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Big US mortgage lenders turn screws on smaller rivals as rates rise

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Two U.S. mortgage giants are heating up smaller competitors by offering discounts and other incentives to capture market share as rising interest rates slow homebuying activity. increase.

Aggressive strategy pursued by US largest and second largest Rocket Mortgage and United Wholesale Mortgage mortgage Each originator emerges as more lenders exit the market or go out of business.

rocket is promising home buyer If you get a new mortgage within 3 years from July and interest rates drop, we waive closing, appraisal, and other refinancing fees.

UWM, which specializes in serving independent mortgage brokers, announced in June that it would cut interest rates on its loan products by 50 to 100 basis points to help brokers win more business.

Rocket CEO Jay Farner said earlier this month that he saw an opportunity to “lean on” as competitors pulled back, and his counterpart at UWM echoed a similar tone in its second-quarter earnings call. hit.

“We are very aggressive in this environment,” said Matt Ishbia, CEO of UWM.

The US housing market has been rocked by the fastest and sharpest interest rate hikes in 50 years. Average 30-year fixed rate mortgages surged from 3.2% at the beginning of the year to around 6% in June and 5.55% last week.

Rising interest rates, coupled with historically high home prices, pushed many borrowers out of the market. The latest data from the Home Loan Bankers Association showed that average new mortgage applications fell 1.2% in the week ending August 19, remaining at its lowest level in 22 years.

Compared to a year ago, refinancing applications decreased by 83% and purchase applications decreased by 21%.

The independent mortgage lender and the bank’s mortgage subsidiary reported a net loss of $82 on each loan it sold for securitization in the second quarter, according to MBA. In the first quarter, the lender made an average profit of $223 per loan.

Sprout Mortgage ceased operations and First Guaranty Mortgage filed for bankruptcy. Wells Fargo, formerly the largest U.S. mortgage originator, said last month that the mortgage business “would naturally decline over time.” Santander exited the U.S. mortgage market in February. In July, Rocket signed a deal to originate mortgages for its customers.

Marina Walsh, MBA’s Vice President of Industry Analysis, said:

Analysts said moves by the two largest US mortgage lenders would increase pressure on smaller originators, noting that UWM was more aggressive than Rocket.

“UWMC is looking to strangle itself with the latest price adjustment,” said Jefferies analyst Kyle Joseph. That’s it.”

Two months after UWM announced its ‘game on’ pricing initiative, LoanDepot, the independent broker’s second largest rival in the mortgage underwriting business, reported wider losses in the second quarter. announced that it will exit the wholesale business.

“It is no exaggeration to say that the industry is becoming more competitive. [LoanDepot’s decision] UWMC is the main driver of competition in the brokerage channel that LDI is exiting,” said KBW analyst Bose George.

Many lenders responded with layoffs this year, including Better.com, which laid off more than a third of its staff. Rocket made a voluntary takeover offer to his 8% of employees this year, but promised to avoid layoffs.

“It doesn’t make a lot of sense to start hiring again four to five months after a significant reduction in capacity,” says Farner.

Jefferies analyst Joseph said Rocket and UWM both have “relatively strong capital structures, so in the medium term, it doesn’t pose a significant risk for companies to put pressure on their competitors. I don’t think so,” he said.

Both firms primarily underwrite traditional mortgages, which are easier to securitize, but a prolonged turmoil in the capital markets could weigh on profits, he added.

*This story has been revised to clarify who UWM specializes in working with.

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