A recent shakeup in the mortgage industry could cut junk fees

Gabby Jones/Bloomberg

From Exxon and Mobil to Facebook and Instagram to Disney and 21st Century Fox, corporate mergers have significantly shaped the American economy. But ever since the breakup of Standard Oil in 1911, there has been a strong — and justified — American tradition of skepticism about mergers. While mergers and acquisitions can enable companies to deliver better products at lower prices (good), they can also result in outsized market power that leads to lower quality and higher prices (bad). This is why every proposed deal deserves careful scrutiny — not just based on its size, but on its broader impact. 

A timely example is Rocket Mortgage's $1.75 billion acquisition of major real estate brokerage Redfin. The deal, which stands to affect some 50 million homebuyers, closed just this week, despite pushback from some U.S. senators (all Democrats) who tried to throw a last-minute wrench in the merger, criticizing the Trump administration for not acting to block or review the deal. Their concern? That Rocket could "steer homebuyers to its own products, hike prices based on private data, and block competition."

But while the senators focused on the scale of the acquisition, they overlooked a more important dimension: scope. The real story of any merger is not in how big the company gets, but in how the deal affects workers, consumers and competition. To understand the likely outcome here, we must first consider how fragmented and opaque the U.S. homebuying process currently is.

Imagine a typical young couple buying their first home. They've likely never purchased real estate before, and this will be the biggest investment of their lives. They begin with a realtor, who helps them find a home. Then comes a mortgage broker or loan officer. After that, a parade of other professionals gets involved — home inspectors, title companies, insurance providers, settlement agents. Finally, they're handed off to a loan servicer, who manages payments, taxes and escrow for years to come.

While there is intense competition among these players, it's not always good for the consumer. Each party is incentivized to maximize their share of the buyer's money, often leading to rising costs, unnecessary services and "junk fees." This problem is compounded by significant information asymmetry: These agents know the system; the buyer often does not.

By acquiring Redfin, Rocket Mortgage has the potential to streamline this fragmented process. A lender acquiring a broker could reduce the time it takes to connect customers with the right services, eliminate redundant intermediaries, and lower transaction and search costs. Rather than being shuffled among loosely affiliated companies, homebuyers could deal with one trusted provider from search to close.

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There is extensive research showing that consumers are frustrated by the disjointed, confusing nature of buying a home. Rocket's acquisition could give buyers a single point of contact throughout the process — from the initial search to the final payment. No more surprise fees, untrustworthy referrals or bureaucratic handoffs. And since Rocket would now guide the customer through the entire journey, it would be incentivized to ensure both financial soundness and long-term satisfaction. This would not only benefit homebuyers but contribute to a more stable housing system overall.

Critics argue that the deal would unfairly expand Rocket's market share. But this concern misreads the nature of the two businesses. Redfin focuses on real estate brokerage. Rocket specializes in mortgage lending. These are different, though complementary, functions. The acquisition would allow Rocket to offer an integrated service — not dominate a single segment.

To draw a fast-food analogy: The senators would have you believe that this deal would be like KFC acquiring Chick-fil-A — consolidating the market for fried chicken. But a better analogy is Chick-fil-A acquiring Tyson Foods. It wouldn't expand Chick-fil-A's retail market share, but it would help it improve its supply chain, lower costs and pass those benefits on to its customers.

Finally, Rocket's actual share of the U.S. mortgage origination market is just 5%. While it is one of the largest individual lenders, the top five originators together account for only 20.5% of the entire market — proof that this is a fragmented and highly competitive industry. Blocking this deal would do little to increase competition. It would simply benefit Rocket's and Redfin's existing competitors such as Zillow, Realtor.com, Compass and Berkshire Hathaway HomeServices — not exactly mom-and-pop shops in need of protection.

There's a saying in business schools: The true measure of a good merger isn't whether the resulting company becomes bigger — it's whether it becomes better. Rocket's acquisition of Redfin has the potential to reduce inefficiencies, increase transparency and simplify the homebuying process. That's good not just for Rocket or Redfin, but for millions of Americans trying to navigate one of the most complicated and stressful financial decisions of their lives. 

When corporate giants merge, the real question isn't whether they'll reshape the market. It's whether they'll reshape it for the better. In this case, the answer appears to be a strong "yes."