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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number: 001-39432

Rocket Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware84-4946470
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1050 Woodward Avenue, Detroit, MI
48226
(Address of principal executive offices)(Zip Code)

(313) 373-7990
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.00001 per shareRKTNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of May 7, 2021, 136,473,972 shares of the registrant's Class A common stock, $0.00001 par value, and 1,848,879,483 shares of the registrant's Class D common stock, $0.00001 par value, were outstanding.
1



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income and Comprehensive Income
Condensed Consolidated Statements of Changes in Equity
Condensed Consolidated Statements of Cash Flows
  Notes to Condensed Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
Signatures













2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Rocket Companies, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Shares and Per Share Amounts)
March 31,
2021
December 31,
2020
Assets(Unaudited)
Cash and cash equivalents$2,864,906 $1,971,085 
Restricted cash75,647 83,018 
Mortgage loans held for sale, at fair value18,825,444 22,865,106 
Interest rate lock commitments (“IRLCs”), at fair value765,215 1,897,194 
Mortgage servicing rights (“MSRs”), at fair value4,304,762 2,862,685 
MSRs collateral for financing liability, at fair value233,687 205,033 
Notes receivable and due from affiliates11,901 22,172 
Property and equipment, net of accumulated depreciation and amortization of $511,934 and $497,812, respectively
232,155 211,161 
Deferred tax asset, net608,351 519,933 
Lease right of use assets227,078 238,546 
Forward commitments, at fair value909,153 20,584 
Loans subject to repurchase right from Ginnie Mae4,970,601 5,696,608 
Other assets703,377 941,477 
Total assets$34,732,277 $37,534,602 
Liabilities and equity
Liabilities
Funding facilities$14,452,672 $17,742,573 
Other financing facilities and debt
Lines of credit375,000 375,000 
Senior Notes, net2,974,177 2,973,046 
Early buy out facility635,712 330,266 
MSRs financing liability, at fair value223,756 187,794 
Accounts payable297,459 251,960 
Lease liabilities261,774 272,274 
Forward commitments, at fair value54,412 506,071 
Investor reserves93,937 87,191 
Notes payable and due to affiliates73,769 73,896 
Tax receivable agreement liability669,738 550,282 
Loans subject to repurchase right from Ginnie Mae4,970,601 5,696,608 
Other liabilities1,343,441 605,485 
Total liabilities$26,426,448 $29,652,446 
Equity
Class A common stock, $0.00001 par value - 10,000,000,000 shares authorized, 135,574,865 and 115,372,565 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
1 1 
Class B common stock, $0.00001 par value - 6,000,000,000 shares authorized, none issued and outstanding as of March 31, 2021 and December 31, 2020.
  
Class C common stock, $0.00001 par value - 6,000,000,000 shares authorized, none issued and outstanding as of March 31, 2021 and December, 31, 2020.
  
Class D common stock, $0.00001 par value - 6,000,000,000 shares authorized, 1,848,879,483 and 1,869,079,483 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
19 19 
Additional paid-in capital370,210 282,743 
Retained earnings184,939 207,422 
Accumulated other comprehensive income365 317 
Non-controlling interest7,750,295 7,391,654 
Total equity8,305,829 7,882,156 
Total liabilities and equity$34,732,277 $37,534,602 
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3



Rocket Companies, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(In Thousands, Except Shares and Per Share Amounts)
(Unaudited)
Three Months Ended March 31,
20212020
Income
Revenue
Gain on sale of loans
Gain on sale of loans excluding fair value of MSRs, net$2,379,278 $1,286,690 
Fair value of originated MSRs1,173,164 535,419 
Gain on sale of loans, net3,552,442 1,822,109 
Loan servicing income (loss)
Servicing fee income292,361 257,093 
Change in fair value of MSRs245,921 (991,252)
Loan servicing income (loss), net538,282 (734,159)
Interest income
Interest income95,245 74,042 
Interest expense on funding facilities(67,844)(39,459)
Interest income, net27,401 34,583 
Other income466,112 243,776 
Total revenue, net4,584,237 1,366,309 
Expenses
Salaries, commissions and team member benefits842,199 683,606 
General and administrative expenses291,419 194,074 
Marketing and advertising expenses320,843 217,993 
Depreciation and amortization15,304 16,115 
Interest and amortization expense on non-funding debt35,571 33,107 
Other expenses235,731 121,135 
Total expenses1,741,067 1,266,030 
Income before income taxes2,843,170 100,279 
Provision for income taxes(65,832)(1,232)
Net income2,777,338 99,047 
Net income attributable to non-controlling interest(2,653,636)(99,047)
Net income attributable to Rocket Companies$123,702 $ 
Earnings per share of Class A common stock
Basic$1.07 N/A
Diluted$1.07 N/A
Weighted average shares outstanding
Basic115,673,524 N/A
Diluted122,011,916 N/A
Comprehensive income
Net income$2,777,338 $99,047 
Cumulative translation adjustment307 (1,760)
Unrealized loss on investment securities(364) 
Comprehensive income2,777,281 97,287 
Comprehensive income attributable to non-controlling interest(2,653,586)(97,287)
Comprehensive income attributable to Rocket Companies$123,695 $ 
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4



Rocket Companies, Inc.
Condensed Consolidated Statements of Changes in Equity
(In Thousands, Except Shares and Per Share Amounts)
(Unaudited)

