This month, United Wholesale Mortgage took the industry by surprise when it made a statement that it would block mortgage brokers from doing business with the company if they did business with either Quicken Loans or Fairway Mortgage. With that announcement came a modification to the UWM-broker contract, making note of significant financial penalties for violating this new policy.
I was astonished, frankly. I have met UWM CEO Mat Ishbia on a few occasions and quickly appreciated his competitive personality. He has built his company from the ground up, taking it public and ringing the bell at the NYSE. It’s a phenomenal rise really, something that happens rarely in any business. Likewise, I have come to know those in leadership roles at Quicken and Fairway and without question, tenacity and competitiveness are core to their success as well.
Competition makes the nation’s mortgage industry thrive and offers the consumer the best options, as competition will usually drive costs down and service levels up. Whether bank or nonbank, lender or broker, servicing retained or released, the options for consumers and the competitive marketplace drive the best outcomes. Conversely, some westernized economies are dominated by just a few lenders, leaving a far less optimized mortgage market. Without question, the vibrant state of the U.S. mortgage industry drives the best in consumer options and experience.
While I made a remark on social media about this policy announcement, I stayed mostly quiet otherwise. I discerned, frankly, that these companies all had good legal counsel and would address their reply to this very unusual policy proclamation in their own way. But as time has passed, I simply cannot let it go.
Perhaps it’s because I sat in the role as a regulator before, or perhaps it’s a reflection on my role as the head of the industry’s largest trade association. Frankly, my reaction may simply come from the many decades I have spent in the industry — beginning as a loan originator and ultimately in key positions at a few major firms in housing and mortgage finance in retail, wholesale, secondary markets, real estate and government. My reaction stems today from a position of relative neutrality. This is not about taking sides, it’s merely an observation about behaviors and slippery slopes.
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And yes, as I am essentially retired yet do consult for several firms in the mortgage arena, I do also remain active in mortgage policy and it is from this seat that I make these remarks.
In the days following the announcement, I observed a variety of unhealthy responses for an industry that thrives from its competitiveness. I have been around this business long enough to see lenders thrive and then dive into failure. The dominance that a company might experience for a period of time can quickly erode. Countrywide, WAMU, Wachovia, Lehman, Home Savings, Nations Bank, ABN Amro, National City and so many others who once dominated are now gone. As a mentor in my career once said, “You never own market share, you only rent it.”
Mortgage brokers are a model that conveys choice to the consumer. The message is pretty clear and has been so over the years: A broker is not beholden to any specific lender and thus can provide a far broader set of options to the consumer. Forcing a broker to not do business with a specific wholesale lender due to their competitive practices would lead me to question whether that broker truly provides the best broad set of choices to provide the most optimal options. After all, UWM won’t always have the best rate or best service all the time. While they are currently very good at what they do, they do not provide the best products for all consumer needs, all the time. No lender does.
Take fair lending concerns for a minute. Is it possible that Fairway or Quicken might at times have more flexible underwriting guidelines for entry-level borrowers? And if the borrowers are minority applicants, are there any fair lending implications that should be considered? Should regulators change the disclosure requirements for brokers to include a disclaimer for any wholesale lender that they are under contractural constraint from including as options to a borrower?
The conundrum here is that UWM may have stepped onto the proverbial slippery slope. Imagine if Coca Cola said they wouldn’t sell you their soda if you purchased Pepsi, or if United Airlines did the same if you flew American? In my 38 years in this industry I have never seen a policy implemented that penalizes you financially for doing business with the competition.
But UWM was smart when they said this is about recruiting, claiming that Quicken and Fairway were recruiting their broker customers LOs. But, seriously, is that really the argument? Everyone recruits from all business models all the time. Brokers recruit bank and nonbank LOs all the time. Banks recruit from nonbanks and brokers, nonbanks recruit from brokers and banks, and so on. This is truly an absurd argument.
Adding to the illogical element of this attempted rationale, the entire industry knows all about the UWM-Quicken attacks that have been going on for years now.
Whatever the intent was behind this policy, the effect is potentially very damaging. If other wholesalers were to follow suit, the entire broker philosophy could be at risk. Brokers that align with the UWM policy are simply acknowledging that they are almost equal to becoming a retail loan officer for a single wholesaler in a monoline fashion that is not too different than working for a bank or independent mortgage banker. The core value proposition of the broker’s promise — that they provide more choices and can select the sources of mortgage finance that provide best-in-class service and price — all falls to the wayside when they are forced to choose sides.
So I decided to comment. Everything here is simply my opinion, but I caution all in this industry to remember that no lender controls a mortgage market, and if they do, it is not for long. The attempt to constrain trade from a competitor through the threat of financial penalty is a move that crosses the threshold of fair competition and ultimately could put the consumer at risk of not truly getting access to the best options in the marketplace.
All of these lenders are currently very successful and are led by competitive and tenacious management teams. But the quandary now is whether there should be calls to regulators demanding greater disclosure. After all, lenders have to disclose affiliated business arrangements. Given the UWM action, perhaps they should now have to disclose unaffiliated relationships as well. If not, how can the consumer be certain that they are truly getting a great set of options when picking a mortgage lender?
In the end, this too shall pass. Lenders will find a way to work around this odd and awkward policy announcement. But in the short run, it has forced brokers across the nation to pick sides, something that is deeply troubling from the place where I stand. We should encourage competition and lenders should win on the merits. Protecting market share by forbidding brokers to work with the competition is bad policy and none of the arguments for it have merit in my mind.
Let’s hope this is a one-off policy action and not something that spreads. If it does, I would expect others to be more adamant in calls for regulators to step in as the consumer experience and options should prevail over attempts to steer the business.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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