Rocket, Mr. Cooper Merger OK’d By Fannie, Freddie Regulator
A green light from the Federal Housing Finance Agency and antitrust regulators sets the stage for a Sept. 3 vote by Mr. Cooper shareholders on $9.4 billion mega merger.
Rocket Companies’ plan to acquire the nation’s biggest mortgage servicer, Mr. Cooper, doesn’t pose a risk to Fannie Mae and Freddie Mac, their federal regulator has determined — as long the mortgage giants don’t give the merged company more than 20 percent of their business.
With the Federal Housing Finance Agency (FHFA) signaling it won’t stand in the way of the merger Tuesday, the stage is set for Mr. Cooper shareholders to vote on the Rocket merger on Sept. 3.
Mr. Cooper shareholders filed three lawsuits during the first week of August seeking an injunction to delay the merger vote, claiming they weren’t provided with all of the information they needed to evaluate the terms of the all-stock deal, which was valued at $9.4 billion when announced in March.
An Aug. 6 complaint by shareholder John McDaniels claims that Mr. Cooper failed to disclose “key assumptions” used to underpin three-year financial projections and a valuation analysis used to support a fairness opinion provided by Citigroup Global Markets Inc.
In an Aug. 22 regulatory filing, Mr. Cooper dismissed allegations that investors don’t have all the information they need to make a decision, calling the lawsuits “without merit.” But Mr. Cooper said it was also disclosing some additional details about the deal “to avoid nuisance, potential expense and delay.”
That included the disclosure that Mr. Cooper’s deal adviser, Citi, also earned $14 million in fees and interest income from Rocket for investment banking services during a two-year period before issuing its fairness opinion.
Under the terms of the merger agreement, Mr. Cooper shareholders will receive 11 shares of Rocket for each of their Mr. Cooper shares, plus a special cash dividend of $2 per share.
When the deal closes, Mr. Cooper shareholders will own about 25 percent of the combined company, and Mr. Cooper Chair and CEO Jay Bray will become president and CEO of Rocket Mortgage.
Last year, Rocket CEO Varun Krishna set a goal of growing the company’s market share in purchase lending to 8 percent by 2027 and to capture 20 percent of U.S. mortgage refinancings.
Five prominent Democrats voiced concerns to antitrust regulators in June that Rocket — which closed a deal to acquire real estate brokerage Redfin on July 1 — is “attempting to dominate the entire homebuying process.”
But the June 4 deadline for antitrust regulators to voice objections to Rocket’s plans to acquire Mr. Cooper came and went without a peep from the Department of Justice or the Federal Trade Commission.
While the Redfin and Mr. Cooper deals should help Rocket achieve its growth targets, Fannie and Freddie’s federal regulator says no company should get more than 20 percent of their loan servicing business, “in order to ensure the safety and soundness of the mortgage market and the overall economy.”
Fannie and Freddie should also limit their counterparty concentration risk with Rocket and its subsidiaries to 20 percent, FHFA said.
Loan servicers like Mr. Cooper collect monthly mortgage payments from homeowners on behalf of investors in mortgage-backed securities (MBS) that are typically guaranteed by Fannie, Freddie or Ginnie Mae.
Together, Rocket and Mr. Cooper service about $2 trillion in outstanding loans taken out by 10 million homeowners — about one in six U.S. mortgages.
Fannie, Freddie guarantee $6.73T in mortgages
Source: Fannie Mae and Freddie Mac earnings reports.
As of June 30, Fannie and Freddie were guaranteeing payments to investors for $6.73 trillion in single-family mortgages that have been packaged into MBS.
Ginnie Mae primarily guarantees MBS comprised of loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), with $2.6 trillion in single-family loans outstanding at the end of July.
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