Quicken Loans outgrew almost every U.S. mortgage provider by unfurling technology like its online Rocket Mortgage platform faster than big banks.
Now closing in on the industry's leader, Wells Fargo, Quicken Loans is picking more fights: Luring top tech talent to Detroit from Silicon Valley giants like Facebook and Google.
"Everything is about innovation, creativity, newness, trying to keep the culture nonbureaucratic," billionaire Dan Gilbert, the company's owner, said in a phone interview. "To me, that's how you compete in the world today."
Gilbert, who owns 77 percent of the mortgage lender he founded more than three decades ago, boosted stock awards to employees 56 percent to $1 million during the first nine months of 2016, according to a marketing document for a $1 billion bond sale last month. The closely held firm runs an internal system that lets recipients — many of them technology recruits — eventually cash out their equity.
Gilbert is counting on creative millennials, who he said "love that Detroit thing," to be drawn to a city with an underdog mentality and a dirt-cheap cost of living compared with Silicon Valley. Estimated to be worth $8.5 billion by the Bloomberg Billionaires Index, he's been a big investor in Detroit and Cleveland, where he owns real estate, casinos and the NBA Cavaliers.
Even in a rough year for mortgage providers, Gilbert has invested aggressively. Spending on tech staff contributed to a roughly $50 million increase in compensation costs and an 8.6 percent increase in total expenses in this year's first nine months, according to the bond document obtained by Bloomberg. Companywide, net revenue fell 5.1 percent and net income tumbled 38 percent. By contrast, mortgage-related revenue fell 27 percent at Wells Fargo and 75 percent at Bank of America as a refinancing boom ended.
As a closely held firm, "we have that luxury of just investing back in" instead of constantly worrying about earnings targets, Gilbert said. He said the firm's culture adheres to Amazon founder Jeff Bezos' philosophy of staying in "Day 1" mode — pushing to behave like a startup.
Tech know-how has enabled Quicken to close loans faster and more profitably than banking rivals. It typically funds loans about 33 days after applicants upload their information. The industry average is 40 to 45 days, according to newsletter Inside Mortgage Finance.
Quicken has an average gain-on-sale margin of about 4.1 percent, the bond document said. The broader industry booked a 1.3 percent effective margin in early December, according to a Mortgage Bankers Association proxy for gains on such sales.
Gilbert founded Quicken in 1985 as a local mortgage bank and transformed it into a national online lending business. While banks typically hold at least some mortgages on their balance sheets, Quicken makes loans almost exclusively through its website and call centers and then sells them.
About 2 million people have used Rocket Mortgage, which lets people apply for mortgages on their smartphones. The company advertised the product in a 2016 Super Bowl commercial, bought leads from aggregators such as LowerMyBills.com and sponsored a NASCAR racing team.
Wells Fargo is piloting a digital application for release next year, and in August it partnered with Blend Labs Inc. to move more forms online. Still, Gilbert said he's confident that Quicken can catch up to its loan volume.
"We'll be the largest retail market share lender within a short period of time," he said. A Wells Fargo spokesman declined to comment.
Its growth hasn't come without turmoil. Quicken has been feuding with the Department of Justice for years over mortgages backed by insurance from the Federal Housing Administration. In 2015, the U.S. accused the company of falsely certifying loans that weren't FHA compliant between 2007 and 2011. Quicken has said the assertion is based on a "cherry-picked" sample.
Many other big lenders settled similar claims. Gilbert, who says his firm has made about a half million FHA loans, said he's not interested. "You had a very aggressive DOJ decide several years back to put the largest lenders of FHA on a board, and say, 'Let's go after them,' " he said. "When we start to treat the good guys and the bad guys the same, then that's a real problem."
Quicken has reserved $10 million to deal with the legal issue, the bond document said. Gilbert said he's "very confident" that will be enough.
