April 17, 2021

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Mortgage News

Is United Wholesale Mortgage’s ultimatum legal?

The views expressed below are those of Derek F. Dahlgren and do not necessarily reflect the views of MPA or its editors.

The mortgage industry has seen a dramatic spate of activity over the past year. It has expanded in many ways, while other areas of the economy have lagged. However, not all types of mortgage lenders have them seen the equal growth.

To the Wholesale lenders such as United Wholesale Mortgage (“UWM”) die boom in refinancing and sales in particular Good to wholesale lenders. They were quick Extraction Market share and surpass traditional retail lenders such as banks like JPMorgan Chase.

Face this upward trend in the market and shift towards a recent wholesale lending business Video When you’ve posted on Facebook, one wonders if a big lender isn’t playing fair with their competitors. On March 4, 2021, UWM CEO Mat Ishbia issued an unusual ultimatum to wholesale brokers: Choose either UWM or two of its main competitors, Rocket Companies, Inc. (“Rocket”) and Fairway Independent Mortgage Corporation (“Fairway”).

For the context of how the wholesale credit market can be impacted, Rocket originated In total, around $ 320 billion in mortgages were raised in 2020, around a third of which was wholesale loans. revenue Wholesale accounted for 61% and 76% of the missiles Total sales in 2019 and 2020. Ishbia even accepted This statement: “If you look at the growth of Quicken and Rocket since 2016, it’s almost exclusively in the partner network, as they call it, but that’s the broker channel, the wholesale business. They were flat in retail but very large in wholesale. ”

UWM, the leading wholesale lender, raised roughly $ 182 billion last year, all with independent brokers. It Expectations that “As the greatest Wholesale lenders In the country, the numbers two, three, four, five and six companies combined don’t even equal our 33% market share. “UWM continues Expectations “This year we’re currently at 33%. We’re going to graduate at 35% to 40% and beyond for the next few years, and this is how it goes. 59,000 loan officers are licensed and set up to send a loan to UWM today. “Looking ahead to 2019 DataUWM was only behind Rocket in total loan volume on all mortgage loans, outperforming Wells Fargo and JPMorgan Chase, the third and fourth largest overall lenders, by loan volume. That was fairway fifth Top Lenders by Loan Volume.

Overall, we have the second largest lender by volume trying to prevent its broker clients from negotiating with two of its largest competitors. This begs the question of whether UWM’s ultimatum will hurt competition. To a certain extent, the video post can answer this question. In it Ishbia says “Options are the key” for brokers. Specifically, Austin Niemiec, Vice President of Rocket Pro TPO, answered noting that “a broker’s competitive advantage is the choice”.

The distinction between options and choices can be good, but it seems appropriate here. Options are Thingswhile decisions are made decisions. Ishbia tells the brokers that UWM will have a lot of different products for you, but you are not free to choose who to work with. Surprisingly, he’s in the same video too says “We’re not going to try to get the best price, we’re going to try to be very consistent.” This comes shortly after SEC filings in January, in which UWM stated, “So if you are faster, easier and cheaper, Mat, what do we have? We have happier customers. “UWM is also enforcing its ultimatum with some substantial penalties. The addendum that agents are required to sign contains a penal provision where they must numbers anywhere between $ 5,000 and $ 50,000. It remains to be seen how happy these customers will remain.

This also comes shortly after UWM offered Praise for Rocket, but also an indication of increasing competition. Even so, it made repeated references to brokers and consumers who may benefit from Rocket as an option (apparently no longer true):

Every lender is different. When you go to a broker, you have access to a lender like UWM, our interest rates, our fees, and our services. So you can go to Rocket or Quicken. Or maybe that doesn’t go well together so the broker can take them to Flagstar or whoever. There are options. Borrowers who go to a broker have options have a more likely chance of getting approved as there are three or four lenders potentially dealing, rather than just one, and they are competing for the business. That is why wholesale prices are always lower. So it’s a big deal, and we believe what is best for the consumer is where you want your focus and efforts to be concentrated. and that’s why we went all-in on the wholesale channel.

So is it anti-competitive? This is where it gets more complicated. Details are important in antitrust law. Antitrust laws such as Section 1 of the Sherman Act are generally intended to prohibit inappropriate restrictions on trade. In this case, we have a vertical restriction on trade (e.g. between a wholesale lender and brokers) rather than a horizontal restriction (e.g. agreement between two competitors). It is also a versatile platform as for every loan there is a transaction between the lender and the broker, as well as between the broker and the consumer. In addition, aftermarket effects must be taken into account, e.g. B. Selling the original loans in the secondary market and providing payment protection insurance. In this situation, all of this is assessed on the basis of the “result of reason”.

The Rule of Reason requires a court to conduct a factual analysis of market power and structure to determine the impact on competition. A distinction should be made between anti-competitive agreements that help consumers and those that would harm them, the latter being illegal. In doing so, the court can weigh the anti-competitive effects of the agreement against anti-competitive effects. That is why details are important.

There is anti-competitive behavior in this situation that limits a broker’s choice of who they will work with, from a wholesale lender with a market share of up to 40%. The brokers will certainly have fewer options with regard to the lenders as well. Indeed, Rocket did specified The company will invest $ 100 million in its brokerage channel and will launch a new national mortgage directory in January with 43,000 different loan offerings to partner with. UWM’s ultimatum will mean that these innovations are no longer options for certain brokers who work with UWM instead.

Overall, the exact market effects are outside the scope of this analysis. For example, UWM makes a majority of the other 75 lenders it allows its brokers to work with, but whether their combined market share is significant enough to maintain healthy competition is unknown. The fact that UWM is targeting two of its biggest competitors, that these two rivals happen to be gaining market share, and that the rivals are investing significant resources in the brokerage channel at least suggests that this developing situation deserves more control and oversight.

Derek F. Dahlgren is a partner at Devlin Law Firm LLC. The opinions expressed are those of the author and do not necessarily reflect the views of the company or its customers.