its rights to receive payments under the TRA in respect of RHI’s prior exchanges to RHI II, and RHI II completed a joinder to become a party to the TRA. As part of the Up-C Collapse, (i) Mr. Gilbert exchanged all of his Holdings LP Units and Class D common stock in exchange for shares of Class L common stock and (ii) the Tax Receivable Agreement was amended to provide that the terms of the Tax Receivable Agreement will not apply to any exchanges, including, for the avoidance of doubt, any fully paid and nonassessable partnership units of Holdings LP (“Holdings Units”) exchanged as part of the Up-C Collapse (such as those exchanged by Mr. Gilbert), that occur, or are deemed to occur, on or following March 9, 2025.
The actual tax benefit, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including, among others, the amount and timing of the taxable income we generate in the future and the tax rate then applicable, and the portion of our payments under the Tax Receivable Agreement constituting imputed interest. Future payments under the Tax Receivable Agreement could be substantial. Of the $590 million Tax Receivable Agreement liability recorded as of December 31, 2025, we estimate that, as a result of the amount of the increases in the tax basis in Holdings LLC’s assets from the purchase of Holdings LLC Units (along with the corresponding shares of the Class D common stock) in connection with the IPO, the over-allotment option (greenshoe) and the RHI March 2021 paired interest exchange, assuming no material changes in the relevant tax law and that we will have sufficient taxable income to utilize all of the tax attributes covered by the Tax Receivable Agreement when they are first available to be utilized under applicable law, future payments to RHI II under the Tax Receivable Agreement would aggregate to approximately $590 million over the next 20 years and for yearly payments over that time to range between zero to $200 million per year. The payments under the Tax Receivable Agreement are not conditioned upon RHI II’s continued ownership of us.
There is a possibility that under certain circumstances not all of the 90% of the applicable cash savings will be paid to the selling or exchanging holder of Holdings LLC Units at the time described above. If we determine that such circumstances apply and all or a portion of such applicable tax savings is in doubt, we will pay to the holders of such Holdings LLC Units the amount attributable to the portion of the applicable tax savings that we determine is not in doubt and pay the remainder at such time as we reasonably determine the actual tax savings or that the amount is no longer in doubt.
In addition, RHI II (or its transferees or other assignees) will not reimburse us for any payments previously made if any covered tax benefits are subsequently disallowed, except that any excess payments made to RHI II (or its transferees or assignees) will be netted against future payments that would otherwise be made under the Tax Receivable Agreement with RHI II, if any, after our determination of such excess. We could make payments to RHI II under the Tax Receivable Agreement that are greater than our actual cash tax savings and may not be able to recoup those payments, which could negatively impact our liquidity.
In addition, the Tax Receivable Agreement provides that in the case of a change in control of the Company or a material breach of our obligations under the Tax Receivable Agreement, we are required to make a payment to RHI II in an amount equal to the present value of future payments (calculated using a discount rate equal to the lesser of 6.50% or a rate based on the benchmark rate used to determine pricing or interest rates in a majority of our then-outstanding repurchase or warehouse agreements or other financing arrangements providing for the financing of mortgage loans plus 100 basis points, which may differ from our, or a potential acquirer’s, then-current cost of capital) under the Tax Receivable Agreement, which payment would be based on certain assumptions, including those relating to our future taxable income. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our, or a potential acquirer’s, liquidity and could have the effect of delaying, deferring, modifying or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. These provisions of the Tax Receivable Agreement may result in situations where RHI II, having assumed RHI’s rights under the Tax Receivable Agreement, has interests that differ from or are in addition to those of our other stockholders. In addition, we could be required to make payments under the Tax Receivable Agreement that are substantial, significantly in advance of any potential actual realization of such further tax benefits, and in excess of our, or a potential acquirer’s, actual cash savings in income tax.
Finally, because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement is dependent on the ability of our subsidiaries to make distributions to us. Our debt agreements may restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the Tax Receivable Agreement. To the extent that we are unable to make payments under the Tax Receivable Agreement as a result of restrictions in our debt agreements, such payments will be deferred and will accrue interest until paid, which could negatively impact our results of operations and could also affect our liquidity in periods in which such payments are made.
Our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.
