7 months ago
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Top U.S. mortgage lender United Wholesale Mortgage (UWM) is the target of a class-action-seeking lawsuit alleging it orchestrated a scheme with mortgage brokers to apply excess fees and costs to borrowers. The wholesale lender called the accusations a “sham.”
The lawsuit was filed on Tuesday in a Michigan district court by Therisa D. Escue, Billy R. Escue, Kim Schelble and Brian P. Weatherill. The accusations were made against the lender, its parent company UWM Holdings Corp., its president and CEO Mat Ishbia, and his holding SFS Holding Corp.
The plaintiffs claim they hired independent mortgage brokers, believing the wholesale channel was the best option for getting affordable mortgages because these professionals can shop around — a different model from loan officers employed by retail lenders.
According to the plaintiffs, however, through “misrepresentations, deception, and unlawful inducements,” UWM has “corrupted brokers’ independence.” The company, they said, “intentionally funnels unsuspecting borrowers into UWM loans that are significantly more expensive than the available alternatives.”
In response, a spokesperson at UWM said that the “real party behind it [the lawsuit] is a hedge fund named Hunterbrook,” and “lawyers concealed the hedge fund’s involvement.”
“Hunterbrook’s business model is to sensationalize public information to manipulate the stock market, thereby enriching their wealthy funders at the expense of regular investors, many of whom are hard-working UWM employees,” the spokesperson said.
“UWM will defend these allegations to the fullest extent permitted by law and stand with the thousands of independent mortgage brokers who serve the unique needs of borrowers across the country.”
The lawsuit follows Monday’s report from Hunterbrook Media indicating that UWM pressures brokers to send loans its way. Based on millions of federal and state records, the report states that 8,682 loan officers at independent brokerages sent UWM more than 99% of their mortgages in 2023, with a total value of at least $11.7 billion. That was more than double the 3,831 brokers who sent at least 99% of their business to UWM in 2020.
The outlet is affiliated with the hedge fund Hunterbrook Capital, which went short on UWM shares following its recommendation. The Financial Times reported that the fund raised $100 million in investment based on the outlet’s scoop. UWM stock finished at $6.10 per share on Wednesday, up 1.67% after falling the previous day following the report.
‘All In’ and ‘Lock In’
According to the lawsuit, rather than being independent, “corrupted brokers are, in essence, employees in the UWM enterprise.” The mechanisms behind the allegation are in UWM’s Wholesale Broker Agreement.
One of the mechanisms is the “All-In” initiative, which prohibits any broker who does business with UWM from shopping from rivals Rocket Mortgage and Fairway Independent Mortgage Corp.
Litigation on this matter has resulted in decisions that favor UWM, HousingWire previously reported. In February, a federal judge said that a lawsuit filed by Florida-based Okavage Group in April 2021 should be dismissed. Another judge reached a similar decision last month and partially dismissed a case filed by America’s Moneyline.
Per the lawsuit filed this week, the second mechanism to make brokers loyal is to mandate that they accept a restrictive “Lock-In” policy. This policy requires brokers not to shop after locking a loan, which in the mortgage industry usually occurs at the beginning of the loan process.
The lawsuit shows that, based on the wholesale broker agreement, “The transfer or sale by Broker of a Mortgage Loan locked in by UWM during the lock-in period to another entity shall constitute a violation of the Agreement, and the Broker shall be liable, and promptly indemnify UWM, for any loss sustained as a result thereof by UWM.”
Plaintiffs claim that “no other wholesale lender imposes such strict no-shop restrictions in connection with rate-lock,” which is unique to UWM. It “locks in” the borrower to a UWM mortgage, even if there are better options elsewhere.
Finding a broker
Plaintiffs also attack the website FindAMortgageBroker.com. The lawsuit says that UWM’s message to brokers is that “the more you steer borrowers to UWM, the more UWM will steer borrowers to you on FindAMortgageBroker.com and thus increase your deal flow and revenue.”
That’s because to be listed on “UWM’s broker directory, a broker must be a partner and sign the wholesale broker agreement.”
In addition, the website ranks brokers according to a score assigned by UWM, based on the loans sent to the wholesale lender and engagement with the company.
“Through its Pro Rankings and LO Partner Points programs, UWM also offers teaser products such as interest rate discounts, ‘1% down’ products, and rate relocks,” according to the lawsuit.
“But, again, these are offered only to those brokers who first prove their loyalty by funneling borrowers to UWM. And even those offerings generally do not convert into actual savings for clients.”
Per the lawsuit, these actions led to a typical borrower paying $865 more in closing costs for a UWM loan in 2023 than for the median wholesale lender, or more than four times the difference in 2020.
In addition, UWM borrower origination costs are $2,500 more than the most competitively priced lenders (those whose origination costs are at the 20th percentile), the lawsuit contends.
The estimates are based on publicly available data published through the Home Mortgage Disclosure Act (HMDA) and controlled for loan type and interest rate.
The class action asks for a sum exceeding $5 million, exclusive of interest and attorney fees. It accuses UWM of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Real Estate Settlement Procedures Act (RESPA), along with civil conspiracy, unjust enrichment and other charges.
In an interview with HousingWire in June 2023, Ishbia was asked about a loan originator who sends almost of their loans to UWM. Ishbia responded by saying that they are “not sending 98% because he is required to. He’s sending 98% because we are the best. We have to be the best every day.
“If we are the worst in a month, he can send it to those other lenders right away. And that’s why wholesale is so hard. Most lenders don’t want to be great every day. Your technology has to be fantastic every day. Your pricing has to be sharp every day. They have options. They don’t work for me.“
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