United Wholesale Mortgage defends its business practices

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In its first substantive response to explosive allegations that it has “corrupted” mortgage brokers by prohibiting them from sending business to competitors, United Wholesale Mortgage (UWM) took to social media Tuesday to defend its business practices and highlight recent court victories.

In identical posts on LinkedIn and X, the platform formerly known as Twitter, UWM also promised to pay the attorney fees of any business partners who are dragged into a lawsuit associated with what the lender characterized as “fraudulent claims” unleashed last week in a report funded by a hedge fund that’s taken a short position in UWM.

The report by Hunterbrook Media alleges that a growing number of mortgage brokers steer most or all of their business to UWM, and is the basis of an April 2 lawsuit seeking class-action status to represent borrowers allegedly harmed by UWM’s practices.

At the heart of the lawsuit is UWM’s controversial “All In” ultimatum, which, beginning in March 2021, prohibited mortgage brokers who wanted to continue doing business with UWM from sending loan applications to rivals Rocket Mortgage or Fairway Independent Mortgage.

The lawsuit alleges that mortgage brokers who sent more than 75 percent of their loans to UWM accounted for 48 percent of the lender’s business in 2023, up from 24 percent in 2020, citing Hunterbrook Media’s analysis of publicly available data.

UWM’s initial response to the report and lawsuit was to question the credibility of its source — Hunterbrook Media, which has acknowledged that it’s funded by a hedge fund, Hunterbrook Capital — and to accuse Rocket Mortgage of being behind them.

In addition to taking a short position in UWM — a bet that the company’s share price will decline — Hunterbrook Capital has purchased shares in Rocket Mortgage’s parent company, Rocket Companies.

Mat Ishbia

Mat Ishbia

On April 4, UWM CEO Mat Ishbia told reporters covering the Phoenix Suns — the NBA team his family purchased last year — that the report was “Rocket Mortgage and Dan Gilbert doing Rocket Mortgage and Dan Gilbert things. And that’s just what it’s been funded by.”

This week UWM is also defending its business practices, saying it is “100 percent confident nothing needs to change or will change because of Hunterbrook’s disinformation.”

In a statement posted to both LinkedIn and X, UWM characterized the Hunterbrook report as an “attack” containing “numerous lies, including there being something wrong with brokers choosing to send most of their business to a specific lender.”

“Mortgage brokers on average use three to five lenders and evaluate the various needs of each borrower including speed, service, rate and cost/fees,” UWM said. “It is not uncommon nor illegal for a broker to send most or all of their business to a specific lender. This is not unique to UWM brokers.”

UWM’s court victories

UWM also pointed to victories in lawsuits related to its All-In ultimatum, which the lender sought to enforce in a February 2022 lawsuit against a mortgage broker, America’s Moneyline Inc. (AML).

In its complaint, UWM accused the mortgage broker of violating the terms of its wholesale broker agreement not to submit mortgage loans and mortgage loan applications to Rocket and Fairway.

In answering UWM’s complaint, AML made counterclaims against UWM including fraud and misrepresentation. After most of AML’s counterclaim was dismissed in a Dec. 22, 2022 ruling, the company filed an amended counterclaim which was ultimately dismissed less than two weeks ago, on March 29.

In dismissing AML’s counterclaim against UWM, Judge Laurie J. Michelson cited a report and recommendations in a long-running lawsuit filed by another mortgage broker, The Okavage Group, which sued UWM in April 2021.

Unlike AML, The Okavage Group had refused to sign UWM’s wholesale broker agreement, which prohibits mortgage brokers from doing business with Rocket and Fairway. Instead, it sued UWM on behalf of itself and other mortgage brokers who objected to the ultimatum, arguing that it amounted to anticompetitive conduct under federal and Florida antitrust laws.

In an amended complaint filed in August 2021, attorneys for The Okavage Group sought class action certification, treble damages, attorneys’ fees and injunctive relief.

After a magistrate judge assigned to the case recommended that it be dismissed in its entirety, the case dragged on, with attorneys for The Okavage Group filing second and third amended class action complaints in 2022 and 2023.

On Feb. 6, 2024, U.S. Magistrate Judge Laura Lothman Lambert issued her second report recommending that The Okavage Group’s complaint be dismissed on all counts.

