We compete viciously against mortgage brokers who send their loans to United Wholesale Mortgage (UWM) – and I am going to defend those brokers and UWM equally viciously.
UWM is currently subject to a massive class action lawsuit, in which they are accused of forcing mortgage brokers to “steer” borrowers to UWM, subjecting those borrowers to higher interest rates.
The penalties could be massive too, as it will not be difficult for the plaintiff’s attorneys to prove that those borrowers could have obtained lower rates elsewhere.
The lawsuit appears to be nonsense and a pure money grab, and I will explain why below (point number #1 needs to be screamed from the mountain tops, as many borrowers and lawyers just don’t understand it).
UWM tried to force brokers to submit all their loans to UWM if those brokers took advantage of UWM’s excellent tech stack and systems. I blogged about it a few years ago, in fact: Chaos In The Mortgage Broker Channel (UWM Sues Its Customers); Fascinating Observations
At JVM, we spend at least $500,000 per year on our CRM software (HubSpot and Salesforce), POS/Loan Application software (Blend), Loan Origination Software (Encompass), email management software (Front – which I highly recommend), and our project management, marketing, graphics, and standard Microsoft software – among other things.
Small broker shops can’t begin to afford all that software, so UWM brilliantly set up a full tech stack to which they give brokers full access. To be clear, it pales compared to our tech stack, but it is awesome for brokers working out of their living rooms in their boxer shorts 😊 (I’m kidding, as I know many very sharp brokers).
Anyway, things are heating up, as UWM is accusing Rocket (its biggest competitor) of pushing the class action suit behind the scenes, brokers who sent loans to UWM are subject to lawsuits too, and UWM is offering legal support to those brokers.
Here are several reasons why I think the lawsuit against UWM is utter nonsense.
1. Brokers and borrowers can always find a lower rate!
This cannot be stated emphatically enough. There are hundreds of mortgage lenders, and rates move every day, so brokers and borrowers can always find a lower rate somewhere, somehow. But, at some point, brokers and borrowers need to get their loans closed in a very complex mortgage world – so they cannot continually bounce from lender to lender. And they need to use a lender they can rely on too, as the “lowest rate” lenders often cannot perform. We got badly burned many times by “low rate” wholesale lenders back when we were in the broker channel.
2. Many brokers offer lower rates via UWM than they did with their mortgage banks.
I personally know several loan officers who left large mortgage banks to set up shop as independent brokers, using UWM’s tech stack. And all of them were instantly able to offer lower rates than what they could offer at their previous mortgage bank because they no longer had to cover additional overhead for branches, managers and corporate. Note: This is not the case for all mortgage bank loan officers, and I can still defend mortgage banks all day long as well.
As an aside, here is my blog once again that sets out the differences between the different mortgage channels: The 3 Primary Mortgage Lending Channels: Banks, Mortgage Banks & Brokers. And, here is a blog I wrote about why JVM never aligned with UWM: Why We Don’t Align With UWM.
3. Brokers have fixed compensation.
And last but not least, brokers have fixed compensation – or at least they’re supposed to. So, most brokers sending loans to UWM won’t earn more money themselves if they instead broker to Rocket, Provident Funding, or some other wholesale lender. So, what are the lawyers going to accuse them of? Steering? For what reason?
This is terrifying because lawyers, who can’t begin to understand our industry, smell blood. And, if they can convince equally naïve juries and judges that they have a case, they will end up coming after all of us (costing lenders tens of thousands in senseless legal fees like we faced after the 2008 meltdown). This is of course much like what is happening in the real estate world. And that will just make loans more expensive for everyone in the end just like what often happens when lawyers come calling.