Class A Common Stock SharesClass A Common Stock AmountClass D Common Stock SharesClass D Common Stock AmountAdditional Paid-in CapitalRetained EarningsNet Parent InvestmentAccumulated Other Comprehensive Income (Loss)Total Non-controlling InterestTotal
Equity
Balance, December 31, 2019 $  $ $ $ $3,510,698 $(151)$5,008 $3,515,555 
Net income (loss)— — — — — — 99,487 — (440)99,047 
Other comprehensive loss— — — — — — — (1,439)(321)(1,760)
Net transfers to Parent— — — — — — 21,919 — — 21,919 
Share-based compensation, net— — — — — — 29,049 — 9 29,058 
Balance, March 31, 2020 $  $ $ $ $3,661,153 $(1,590)$4,256 $3,663,819 
Balance, December 31, 2020115,372,565 $1 1,869,079,483 $19 $282,743 $207,422 $ $317 $7,391,654 $7,882,156 
Net income— — — — — 123,702 — — 2,653,636 2,777,338 
Other comprehensive income— — — — — — — 14 293 307 
Share-based compensation, net2,300 — — — 2,116 — — — 37,033 39,149 
Unrealized loss on investment securities— — — — — — — (21)(343)(364)
Distributions for state taxes on behalf of unit holders (members), net— — — — — (281)— — (4,559)(4,840)
Distributions to unit holders (members) from subsidiary investment— — — — — — — — (2,242,999)(2,242,999)
Special Dividend to Class A Shareholders— — — — — (145,903)— — — (145,903)
Increase in controlling interest of investment, net of income taxes and Tax receivable agreement liability20,200,000 — (20,200,000)— 85,351 (1)— 55 (84,420)985 
Balance, March 31, 2021135,574,865 $1 1,848,879,483 $19 $370,210 $184,939 $ $365 $7,750,295 $8,305,829 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
5


Rocket Companies, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Operating activities
Net income $2,777,338 $99,047 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,304 16,115 
Provision for deferred income taxes38,457  
Origination of mortgage servicing rights(1,173,164)(535,419)
Change in fair value of MSRs(245,921)991,252 
Gain on sale of loans excluding fair value of MSRs, net(2,379,278)(1,286,690)
Disbursements of mortgage loans held for sale(104,103,499)(50,418,371)
Proceeds from sale of loans held for sale110,280,681 52,261,240 
Share-based compensation expense42,072 29,058 
Change in assets and liabilities
Due from affiliates10,272 7,051 
Other assets132,324 (820,657)
Accounts payable45,499 77,282 
Due to affiliates(302)15,298 
Premium recapture and indemnification losses paid1,399 (297)
Other liabilities832,332 (53,317)
Total adjustments$3,496,176 $282,545 
Net cash provided by operating activities$6,273,514 $381,592 
Investing activities
Proceeds from sale of MSRs$10,204 $167,662 
Net decrease in notes receivable from affiliates 59,632 
(Increase) decrease in mortgage loans held for investment(12,462)2,130 
Purchase and other additions of property and equipment, net of disposals(36,633)(18,782)
Net cash (used in) provided by investing activities$(38,891)$210,642 
Financing activities
Net payments on funding facilities$(3,289,901)$(618,754)
Net borrowings on lines of credit 810,000 
Net borrowings on early buy out facility305,446 90,875 
Net borrowings notes payable from unconsolidated affiliates175 1,212 
Proceeds from MSRs financing liability11,704 9,513 
Distributions to other unit holders (members) of Holdings(2,375,904) 
Net transfer to parent 21,919 
Net cash (used in) provided by financing activities$(5,348,480)$314,765 
Effects of exchange rate changes on cash and cash equivalents307 (1,760)
Net increase in cash and cash equivalents and restricted cash886,450 905,239 
Cash and cash equivalents and restricted cash, beginning of period2,054,103 1,455,725 
Cash and cash equivalents and restricted cash, end of period$2,940,553 $2,360,964 
Non-cash activities
Loans transferred to other real estate owned$578 $383 
Supplemental disclosures
Cash paid for interest on related party borrowings$1,460 $1,059 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
6

Rocket Companies, Inc.
Notes to Unaudited Condensed Combined Financial Statements
(Dollars in Thousands, Except Shares and Per Share)

1. Business, Basis of Presentation and Accounting Policies

Rocket Companies, Inc. (the "Company", and together with its consolidated subsidiaries, "Rocket Companies", "we", "us", "our") was incorporated in Delaware on February 26, 2020 as a wholly owned subsidiary of Rock Holdings Inc. ("RHI") for the purpose of facilitating an initial public offering ("IPO") of its Class A common stock, $0.00001 par value (the “Class A common stock”) and other related transactions in order to carry on the business of RKT Holdings, LLC ("Holdings") and its wholly owned subsidiaries.

We are a Detroit-based holding company consisting of tech-driven real estate, mortgage and eCommerce businesses. We are committed to providing an industry-leading client experience powered by our platform. In addition to Rocket Mortgage, the nation’s largest mortgage lender, we have expanded into complementary industries, such as real estate services, personal lending, and auto sales where we seek to deliver innovative client solutions leveraging our Rocket platform. Our business operations are organized into the following two segments: (1) Direct to Consumer and (2) Partner Network, refer to Note 12, Segments.

