Mortgage broker-retail friction returns to spotlight

Concerns over channel conflict in mortgage lending — particularly between wholesale and retail operations — are resurfacing as brokers reclaim a growing share of originations.

Tension can arise when wholesale lenders also operate retail arms, potentially putting them in direct competition with the very brokers bringing them business. This strain has led companies like United Wholesale Mortgage (UWM), Equity Prime Mortgage, and Plaza Home Mortgage to avoid retail channels entirely.

"Channel conflict, whether internal or external, starts at the top of the company," said Paul Akinmade, chief strategy officer at CMG Financial.

Leadership's role in mortgage channel tensions

"I've been in organizations where channel conflict was kind of bred, if that makes sense," Akinmade said. "They [those in the C-suite] saw it as a line of competition."

But with leadership focused on collaboration, as CMG President and CEO Christopher George has done, channel harmony is possible. "I always look at its difference between collaborative and distributive negotiations," Akinmade said. "Can you make a pie greater than its whole by partnering and working together and finding the synergies?"

The spark that reignited the channel conflict debate

Though conflict over customer ownership has simmered for decades, it resurfaced prominently in 2018 with the creation of BRAWL — Brokers Against Wholetail Lending — by New Jersey mortgage broker Anthony Casa. The movement, which criticized lenders that maintained both retail and wholesale arms, laid the foundation for the Association of Independent Mortgage Experts.

At the time, BRAWL ranked 30 lenders, putting them into three tiers based on channel conflict, service and support.

The biggest beneficiary of this movement was UWM, which because of the alleged channel conflict, announced its "All-in" initiative, aimed at its larger rival Rocket Mortgage, as well as the much-smaller entity that was soon-to-exit the wholesale channel, Fairway Independent Mortgage.

How brokers view the tension

Some brokers see the issue as manageable. Carlos Scarpero, of Edge Home Finance in Ohio, said it's not a priority concern. "If I avoided every lender that had retail and every lender that sold their loans off, it would leave me with very few options for my borrower," he said. 

Most of the lenders he works with have anti-poaching policies in place, which typically last for one year after the loan closes but it can vary.

"[My clients] rarely get poached because I have solid follow-up systems in place," Scarpero added. "At the end of the day, it's all about who is going to close my deal on time and at the best rate."

Another broker has what might be the consensus view: that wholesalers that do retail have a conflict of interest. 

Nevada broker Tammar Hernandez said she's seen lenders directly contact her clients. "I as an LO feel like you're stealing from me…because you're going to try to market to my client, the client I brought to you that you don't even know."

Hernandez, who attended UWM Live, pointed out that UWM is known for avoiding such conflicts.

Why some third-party lenders steer clear of retail

Plaza Home Mortgage has largely eschewed retail for 25 years. "The brokers definitely don't want to compete with the wholesaler that they're doing business with," said CEO Kevin Parra. "It's very hard to play in both without affecting one or the other."

Instead of defending its servicing portfolio with retail LOs, Plaza encourages brokers to bring refinance business back. "We even refer them when we get people interested in refinancing in our portfolio," Parra said.

Still, correspondent lenders raise similar concerns, despite whole loan sales being more about secondary market strategies and servicing rights than borrower relationships.

How mortgage lenders balance retail and TPOs

Click n' Close Mortgage embraces a multichannel model, with operations spanning retail, wholesale, and correspondent. CEO Jeff Bode emphasized the importance of loyalty. 

"If we get a certain percentage of business back from them that's refinance, they're a loyal broker," he said.

Given that legislation banning trigger leads is more than likely to become law, the value of leads at the organization that currently has the loan will increase. In that situation, if Click n' Close gets a trigger lead on a file, "what we're going to do is distribute those leads opportunities out to the brokers that originated them, if we get a certain percentage of their business," although it will not be 100%, Bode said.

He also noted that leads from their proprietary down payment assistance program may not be redistributed, but others would be. Roughly 65% of Click n' Close's volume is wholesale, with the remainder in retail and correspondent — all correspondent loans use the DPA program.

When it comes to loans purchased through the correspondent channel, Bode agrees with those who view them as a different type of transaction: one that is more focused on servicing and doesn't carry the same considerations as loans originated through the wholesale channel.

At OCMBC in California, retail makes up only a sliver of its business. President John Hamel said 99.99% of volume comes through third-party channels, 80% of which is wholesale. "We really don't have channel conflicts that we deal with day in and day out," he said.

Even when files are resubmitted to other relationships due to rate improvements, the broker or borrower ultimately decides where the loan goes, Hamel noted.

"We always allow the broker or borrower to make the determination of where they want to submit the file," Hamel said. "We have a lot of duplicate checks in place to ensure that that doesn't occur across every channel." 

The system would work the same way if OCMBC decides to grow its retail operation, he added.

How a lender handles internal channel conflict

CMG's consumer-direct channel, launched a year ago, was intentionally built to work in tandem with distributed retail. The firewall between purchase and refinance doesn't mean the consumer-direct and distributed retail units don't work hand-in-hand. (Both fall under the broader definition of retail mortgage originations.)

"We try to support distributed retail," Akinmade said, describing how leads are handed off from consumer-direct to high-performing retail LOs. 

"The way that I wanted to solve this for CMG, with the direction of [Christopher] George, was to be in a position where consumer-direct from its very birth, in its infancy, was in a position where it tries to support distributed retail, meaning that as transactions fall through our funnel that we advertise, let's give them back to our distributed retail folks," Akinmade explained. "In my head, it's a win-win."

This collaboration reduces the chances of losing a deal to another lender.

The consumer-direct loan officers are good at working leads, while the distributed retail salesforce have their own strong networks on the ground.

If a purchase lead comes into the consumer-direct, the person handling the call is able to develop, "hand off and white glove a customer to a distributed retail individual who's a high performer," Akinmade noted. As a result, the local loan officer might get introduced to a new real estate salesperson, or have the chance to reconnect with one they have already worked with.

Consumer-direct and distributed retail offer the same pricing regionally to maintain consistency and reduce conflict. "We meet the distributed retail group where they are," Akinmade said.

"What I was looking for is trying to identify where we would have synergies between those two groups, and I'm trying to eliminate friction and maximize the synergies as much as humanly possible," he added.

Consumers look at rate tables on places like Bankrate, so consistency in pricing is important to avoid any channel conflict.

"You're in this position where a consumer is seeing a rate that was intended for a different channel, and in which case there's animosity around that and or there's exceptions that occur," Akinmade explained. "We meet the distributed retail group where they are, and keep the ability for alignment [with consumer direct] as much as possible."

Besides the three main production channels, CMG also has several joint ventures with Realtors and homebuilders.

Making certain those JV loan officer needs are also taken care of — they get the same benefits of scale, efficiency and technology as the people in distrusted retail, Akinmade noted — is another channel conflict which lenders need to be aware of.