Is the Rocket, United Wholesale Mortgage spat hurting brokers?

The battle between United Wholesale Mortgage, Rocket Cos. And Fairway Independent Mortgage for the hearts and minds of mortgage brokers feels like a battle in the schoolyard.

United Wholesale Mortgage had put down the gauntlet and announced in early March that it would ban mortgage brokers from doing business with Rocket and Fairway if they wanted to work with UWM. Rocket and Fairway shot back into the press as a result, and a small group of brokers has since filed a lawsuit against UWM. If the controversy enters the legal system, does it hurt or aid the perception of the wholesale business and mortgage brokers?

“From a consumer perspective, they are not aware of this. They don’t know it exists, ”said Ward Morrison, president of Motto Mortgage, a subsidiary of Remax, the franchisor of mortgage brokerage units. “I don’t think this situation will negatively affect the consumer because I still think the broker channel offers so much choice.”

For Ginny Ferguson, the owner of Heritage Valley Mortgage in Pleasanton, Calif., Limiting choices is exactly what can harm her business.

“When you start dictating to people at other companies to work with if they want to work with you, it smells like cartel to me,” Ferguson said. “And it certainly doesn’t do my customers any good if wholesale lender A has better prices than wholesale lender B, but if I do a lot of business with wholesale lender B and I can’t do business with A if I want to continue doing business with B. That hurts mine Customers because as a trustee, as far as I know, I am not getting the best available rates for my client he qualifies for. “

California has a unique licensing situation for mortgage brokers as they are licensed as real estate agents and thus have a duty of loyalty to their customers. As part of this commitment, the California mortgage broker must provide the customer with the best possible offer. But even if there were no such requirement, it could damage Heritage Valley’s reputation for not being able to offer a broader range of products to a customer, Ferguson said.

“That’s why I’m an independent mortgage broker,” she added. “I don’t feel like I should choose one lender over the other unless it is better pricing for my client [or] more logical underwriting for my client. “

She agrees with Morrison that the wholesaler is usually in the background of the transaction, but sees the situation differently.

“If we don’t do our best job [the borrower]It reflects poorly on everyone else in our industry segment and they don’t know if to blame the ABC wholesaler for dictating where I took my credit, ”she said.

Entry into the legal system
The lawsuit, filed in April by a group of mortgage brokers in a U.S. District Court in Florida, alleges UWM violated state and federal antitrust laws. While the named plaintiff is Okavage Group of St. Augustine, Fla., Other companies are reportedly involved and the lawsuit seeks class-action status.

“I fight UWM because my freedom and independence, the reason my clients work with me, has been taken away,” said Dan O’Kavage, president of the Okavage Group, in a press release. “If I didn’t want to be independent, I would work in the retail industry and work for one of the big lenders in the business.”

This case is “the first strike,” with more to come, including from mortgage brokers in California, said Okavage’s attorney Robert Goodman of Parrish & Goodman in Fort Myers, Florida.

These mortgage brokers are upset that UWM “is restricting the ability to provide their customers with certain loans that may be more suitable for their customers,” Goodman said in an interview. “There are times when Rocket offers a better tariff than UWM and the consumer is the one who is really hurt. The broker is also injured. “

For its part, UWM has remained steadfast in its stance, as has been the case with every challenge to its policy so far.

“UWM is committed to the growth and success of over 10,000 independent mortgage brokers across America who have chosen All In for the Broker Channel. We’re not focusing on the 600 or so who have refused to move forward as partners, ”a spokesman said in a statement on the suit. “We do not comment on currently pending legal questions, especially those that have neither merit nor content.”

An industry on the advance
Motto Mortgage was founded in 2016 when the mortgage broker’s reputation was just starting to improve after being cited as the cause of the great recession. While not a licensed mortgage business, Motto is involved in the industry’s success as a franchisor of mortgage brokerage units.

Claiming a growing number of loan officers getting into mortgage brokerage, Morrison said the spit is unlikely to fail that move.

