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 editorial team.

The mortgage industry has seen a wave of dramatic activity this year. He has extended in many ways, while other sectors of the economy are lagging behind. However, not all types of mortgage companies have seen the even growth.

For wholesale lenders like United Wholesale Mortgage (“UWM”), the boom in refinancing and sales was particularly good to wholesale lenders. They were quickly to win market share and surpass traditional retail lenders, such as banks like JPMorgan Chase.

Faced with this market rise and the switch to wholesale credit, a recent video posted on Facebook makes you wonder if a major lender is playing fair with its competition. On March 4, 2021, UWM CEO Mat Ishbia issued an unusual ultimatum to wholesale brokers: Choose UWM or two of its main competitors, Rocket Companies, Inc. (“Rocket”) and Fairway Independent Mortgage Corporation (“ Fairway”).

For the background on how the wholesale loan market may be affected, Rocket native around $ 320 billion in mortgages in 2020, of which about a third were wholesale loans. Returned of wholesaling also accounted for 61% and 76% of Rocket’s total revenue in 2019 and 2020, respectively. Ishbia even recognized it says, “If you look at the growth of Quicken and Rocket since 2016, it’s almost exclusively in the partner network, that’s what they call, but it’s the brokerage channel, the wholesale business. They’ve been flat on retail, but very big on wholesale. ”

UWM, the major wholesale lender, came in about $ 182 billion last year, all from independent brokers. He complaints that “As the largest wholesale lender in the country, the numbers two, three, four, five, and six don’t even equal our 33% market share.” UWM further complaints “This year, we are at 33% now. We’ll finish at 35% this year at 40% and beyond in the next couple of years, and here’s how. 59,000 loan officers are licensed and set up to send a loan to UWM today. »A look at 2019 The data, UWM followed only Rocket in total lending volume for all mortgages, overtaking Wells Fargo and JPMorgan Chase, respectively third and fourth overall lender in lending volume. Fairway was the fifth primary lender by loan volume.

In short, we have the second largest lender by volume trying to keep its broker clients from doing business with two of its biggest competitors. This begs the question, will the UWM ultimatum hurt competition? To some extent, video posting can answer this question. In this one, Ishbia said “Options are essential” for brokers. Notably, Austin Niemiec, vice president of Rocket Pro TPO, replied by stating that “a broker’s competitive advantage is choice”.

The distinction between options and choices may be fine, but it seems appropriate here. The options are things, while the choices are the decisions. Ishbia tells the brokers that UWM will have a lot of different products for you, but you can’t freely choose who to work with. Surprisingly, in the same video he said that “we will not try to be the best price, we will try to be very consistent.” It comes shortly after SEC filings in January in which UWM said “So when you got faster, easier, cheaper, Mat, what have we got? We have more satisfied customers. But UWM is also enforcing its ultimatum with significant penalties. The addendum that brokers are required to sign has a penalty provision that requires them to Pay between $ 5,000 and $ 50,000. It remains to be seen how happy these customers will remain.

This also comes shortly after UWM Free praise for Rocket, but also hinted at growing competition. Despite this, he repeatedly referred to brokers and consumers who may benefit from the Rocket option (this is apparently no longer true):

Every lender is different. If you go to a broker, you have access to a lender like UWM, our rates, our fees, our services, but we might not be the perfect fit because we might not do so little credit so you can go to Rocket or Quicken. Or maybe it’s not an ideal solution, then the broker can bring them to Flagstar or whoever. There are options. Borrowers who go to a broker have options, are more likely to get approved because there are three or four lenders considering it, rather than just one, and they are competing for the business. This is why the rates are always lower wholesale. And so, that’s a big deal and we think what’s best for the consumer is where you want to put your focus and effort, and that’s why we put everything on the wholesale channel.

So, is this anti-competitive? This is where it gets complicated. In antitrust law, the details matter. Antitrust laws, such as Section 1 of the Sherman Act, generally aim to prohibit undue restrictions on trade. In this case, we have a vertical restriction on trade (for example, between a wholesale lender and brokers) rather than a horizontal restriction (for example, an agreement between two competitors). It is also a multi-sided platform because, for each loan, there is a transaction between the lender and the broker, as well as between the broker and the consumer. In addition, there are secondary market effects to consider, such as selling the insider loans in the secondary market and providing payment protection insurance, among others. In this situation, it is all evaluated under the “result of reason”.

The rule of reason requires a court to perform a factual analysis of market power and market structure to determine the effect on competition. It is about distinguishing between anti-competitive agreements that help consumers and those that would harm them, the latter being illegal. In doing so, the court may weigh the anti-competitive effects of the agreement against any pro-competitive effects. This is why the details are important.

In this situation, there is anti-competitive behavior limiting the choice of a broker to work with, coming from a wholesale lender with up to 40% market share. Brokers will certainly have fewer options in terms of lenders. Indeed, Rocket has declared that it will invest $ 100 million in its broker network and in January launched a new national mortgage directory with 43,000 different loan offers it works with. UWM’s ultimatum will ensure that these innovations will no longer be options for some brokers who choose to work with UWM instead.

Overall, the precise market effects are beyond the scope of this analysis. For example, UWM makes a large part of the roughly 75 other lenders that it allows its brokers to work with, but it is unclear whether their combined market share is large enough for healthy competition to remain. However, the fact that UWM is targeting two of its biggest rivals, that these two rivals are gaining market share, and that the rivals are investing substantial resources in the broker channel, suggests, at a minimum, that this developing situation deserves more. review and follow-up.

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 firm or its clients.

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