Rocket Plays Offense. Pennymac Plays Defense. FICO Plays Netflix

Happy (almost!) Halloween 🎃 ! I need to do some Halloween parades/trick-or-treat w/ the kids, so let’s get right into it.

In today’s edition of The Mortgage Scoop, we break down the Rocket/Penny earnings, Zillow’s new zero-down FHA DPA program, Dark Matter’s new acquisition, FICO’s new subscription model & a wild feud between Rich Swerbinsky & Mike Kortas. I also have M&A/distress chatter for paid subscribers.

Rates hit a three-year high in Q3. Rocket says that’s when it had its best profit margin in nearly five years. The Detroit giant reported $709M in GAAP net income for Q3'26. A year ago it lost $124M. Adjusted revenue rose to $2.57B from $1.87B, & adjusted EBITDA more than doubled to $748M, about a 29% margin.

CEO Varun Krishna wasn’t feeling modest at all on Thursday’s earnings call: “Rates went up. We took share. Profits grew.”

But there is a little bit of PR spin. About $710M of GAAP revenue came from MSR valuation changes net of hedges, which is the stuff stripped out of adjusted results. Adjusted net income was $419M. And like, that’s still great, just not $709M great.

On production, Rocket closed $43.6B. Direct-to-consumer did $24.6B at a 4.31 bps gain-on-sale margin. Rocket Pro did $9B at 70 bps, & correspondent did $10.1B at a thin 15 bps.

Based on UWM doing $33.4B w/ a margin of 1.24%, it sure looks like Rocket is willing to pay for market share in the broker channel (& UWM’s rates haven’t exactly been smokin’ lately FWIW).

The engine of course is the Mr. Cooper servicing book: $2T across 9.1M loans, w/ “record recapture.” AI voice now handles 65% of inbound servicing calls. Redfin is feeding the funnel too, w/ purchase mortgage starts from listings up 50% YoY.

Pennymac Financial earned $29M in Q3. That’s down 84% from a year ago, on $469M in revenue.

The not-so-pretty part is production. The segment swung to a $7M pretax loss, compared w/ $123M of pretax profit in Q3'25. Total volume fell 30% QoQ to $24.4B. Correspondent was down 24%, broker 28% & consumer direct 37%.

Servicing carried the quarter w/ $99M pretax, up from $22M in Q2. CEO David Spector didn’t sugarcoat it. He expects mortgage demand “will remain subdued due to higher interest rates.” The response —> cut $160M in annualized opex by Q1'27, w/ AI part of the pitch, & sell $29B in low-rate MSRs for ~$490M to pay down debt.

The C-suite is changing too. President Doug Jones retires mid-‘27, & strategy chief Kevin Ryan takes over as CFO from Daniel Perotti on Jan. 1.

I think it’s pretty clear that: 

1) servicing is a lifeboat in this market; 

2) Rocket has a much bigger boat 🚢 than anyone…

Zillow is rolling out a new “zero-down” FHA loan. Sounds innovative, right? Not really. It's a down payment assistance program, something plenty of lenders trot out when rates are utter 💩 .

Here's how it works: Zillow Home Loans originates the FHA first for 96.5% of the purchase price, then covers the remaining 3.5% w/ a 0% second mortgage. No monthly payments & the second is forgiven after five years, provided you stay in the home & make your payments on time. Sell, refi or move before then? You owe the whole thing. So like, $17,500 on a $500K home.

To Zillow's credit, there's no income cap or FTHB requirement, & it covers the appraisal. But the minimum FICO is 640, compared w/ 580 for standard FHA & 600 for Guild's competing Zero Down product.

The catch is pretty significant: you're locked into Zillow's rates & fees, which I suspect will include some hefty points. And the five-year clawback effectively discourages refinancing. If FHA rates drop from ~7% in '27 or '28, borrowers face a choice: keep their expensive mortgage or cough up $17.5K to refinance. Throw in stagnant home prices & you've got a recipe for underwater borrowers who can't easily sell or refi.

Will agents push this product? And btw, who's funding the second? Zillow? Someone else?

FICO last week revealed that it would freeze its Preferred Program at $10 a score, so long as lenders committed to pulling FICO on every score 😄. I speculated at the time that FICO would be unveiling an additional program designed to boost revenue. And we appear to have it!