Of the top 10 lenders in 2020, seven are participating in the wholesale channel, including Rocket, UWM, and Fairway, according to Asurity RiskExec’s Home Mortgage Disclosure Act data. Although the same 10 topped the list in 2019, the three non-wholesalers each slipped in the 2020 rankings, with Wells Fargo moving up from third to fourth, Bank of America from fourth to ninth, and JPMorgan Chase from fifth Eighth place fell back.

Among the companies on this list is Caliber Home Loans, which is being acquired by New Residential. However, before the deal was announced, Caliber filed for an initial public offering. In its registration statement, the company said it had $ 16.4 billion in wholesale volume for the first nine months of last year, slightly more than the $ 16.3 million for 2019 as a whole.

“The wholesale market was the fastest growing channel in the mortgage industry and grew in the four years to December 31, 2019 at an average annual growth rate of 18%,” said the caliber announcement. “This increase is mainly due to the adoption of technology and digitization by independent mortgage brokers.”

The filing added that Caliber wanted to grow this business in 2021 by “targeting the fastest growing segment of the market – small to medium-sized brokers – and allowing us to enter new regions”.

Caliber’s origination capabilities over both the direct and third-party channels were seen as a counterbalance to New Residentials’ heavy reliance on correspondence purchases.

Another recent deal that has had a wholesale focus is Finance of America’s agreement to purchase Parkside Lending to increase the Forward mortgage unit’s presence with brokers.

“Our third-party origination business is part of our long-term growth strategy,” said Bill Dallas, president of Finance of America’s forward lending business, in an announcement about the deal.

With developments like this in mind, the battle between UWM, Rocket and Fairway shouldn’t have a negative impact on loan officers if they take the brokerage route, Motto’s Morrison said.

“Any good LO who does their research will realize that these are three out of 100 companies that have their little spit, so to speak, and that there are still options to choose from,” said Morrison. “As a LO, as a broker, I only had five or six that I used anyway, and if you capped one that’s fine. I still had the other five and was able to offer my consumer the right choice from those five. “

Motto sells franchise companies to independent operators as well as to subsidiaries of the parent company Remax and other real estate sales companies.

According to Morrison, Motto’s growth rate in 2021 will be faster than last year. The company added 30 operations offices last year, bringing the number to 141 by the end of 2020, compared to 111 last year. 71 franchises were sold in 2020, up from 52 in 2019.

“Our job is to raise awareness in the brokerage channel and I think we have done very well,” said Morrison. “And [we’re] I don’t think this has changed the mindset at all. “

Motto did not comment on the topic raised by UWM. On March 11, Morrison emailed the Motto franchisees saying the company would support them no matter what decision they made. In the email, he noted that some worked well with UWM while others appreciated their relationship with Quicken.

“We are unable to pinpoint the course your company should take, and neither do we want to,” the email said. “Therefore, the decision for your independent and operated agency is properly yours.”

A line in the sand
What’s happening between UWM, Rocket and Fairway isn’t just seen in the mortgage business, said Grant Moon, CEO of mortgage fintech company Home Captain.

“Every time someone does this, it tends to be a little line in the sand,” said Moon. “And anytime [that] happens, there seems to be a lot of back and forth as to who is better and who is not better, ‘you’re either with me or against me.’ “

Shrinking volume and edge compression can be motivating factors in the war of words. And with two of the three companies going public recently and therefore having to respond to shareholders, the rivalry becomes even more intense, he continued.

Rocket Cos., Which owns Rocket Mortgage and Quicken Loans, went public on August 6, 2020 at a price of $ 18 per share. At the close of trading on April 30, the company’s share price was $ 22.70 per share. In January 2021, UWM went public by merging with the special purpose vehicle Gores Holdings IV. It started at $ 11.95 and at the close of trading on April 30, the price per share was $ 8.16.

Mortgage brokers are entrepreneurs who are largely self-employed. They built their business through the right partnerships, and ultimately these brokers make their own decisions, Moon said. “So there’s a pretty big push, probably more than ever, to attract, attract, retain and satisfy the needs of these individual broker-owner-operators,” he said.