Rocket Companies, Inc. is a holding company. Its primary material asset is the equity interest in Holdings which, through its direct and indirect subsidiaries, conducts all of the Company's operations. Holdings is a Michigan limited liability company and wholly owns the following entities, with each entity's subsidiaries identified in parentheses: Quicken Loans, LLC, Amrock Holdco, LLC (“Amrock”, "Amrock Title Insurance Company" and "Nexsys Technologies LLC"), LMB HoldCo LLC (“Core Digital Media”), RCRA Holdings LLC (“Rock Connections” and “Rocket Auto”), Rocket Homes Real Estate LLC (“Rocket Homes”), RockLoans Holdings LLC (“Rocket Loans”), Rock Central LLC, EFB Holdings Inc. (“Edison Financial”), Lendesk Canada Holdings Inc., RockTech Canada Inc., and Woodward Capital Management LLC. As used herein, “Rocket Mortgage” refers to either the Rocket Mortgage brand or platform, or the Quicken Loans business, as the context allows.

In April 2021, Amrock Holdco, LLC changed its name to Amrock Holdings, LLC.

Initial Public Offering

On August 10, 2020 we completed the IPO of our common stock pursuant to a Registration Statement on Form S-1 (File No. 333-239726), which closed on August 10, 2020. In the IPO, we sold an aggregate of 115,000,000 shares of Class A common stock, including 15,000,000 shares purchased by the underwriters on September 9, 2020. Rocket Companies, Inc. received net proceeds from the IPO of approximately $2,023,000 after deducting underwriting discounts and commissions, all of which was used to purchase 115,000,000 non-voting membership units of Holdings (the “Holdings Units”) and shares of Class D common stock from RHI.

Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is itself generally not subject to U.S. federal income tax under current U.S. tax laws. Each member of Holdings will be required to take into account for U.S. federal income tax purposes its distributive share of the items of income, gain, loss and deduction of Holdings. As indicated in Note 8, Income Taxes, the Company is party to a Tax Receivable Agreement.

Basis of Presentation and Consolidation

Prior to the completion of the initial public offering, RHI, Holdings and its subsidiaries consummated an internal reorganization in which Rocket Companies, Inc. became the sole managing member of Holdings. Prior to the reorganization, Rocket Companies, Inc. had no operations.

As the sole managing member of Holdings, the Company operates and controls all of the business affairs of Holdings, and through Holdings and its subsidiaries, conducts its business. Holdings is considered a variable interest entity (“VIE”) and we consolidate the financial results of Holdings under the guidance of ASC 810, Consolidation. A portion of our net income is allocated to the non-controlling interest holders. For further details, refer to Note 13, Variable Interest Entities and Note 14, Non-controlling Interests.

Income from Holdings and its subsidiaries prior to the reorganization and IPO has been accounted for as a non-controlling interest in our Condensed Consolidated Statements of Income and Comprehensive Income. Accumulated net income prior to
7

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
the reorganization and IPO is presented in net parent investment in our Condensed Consolidated Statements of Changes in Equity as the financial statements prior to the reorganization and IPO reflect combined subsidiaries operating as part of RHI.

We have accounted for the reorganization as one of entities under common control and the net parent investment was allocated between non-controlling interest and additional paid-in capital based on the ownership of Holdings.

Our condensed consolidated financial statements for periods prior to the reorganization and IPO reflect the combined subsidiaries that historically operated as part of RHI. We have further adjusted the prior period results to retrospectively reflect the acquisition of Amrock Title Insurance Company (“ATI”) which qualified as a common control transaction as discussed further below in the Acquisition Agreement section.

All significant intercompany transactions and accounts between the businesses comprising the Company have been eliminated in the accompanying condensed consolidated financial statements.

All transactions and accounts between RHI and other related parties with the Company have a history of settlement or will be settled for cash and are reflected as related party transactions. For further details of the Company’s related party transactions refer to Note 6, Transactions with Related Parties.

Our condensed consolidated financial statements are unaudited and presented in U.S. dollars. They have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC. In our opinion, these condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair statement of our results of operations, financial position and cash flows for the periods presented. However, our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

Acquisition Agreement

On August 5, 2020, Rocket Companies, Inc. entered into an acquisition agreement with RHI and its direct subsidiary Amrock Holdings Inc. pursuant to which we acquired ATI, a title insurance underwriting business, for total aggregate consideration of $14,400 that consisted of 800,000 Holdings Units and shares of Rocket Companies, Inc. Class D common stock valued at the initial public offering price of $18.00 per share (the number of shares issued equals the purchase price divided by the price to the public in our initial public offering), the acquisition closed on August 14, 2020 subsequent to the IPO date on August 10, 2020. ATI's net income for the year ended December 31, 2019 was $4,700. Because the Acquisition was a transaction between commonly controlled entities, U.S. GAAP requires the retrospective combination of the entities for all periods presented as if the combination had been in effect since the inception of common control. Accordingly, the Company’s condensed consolidated financial statements included in this Form 10-Q, including for the three months ended March 31, 2020, reflect the retrospective combination of the entities as if the combination had been in effect since inception of common control.

Management Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although management is not currently aware of any factors that would significantly change its estimates and assumptions, actual results may differ from these estimates.

