Be Careful With Rocket and Other Mortgage Companies Right Now
Shares of Rocket Companies (NYSE: RKT), the largest mortgage originator in the country, surged by 70% on Tuesday, to close just under $42 per share. This was likely fueled by the WallStreetBets (WSB) traders behind the meteoric rise of GameStop and AMC. Members of the WSB Reddit group spoke of buying Rocket, and nearly 40% of the company's shares were sold short, making it a prime target for a short squeeze.
Shares of Rocket dropped more than 30% on Wednesday but may remain volatile for the next few weeks. While no one knows how long the potential short squeeze will last, investors should be careful about investing in Rocket and other mortgage companies, as they could soon find themselves in a difficult environment in which to operate.
Mortgage companies are in the business of originating home loans for people looking to buy a house or refinance an existing home loan. However, mortgage companies like Rocket, loanDepot, and UWM Holdings, which have also experienced pops recently, are not licensed banks, so they don't hold a lot of mortgages on their balance sheets.
Source Fool.com
