Trimming The Fat

Here’s where the ship veers in a totally opposite direction than PRMI; Direct Wholesale Rates (DWR) is a completely virtual firm with 10 employees, each paid the same salary and fixed amount per transaction. The entire operation relies on a secure virtual environment, with employees equipped with secure laptops, docking stations, and rigorous cybersecurity training. Forget a vigorous advertorial budget, too; Zitting says the company has opted for a word-of-mouth and referral partner strategy. The end goal is to bring true affordability to the table without compromising on service quality.

Zitting explained that DWR operates on a borrower-paid model, meaning they charge an origination fee, paid by the consumer, that starts at $1,750 and scales up to and caps at $2,595. “You could have a million-dollar mortgage and that fee wouldn’t go past $2,595,” Zitting said. “We capped [the fee] at $2,595 because we have to stay afloat, and I mapped it out as to what is the most competitive mortgage I can bring to the marketplace but still be profitable.”

To put this in perspective, Zitting says the margin is typically 2.5% for what the lender will make which, in turn, inflates the borrower’s costs. DWR is always a 0% margin. Zitting says that this strategy aims to provide competitive rates to the marketplace while ensuring the company remains fruitful. DWR does not charge discount points for the direct wholesale rate, offering borrowers the flexibility to choose a higher rate to cover closing costs.

Watch it on The Interest: Cutting The Retail Margin

Not Reinventing the Wheel

What DWR is doing is nothing new, Zitting adds. Taking a smaller cut and trimming the fat margin is anything a small, proprietary broker can do. “We’re a federally chartered bank powered by SNB Bank, which is a non-affiliate based in Oklahoma and serves 49 states. Essentially, UWM is acting as the lender and we’re acting as a broker,” he said.

So why UWM and not other wholesalers? Zitting credited relationships as the main factor, reflecting on his tenure at PRMI and other ventures like AvenuTech, a revenue flow fintech platform. “We chose UWM because when I built AvenuTech, I worked closely with the wholesale company.”

Direct Wholesale Rates knows its company structure and purpose is replicable; it’s the Costco of mortgages, meaning that keeping fixed operational costs low and barebones lets the customer have more access. “Direct Wholesale Rates is a client who has access to the tools/rates all of our clients have access to,” a spokesperson from United Wholesale Mortgage wrote in a statement to NMP.

“Anybody can do what we’re doing,” Zitting said. “UWM is offering their price regardless, and you make what you make. We’ve made the decision on our side to give their price to the public. Anyone can copy us.”

But so far, this model hasn’t been copied and it’s pretty self-explanatory (why?): DWR is voluntarily taking a smaller share of the crop. “A lot of companies that are legacy businesses didn’t build the business this way,” Zitting explained. “They have office space and layers of management and fixed overhead that our model has cut out. Any incremental fixed overhead costs [we have] had to be scrutinized so that they can scale the business without added costs.”

Zitting knows that this model wouldn’t have been possible at PRMI. “I think the easiest competitor would be a small, proprietary mortgage broker …anybody in the country can do that,” he acknowledged.

Testimonials

Lynn Butterfield, an associate broker at Coldwell Banker with over 40 years of experience in the real estate industry, uses Direct Wholesale Rates. He says he’s known Zitting personally for over 20 years, working with him at PRMI. “After he left, there was no reason for me to do business with them anymore,” Butterfield said. “I saw a post on social media about Direct Wholesale Rates, and although we had stayed in touch I wasn’t aware of what he had created, we sat down and talked about his new venture.”

Butterfield emphasized that he’s been in real estate since the crash in 1981 and, of course, the 2008 financial crisis. “I’m very careful as to who I do business with,” he added. “But when Dave told me about [DWR], I decided to introduce him to one of my clients and see what he could do. I trusted him, but I wanted to see it myself.”

Butterfield said his client, an executive for Walmart, was able to save 1% on the mortgage rate after working with Zitting. “What I appreciate about that as a realtor is two things: first, it makes me look like a hero, and second is that I’ve done many transactions with [DWR] since and the transactions are smoother than with any other mortgage lender that I’ve worked with for 40 years,” Butterfield elaborated.

Butterfield also shared an incident where DWR saved his client’s ability to keep their home. “I had sold a home to an older couple and the wife fell ill and was unable to work,” he said. “They called me up and said that they didn’t want to move but couldn’t afford the home anymore …as a result of working with Dave, he was able to structure a mortgage plan for them that reduced the price to one they could afford it, and my client’s wife can now be comfortable while battling her illness. I never forget people who do those types of things for my clients.”

Joe Weigel, a customer of both Butterfield and Direct Wholesale Rates, and used both for his home search process. “I was able to save more than half a percent on my rate,” Weigel said. “Working with them was easy, and they were always available. They’re a very approachable company.”