Subsequent Events

In preparing these condensed consolidated financial statements, the Company evaluated events and transactions for potential recognition or disclosure through the date these condensed consolidated financial statements were issued. Refer to Note 5, Borrowings for disclosures on changes to the Company’s debt agreements and Note 8, Income Taxes for tax distributions made that occurred subsequent to March 31, 2021.


8

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)

Special Dividend

On February 25, 2021, our board of directors authorized and declared a cash dividend (the "Special Dividend") of $1.11 per share to the holders of our Class A common stock. The Special Dividend was paid on March 23, 2021 to holders of the Class A common stock of record as of the close of business on March 9, 2021. The Company funded the Special Dividend from cash distributions of approximately $2.2 billion by RKT Holdings, LLC to all of its members, including the Company.

Revenue Recognition

Gain on sale of loans, net—Gain on sale of loans, net includes all components related to the origination and sale of mortgage loans, including (1) net gain on sale of loans, which represents the premium we receive in excess of the loan principal amount and certain fees charged by investors upon sale of loans into the secondary market, (2) loan origination fees (credits), points and certain costs, (3) provision for or benefit from investor reserves, (4) the change in fair value of interest rate locks and loans held for sale, (5) the gain or loss on forward commitments hedging loans held for sale and interest rate lock commitments (IRLCs), and (6) the fair value of originated MSRs. An estimate of the gain on sale of loans, net is recognized at the time an IRLC is issued, net of a pull-through factor. Subsequent changes in the fair value of IRLCs and mortgage loans held for sale are recognized in current period earnings. When the mortgage loan is sold into the secondary market, any difference between the proceeds received and the current fair value of the loan is recognized in current period earnings in Gain on sale of loans, net. Included in Gain on sale of loans, net is the fair value of originated MSRs, which represents the estimated fair value of MSRs related to loans which we have sold and retained the right to service. Refer to Note 3, Mortgage Servicing Rights for information related to the gain/(loss) on changes in the fair value of MSRs.

Loan servicing income (loss), net—Loan servicing income (loss), net includes income from servicing, sub-servicing and ancillary fees, and is recorded to income as earned, which is upon collection of payments from borrowers. This amount also includes the Change in fair value of MSRs, which is the adjustment for the fair value measurement of the MSRs asset as of the respective balance sheet date.

Interest income, net—Interest income includes interest earned on mortgage loans held for sale and mortgage loans held for investment net of the interest expense paid on our loan funding facilities. Interest income is recorded as earned and interest expense is recorded as incurred.

Other income—Other income is derived primarily from lead generation revenue, professional service fees, real estate network referral fees, contact center revenue, personal loans business, closing fees, net appraisal revenue, and net title insurance fees.

The following revenue streams fall within the scope of ASC Topic 606—Revenue from Contracts with Customers and are disaggregated hereunder:
    
Core Digital Media lead generation revenue—The Company recognizes online consumer acquisition revenue based on successful delivery of marketing leads to a client at a fixed fee per lead. This service is satisfied at the time the lead is delivered, at which time revenue for the service is recognized. Online consumer acquisition revenue, net of intercompany eliminations, were $6,680 and $7,560 for the three months ended March 31, 2021 and 2020, respectively.

Professional service fees—The Company recognizes professional service fee revenue based on the delivery of services (e.g., human resources, technology, training) over the term of a contract. Consideration for the promised services is received through a combination of a fixed fee for the period and incremental fees paid for optional services that are available at an incremental rate determined at the time such services are requested. The Company recognizes the annual fee ratably over the life of the contract, as the performance obligation is satisfied equally over the term of the contract. For the optional services, revenue is only recognized at the time the services are requested and delivered and pricing is agreed upon. Professional service fee revenues were $3,549 and $1,835 for the three months ended March 31, 2021 and 2020, respectively, and were rendered entirely to related parties.

Rocket Homes real estate network referral fees—The Company recognizes real estate network referral fee revenue based on arrangements with partner agencies contingent on the closing of a transaction. As this revenue stream is variable, and is contingent on the successful transaction close, the revenue is constrained until the occurrence of the
9

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
transaction. At this point, the constraint on recognizing revenue is deemed to have been lifted and revenue is recognized for the consideration expected to be received. Real estate network referral fees, net of intercompany eliminations, were $9,578 and $7,988 for the three months ended March 31, 2021 and 2020, respectively.

Rock Connections and Rocket Auto contact center revenue—The Company recognizes contact center revenue for communication services including client support and sales. Consideration received includes a fixed base fee and/or a variable contingent fee. The fixed base fee is recognized ratably over the period of performance, as the performance obligation is considered to be satisfied equally throughout the service period. The variable contingent fee related to car sales is constrained until the sale of the car is completed. Contact center revenues, net of intercompany eliminations, were $11,632 and $7,341 for the three months ended March 31, 2021 and 2020, respectively.

Amrock closing fees—The Company recognizes closing fees for non-recurring services provided in connection with the origination of the loan. These fees are recognized at the time of loan closing for purchase transactions or at the end of a client's three-day rescission period for refinance transactions, which represents the point in time the loan closing services performance obligation is satisfied. The consideration received for closing services is a fixed fee per loan that varies by state and loan type. Closing fees were $157,167 and $73,486 for the three months ended March 31, 2021 and 2020, respectively.

