Mar. 15—United Wholesale Mortgage Holdings Corp.'s decision to stop working with independent mortgage brokers who do business with crosstown rival Rocket Companies Inc. after Monday has brokers choosing sides and led some to explore legal options.
Pontiac-based UWM has been the country's largest wholesale lender for six consecutive years. It relies exclusively on brokers who partner with lenders to find the best rates and products for homebuyers and homeowners. Brokers represent more than 20% of annual mortgage volume. UWM CEO Mat Ishbia says Detroit-based Rocket's Quicken Loans LLC and Rocket Mortgage brand, the country's largest mortgage originator, is undermining the growth of that sector.
UWM also accused Wisconsin-based Fairway Independent Mortgage Corp., the country's 12th largest originator, of soliciting loan officers away from brokers.
"You can work with UWM and 73 other lenders, or you can work with those two and 73 other lenders," Ishbia said on Friday. "The response has been overwhelming positivity. I was with a client yesterday, and they stood up and gave a round of applause. They said, 'Thank you for standing up for the industry.'"
Ishbia says Rocket is recruiting real estate and home insurance agents to be loan officers, paying for their licenses and offering extra commission. Those agents often are powerful referral sources for brokers. Rocket denies it pays agents for referrals and says UWM's decision takes away choice just as Rocket is increasing its market share.
Rocket works with approximately 90 real estate professionals who can originate mortgages through its Rocket Pro platform, spokesman Aaron Emerson said Friday in an email.
"None of these real estate professionals," Emerson said, "are paid for referrals — that was simply the desperate claims of a desperate company looking for any reason to justify its broker ultimatum."
In the immediate aftermath of the March 4 announcement, lenders reduced interest rates that had been on the rise, and some have relaxed certain credit score thresholds, brokers said. Industry observers, however, expect the decision will have minimal financial impact on homebuyers and homeowners refinancing.
"While competition is, of course, a good thing overall — and more competitors make for a spirited marketplace — there are a range of players in the wholesale space both large and small," Keith Gumbinger, vice president of mortgage resource website HSH.com, said in an email. "So this decision shouldn't create difficulty for consumers in either getting access to mortgage credit or finding competitively priced loans."
In a statement, Fairway CEO Steve Jacobson reaffirmed the company's commitment to its broker channel: "We've always believed in doing what is best for the consumer, and that will never change. For that reason, we will always support a broker's decision to work with any lender they choose, and we will continue to work every day to earn the trust and respect of all our origination partners."
Competitors like Ann Arbor-based Home Point Financial Inc. say they have seen an influx in interest from brokers to work with them since UWM issued the ultimatum.
"We will continue to provide brokers value propositions and grow our market share," said Maria Fregosi, Home Point's chief investment officer. "As long as the brokers are on the ground and continue to provide excellent pricing on products and services, homebuyers will be drawn to that as a place to conduct their business."
Two sides to story
But two narratives have emerged among brokers. One celebrates UWM's actions as a way to preserve brokers from a similar fate to which real estate agents have fallen because of online real estate marketplaces like Zillow Group Inc. The other says forcing brokers to choose between the two largest wholesale lenders undermines the broker channel's purpose for competition and choice.
"As a business, I am seeking counsel as far as what I can do about this situation," said Dan O'Kavage, a Florida-based broker who does roughly 30% of his business with UWM and Rocket each. "It is going to affect clients and the way I do business. UWM is taking away freedom, taking the independence part of being a broker."
O'Kavage declined to go into specifics about the actions he is considering.
"The reality is there is nothing we did wrong," Ishbia said in response to possible litigation, likening the ultimatum to a business having a Pepsi or Coca-Cola contract. "Most of the brokers that are unhappy are Rocket Mortgage's puppets. That is perfectly fine. You don't have to have a case to sue someone. Some brokers will try. There is nothing against the rules for what we did."
On Thursday, Ishbia said, more than 1,400 of about 3,300 brokers working with both companies responded to UWM's addendum request. To continue to work with UWM, brokers must not work with Rocket or Fairway or else pay liquidation damages of $50,000 or more. At end-of-day Friday, 90% of brokers who had responded had agreed to the addendum, a company spokeswoman said. Loans currently in process still may close.
