War Games

But it’s also a tool that few other wholesalers can offer or are willing to. Company leaders are already under substantial margin pressure and cutting those margins even more is frequently unthinkable and impossible.

Of course, loanDepot wasn’t the first wholesaler to step out of the arena. In January, Stearns Lending shuttered its operations, a harbinger of the year to come. Throughout 2022, out of control interest rate increases infected the industry like a cancer consuming its host. Refinance volume — at the end of 2021 nearly double the volume of purchase mortgages — has all but disappeared, wiping out most of the market. Originations have withered to a 25-year low.

Jamie Miller, marketing project manager at First National Bank of America, said that the wholesale market’s instability is to blame on interest rates, low application rates and brokers having to compete for customers. “The overall market is a factor. Application levels are down nationwide, and that may be due to interest rates or people being unable to find a home or even just deciding to wait,” she said. “There’s overall fewer customers in the entire industry. And so now you have all of these brokers who are now competing with the same people for less of the market share.”

Certainly, by mid-year, two truths were clear: Consumers were largely out of the borrowing business, and with volumes at their nadir, there just weren’t enough loans to support all the potential lenders. Some were going to fail.

And UWM was, and is, more than happy to help them along.

Dominance On Display

Mat Ishbia is no slouch when it comes to driving an organization to success. In the early 2010s, UWM was a top 50 lender. His goal was to make it into the top 15 by the decade’s end. But his drive pushed it to the top spot by 2016. In 2021, he took his company public, giving up approximately 10% ownership. But he still controls the vast majority, and he now has access to capital markets unavailable to many of his rivals. And he is on a mission to garner even more market share. It’s not just that he wants UWM to be Number One. It’s that he also wants there to be a vast amount of daylight between the market share of UWM and any other wholesaler.

Because of that, UWM is not shy about taking dramatic action. It has forced brokers it works with to sign contracts with draconian penalties if they should do business with Rocket Mortgage TPO — the number two wholesaler — or Fairway Independent Mortgage. At the end of Spring this year, it launched its “Game On” plan, which allows UWM to offer mortgages at a lesser interest rate than most of its competitors.

While that is a good play for UWM — and does give brokers who work with it a temporary leg up to bring in business — it also has been a crippling weapon against other wholesalers.

“There’s no such thing as friendly competition,” is one of Ishbia’s maxims. In remarks he made during UWM’s second quarter earnings call in August, he proclaimed, “We continue to capture more market share, and not only position ourselves to win but dominate the future. And we feel great about the decision we made. As I said before, we control the margins, we decided to lower margins strategically to grow the broker channel and help us continue to grow our market share.”

Will Choice Become A Casualty?

While UWM’s move is bringing it more immediate business, many of its competitors are unable to match its margin moves. That leaves them with little pipeline, suppressed demand and an overwhelming need to cut costs. loanDepot cited just those reasons, including the expense of trying to battle UWM’s margin haircut, when it said it was shuttering wholesale operations. But it’s been joined by multiple other lenders, including AmeriSave and Finance of America (each a Top 10 wholesaler) as well as companies such as Mountain West Financial, AnnieMac and Suburban Mortgage. Home Point Financial hasn’t exited the business but has substantially cut back.

In an investor call talking about its decision to ratchet back, Home Point said it has given up trying to engage in a price war with UWM. “Our bias right now is towards more margins and less volume. We’re not afraid to get smaller as an organization,” Home Point Capital CEO Willie Newman conceded to investors.

Between the exclusionary contract that UWM insists on and the price cut program helping to kneecap its competitors, UWM has “eliminated the ability for UWM brokers to do business with five of the top 10 wholesale lenders in America,” notes Austin Niemiec, executive vice president of Rocket Pro TPO.

He isn’t alone in his concerns. “I think UWM, when they made that [Game On] announcement, people were wondering how long it was going to last,” said New York-based Argus Research stock analyst Kevin Heal. “And, you know, I think the company is happy about putting others out of business in order to capture more market share.”