Amrock appraisal revenue, net—The Company recognizes appraisal revenue when the appraisal service is completed. The Company may choose to deliver appraisal services directly to its client or subcontract such services to a third-party licensed and/or certified appraiser. In instances where the Company performs the appraisal, revenue is recognized as the gross amount of consideration received at a fixed price per appraisal. The Company is an agent in instances where a third-party appraiser is involved in the delivery of appraisal services and revenue is recognized net of third-party appraisal expenses. Appraisal revenue, net was $22,491 and $17,619 for the three months ended March 31, 2021 and 2020, respectively.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. We maintain our bank accounts with a relatively small number of high-quality financial institutions.

Restricted cash as of March 31, 2021 and 2020 consisted of cash on deposit for a repurchase facility and client application deposits, title premiums collected from the insured that are due to the underwritten insurance company and a $25,000 bond.

March 31,
20212020
Cash and cash equivalents$2,864,906 $2,295,988 
Restricted cash75,647 64,976 
Total cash, cash equivalents, and restricted cash in the statement of cash flows$2,940,553 $2,360,964 

Loans subject to repurchase right from Ginnie Mae

For certain loans sold to Ginnie Mae, the Company as the servicer has the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent more than 90 days. Once the Company has the unilateral right to repurchase the delinquent loan, the Company has effectively regained control over the loan and must re-recognize the loan on the Condensed Consolidated Balance Sheets and establish a corresponding finance liability regardless of the Company's intention to repurchase the loan. The asset and corresponding liability are recorded at the unpaid principal balance of the loan, which approximates its fair value.

Accounting Standards Issued but Not Yet Adopted

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope to clarify that Topic 848 is applicable to many derivative instruments and hedging relationships.
10

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)

Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2022. This guidance is effective upon issuance and allows application to contract changes as early as January 1, 2020. The Company is in the process of transitioning its funding facilities and financing facilities that utilize LIBOR as the reference rate by adding alternative base rate language which may include the secured overnight financing rate ("SOFR"). For contracts to which ASC Topic 470, Debt applies, we have applied the optional expedients available from ASU 2020-04 and accounted for the contract modifications related to reference rate reform prospectively. Of the contracts that have been adjusted for the new reference rate, there has been an immaterial impact on the condensed consolidated financial statements. The Company is continuing to evaluate the impact that the adoption of this ASU will have on the condensed consolidated financial statements and related disclosures.

2. Fair Value Measurements

Fair value is the price that would be received if an asset were sold or the price that would be paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Required disclosures include classification of fair value measurements within a three-level hierarchy (Level 1, Level 2, and Level 3). Classification of a fair value measurement within the hierarchy is dependent on the classification and significance of the inputs used to determine the fair value measurement. Observable inputs are those that are observed, implied from, or corroborated with externally available market information. Unobservable inputs represent the Company’s estimates of market participants’ assumptions.

Fair value measurements are classified in the following manner:

Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Valuation is based on either observable prices for identical assets or liabilities in inactive markets, observable prices for similar assets or liabilities, or other inputs that are derived directly from, or through correlation to, observable market data at the measurement date.

Level 3—Valuation is based on the Company’s internal models using assumptions at the measurement date that a market participant would use.

In determining fair value measurement, the Company uses observable inputs whenever possible. The level of a fair value measurement within the hierarchy is dependent on the lowest level of input that has a significant impact on the measurement as a whole. If quoted market prices are available at the measurement date or are available for similar instruments, such prices are used in the measurements. If observable market data is not available at the measurement date, judgment is required to measure fair value.

The following is a description of measurement techniques for items recorded at fair value on a recurring basis. There were no material items recorded at fair value on a nonrecurring basis as of March 31, 2021 or December 31, 2020.

Mortgage loans held for sale: Loans held for sale that trade in active secondary markets are valued using Level 2 measurements derived from observable market data, including market prices of securities backed by similar mortgage loans adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk. Loans held for sale for which there is little to no observable trading activity of similar instruments are valued using Level 3 measurements based upon dealer price quotes.

IRLCs: The fair value of IRLCs is based on current market prices of securities backed by similar mortgage loans (as determined above under mortgage loans held for sale), net of costs to close the loans, subject to the estimated loan funding probability, or “pull-through factor”. Given the significant and unobservable nature of the pull-through factor, IRLCs are classified as Level 3.

MSRs: The fair value of MSRs (including MSRs collateral for financing liability and MSRs financing liability) is determined using a valuation model that calculates the present value of estimated net future cash flows. The model includes estimates of prepayment speeds, discount rate, cost to service, float earnings, contractual servicing fee income, and ancillary income among others. These fair value measurements are classified as Level 3.
11

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)

Forward commitments: The Company’s forward commitments are valued based on quoted prices for similar assets in an active market with inputs that are observable and are classified within Level 2 of the valuation hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below shows a summary of financial statement items that are measured at estimated fair value on a recurring basis, including assets measured under the fair value option. There were no material transfers of assets or liabilities recorded at fair value on a recurring basis between Levels 1, 2 or 3 during the three months ended March 31, 2021 or the year ended December 31, 2020.

