About 65% of 4,600 independent mortgage brokers agreed not to do business with Rocket Companies Inc. and another competitor, missing United Wholesale Mortgage Holdings Corp. CEO Mat Ishbia's expectations to enlist 80% or more.
The Pontiac-based lender issued an ultimatum earlier this month saying it no longer will work with brokers originating loans through Detroit-based Rocket and Wisconsin's Fairway Independent Mortgage Corp. It accused the companies of "unethical" business practices.
The 4,600 brokers who worked with UWM and Rocket or Fairway had until Monday night to agree to an addendum to keep working with UWM. About 3,000 accepted; UWM declined to provide a list of names. Roughly 400 brokers declined the addendum, and another 1,200 have not responded. UWM will close out pending loans with them, but won't originate new loans, a company spokesperson said.
"Not responding doesn’t mean they didn’t commit — we’re still in communication with those who haven’t accepted or some clients are out of town, and it would be a vastly poor assumption to think that all those who have yet to accept won’t accept," the spokesperson said in a statement.
"We expect about 50% of the undecided will accept, but regardless, out of the 12,000 clients we have, about 85%+ will be all in with UWM."
In total, UWM now has about 10,400 brokers, down from 12,000 when the ultimatum was issued. UWM needs broker partners, because it is the only way the company originates mortgages. It is the largest lender in this wholesale channel, which represents more than 20% of annual U.S. mortgage volume. Rocket and Fairway, on the other hand, also have direct-to-consumer retail divisions.
Rocket says the ultimatum is anti-competitive and takes away choice, which is the purpose of the broker channel, and that "thousands and thousands of brokers" told Rocket they would not agree to UWM's terms.
Austin Niemiec, executive vice president of Rocket's wholesale Rocket Pro TPO business, had encouraged brokers not to respond to the addendum, which requires brokers to pay $50,000 or more if they sign and then begin originating a loan with Rocket or Fairway.
Experts say the ultimatum is unlikely to affect consumers looking to get the best rates given the competition in the industry.
"I think it doesn't mean a lot," said Matthew Roling, an adjunct professor of finance at Wayne State University who previously worked for Rocket Mortgage-affiliate Rocket Ventures from 2012 to 2017. "The service and the pricing and the convenience consumers get won't be seriously impacted by this."
UWM shares closed up 0.71% Tuesday, outperforming major market indexes. Rocket's were down 3.1%.
UWM has said Rocket's and Fairway's business practices threaten brokers and could leave homebuyers and homeowners with less choice. It accused Rocket of attempting to cut out brokers by recruiting real estate and insurance agents as loan officers to originate loans for Rocket themselves, incentivizing them with paid licenses and financial bonuses. Those agents are common referral sources for local brokers. Fairway, UWM said, hires loan officers away from brokers.
“I’ve received hundreds of calls and emails from mortgage brokers across the country and have been blown away at the positive response we’ve received, along with the sheer number of shops who have locked arms with us because they felt it was the right thing to do,” Ishbia said in a statement. “We’re going to be able to look back at this as a pivotal moment that helped catapult independent mortgage brokers’ growth."
UWM last year closed $182.5 billion in loan volume, a 69% increase over 2019, though it fell from the country's second-largest lender to the fourth. 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.
Rocket says 90 real-estate agents use its Rocket Pro platform to originate loans and denies paying agents for referrals. The company is investing $100 million this year into its broker technology and millions more to promote its wholesale channel.
Last week, the company said broker loan registrations had increased 40% daily since UWM's ultimatum and that Tuesday was on-pace to be one of the 10 best days in the company's history. Rocket is adding several hundred more brokers this month to its TPO platform, it added. Its partners grew from 3,000 to 10,000 over the past three years.
"We understand the power of a mortgage broker is choice and independence, and we’d never ask them to sign a loyalty pact," Rocket spokesman Aaron Emerson said in a statement. "The results speak for themselves."
In a statement last week, Fairway, the country's 12th largest lender, did not address UWM's accusation, but said it supports brokers' decisions to choose the lenders with whom they wish to work.
Other lenders like Ann Arbor-based Home Point Capital Inc., the third-largest wholesale lender behind Rocket, may stand to benefit. Home Point CEO Willie Newman said during an earnings call last week the company had experienced increasing interest from brokers. Home Point shares closed down 1.51% Tuesday.
"We feel like we're very well positioned to be that next choice," Newman said, "if it does turn out that they only have one of the two largest other lenders to work with."
