United Wholesale Mortgage (UWM) just sued two more broker shops that allegedly violated its controversial broker agreement by sending loans to rivals Rocket Mortgage and Fairway Independent Mortgage.
The Pontiac-based wholesale lender filed two lawsuits on Wednesday in Michigan federal court accusing broker partners of breach of contract for originating mortgages to its competitors. The disputes involve Californian brokerage shops Kevron Investments Inc. and Mid Valley Funding & Inv. Inc and a request of $420,000 in damages.
In March 2021, UWM imposed on brokers its “all-in initiative,” ending its business relationship with partners who chose to continue sending loans to Rocket or Fairway for review, underwriting, purchase and funding. Brokers who did so would face fines upwards of $5,000 per loan or $50,000, whichever violation sum was greater.
UWM knew the ultimatum could result in the lender losing broker partners, the company said in the lawsuits. However, the lender said it was necessary to protect the long-term viability of the wholesale mortgage channel. A warranty in the addendum said that if brokers submitted loans to Rocket or Fairway, it would constitute a breach of contract.
HousingWire sent messages to Kevron Investments and Mid Valley seeking comments, but they did not immediately return the requests. The case was first reported by The Detroit News.
According to the lawsuit, independent mortgage broker Kevron, which started originating loans to UWM in July 2019, submitted at least 22 mortgage loans to the competitors since the ultimatum. Meanwhile, Mid Valley Funding, which started doing business with UWM in June 2015, sent at least 62 mortgages to Rocket and Fairway, the lawsuit claims.
UWM is demanding that Mid Valley Funding pay $310,000 and Kevron Investments $110,000 in liquidated damages, attorney fees and other expenses.
UWM claims in the lawsuit that it provides brokers “considerable resources” to grow their businesses, such as technology, marketing materials, compliance support and training. As a result, the broker’s success is partially attributed to the lender, UWM argued. However, submitting loans to competitors damaged the company in various ways, including taking advantage of UWM’s investments in the channels and undermining the agreement.
So far, three lawsuits regarding the “ultimatum” have become public in February. Earlier this month, HousingWire reported that UWM sued in Michigan federal court America’s MoneyLine, a high-volume mortgage shop based in Southern California, saying it owes $2.8 million for repeatedly violating the terms of the agreement.
On Friday, America’s MoneyLine countersued on the grounds that UWM’s “all-in” initiative is illegal and anticompetitive. AML argued that the ultimatum prevents brokers from working with Rocket Pro TPO, which offers loan options to potential borrowers who have credit scores between 580 and 600, whereas UWM “has little, if any actual options for such borrowers.” “A broker like AML is thereby losing the ability to provide financing to 5%-10% of the market of possible borrowers by excluding Rocket Pro from its lendings options and would be failing to reach clients that UWM is not even pursuing.”
In a statement to HousingWire, a spokesperson for UWM said all of the lender’s clients are aligned with the “all-in” initiative, but a few brokerages have breached the agreement.
“After further investigation into each breach and following a conversation with them, they continued to submit loans to UWM and Rocket Mortgage. Therefore, UWM is moving forward with legal action enforcing the penalties laid out and agreed to in the contract,” the spokesperson said.
Many brokers are critics of the ultimatum, even some who signed the addendum. They complain that it cuts at the identity of a mortgage broker – being able to offer consumers the greatest range of mortgage options was central to their mission. In August, a Florida mortgage broker named Dan O’Kavage filed a class-action-seeking lawsuit that targets the ultimatum on the grounds that it violates the Sherman Act.