Level 1Level 2Level 3Total
Balance at March 31, 2021
Assets:
Mortgage loans held for sale$ $17,834,610 $990,834 $18,825,444 
IRLCs  765,215 765,215 
MSRs  4,304,762 4,304,762 
MSRs collateral for financing liability (1)  233,687 233,687 
Forward commitments 909,153  909,153 
Total assets$ $18,743,763 $6,294,498 $25,038,261 
Liabilities:
Forward commitments$ $54,412 $ $54,412 
MSRs financing liability (1)  223,756 223,756 
Total liabilities$ $54,412 $223,756 $278,168 
Balance at December 31, 2020
Assets:
Mortgage loans held for sale$ $22,285,440 $579,666 $22,865,106 
IRLCs  1,897,194 1,897,194 
MSRs  2,862,685 2,862,685 
MSRs collateral for financing liability (1)  205,033 205,033 
Forward commitments 20,584  20,584 
Total assets$ $22,306,024 $5,544,578 $27,850,602 
Liabilities:
Forward commitments$ $506,071 $ $506,071 
MSRs financing liability (1)  187,794 187,794 
Total liabilities$ $506,071 $187,794 $693,865 
(1)    Refer to Note 3, Mortgage Servicing Rights for further information regarding both the MSRs collateral for financing liability and MSRs financing liability.

12

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
The following tables present the quantitative information about recurring Level 3 fair value financial instruments and the fair value measurements as of:

March 31, 2021December 31, 2020
Unobservable InputRangeWeighted AverageRangeWeighted Average
Mortgage loans held for sale
Dealer pricing
87% - 103%
100 %
89% - 105%
99 %
IRLCs
Loan funding probability
0% - 100%
77 %
0% - 100%
74 %
MSRs, MSRs collateral for financing liability, and MSRs financing liability
Discount rate
9.5% - 12.0%
9.9 %
9.5% - 12.0%
9.9 %
Conditional prepayment rate
6.9% - 57.5%
10.9 %
6.6% - 52.1%
15.8 %
The table below presents a reconciliation of Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2021 and 2020. Mortgage servicing rights (including MSRs collateral for financing liability and MSRs financing liability) are also classified as a Level 3 asset measured at fair value on a recurring basis and its reconciliation is found in Note 3, Mortgage Servicing Rights.
Loans Held for SaleIRLCs
Balance at December 31, 2020
$579,666 $1,897,194 
Transfers in (1)718,158  
Transfers out/principal reductions (1)(307,462) 
Net transfers and revaluation losses (1,131,979)
Total gains included in net income472  
Balance at March 31, 2021$990,834 $765,215 
Balance at December 31, 2019
$308,793 $508,135 
Transfers in (1)540,859  
Transfers out/principal reductions (1)(425,369) 
Net transfers and revaluation gains 706,730 
Total losses included in net income(6,193) 
Balance at March 31, 2020$418,090 $1,214,865 
(1)    Transfers in represent loans repurchased from investors or loans originated for which an active market currently does not exist. Transfers out primarily represent loans sold to third parties and loans paid in full.

Fair Value Option

The following is the estimated fair value and unpaid principal balance (“UPB”) of mortgage loans held for sale that have contractual principal amounts and for which the Company has elected the fair value option. The fair value option was elected for mortgage loans held for sale as the Company believes fair value best reflects their expected future economic performance:
Fair ValuePrincipal Amount Due Upon MaturityDifference (1)
Balance at March 31, 2021$18,825,444 $18,534,892 $290,552 
Balance at December 31, 2020$22,865,106 $21,834,817 $1,030,289 
(1)    Represents the amount of gains included in Gain on sale of loans, net due to changes in fair value of items accounted for using the fair value option.
13

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
Disclosures of the fair value of certain financial instruments are required when it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

The following table presents the carrying amounts and estimated fair value of financial liabilities that are not recorded at fair value on a recurring or nonrecurring basis. This table excludes cash and cash equivalents, restricted cash, warehouse borrowings, and line of credit borrowing facilities as these financial instruments are highly liquid or short-term in nature and as a result, their carrying amounts approximate fair value:
March 31, 2021December 31, 2020
Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Senior Notes, due 1/15/2028$995,528 $1,064,793 $994,986 $1,079,629 
Senior Notes, due 3/1/2029$742,197 $725,648 $741,946 $766,365 
Senior Notes, due 3/1/2031$1,236,452 $1,204,888 $1,236,114 $1,298,175 
The fair value of Senior Notes was calculated using the observable bond price at March 31, 2021 and December 31, 2020, respectively. The Senior Notes are classified as Level 2 in the fair value hierarchy.

3. Mortgage Servicing Rights

Mortgage servicing rights are recognized as assets on the Condensed Consolidated Balance Sheets when loans are sold, and the associated servicing rights are retained. The Company maintains one class of MSRs asset and has elected the fair value option. These MSRs are recorded at fair value, which is determined using a valuation model that calculates the present value of estimated future net servicing fee income. The model includes estimates of prepayment speeds, discount rate, cost to service, float earnings, contractual servicing fee income, and ancillary income and late fees, among others. These estimates are supported by market and economic data collected from various outside sources.

The following table summarizes changes to the MSRs assets for the three months ended:

Three Months Ended March 31,
20212020
Fair value, beginning of period$2,862,685 $2,874,972 
MSRs originated1,173,164 535,419 
MSRs sales(15,865)(186,292)
Changes in fair value:
Due to changes in valuation model inputs or assumptions (1)583,307 (805,536)
Due to collection/realization of cash flows(298,529)(247,925)
Total changes in fair value284,778 (1,053,461)
Fair value, end of period$4,304,762 $2,170,638 

(1)    Reflects changes in assumptions including discount rates and prepayment speed assumptions, mostly due to changes in market interest rates. Does not include the change in fair value of derivatives that economically hedge MSRs identified for sale.