Because UWM is now a public company, Heal added, it has “more financing flexibility where a lot of the private wholesale mortgage lenders, their costs went up dramatically to finance loans.” He pointedly described UWM’s move on interest rates as a “scorch everyone else” strategy.

United Wholesale, however, disavows such talk. UWM is poking back at those wholesale lenders who have shuttered their doors. “We’ve never been a transient lender,” UWM’s COO Wilner argues. “We’re never the ‘let’s go into wholesale because times are good’ and then let’s get back out and let’s hire a bunch of people and then let’s lay off a bunch of people. That’s never been our strategy. We’re just doing our thing.”

Wilner has become the public spokesperson for the company on the margin slices and is wholly unapologetic about the strategy. When pressed over the interest rate cuts UWM implemented over the summer, Wilner described them as merely tactical.

“We’re strategic about it,” she said. “This is a way to pull more market share in … So, we’re continuing by offering great rates and, you know, we’re strategic about everything.” She was clear that her company is interested in promoting brokers but isn’t responsible for the welfare of other wholesalers.

Fighting Back

Once UWM slashed its rates, Rocket Pro TPO offered a competing “rate buy down” program to also help brokers ease borrowers’ financial fears. “We’re blessed to be very well capitalized,” said Niemiec. “I mean, we’re public. Our financials are out there. We’re in an incredibly strong cash position. We’re willing to invest and have brokers’ backs, you know, while others are pulling out.”

But that’s clearly not an option for everyone. And while such competitive tit-for-tat may be helpful in the short run, broker choice in the long run may be dramatically limited.

Samir Dedhia, CEO of LemonBrew Lending, in Iselin, N.J., says the price war is forcing other wholesale lenders out of the historically low-margin, high-volume business. “This will inevitably reduce the options that brokers have, when choosing a wholesale lender. So, although in the near term, this may provide better wholesale rates, it’s not beneficial in the long term. Many brokers that I have chatted with, feel that the “Game On” strategy was the onset of this,” Dedhia said.

The advantage of brokers is “they bring seven to 10 lenders to the table, and they shop those lenders, and they evaluate technology and evaluate service and they look at the client’s individual situation and what their hopes and dreams are. And they recommend the best wholesale lender to that consumer for that particular transaction,” said Michael Brenning, former president and founder of AmeriSave’s wholesale division. He’s worried the pricing war between the biggest entities puts brokers’ choice in jeopardy.

“When they take away choice, which is really what this pricing war is going to do and already has done. It’s taken away loanDepot; it’s taken away AmeriSave; it’s taken away GoPoint. The casualty list is brewing.”

Rocket’s Niemiec doesn’t wholly disagree. But the nation’s largest mortgage lender pins its efforts on only what it has the power to control, Niemiec explained. The company focuses on understanding brokers, what they need, what they love, and what they hate. Niemiec points to raising conventional loan limits as an example, saying Rocket Pro TPO launched the initiative first and UWM immediately followed.

“When you’re seeing us roll out products, it’s not to follow, it’s to lead and we’ll continue to do that,” Niemiec said.

Niemec has been vocal in press interviews and on social media. He argues that brokers are beginning to see that the competition that’s being driven out of business are their lending partners.

“So, by driving out loanDepot and celebrating it, brokers lost an option. And by driving out AmeriSave and celebrating it, brokers lost an option. And as Mat Ishbia celebrates these things, brokers are being harmed by it. And the model he claims to support and promote, he’s destroying.”

Mike Cush, former vice president at Union Plus Mortgage, which also called it quits in July, sides with Niemiec. “With five of the top 10 choices for brokers gone it is worse for everyone — brokers and consumers — and it is only better for one entity: UWM.”

At Right Step Mortgage in Connecticut, owner/broker John Grad shared his feelings about the wholesale price war. “The free market will let things play out. It’s healthy for the consumer,” he said. “Free economies are going to do what free economies are going to do,” he said.

Asked if the current trend of wholesalers cutting back or getting out of wholesale altogether could be harmful to the industry, Grad’s brother and partner acknowledged that it’s important to have a “healthy balance of competition.”

