Is the drama between UWM, Rocket and Fairway hurting brokers?

The battle between United Wholesale Mortgage, Rocket Cos. and Fairway Independent Mortgage for the hearts and minds of mortgage brokers has the feeling of a schoolyard battle.

United Wholesale Mortgage had thrown down the gauntlet, announcing in early March that it would forbid mortgage brokers from doing business with Rocket and Fairway if they wanted to work with UWM. Rocket and Fairway subsequently shot back in the press and a small group of brokers have since launched a suit against UWM. As the controversy enters the legal system, is it hurting or helping perceptions of the wholesale business and mortgage brokers?

“From a consumer perspective they’re oblivious to it; they don’t know it exists,” said Ward Morrison, president of Motto Mortgage, a subsidiary of Remax that is a franchisor of mortgage broker units. “I don’t think this situation is going to impact the consumer negatively, because I still think that the broker channel provides so much choice.”

But to Ginny Ferguson, the owner of Heritage Valley Mortgage in Pleasanton, Calif., limiting choice is precisely what can hurt her business.

“When you start dictating to people in other companies who they can work with if they want to work with you, that smacks of anti-trust to me,” Ferguson said. “And it’s certainly not doing my clients any good if wholesale lender A has better pricing 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 my business with B. That’s damaging to my client because as a fiduciary, I am not getting the best pricing available to my knowledge for my customer that they qualify for.”

California has a unique licensing situation for mortgage brokers in that they are licensed as real estate brokers and thus have a fiduciary duty to their clientele. As part of that obligation, the mortgage broker in California needs to get the client the best deal possible. But even if there wasn’t such a requirement, not being able to offer a client a broader range of products could hurt Heritage Valley’s reputation, Ferguson said.

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

She agrees with Morrison that typically the wholesaler is in the background of the transaction, but she has a different view of the situation’s optics.

“If we aren’t doing our best job for [the borrower], it reflects badly on everyone else in our segment of the industry, and they don’t know to blame ABC wholesaler for dictating where I took my loan,” she said.

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

“I am fighting back against UWM because my freedom and independence, the reason my clients choose to work with me, has been stripped away,” said Dan O’Kavage, president of the Okavage Group, in a press release. “If I didn’t want to operate in an independent fashion, I would work on the retail side of the industry and work in-shop for one of the major lenders.”

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, Fla.

These mortgage brokers are upset that UWM is “limiting the ability to provide certain loans to their customers that might be better suited for their customers,” Goodman said in an interview. “There’s times where Rocket’s offering a better rate than UWM and the consumer is the one that is really injured; the broker is going to be injured as well.”

For its part, UWM remained steadfast in its attitude, as it has with every challenge to its policy so far.

“UWM is committed to and focused on the growth and success of over 10,000 independent mortgage brokers across America who chose to be All In for the broker channel. We are not focused on the roughly 600 who declined to move forward as a partner,” a spokesperson said in a statement about the suit. “We do not comment on legal matters that are currently pending, especially those that have no merit or substance.”

An industry on the rebound
Motto Mortgage was founded in 2016, when mortgage brokering’s reputation was just starting to improve after being cited as a cause of the Great Recession. Even though it is not a licensed mortgage business itself, Motto, as a franchisor of mortgage broker units, has a stake in the industry’s success.

Asserting that a growing number of loan officers are moving into mortgage brokering, Morrison said the spat doesn’t seem likely to derail that movement.

Of the top 10 lenders in 2020, according to Home Mortgage Disclosure Act data obtained from Asurity RiskExec, seven participate in the wholesale channel, including Rocket, UWM and Fairway. Although the same 10 were the top in 2019, the three non-wholesalers each slipped in the 2020 ranking, with Wells Fargo dropping from third to fourth, Bank of America from fourth to ninth and JPMorgan Chase from fifth to eighth.

Among the companies on that list is Caliber Home Loans, which is being acquired by New Residential. Prior to the deal being announced, however, Caliber filed to go public. In its registration statement, the company said it did $16.4 billion in wholesale volume for the first nine months last year, slightly more than the $16.3 million it did for all of 2019.

“The wholesale market has been the fastest growing channel in the mortgage origination industry, growing at a compound annual growth rate of 18% over the four years ended Dec. 31, 2019,” the Caliber filing said. “This increase has largely been driven by the introduction of technology and digitization to independent mortgage brokers.”

The filing added that Caliber was looking to grow this business in 2021 by targeting “the fastest growing segment of the market — small to mid-sized brokers — and by allowing us to enter new geographies.”

Caliber’s origination capabilities across both the direct and third-party channels was seen as a counterbalance to New Residential’s heavy reliance on correspondent purchases.

Another recent deal that had a wholesale focus is Finance of America’s agreement to buy Parkside Lending in an effort to bulk up its forward mortgage unit’s presence among brokers.

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

Given such developments, the battle between UWM, Rocket and Fairway should not negatively impact loan officers considering going the broker route, Motto’s Morrison said.

“Any good LO who’s going to do their research is going to realize that this is three out of 100 companies that are sort of having their little spat, and that there’s still opportunities for choice,” Morrison said. “As a LO when I was in brokerage, I only had five or six that I used anyways, and if you limited one, that’s okay. I still had the other five and I could offer my consumer the right choice from those five.”

Motto sells franchises to independent operators in addition to affiliates of parent company Remax and other real estate sales companies.

Motto’s pace of growth in 2021 is ahead of last year’s, Morrison noted. The company added 30 operating offices last year, bringing the total to 141 as of the end of 2020, compared with 111 one year prior. It sold 71 franchises in 2020, compared with 52 in 2019.

“Our job is to create awareness in the broker channel, and I think we’ve done a very successful,” Morrison said. “And [we’re] continuing to grow the brand so I don’t think this has changed much of the attitude at all.”

Motto did not take a side on the issue posed by UWM. On March 11, Morrison sent out an email to Motto franchisees saying the company would support them no matter which decision they made. He noted in the email that some were fine working exclusively with UWM, while others valued their relationship with Quicken.

"We’re not in a position to mandate the course your business should take, nor do we want to be," the email said. "That’s why the decision for your independently owned and operated brokerage properly rests with you."

A line in the sand
What is happening between UWM, Rocket and Fairway is not unique to the mortgage business, said Grant Moon, the CEO of mortgage fintech firm Home Captain.

“Anytime anyone does that, it does tend to be a little bit of a line in the sand,” said Moon. “And anytime [that] happens, there does seem to be a lot of back and forth on who’s better, who’s not better, ‘you’re either with me or against me.’”

Shrinking volume and margin compression may be motivating factors in the war of words. And since two of the three companies have recently gone public — and thus need to answer 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 $18 per share. As of market close on April 30, the company’s stock price per share was $22.70. In January 2021, UWM went public by merging with special purpose acquisition company Gores Holdings IV. It launched at $11.95 and as of close on April 30, its price per share was $8.16.

Mortgage brokers are entrepreneurs largely operating on their own. They’ve built their business by having the right partnerships and ultimately these brokers are making their own choices, Moon said. So, “there is a pretty big push, probably more so than I’ve ever seen, right now to court, attract, keep and satisfy the needs of these individual broker-owner-operators,” he declared.