The total UPB of mortgage loans serviced, excluding subserviced loans, at March 31, 2021 and December 31, 2020 was $431,497,603 and $371,494,905, respectively. The portfolio primarily consists of high-quality performing agency and government (FHA and VA) loans. As of March 31, 2021, delinquent loans (defined as 60-plus days past-due) were 3.21% of our total portfolio. Excluding clients in forbearance plans, our delinquent loans (defined as 60-plus days past-due) were 0.72% as of March 31, 2021.

During the first quarter of 2021 and fourth quarter of 2020, the Company sold MSRs with a fair value of $4,885 and $193,739, respectively, relating to certain single-family mortgage loans. Based on the contract terms, the sale of those MSRs did not immediately qualify for sale accounting treatment under U.S. GAAP. As a result, the Company was required to retain the MSRs asset (i.e., MSRs collateral for financing liability, at fair value) and the MSRs liability (i.e., MSRs financing
14

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
liability, at fair value) on the balance sheet until certain contractual provisions lapse after June for the fourth quarter of 2020 sales and July 2021 for the first quarter of 2021 sales. These MSRs were reported on the balance sheet at fair value using a valuation methodology consistent with the Company’s method for valuing MSRs until those contractual provisions lapse. Furthermore, the net change in fair market value (“FMV”) of the MSRs asset and liability from these sales are captured within Loan servicing income (loss), net in the Condensed Consolidated Statements of Income and Comprehensive Income. The unrealized gain of $31,077 relating to the MSRs liability and the offsetting unrealized loss of $31,077 relating to the MSRs asset were recorded in current operations for the three months ended March 31, 2021. Additionally, the terms of the agreement require quarterly adjustments to the sales price for changes in prepayment rates at the time of sale for a period of six months. Furthermore, in the three months ended March 31, 2021, the Company also sold MSRs with a fair value of $10,982 relating to certain mortgage loans, which qualified for sale accounting treatment under U.S. GAAP.

During the third quarter of 2019, the Company sold MSRs with a fair value of $340,303 relating to certain single-family mortgage loans. Based on the contract terms, the sale of those MSRs did not immediately qualify for sale accounting treatment under U.S. GAAP. As a result, the Company was required to retain the MSRs asset and the MSRs liability on the balance sheet until certain contractual provisions lapsed after June 2020. These MSRs were reported on the balance sheet at fair value using a valuation methodology consistent with the Company’s method for valuing MSRs until those contractual provisions lapsed. Furthermore, change in FMV of the MSRs asset and liability from this sale is captured within Loan servicing income (loss), net in the Condensed Consolidated Statements of Income and Comprehensive Income. The unrealized gain of $116,150 relating to the MSRs liability and the offsetting unrealized loss of $116,150 relating to the MSRs asset were recorded in current operations for the three months ended March 31, 2020. Furthermore, in the three months ended March 31, 2020, the Company sold MSRs with a fair value of $186,292 relating to certain mortgage loans, all of which qualified for sale accounting treatment under U.S. GAAP.

The following is a summary of the weighted average discount rate and prepayment speed assumptions used to determine the fair value of MSRs as well as the expected life of the loans in the servicing portfolio:
March 31, 2021December 31, 2020
Discount rate9.9 %9.9 %
Prepayment speeds10.9 %15.8 %
Life (in years)6.545.05

The key assumptions used to estimate the fair value of MSRs are prepayment speeds and the discount rate. Increases in prepayment speeds generally have an adverse effect on the value of MSRs as the underlying loans prepay faster. In a declining interest rate environment, the fair value of MSRs generally decreases as prepayments increase and therefore, the estimated life of the MSRs and related cash flows decrease. Decreases in prepayment speeds generally have a positive effect on the value of MSRs as the underlying loans prepay less frequently. In a rising interest rate environment, the fair value of MSRs generally increases as prepayments decrease and therefore, the estimated life of the MSRs and related cash flows increase. Increases in the discount rate result in a lower MSRs value and decreases in the discount rate result in a higher MSRs value. MSRs uncertainties are hypothetical and do not always have a direct correlation with each assumption. Changes in one assumption may result in changes to another assumption, which might magnify or counteract the uncertainties.

The following table stresses the discount rate and prepayment speeds at two different data points:
Discount RatePrepayment Speeds
100 BPS Adverse Change200 BPS Adverse Change10% Adverse Change20% Adverse Change
March 31, 2021
Mortgage servicing rights
$(181,137)$(337,856)$(166,962)$(315,934)
December 31, 2020
Mortgage servicing rights$(115,130)$(212,119)$(147,420)$(279,691)

15

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)

4. Mortgage Loans Held for Sale

The Company sells substantially all of its originated mortgage loans into the secondary market. The Company may retain the right to service some of these loans upon sale through ownership of servicing rights. A reconciliation of the changes in mortgage loans held for sale to the amounts presented on the Condensed Consolidated Statements of Cash Flows is below:

Three Months Ended March 31,
20212020
Balance at the beginning of period$22,865,106 $13,275,735 
Disbursements of mortgage loans held for sale104,103,499 50,418,371 
Proceeds from sales of mortgage loans held for sale (1)(110,276,266)(52,257,635)
Gain on sale of mortgage loans excluding fair value of other financial instruments, net (2)2,133,105 1,406,913 
Balance at the end of period
$18,825,444 $12,843,384 

(1)    The proceeds from sales of loans held for sale on the Condensed Consolidated Statements of Cash Flows includes amounts related to the sale of consumer loans.