But Jack Grad did not believe that had become an issue. “There’s enough players currently in the market,” Jack Grad said. “You have wholesale, you have retail, there’s definitely options out there.”

For Brenning of AmeriSave, the question is whether brokers are thinking through what the effect of all of this will be.

“I don’t know what percentage has thought forward a little bit,” he mused. “If they really looked themselves in the mirror at night and said, you know, ‘Can I forecast out into the middle of next year? What do I really think is going to happen when this pricing war is long since over with?’ I think they should be worried. I don’t know how many are thinking that way right now because they’re so mired in how do I grow, how do I replace the volume that I’ve lost? How do I manage my current pipeline? I think we all need to start looking forward and saying, look, what does the market look like a year from now?

“And it looks a lot smaller in terms of choice for the broker community and that’s a bad thing.”

Markets Ebb And Flow

Still, the wholesale market has seen churn before. And UWM’s actions alone aren’t wholly responsible for other companies’ withdrawal. When the market improves, others will inevitably tip-toe back into the pool. Some already have. Jet Mortgage, for instance, announced in October that it is launching a new wholesale initiative.

In 2021, mortgage lending was a $4.2 trillion market. Estimates for 2022 and 2023 say it will be closer to $2 trillion. With market lending capacity estimated at about $3 trillion currently, that leaves a lot of room for additional shrinkage, regardless of UWM’s rate moves.

And others argue that wholesaling may devolve into even more specialty niches. Keith Lind, CEO at Acra Lending, pointed out that the mainstream price wars “aren’t affecting us as much since we’re in the non-QM space. My opinion is that there’s been some capitulation for the people that were trying to drive volume throughout the last eight, nine months, and probably realized that the rate move has been violent.”

At Maryland-based ACC Mortgage, Chief Lending Officer Robert Senko is not as worried about the wholesale price war as others because its main product is Non-QM loans. “We’re not a direct competitor with UWM, but the pain is felt throughout the industry as a whole,” he said.

Senko predicts that conventional lenders will continue to be affected by the razor thin margins that are likely to shrink more and that some of them won’t make it through the next six months. Those that survive will have to join forces with others.

“You’re going to see a lot of [mergers and acquisitions]. People have had to take on more debt to ride out their mistakes.”

A Tighter Grip

In the end, whether wholesale options increase or decrease for brokers, the net result is that UWM is expected to end up with an even greater share of the market. And that, say industry observers, is likely the whole point. Indeed, as analyst Brian Heal or Argus Research sees it, UWM is playing the long game.

“If they scratch out a couple of pennies or lose a couple of pennies [in the next quarterly earnings report], I think if they gain market share and then just say, OK, we’re going to return things to normal and we’ve put enough guys out of business, and we’re going from 35% of the wholesale market and we’re going to be at 50%, I think they’d be happy with that,” he said.

As for UWM’s tactics, Senko said their efficiencies separate them. “They are becoming a machine, the 800-pound gorilla in the room,” he said. “Not a great culture, just a machine.”

Anthony Simeone, chief lending officer for Ridgeway Savings Bank in Queens, N.Y., says his institution shares that approach of not rattling sabers with the big outfits. “We try to stay competitive within certain parameters, but I don’t tell my loan officers, ‘Hey, listen, go out there and see what the mortgage banks are offering and if we’re a little higher, go match it.’”

“We anticipate being close to $500 million by the end of this year,” he said. “About 70% of all of our [mortgage] business today is mortgage broker-driven.”

Andy Harris, president of Oregon-based Vantage Mortgage Brokers, sees a boom-and-bust situation.“I can tell you that … price wars of the past have been temporary with these two lenders and always strategic by nature,” he said. “Historically, many other wholesale lenders have been priced more competitively at a consistent level and I see an opportunity for smaller and mid-size wholesale lenders that step up to compete in the future — as in the past —but many failed to do so. As we know, these cycles can massively change and today is an example of that. I anticipate we’ll see similar lender attrition to 2008, but for many different reasons.”