Dan Gilbert’s Rocket Mortgage is starting to lose its claim as the nation’s number one mortgage lender.
The danger does not come from one of the big name banks such as Wells Fargo, Bank of America or JPMorgan Chase.
It comes from the Pontiac company.
Pontiac-based United Wholesale Mortgage reported third-quarter earnings on Friday that surpassed Rocket Mortgage’s total mortgage business for the first time ever.
UWM Earned about $33.5 billion This surpassed Rocket Mortgage’s $25.6 billion. No other domestic mortgage lender issued as many mortgages as UWM in the quarter, according to figures compiled by industry observers. Inside Mortgage Finance.
Rocket Mortgage still leads the way in trading volume with $114 billion for the full year ending October 31, while UWM is closing the gap with $102 billion.
UWM also reported larger quarterly profits than Rocket, despite smaller average margins on each loan. UWM’s net income was $326 million. $96 million for Rocket Companies, the Detroit-based lender’s parent company.
UWM CEO Mat Ishbia, 42, described his company as “the No. 1 mortgage lender in the nation” during an earnings call with Wall Street analysts Friday morning.
“I didn’t know when it would come, but I knew this day would come,” he said.
Since then, Ishbia has openly aimed at Rocket’s crown. At least early 2020before the two companies went public respectively, and back when UWM was still called United Shore Financial Services and Rocket Mortgage was known as Quicken Loans.
Unlike Rocket, UWM does not make direct consumer loans with a large advertising budget. Its entire business model is to underwrite loans from independent mortgage brokers, known as ‘wholesale’ lending.
Rocket, on the other hand, offers a combination of direct consumer and wholesale financing. It’s especially strong and very profitable when there’s a lot of mortgage refinancing activity.
But now, with interest rates rising and the history of the 2020-2021 refi boom, most mortgages these days are for home purchases.
“We are not a one-trick pony of Riffith,” said Ishbia.
Rocket Companies did not respond to messages seeking comment for this article.
Rocket is a so-called “non-bank” lender. So it’s not a traditional bank that takes deposits and might use the Federal Reserve in an emergency.
UWM suitable for responding to rising interest rates
When Rocket took the top spot as a mortgage lender in 2018, it took away from a bank — Wells Fargo.
The UWM situation is even more unique. Besides being a non-bank, UWM is believed to be the first wholesale-only lender to achieve the number one ranking in the quarter.
“I don’t think we’ve seen it before in the history of the mortgage market,” said Guy Sekara, executive chair of Insider Mortgage Finance Publications. “
“However, as shown, United Wholesale has been well suited to deal with a rapidly declining origination market and high interest rates,” he added. More volume – and that’s exactly what they did. “
UWM employs approximately 7,000 people as of June 30, with the latest figures available. The company, which had as many as 9,000 employees in the summer of 2021, said it avoided layoffs.
“We are a family-run business,” Ishbia said in an interview on Friday. We don’t need to do that, nor will we ever. Because that’s not right for people who have a good attitude and work hard. “
Benefits from servicing rights
Another factor in UWM’s rise is the company’s aggressive move, which began early last summer, to cut pricing and margins to gain market share.
The initiative, which the company dubs “Game On,” has been backed by UWM’s sale of hundreds of millions of dollars in mortgage servicing rights. Such sales increase cash flow and liquidity, allowing lenders to compete more aggressively. Detailed analysis By real estate news service HousingWire.
“United Wholesale is gaining market share and increasing transaction volume because they clearly offer the best prices,” said Sekhara of Inside Mortgage Finance. rice field. “And you can’t do that unless you’re making up for it somewhere else, and they’re making up for it by selling servicing rights.”
The mortgage servicer collects the borrower’s payments and passes them on to the investor who owns the mortgage. These servicers enjoy incoming cash flows and services. commission.
As interest rates rise, the value of mortgage servicing rights increases as borrowers are less likely to pay off their loans early, such as by refinancing. Therefore, loan servicing opportunities are less likely to be lost.
“Mortgage servicing rights are currently raking in premiums for the first time in decades, and it’s a great opportunity to be a seller of those premiums,” said John Toohig, head of whole-loan trading at investment bank Raymond James. rice field. “It has continued to shine a light on the many mortgage companies out there.”
Rocket and UWM’s third quarter benefited from the sale of mortgage servicing rights. For Rocket, he made $150 million, and for UWM, he made $237 million, according to a Free Press analysis of both companies’ Securities and Exchange Commission filings.
Mr Ishbia told the Free Press that UWM would have been profitable in the third quarter without considering the sale of mortgage servicing rights.
“With this margin, this volume, and this economic time, we’re still making $90 million,” he said.
keep your standards high
Ishbia told analysts on Friday that UWM has achieved a high volume of deals without lowering its lending standards.
“We are one of those lenders who don’t go after quality and don’t chase quantity,” he said. “A lot of my competitors, almost all of them, say, 580 credits he’s down to the score. We didn’t do that and we’re stuck at (minimum) 620.”
Did the ultimatum pay off?
A controversial part of UWM’s recent rise was the company’s “all in” initiative. It began in the spring of 2021 and was essentially an ultimatum forcing mortgage brokers to choose between trading with UWM and Rocket Mortgage.
Rocket Companies CEO Jay Farner said on Rocket’s earnings call last week that about half of the top 10 wholesalers have exited the market in the past year.
“They have either been kicked out by what’s called an ultimatum, or they’ve decided not to participate in the wholesale anymore,” he said.
“Wholesale itself is a very difficult business right now,” Farner added.
UWM’s shares rose 20% to close at $3.71 on Friday.
Top 10 U.S. Mortgage Lenders in First 9 Months of 2022
- United Wholesale Mortgage
- rocket mortgage
- wells fargo
- penny mac
- Loan Depot.com
- US Bank Mortgage
- Guaranteed rate
- bank of america
Source: Internal Mortgage Finance