Provisions of our certificate of incorporation and our bylaws may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our board of directors. These provisions include:
• having a classified board of directors;
• providing that, when the Gilberts beneficially own less than a majority of the combined voting power of the common stock, a director may only be removed with cause by the affirmative vote of 75% of the combined voting power of our common stock eligible to vote in the election of directors, voting together as a single class;
• providing that, when the Gilberts beneficially own less than a majority of the combined voting power of our common stock, vacancies on our board of directors, whether resulting from an increase in the number of directors or the death, removal or resignation of a director, will be filled only by our board of directors and not by stockholders;
• providing that, when the Gilberts beneficially own less than a majority of the combined voting power of our common stock, certain amendments to our certificate of incorporation or amendments to our bylaws will require the approval of 75% of the combined voting power of our common stock;
• prohibiting stockholders from calling a special meeting of stockholders;
• authorizing stockholders to act by written consent only until the Gilberts cease to beneficially own a majority of the combined voting power of our common stock;
• establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;
• authorizing “blank check” preferred stock, the terms and issuance of which can be determined by our board of directors without any need for action by stockholders;
• and providing that the decision to transfer our corporate headquarters outside of Detroit, Michigan will require the approval of 75% of the combined voting power of our common stock.
Additionally, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, unless the business combination is approved in a prescribed manner. An interested stockholder includes a person, individually or together with any other interested stockholder, who within the last three years has owned 15% of our voting stock. We opted out of Section 203 of the DGCL, but our certificate of incorporation includes a provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder. Such restrictions, however, do not apply to any business combination between RHI II, any direct or indirect equityholder of RHI as of immediately prior to the closing of the Up-C Collapse, or, in each case, any of their respective affiliates or successors or any “group,” or any member of any such group, to which such persons are a party under Rule 13d-5 of the Exchange Act.
Until the Gilberts cease to beneficially own at least 50% of the voting power of our common stock, the Gilberts will be able to control all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and certain corporate transactions. Together, these provisions of our certificate of incorporation and bylaws could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for the Class A common stock. Furthermore, the existence of the foregoing provisions, as well as the significant amount of Class A common stock beneficially owned by the Gilberts, could limit the price that investors might be willing to pay in the future for shares of the Class A common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that you could receive a premium for your Class A common stock in an acquisition.
Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities.
Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities by each of the RHI II Parties (as defined below). Our certificate of incorporation provides that neither RHI II nor any officer, director, member, partner or employee of RHI II, each, an RHI II Party, has any duty to refrain from engaging in the same or similar business activities or lines of business as us, doing business with any of our clients or suppliers or employing or otherwise engaging or soliciting for employment any of our directors, officers or employees, and none of our directors or officers will be liable to us or to any of our subsidiaries or stockholders for breach of any fiduciary or other duty under statutory or common law, as a director or officer or controlling stockholder or otherwise, by reason of any such activities, or for the presentation or direction to, or participation in, any such activities by any RHI II Party. Our certificate of incorporation provides that, to the fullest extent permitted by applicable law, we renounce our right to certain business opportunities, and that each RHI II Party has no duty to communicate or offer such business opportunity to us and will not be liable to us or any of our stockholders for of any fiduciary or other duty under statutory or common law, as a director, officer or controlling stockholder, or otherwise, by reason of the fact that any such individual pursues or acquires such business , directs such business to another person or to present such business , or information regarding such business , to us. The foregoing provisions of our certificate of incorporation create the possibility that a corporate of ours may be used for the of an RHI II Party.
Our certificate of incorporation requires exclusive forum in certain courts in the State of Michigan or the State of Delaware or the federal district courts of the United States for certain types of lawsuits, which may have the effect of discouraging lawsuits against our directors and officers.
Our certificate of incorporation requires, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholders to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our certificate of incorporation or our bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine has to be brought only in the Third Judicial Circuit, Wayne County, Michigan (or, if the Third Judicial Circuit, Wayne County, Michigan lacks jurisdiction over such action or proceeding, then another state court of the State of Michigan or, if no state court of the State of Michigan has jurisdiction, the United States District Court for the Eastern District of Michigan) or the Court of Chancery of the State of Delaware (or if the Court of Chancery of the State of Delaware lacks jurisdiction, any other state court of the State of Delaware, or if no state court of the State of Delaware has jurisdiction, the federal district court for the District of Delaware), unless we consent in writing to the selection of an alternative forum. The foregoing provision does not apply to arising under the Securities Act, the Exchange Act or other federal securities laws for which there is federal or concurrent federal and state jurisdiction. Additionally, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the forum for the resolution of any asserting a cause of action arising under the Securities Act. Although we believe these forum provisions us by providing increased consistency in the application of Delaware or Michigan law and federal securities laws in the types of lawsuits to which each applies, the forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds for with us or any of our directors, officers or stockholders, which may lawsuits with respect to such . Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our forum provisions. Further, in the event a court finds either forum provision contained in our certificate of incorporation to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could our business, operating results and financial condition.
We are controlled by Mr. Gilbert, whose interests may conflict with our interests and the interests of other stockholders. Further, because we are a “controlled company” within the meaning of the NYSE rules, we qualify for and intend to rely on exemptions from certain corporate governance requirements.