(2)    The Gain on sale of loans excluding fair value of MSRs, net on the Condensed Consolidated Statements of Cash Flows includes amounts related to the sale of consumer loans, interest rate lock commitments, forward commitments, and provisions for investor reserves.

Credit Risk

The Company is subject to credit risk associated with mortgage loans that it purchases and originates during the period of time prior to the sale of these loans. The Company considers credit risk and losses associated with these loans to be insignificant as it holds the loans for a short period of time, which for the three months ended March 31, 2021 is, on average, approximately 18 days from the date of borrowing, and the market for these loans continues to be highly liquid. The Company is also subject to credit risk associated with mortgage loans it has repurchased as a result of breaches of representations and warranties during the period of time between repurchase and resale.

5. Borrowings

The Company maintains various funding facilities and other non-funding debt as shown in the tables below. Interest rates typically have two main components – a base rate (most commonly LIBOR or SOFR, some have a floor) plus a spread. The commitment fee charged by lenders for each of the facilities is an annual fee and is calculated based on the committed line amount multiplied by a negotiated rate. The fee rate ranges from 0% to 0.50% among the facilities except for the Senior Notes, which have no commitment fee. The Company is required to maintain certain covenants, including minimum tangible net worth, minimum liquidity, maximum total debt or liabilities to net worth ratio, pretax net income requirements, and other customary debt covenants, as defined in the agreements. The Company was in compliance with all covenants as of March 31, 2021.

The amount owed and outstanding on the Company’s loan funding facilities fluctuates greatly based on its origination volume, the amount of time it takes the Company to sell the loans it originates, and the Company’s ability to use the cash to self-fund loans. In addition to self-funding, the Company may from time to time use surplus cash to “buy-down” the effective interest rate of certain loan funding facilities or to self-fund a portion of our loan originations. As of March 31, 2021, $3,146,623 of the Company’s cash was used to buy-down our funding facilities and self-fund, $475,000 of which are buy-down funds that are included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets and an estimated $2,671,623 of which is discretionary self-funding that reduces Cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company has the right to withdraw the $475,000 at any time, unless a margin call has been made or a default has occurred under the relevant facilities. The Company has an estimated $2,671,623 of discretionary self-funded loans, of which a portion can be transferred to a warehouse line or the early buy out line, provided that such loans meet the eligibility criteria to be placed on such lines. The remaining portion will be funded in normal course over a short period of time, generally less than one month. A large unanticipated margin call could also have a material adverse effect on the
16

Rocket Companies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(In Thousands, Except Shares and Per Share Amounts)
Company’s liquidity. Furthermore, refer to Note 3, Mortgage Servicing Rights for additional information regarding the MSRs financing liability with the MSRs sold during the fourth quarter of 2020.

The terms of the Senior Notes restrict our ability and the ability of our subsidiary guarantors among other things to: (1) incur additional debt or issue preferred stock; (2) pay dividends or make distributions in respect of capital stock; (3) purchase or redeem capital stock; (4) make investments or other restricted payments; (5) sell assets; (6) enter into transactions with affiliates; (7) effect a consolidation or merger, taken as a whole; (8) designate our subsidiaries as unrestricted subsidiaries, unless certain conditions are met, as defined in the agreements; (9) merge, consolidate or sell, transfer or lease assets, and; (10) create liens on assets. Items (1) through (9) apply to the 2028 Senior Notes. Items (9) and (10) apply to the 2029 and 2031 Senior Notes, which have investment grade covenants.

Funding Facilities
Facility TypeCollateralMaturityLine AmountCommitted Line AmountOutstanding Balance March 31, 2021Outstanding Balance December 31, 2020
MRA funding:
1) Master Repurchase Agreement (7)Mortgage loans held for sale (6)10/22/2021$2,000,000 $100,000 $998,397 $999,752 
2) Master Repurchase Agreement (7)Mortgage loans held for sale (6)12/2/20211,500,000 500,000 1,128,746 1,320,484 
3) Master Repurchase Agreement (7)Mortgage loans held for sale (6)4/22/20222,750,000 1,000,000 904,931 2,407,156 
4) Master Repurchase Agreement (1)(7)Mortgage loans held for sale (6)1/26/20222,000,000 1,700,000 1,672,731 1,953,949 
5) Master Repurchase Agreement (2)(7)Mortgage loans held for sale (6)4/22/20213,000,000 500,000 2,466,830 2,004,707 
6) Master Repurchase Agreement (3)(7)Mortgage loans held for sale (6)9/5/20222,000,000 1,000,000 449,622 1,780,902 
7) Master Repurchase Agreement (7)Mortgage loans held for sale (6)9/16/20211,750,000 1,137,500 1,108,254 1,343,130 
8) Master Repurchase Agreement (7)Mortgage loans held for sale (6)6/12/2021400,000  150,166