Last week, Ishbia clarified that no other lenders will be added to the list: "We know the companies that are a threat to the broker channel," he said. "We are addressing those."
UWM last year closed $182.5 billion in loan volume through its 12,000-broker network, a 69% increase over 2019. In 2020, Rocket originated more than $320 billion in total loan volume. Last week, it disclosed $97 billion of that was through its Rocket Pro TPO wholesale channel. The company has grown its broker partnerships from 3,000 to 10,000 over the past three years.
"They see our company coming to take the top spot in the broker channel," Rocket's Emerson wrote. "Three of Rocket Pro TPO's top 10 days in company history have occurred in the week since UWM's ultimatum, with broker loan registrations increasing 40% this week. Even more telling, our company is on pace to onboard more than 600 brokers onto our platform in March — the single largest month of partner growth in our Rocket Pro TPO's history."
Ishbia says the decision is not about UWM's market share: "We already have enough business. UWM already is the largest wholesale lender over Rocket two or three times over. We have plenty of business. We are taking a stand for what is right."
Real estate lesson
UWM and brokers supporting the move have likened Rocket's actions to how online marketplaces like Zillow have made it easier for homebuyers to bypass the need for real-estate agents. The fear is that Rocket and its marketing powerhouse will attract brokers' clients whether indirectly or directly from the wholesale business to its direct-to-consumer retail business that offers Rocket larger margins. UWM doesn't have a direct-to-consumer division, so all its business must come from brokers.
"Brokers are signing their own death warrant" by sending loans to Rocket, said Randy Gammo, CEO of Troy-based National Mortgage Home Loans who says he terminated his partnership with Rocket last week to sign UWM's addendum. "The ultimatum was necessary. United Wholesale's growth in the mortgage industry will lead to the preservation of the mortgage broker model while Quicken's growth will lead to Quicken Loans only getting bigger."
Rocket Mortgage's ability to promote itself to consumers and service them directly make it difficult to retain customers who get Rocket loans through brokers, said Peter Galvez, broker-owner of United Wholesale Lending in California.
"Loan officers don't realize that in three years when that client wants to refinance or refer someone, they're not going to call you back," he said. "They're going to go straight to (Rocket) because of how easy it is."
Other brokers, however, say they have found Rocket to be a strong wholesale partner: "If the best pricing is with Quicken, why would we choose to not work with Quicken to provide our clients with the best price and execution possible?" said Wade Swindell, co-owner of Florida-based Atlantic Trust Mortgage Co. who says he ended his relationship with UWM after the ultimatum.
"I've never felt like Quicken doesn't value our business. I never felt like the business that is generated through their wholesale channel is unimportant to them."
Brokers across the board agree Ishbia has been a major advocate for brokers in recent years, with UWM increasing awareness, promoting FindAMortgageBroker.com, offering free training and investing in broker-focused technology that streamlines the loan process and helps the businesses stay in contact with their clients.
Rocket now is doubling down its efforts on the channel, buying a Super Bowl spot this year to promote brokers and launching a directory on its website to connect customers with local brokers. Rocket says it is investing $100 million into broker technology in 2021 and spending millions more to market the channel.
"Taking choices away and prohibiting competition is going to pull the broker channel down," said Kimber White, CEO of the National Association of Mortgage Brokers, calling UWM's decision unethical. "We're growing at a pace we've never grown before. What hurts us is what is going on right now and having to take sides."
But Katie Sweeney, CEO of the Association of Independent Mortgage Experts, says banks and lenders often refuse to work with certain brokers because they do not process enough loans or do not send them enough volume.
"I don't see that as UWM trying to dictate who a broker can and can't do business with," Sweeney said. "It's unrealistic brokers are working with all 75 lenders out there. I don't necessarily look at this as removing options."
A few brokers told The Detroit News they expect Ishbia will back off the deadline. Ishbia says that's not the case: "Zero percent chance. This is not an option or idea. This is a business philosophy. We're doing the right thing."