Mr. Gilbert holds more than a majority of the combined voting power of our common stock. So long as Mr. Gilbert continues to directly or indirectly own a significant amount of our equity, even if such amount is less than a majority of the combined voting power of our common stock, Mr. Gilbert will continue to be able to substantially influence the outcome of votes on all matters requiring approval by the stockholders, including our ability to enter into certain corporate transactions. The interests of Mr. Gilbert could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of ownership held by Mr. Gilbert could delay, defer or prevent a change of control of our Company or impede a merger, takeover or other business combination that may otherwise be favorable for us.
In addition, as long as Mr. Gilbert continues to control a majority of the voting power of our outstanding voting stock, we will be a controlled company within the meaning of the Exchange rules. Under the Exchange rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that:
• a majority of the board of directors consist of independent directors;
• the nominating and corporate governance committee be composed entirely of independent directors;
• and the compensation committee be composed entirely of independent directors.
These requirements will not apply to us as long as we remain a controlled company. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Exchange.
Risks Related to Ownership of Our Class A Common Stock
A material weakness in our control environment could have a material adverse effect on us including an inability to accurately or timely report our financial results and our stock price could be adversely affected.
Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across the Company. These systems and controls involve significant expenditures and become increasingly complex as our business grows. To effectively manage this complexity, we need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and operating results, adequately mitigate the risk of fraud and protect our reputation. Internal controls over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become because of changes in conditions or that the degree of compliance with the policies or procedures may . Any or or any to implement required new or controls, or encountered in the implementation or operation of these controls, could our operating results and cause us to to meet our financial reporting obligations or result in material in our financial statements, which could affect our business and reduce our stock price.
We completed the Redfin Acquisition and Mr. Cooper Acquisition on July 1, 2025 and October 1, 2025, respectively. We are currently in the process of integrating Redfin and Mr. Cooper into our operations, compliance programs and internal control processes. The financial results of Redfin and Mr. Cooper are included in our Consolidated Financial Statements appearing elsewhere in this Annual Report. SEC guidance allows companies to exclude acquisitions from the assessment of internal control over financial reporting during the first year following an acquisition while integrating the acquired company. As such, we have excluded the acquired operations of Redfin and Mr. Cooper from our assessment of the Company’s internal controls over financial reporting. We intend to continue to evaluate the effectiveness of internal controls over financial reporting as we complete the integration of Redfin and Mr. Cooper, and will make changes to our internal control framework, as necessary.
A material weakness in our internal control over financial reporting could adversely impact our ability to provide timely and accurate financial information. If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, we could adversely affect our business prospects.
The U.S. federal income tax treatment of distributions on our Class A common stock to a holder will depend upon our tax attributes and the holder’s tax basis in our stock, which are not necessarily predictable and can change over time.
Distributions of cash or other property on our Class A common stock, if any, will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated E&P, as determined under U.S. federal income tax principles, and generally be taxable to holders of our Class A common stock as ordinary dividend income for U.S. federal income tax purposes (to the extent of our current and accumulated E&P). E&P should not be confused with earnings or net income under U.S. GAAP. To the extent those distributions exceed our current and accumulated E&P, the distributions will be treated as a non-taxable return of capital to the extent of the holder’s tax basis in our Class A common stock, which will reduce a holder’s tax basis in the Class A common stock, and thereafter as capital gain from the sale or exchange of such common stock. Also, if any holder sells our Class A common stock, the holder will recognize a gain or loss equal to the difference between the amount realized and the holder’s tax basis in such Class A common stock. Consequently, such excess distributions will result in a corresponding increase in the amount of gain, or a corresponding decrease in the amount of loss, recognized by the holder upon the sale of the Class A common stock or subsequent distributions with respect to such stock. Additionally, with regard to U.S. corporate holders of our Class A common stock, to the extent that a distribution on our Class A common stock exceeds both our current and accumulated E&P and such holder’s tax basis in such shares, such holders would be to utilize the corporate dividends-received deduction (to the extent it would otherwise be applicable to such holder) with respect to the resulting from such excess distribution. Further, after we initially report the expected tax characterization of distributions we have paid, the actual characterization, which is not determined with finality until after the end of the tax year in which the distribution occurs, could vary from our expectation with the result that holders of our Class A common stock could incur different income tax liabilities than initially expected. Investors in our Class A common stock are to consult their tax advisors as to the tax consequences of receiving distributions on our Class A common stock that are not treated as dividends for U.S. federal income tax purposes.
Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress the price of our Class A common stock.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could have an adverse effect on our stock price and could impair our ability to raise capital through the sale of additional stock. In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock. Issuing additional shares of Class A common stock, Class L common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our Class A common stock or both.
