Mat Ishbia is out to convince brokers the best mortgage isn’t always the cheapest
When the housing crisis sent big banks fleeing from third-party originations, family-owned United Wholesale Mortgage doubleddown on the channel, investing in innovative technologies and marketing strategies to appeal to mortgage brokers.
UWM became the largest wholesale lender after the channel hit rock bottom earlier this decade. Now that third-party originations are making a comeback, the company is determined to chip away at the retail channel’s market share.
At the same time, UWM must protect its position from a growing number of wholesale competitors. To do this, President and CEO Mat Ishbia has set out to be an ally to mortgage brokers in unprecedented ways, particularly when it comes to technology, referral marketing and improving operational efficiencies.
In doing so, UWM is seeking to remake a piece of the wholesale channel by encouraging brokers to think beyond getting the lowest price for a mortgage and instead, consider other factors that contribute to a successful origination.
For example, the company is working to improve mortgage brokers’ digital reach in a market where busy consumers are apt to shop and apply for loans online. These efforts are prompting debate about customer acquisition and where the long-term value of customer relationships resides.
As new entrants are drawn to wholesale lending by its lower-cost structure, it remains to be seen whether UWM’s tactics will remain relevant in the face of this rising competition and the threat of a race to the bottom if the channel becomes more commoditized.
Key to this question is whether wholesalers can rely on broker loyalties as the channel becomes more crowded. While brokers value those close relationships, they don’t want to devote themselves to any particular lender to the point that it would pose a conflict of interest with their obligations to borrowers.
But by doubling down on this approach, Ishbia is banking on UWM’s ability to meet the needs of borrowers and brokers alike, while turning a profit at the same time.
Ask Ishbia about any of his competitors and the answer is always the same: “Whatever is best for consumers is going to win at the end of the day.”
With the help of its brokers, UWM is winning the wholesale channel. The privately held, family-run lender lays claim to a 15% to 20% share of the wholesale market and is widely identified as the channel’s biggest player.
It is a far cry from the publicly traded banking giants that dominated wholesale before 2008, and in that sense, the company is emblematic of wholesale’s general state since the mortgage crisis: a lower-profile business dominated by a small number of nonbanks.
But wholesale’s profile is rising as players like PennyMac inject the channel with new capital to fund loans. And mortgage broker employment has rebounded, reaching levels not seen in a decade.
On one hand, Ishbia considers this a “rising tide that lifts all boats.” But he also acknowledges UWM may be facing more competition from companies with business models too close to his own.
Retail may still dominate the business, but among larger nonbanks, it is losing ground to lower-cost lending channels.
Large independents generated just 29% of their 2017 volume from retail lending, according to data from the Mortgage Bankers Association and Stratmor Group. The remaining 71% came from wholesale, correspondent and consumer direct.
“One of the big focuses today is to get the price of origination down,” said Bill Pearce, CEO and chairman of Maxex, a secondary market and due diligence platform.
All mortgage channels are susceptible to price wars, given the thinning volumes and margins throughout the industry. But since wholesalers must contend for business on a loan-by-loan basis, price competition is extraordinarily tough.
Emphasizing service rather than price is a way to address that concern, Ishbia said. Some borrowers want nothing but the lowest prices, but others have different priorities, he noted.
“A close on a particular date may be the No. 1 priority, the second priority may be the lowest rate and the third priority might be the cheapest closing cost,” Ishbia said.
Like many wholesalers, UWM prides itself on offering brokers distinct service that translates into a better experience for borrowers. And for now, it may have an upper hand on new competitors that haven’t seen how the relationships between wholesalers and brokers have evolved since the mortgage crisis.
Precrisis, wholesale lenders exerted more control over customer relationships and only provided limited operational support to brokers. But post-crisis regulations have changed this.
Wholesalers today have to exert more control over brokers’ operations in order to ensure regulatory compliance. And they’re more likely to let the broker take the lead on borrower interactions.
New wholesale lenders must embrace this shift to be successful, said a number of board members from the New York Association of Mortgage Brokers.
“If a new lender wants to get into the business, they really have to sharpen their pencil because the lenders that have been serving mortgage brokers really have finetuned their operations quite a bit,” said mortgage broker Mark Favaloro, owner of Aamtrust Mortgage.
The time-sensitive requirements of the TILA-RESPA integrated disclosure rule and other compliance requirements have shifted interactions between brokers and wholesalers to being more relationshiporiented than transactional.
It used to be that a wholesaler could act against a broker’s interests and say, “you’ll do business with me anyway,” said Lou Borsellino, owner of Paramount Capital Services. Now, “I feel more like we’ve become partners with our wholesalers.”
A wholesaler that tries to work with brokers on a transactional basis will limit how much business it gets, said Deborah Robertson, a sales manager at wholesale lender Plaza Home Mortgage.
“If you go in with a mindset of, ‘ How do I win?’ then that’s more transaction oriented,” Robertson said. “I think it is more ‘slow and steady wins the race’ today. How do I develop a relationship? How do I prove myself? How do I earn your business?”
