Anti-competitive practices threaten innovation in the mortgage industry

Innovation. Disruption. Value. CEO concerns about product development or process improvement, and the timeless “thinking-out-of-the-box” are bullet points in every C-suite Powerpoint. And rightly so. As Peter Drucker said, business has only two basic functions: marketing and innovation. The competitive spirit that innovation inspires is how brands remain on top and how start-up, disintermediating companies dethrone leaders.

But not all market leaders embrace radical opportunity. It is worrisome to see the CEO of United Wholesale Mortgage, Mat Ishbia, talk about what are anti-competitive and anti-consumer tactics instead of how he would plan to maintain the firm’s leadership position in the wholesale mortgage industry. Rather than talking about innovation, which could take the shape of new technologies for UWM’s brokerage clients or modern lending solutions, Ishbia is banking on monopolistic strategies and ultimatums to maintain UWM’s existing customer base (e.g., mortgage brokers) and to keep a death grip on its market share.

Historically, the mortgage industry has been a relatively high margin, commission-driven sector. Like realtors, wholesale mortgage lenders and brokers have experienced disruption as the online retail market has matured over the last 10 years. New technologies and channels of distribution have improved the lending process. Improvements driven by innovative companies such as Rocket Mortgage and Fairway Independent Mortgage Corporation have produced a faster application process and time-to-close, as well as new technologies and features that add transparency for the consumer and streamline the back-end process for lenders.

Traditional realtors and wholesale mortgage lenders, such as UWM, are unproductively clinging to old business models and using anti-competitive tactics to keep the profits flowing at the consumer’s expense. Ishbia’s message to the brokerage channel, announced via a Facebook Live event presented an ultimatum. He said Rocket and Fairway Independent are “hurting us [UWM]” and offered a resolution that is allegedly “great for the broker channel.” His solution? Mortgage brokers must sign an exclusive contract with UWM and to do no business with Rocket or Fairway Independent.

UWM bills itself as the No. 1 wholesale mortgage lender in the United States. However, the company is acting like a rent-seeking laggard and not a value-adding leader. Ishbia’s communication is defensive. Ishbia does not talk about driving positive change through innovation or investing to grow.

Most notably missing from the UWM strategy is what this ultimatum means for the end consumer. By attempting to limit competition, UWM could leave consumers with fewer choices, higher costs and slower transactions, all even more critical in today’s hot housing market. Bob Broeksmit, President and CEO of the Mortgage Bankers Association, said that the independent industry trade group, “does not condone activities designed to thwart competition in the mortgage market and limit loan options available to borrowers.”

Consumers are smarter than UWM’s scheming. Loan applicants already challenge brokers to make sure all options are explored. How will brokers now explain that they are only shopping a portion of the market for the best rates and opportunities? The UWM ultimatum cuts at the very foundation of why the brokerage channel exists. Brokers, by design and stated mission, add value by shopping the marketplace for the best options for their clients. Brokers are forced to consider a path of fewer options that goes against the very fabric of their value proposition.

Erik Gordon, a professor at the University of Michigan’s Ross Business School makes another point in the Detroit News, “the move makes UWM look weak, which likely means UWM is losing business.” Gordon continues, “This isn’t some high moral stance. If you say something like ‘you have to decide it’s us vs. them,’ you’re worried about people shifting a little bit of their business. Rocket must be doing something that appeals to some of the independent brokers, or United Wholesale wouldn’t have to make that threat.”

Rocket invested tens of millions of dollars into marketing, including a campaign featured during the Super Bowl creating demand for network brokers. Rocket has also committed $100 million in 2021 to further enhance technology available to brokers. This major channel investment comes on the heels of Rocket recently launching a national broker directory which connects homebuyers and homeowners with independent mortgage brokers who can guide them through the lending process, a value add for consumers that provides demand creation to brokers. While UWM proposes demands and anti-competitive strategies that hurt the consumer, Rocket and Fairway Independent are acting like industry leaders.

What would Drucker say?An established company which, in an age demanding innovation, is not able to innovation, is doomed to decline and extinction.

The UWM March 15th deadline for brokers to decide a restrictive direction is now upon us. At the end of the day, brokers know that siding with the consumer is usually the best path forward.