As of February 23, 2026, we had 970,935,922 shares of Class A common stock outstanding and 2,819,815,377 shares of Class A common stock issuable upon potential exchanges and/or conversions of 1,848,879,455 shares of outstanding Class L common stock. All of the shares of Class L common stock are “restricted securities,” as that term is defined under Rule 144 of the Securities Act, and subject to certain restrictions on transfer until the expiration of the applicable Lock-Up Period (as defined below), as well as the other applicable restrictions of Rule 144. Subject to certain limited exceptions as provided in our certificate of incorporation, Mr. Gilbert and the other Class L stockholders will be prohibited from transferring or otherwise disposing of (a) any shares of Class L common stock prior to the first anniversary of the closing of the Up-C Collapse and (b) 50% of the shares of Class L common stock prior to the second anniversary of the closing of the Up-C Collapse (all such periods together, the “Lock-Up Periods”). Following the expiration or waiver of the applicable Lock-Up Period, each share of Class L common stock (a) may be converted at any time, at the option of the holder, into one share of Class A common stock and (b) will automatically convert into one share of Class A common stock immediately prior to any transfer of such share except for certain permitted transfers. In addition, upon the later to occur of (A) June 30, 2027 and (B) the date that the outstanding shares of Class L common stock no longer represent at least 79% of the total voting power of the issued and outstanding shares of our common stock, all shares of Class L common stock will automatically convert to newly issued shares of Class A common stock. The Company’s board of directors may also waive the lock-up restrictions at any time during the Lock-Up Periods at the request of a holder of Class L common stock. If the board of directors elects to waive the applicable Lock-Up Period with respect to any shares of Class L common stock, an additional number of shares of Class A common stock could be introduced to the public market in a limited period of time, which could result in in the price of our Class A common stock. Additional sales of our shares of Class A common stock in the public market, or the perception that sales could occur, could have a material effect on the price of our Class A common stock.
We have filed registration statements under the Securities Act registering 220,988,948 shares of our Class A common stock reserved for issuance under the Omnibus Incentive Plan and our TMSPP. As of February 23, 2026, we had 110,593,020 shares of our Class A common stock reserved for issuance under our Omnibus Incentive Plan and our TMSPP. In addition, in connection with the Redfin Acquisition and Mr. Cooper Acquisition, certain unvested equity awards of Redfin and Mr. Cooper were replaced with Rocket equity awards with similar terms at closing. As a result, we have also registered an aggregate of 28,868,038 shares of our Class A common stock reserved for issuance pursuant to our assumption of Redfin’s and Mr. Cooper’s share-based compensation plans and the outstanding options and RSUs issued thereunder.
We also assumed Redfin’s outstanding 0.5% Convertible Senior Notes due 2027 (the “2027 Convertible Notes”) as part of the Redfin Acquisition. The 2027 Convertible Notes may in the future become convertible into cash, shares of Class A common stock, or a combination thereof, at our election.
The price of our Class A common stock has been, and may in the future be, volatile and your investment in our common stock could suffer a decline in value.
The market price for our Class A common stock has been, and may in the future be, volatile and could fluctuate significantly in response to a number of factors, most of which we cannot control. These factors include, among others, intense competition in the markets we serve; fluctuations in interest rates and general economic conditions; failure to accurately predict the demand or growth of new financial products and services that we are developing; fluctuations in quarterly revenue and operating results, as well as differences between our actual financial and operating results and those expected by investors; the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; announcements relating to litigation; guidance, if any, that we provide to the public, any changes in such guidance or our failure to meet such guidance; the risk that anticipated benefits and synergies of completed acquisitions may not be fully realized or may take longer to realize than expected; the risk that integration of acquired businesses post-closing may not occur as anticipated or we may not achieve the growth prospects expected from such acquisition; changes in financial estimates or ratings by any securities analysts who follow our Class A common stock, our to meet such estimates or of those analysts to initiate or maintain coverage of our Class A common stock; the sustainability of an active trading market for our Class A common stock; investor perceptions of the investment associated with our Class A common stock relative to other investment alternatives; the inclusion, exclusion or deletion of our Class A common stock from any trading indices; future sales of our Class A common stock by our officers, directors and significant stockholders; the effect on our business and results of operations from system and , hurricanes, wars, acts of terrorism, pandemics, other natural or responses to such events; novel and market forces and trading strategies by third parties; events or commentary reported in the media, including social media, whether or not accurate or involving us, that may create, amplify and/or rapidly spread publicity for us or for the industry or markets in which we operate; short selling of our Class A common stock or related derivative securities; price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole and changes in the volume of shares of our Class A common stock available for public sale. These broad market and industry factors may the market price of our Class A common stock, regardless of our operating performance. In the past, stockholders have instituted securities class action following periods of market . We have been, and may in the future be, subject to securities , which may cause us to incur substantial costs and resources and the attention of management from our business.
