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Quicken details Amrock success in IPO filing

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Industry News
Wednesday, July 8, 2020

The Quicken Loans family of companies announced it would explore taking the company public for the first time under owner Dan Gilbert.

In a press release announcing the move, the company said it had made an application for listing the common stock on the New York Stock Exchange under the ticker symbol “RKT.”

“The number of shares to be offered and the price range for the proposed offering have not yet been determined. The offering is subject to market conditions, and there can be no assurance as to whether, or when, the offering may be completed or as to the actual size or terms of the offering,” the release stated.

Included in the company’s filing with the Securities and Exchange Commission (SEC) were previously unknown financial details involving Amrock, as well as a letter from Rocket Companies CEO Jay Farner.

“Revolutionizing the mortgage industry, twice, took vision, and patience, to see the process through – but as Dan (Gilbert) always reminds us: building something great is messy. I’m proud to lead 20,000 team members who love the messy, frustrating, difficult process of creating and are always eager to get their hands dirty to help our clients,” Farner said in the letter.

The SEC filing began with a description of the company, which will include Quicken Loans and 12 other subsidiaries – including Amrock and its technology subsidiary, Nexsys Technologies. It said about 1,500 of the 20,000 team members have been with the company for more than 10 years.

“We are a Detroit-based company obsessed with helping our clients achieve the American dream of home ownership and financial freedom. We are committed to providing an industry-leading client experience powered by our award-winning culture and innovative technologies,” the filing stated. “We believe our widely recognized ‘Rocket’ brand is synonymous with providing simple, fast, and trusted digital solutions for complex personal transactions.”

The filing described Amrock as a leading national provider of title insurance, valuation and settlement services.

“This business complements our mortgage origination platform by providing services that enhance our ability to close loans as efficiently as possible,” the filing stated. “Our technology helps to streamline and clarify the real estate experience across the appraisal, title and closing process which further enables the speed of our platform. In 2019 our average loan closed within approximately 32 days or less after the company’s receipt of client documents.

“Nexsys Technologies LLC provides further efficiency and enhances the client experience with eClose technology. We believe these seamless and personalized services differentiate Amrock from competitors and inspire client loyalty and referrals. The majority of Rocket Mortgage’s loan programs require a property appraisal that is prepared by a licensed and/or certified appraiser. Amrock maintains a nationwide network of independent appraisers as well as internal appraisers and support teams to manage the ordering, fulfillment, logistics and tracking of appraisals. Amrock uses various technologies to aid in the review of appraisal assignments and values to detect fraud and/or errors.”

The filing also detailed revenues and transactions for Amrock over the past three years. Last year the company conducted 444,900 settlement transactions, bringing in $558.6 million in gross revenue.

That’s a 41 percent increase in transactions from 315,300 in 2018. It’s a 37 percent increase in gross revenues from $407.1 million in 2018.

In 2017, Amrock totaled 388,500 transactions and $480.8 million in revenue.

The filing did not include revenue for the first quarter of 2020 but it did include a volume of transactions. Amrock conducted 165,900 settlement transactions in the first quarter of the year, a 125 percent increase from the first quarter of 2019.

The burst in first quarter activity came from the origination side of Quicken Loans as well. The filing stated the company originated $145 billion in mortgages in 2019, with 73 percent of those as refinances.

In the first quarter of 2020 alone, the company originated $51.7 billion.

In the company’s reorganization plan in the filing, which will put Rock Holdings Inc. (RHI) in control of Quicken and all the company subsidiaries, there also are plans to buy Amrock Title Insurance Co. (ATI), the underwriting unit of Amrock, as a separate subsidiary.

The filing stated that ATI posted profits of $4.7 million in 2018, and the plan would have RHI buy ATI for $14.4 million in stocks.

“The consummation of this acquisition is subject to customary closing conditions, including the receipt of regulatory approvals. We expect the ATI acquisition will close in the fourth quarter of 2020,” the filing stated.

The filing cited a number of potential risks to the company and its subsidiary, including a pair which could affect Amrock, beginning with the regulation of title insurance rates.

“Amrock is subject to extensive rate regulation by the applicable state agencies in the jurisdictions in which it operates. Title insurance rates are regulated differently in various states, with some states requiring Amrock to file and receive approval of rates before such rates become effective and some states promulgating the rates that can be charged,” the filing stated. “These regulations could hinder Amrock’s ability to promptly adapt to changing market dynamics through price adjustments, which could adversely affect its results of operations, particularly in a rapidly declining market.”

Another cautioned about Amrock’s position as an agent which uses third-party vendors for issuing a “significant amount” of title policies.

“In its position as a licensed title agent, Amrock performs the search and examination function or may purchase a search product from another third-party vendor. In either case, Amrock is responsible for ensuring that the search and examination is completed,” the filing stated. “Amrock’s relationship with each title insurance underwriter is governed by an agency agreement defining how it issues a title insurance policy on their behalf. The agency agreement also sets forth Amrock’s liability to the underwriter for policy losses attributable to Amrock’s errors. Periodic audits by Amrock’s underwriters are also conducted.

“Despite Amrock’s efforts to monitor third-party vendors with which it transacts business, there is no guarantee that they will comply with their contractual obligations. Furthermore, Amrock cannot be certain that, due to changes in the regulatory environment and litigation trends, Amrock will not be held liable for errors and omissions by these vendors. Accordingly, Amrock’s use of third-party vendors could adversely impact the frequency and severity of title claims.”

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