Rocket Mortgage is attempting to one-up its rival United Wholesale Mortgage (UWM) with its new 1% down payment program, ONE+, available to all qualifying conventional borrowers and Rocket Pro TPO broker partners.
With ONE+, announced Monday, homebuyers are required to make only a 1% down payment on the purchase price and Rocket Mortgage will cover the remaining 2% to reach the required threshold for conventional loans. Additionally, the program completely eliminates monthly mortgage insurance fees, which are traditionally required for buyers who place less than 20% down.
More importantly, ONE+ is available to homebuyers purchasing single-family homes, including manufactured homes, whose income is equal to or less than 80% of their area median income (AMI).
Increasing Accessibility
Rocket Pro TPO Executive Vice President Mike Fawaz confidently stated that more buyers are going to be able to qualify for ONE+ compared to UWM’s Conventional 1% Down program, which is only available to borrowers with an income at or below 50% of the AMI.
“That's a very small population and truly no one qualifies for it,” Fawaz said about UWM’s down payment assistance (DPA) program. “Or people do, but not very much. And that's why some [people] had really strong opinions about it.”
After UWM announced its 1% DPA program, mortgage brokers from across the country aired their concerns on social media, saying the program’s scope is too narrow to help most borrowers. Additionally, nearly 90% of respondents in an NMP survey said they don't have borrowers who would qualify for the program.
Mid-Florida Mortgage Professionals loan officer Rayce Robinson posted a video on Instagram criticizing the UWM's Conventional 1% Down program for its strict AMI requirements. He noted the AMI in his local market is about $70,000, which means buyers would need to make $35,000 a year or less to qualify for UWM’s program.
“It’s just not going to be able to help that many people, and maybe none at all,” Robinson said.
In comparison, buyers in Robinson’s area who make $56,000 a year or less could qualify for Rocket’s ONE+ program, as long as they qualify for a conventional loan with the traditional DTI ratio, LTV ratio, and minimum credit score requirements.
Rocket Mortgage estimates that more than 90 million people can meet the income requirements for the ONE+ program, based on publicly available income data.
“No other lender has a mortgage option that makes affordable homeownership possible for as many Americans as ONE+,” said Bob Walters, CEO of Rocket Mortgage.
A spokesman for UWM defended the company's 1% Down Program.
"As with many products and technologies UWM rolls out, it is a positive for the broker channel when other lenders follow us," the spokesman said. "UWM is the leader of this industry, including the wholesale channel, so it critical for us to continuously innovate and be first to market. The 1% down program UWM has offered for over a month has been a huge success for thousands of borrowers across the country. The enhancements rolled out by the GSEs to increase the AMI limit to 80% for the 1% down program is another win for brokers and consumers. UWM will be rolling out this enhancement through our normal Wednesday launch cadence this week."
In an interview with Mortgage Professional America, UWM Chief Strategy Officer Alex Elezaj estimated that 10% of UWM’s loans would meet its criteria, and end up costing the company about $20 million per month.
Following ISMs
In the past, Austin Niemiec, former executive vice president of Rocket Pro TPO, stated that Rocket does not follow its competitors and strongly abides by its core principle to “ignore the noise” — one of Rocket’s 20 “ISMs” that make up its core philosophy.
“Following your competition and doing what they do is not a good strategy,” Niemiec said in September 2022, after UWM followed Rocket in hiking its conforming loan limits.
This time it seems that Rocket is following UWM’s lead by rolling out a similar DPA program with a few added benefits. However, Fawaz said it’s been his goal to increase homeownership access since he first took the reins as executive vice president of Rocket Pro TPO in January.
“We've had conversations around home affordability in America, especially [at the] end of 2022 and early 2023,” Fawaz said. “It's all about making sure that we give access to homeownership to everyone.”
This is the third initiative Rocket Mortgage has launched in the past six months that aims to improve affordability. The previous two are BorrowSmart Access and Purchase Plus, which both focus on addressing affordability challenges for home buyers in underserved communities.
Although Rocket may be taking a page from UWM’s book, it certainly doesn’t go against the company's other core principle: Obsessed with finding a better way. In that case, taking UWM’s concept for its DPA program and trying to improve it is fair game.
Satisfying Brokers
Fawaz prides himself on keeping a close relationship with the broker community, and spends much of his time traveling the country to meet with broker partners face-to-face. Throughout his journey, he has heard brokers express a strong desire and liking for DPA programs.
Last week, while he was meeting with brokers in California, he said he heard a lot of chatter about DPA programs.
“I didn't want to give what we're offering, but when I started to foreshadow … well, you should have been in the room last night,” Fawaz said. “The feedback so far, without giving away what this program is, has been incredible.”
Unlike other DPA programs, Fawaz said, this one comes with no strings attached. Other DPA programs come in the form of a grant and become a second lien. Others may require repayment if the homeowner sells within a certain time period. While those may be great options for some homebuyers, Fawaz said ONE+ is much more simple. It's not a silent second mortgage and does not require repayment.
“We talk a lot about how we need to be able to empower the brokers to go out there and win business,” he said. “And this is going to be one of those once-in-a-lifetime opportunities to really go out there and win, especially in a purchase market.”
Fawaz also emphasized that ONE+ is available to all of Rocket Pro TPO’s broker partners, not just to a select group.
“We don't want Americans speaking to a broker that says, ‘Hey, by the way, I am a partner of Rocket, but I don't qualify to offer you this program.’ That's not what we want to do,” Fawaz said.
Addressing Hurdles
Money is tight in this economy and not everyone has the means to pay a 20% down payment. Fawaz acknowledged that saving for a down payment is the biggest hurdle for first-time homebuyers, and hopes ONE+ could give them the boost they need.
“It's just not easy today,” he said. “To put the full 20% down payment … could be a big chunk of money. And a lot of people in this economy don't have that. So hopefully this will help, and that's why I'm really excited about this one.”
Rocket Mortgage provides an example to illustrate the potential savings: A homebuyer purchasing a $250,000 home traditionally needs a minimum of 3% down, or $7,500. With ONE+, they would need only a $2,500 down payment. Additionally, the program offers mortgage insurance at no cost to the client, which on a $242,500 loan can be as much as $245 per month. That should improve a homeowner’s monthly cash flow and can save as much as $20,500 over the first seven years after closing — the average amount of time mortgage insurance needs to be paid.
“We talk with people from all walks of life every single day — many of whom are ready to own a home, and could easily make the monthly mortgage payments, but are having trouble saving for a down payment,” said Walters, Rocket Mortgage's CEO. “ONE+ is a response to that feedback and the latest example of Rocket’s commitment to creating programs that help make homeownership more attainable.”
