When you are ready to buy a new Pasadena home, one of the many decisions you’ll make during the process is to choose a mortgage lender. The nation’s largest mortgage lender, Rocket Companies – the parent company of both Quicken Loans and Rocket Mortgage – has over the past year enjoyed record profits due to a booming real estate market.
While Rocket Companies has been successful, not everyone is happy. The company was recently hit with a shareholder lawsuit accusing it and its executives of conveying a level of extreme optimism when forecasting margins on mortgage loans that it became deception and fraud.
The forecast was of “gain on sale” margins, a metric commonly viewed as a measure of profitability.
However, the release of the firm’s first-quarter earnings showed the gain on sale margins were shrinking, not growing.
The lawsuit charges that the extreme optimism artificially inflated the stock price of Detroit-based Rocket just before company founder Dan Gilbert and his wife sold $500 million of stock to fund a philanthropic effort in city neighborhoods.
According to a Detroit Free Press report, Rocket Companies had a gain on sale margin of 4.41 percent in the last quarter of 2020, which shrank to 3.74 percent in this year’s first quarter. The company said it was on track for an even bigger drop in the second quarter, down to 2.65 percent to 2.95 percent.
A record Rocket year
The lawsuit states that the Gilberts sold their stock on March 29 – two days before the end of the first quarter.
Rocket Companies enjoyed its most profitable year ever in 2020, netting $9 billion.
As many of our Pasadena business litigation blog readers know, internal disputes such as shareholder lawsuits can do both short-term and long-term harm to even established firms.