One way that wholesale-only lenders like Plaza Home Mortgage and UWM do this is by championing brokers’ interests in referral business from existing customers.
“Since we don’t have a retail platform, if we get a call from someone who wants to refinance their loan, it’s sent back to the original originator,” Robertson said.
Brokers appreciate this, but don’t depend on it. They can always stay in touch with borrowers and compete for referral business on their own. Any loyalty to a wholesaler for the next loan has to take a back seat to the borrower’s needs.
“A close on a particular date may be the No. 1 priority, the second priority may be the lowest rate and the third priority might be the cheapest closing cost.” — Matt Ishbia, CEO United Wholesale Mortgage
While brokers would like to stay loyal to the wholesalers that have stuck with them long term, they also need to ensure borrowers are aware of all their options, regardless of the source. Lenders also need to stay compliant with anti-steering rules. “You have to weigh all the factors first, discuss with the customer, and let the customer decide,” Borsellino said.
Borrower-facing technology is also becoming more important to brokers, and wholesalers that can facilitate this have a competitive edge. While sharing technology with brokers isn’t new, the tools have gotten much more sophisticated.
Most digital consumer-direct loans are done by retail lenders, but brokers are still better suited for helping borrowers with unique needs find a lender. “When you deal with some of the online lenders, if you don’t fit their cookie-cutter mold, you don’t get the loan,” said Rich Biondi, the owner of brokerage RJB Financial Consultants.
With the battle for borrowers increasingly playing out online, digital-savvy mortgage companies are dedicating significant resources to ensuring their marketing message appeals to both prospective borrowers and the algorithms that power search engines. Larger organizations can leverage their scale and sizeable marketing budgets to improve their search engine optimization, often at the expense of small, local lenders and brokers.
UWM is trying to close that gap with a number of initiatives, including Blink, a consumer self-service point of sale system that brokers can private label, and FindAMortgageBroker.com, a directory for consumers to search for local brokers.
Blink helps UWM and brokers compete with new digital mortgage self-service systems, while the website is designed to collectively give brokers more visibility in search engine results than they could otherwise achieve on their own.
UWM takes this a step further by helping brokers manage their operations, too. The company employs more than 50 loan processors to help brokers coordinate tasks like getting insurance, title services and other disclosures documented and ready to go before closing.
Likewise, UWM also plans to discontinue its employees-only retail channel in favor of its staff working with brokers — even if that means a broker pairs a UWM employee with another wholesaler.
“We said, ‘ Even though you work for our company, work with one of our local brokers, and our local brokers will use us or one of my competitors. Whatever is best for the consumer,’” Ishbia said. “I really believe in brokers that much that I want them to originate my own team members’ loans.”
UWM services most of the loans it funds and after closing, the broker’s name appears on servicing statements as the borrower’s contact for refinance or new loan inquiries. When it does sell servicing rights on seasoned loans, it takes measures to help brokers stay connected with borrowers by requiring the new servicer to sign nonsolicitation agreements that are in effect for one to three years.
The move is not without its downsides for UWM. The nonsolicitation agreements are hard to enforce and could potentially affect mortgage servicing rights pricing. But the agreements have so far been respected and Ishbia said they’re worth their weight in relationship building with brokers. “There are people that won’t buy our servicing because of it and that’s OK. People could pay me a little worse price because of it, potentially,” Ishbia said.
And the strategy could become a more significant distinction between UWM and depositories that often get into wholesale lending because of the opportunity to cross-sell to borrowers. Citizens Bank, for example, recently purchased Franklin American Mortgage (see page 8), a nonbank lender and servicer active in both the correspondent and wholesale channels.
But overall, banks are still largely staying clear of wholesale. The channel represents only 3% of large banks’ origination volume, according to the MBA and Stratmor.
“The economics make a lot of sense for banks. The tricky part is the regulatory pressure,” said Stratmor Senior Partner Garth Graham. “Brokers are independent contractors. You can have rules, you can have guidance, but it’s very hard to manage the risk.”
Indeed, some lenders are experimenting with wholesale and then later finding that they are “not sure they want to be in the business,” said Tyler House, manager of advisory services at mortgage industry consultancy Richey May.
For now, though, the prospects for wholesale lending look strong. “We believe the market consolidation is going to result in a few things. Smaller, lightly capitalized mortgage bankers are going to take their capital off the table or they are going to sell out to larger players,” said Graham. “And I think some of the big aggregators are looking at the wholesale channel and saying, ‘ I like the variable cost model.’”
Ultimately, the increased competition won’t be easy for UWM to contend with, but Ishbia does see an upside.
“It’s not about UWM thriving, it’s about the channel thriving, and if the channel thrives, UWM will thrive.”
“Brokers are independent contractors. You can have rules, you can have guidance, but it’s very hard to manage the risk.” — Garth Graham, Senior Partner Stratmor Group