Although lawyers for The Okavage Group claimed UWM’s ultimatum harmed consumers by reducing their access to mortgages from Rocket and Fairway, their complaint provided “no underlying facts … that the ultimatum has increased the costs of mortgage loans, nor does it specify whether the cost of all mortgage loans have increased, or only those in the wholesale market,” Lambert wrote.

But the magistrate’s recommendation is not binding, and the case has been reassigned to Judge Wendy W. Berger.

In a March 15 response, attorneys for Ishbia and UWM complained that, “After three years, four complaints, and two thorough reports and recommendations of the magistrate judge recommending dismissal, this matter should come to an end.”

Although both cases could continue to drag on in courts of appeal, UWM this week expressed confidence that the company is standing on solid legal ground in light of recent decisions.

“Our competitors have been abusing the court system since day one,” UWM said on LinkedIn and X. “Back in 2021, many claimed UWM was doing something wrong with the All-In initiative, asserting that it was against the law, antitrust rules were broken, and brokers shouldn’t work with UWM because of it. The play didn’t work then, and it won’t work now.”

Hunterbrook’s short position

While UWM has now begun to address the specifics of the allegations detailed in the Hunterbrook Media report and related lawsuit, it continues to raise questions about their source.

UWM claims one of the authors of the Hunterbrook Media report “worked at a Rocket Mortgage affiliated broker for the last five years and was actively working on this ‘report’ while employed there.”

One of the report’s authors, Matthew Termine, joined Hunterbrook Media as an investigative reporter in March after five years of employment at Morty, according to his LinkedIn profile. A mortgage broker marketplace, Morty lists Rocket Mortgage as one of more than 25 lender partners on its website.

UWM declined to comment on whether Termine was the author specified, and Hunterbrook Media had not responded to a request for comment by publication time Wednesday.

One of Hunterbrook Media’s founders, Sam Koppelman, took to social media last week to call Ishbia’s take that Rocket Mortgage is linked to Hunterbrook “a baseless conspiracy theory.”

But Hunterbrook Media is transparent about its ties to Hunterbrook Capital, which raised the ire of UWM by not only shorting its stock, but taking a long position in Rocket Companies.

It remains to be seen whether Hunterbrook Capital’s bets pay off.

Shares in UWM, which touched a new 52-week high of $7.75 on March 25, dipped to $5.86 on April 3, the day after Hunterbrook Media issued its report, but have since rebounded above $6.

Other publicly traded mortgage lenders have also seen their share prices take a hit this month, as the latest inflation data casts doubt on the prospects that the Federal Reserve will cut interest rates any time soon. Mortgage lending volume, particularly refinancing, dwindled as the Fed raised rates to fight inflation in 2022 and 2023, and isn’t expected to rebound much this year.

Shares in Rocket Companies were down 18 percent Wednesday from a 2024 high of $15.01 registered on March 28.

At Wednesday’s closing price of $6.26, shares in UWM were down 19 percent from their 2024 high.

Fairway Independent Mortgage, which is privately held, announced in March that it was closing down its wholesale mortgage department and moving “to 100 percent retail originations.”

The recent drop in UWM’s share price presents a favorable entry point for investors, BTIG analysts Eric Hagen and Jake Katsikas said in an email to clients Monday.

In issuing a buy recommendation with an $8 price target, BTIG analysts said they think the premise of Hunterbrook Capital’s short thesis — some borrowers overpay for loans as a result of brokers having the incentive to steer business to UWM — “is misplaced.”

UWM’s revenue margins “don’t stand out like we would expect if it was overcharging borrowers, and the company openly and deliberately has loyalty incentives in place to support higher-producing brokers,” Hagen and Katsikas wrote.

“Loyalty points typically get applied toward helping the borrower buy down their rate, in turn empowering the broker to offer the best rate and win more business,” BTIG analysts said. “The flexibility we see for [UWM] to supply concessions and close loans quickly is a function of its scale, which is among the principal elements drawing us to the stock.”

The “healthy demand” to acquire the mortgage servicing rights (MSRs) for loans UWM originates is also “a reinforcement for its product” and the company’s “overall connectivity and contribution to the flow of mortgage capital,” BTIG analysts said.

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