UWM says it'll beat Rocket as America's largest mortgage lender by 2024
United Wholesale Mortgage Holdings Corp. is setting a public deadline for by when it says it will surpass Rocket Companies Inc. to become the largest mortgage lender in the United States: 2024.
The three-year goal is an ambitious one, experts say. It heats up the Pontiac-based lender's years-long feud with its Detroit-based rival, Rocket Mortgage, which currently holds the title. UWM is No. 4 behind California's PennyMac Financial Services Inc. and Iowa's Wells Fargo & Co., according to trade publication Inside Mortgage Finance. Being No. 1 has been a long ambition of UWM CEO Mat Ishbia.
"We’re not like all the other mortgage companies," Ishbia told The Detroit News. "We rely a lot less on refinances, and we're less cyclical. We're more scalable on technology."
UWM is No. 1 already in one channel — the wholesale market where it exclusively works with mortgage brokers, the middle workers who shop around to lenders to find homeowners the best rates and products for them. Rocket is No. 2 in wholesale loans, but it also works directly with homeowners in the retail segment.
To surpass the competition and do what no wholesale lender has done before, more homeowners have to do business with brokers, Ishbia and experts said. And the refinance market, where Rocket is particularly strong, has to shrink.
"If volumes do continue to increase, it favors Rocket more than UWMC, but if we get higher rates, that does favor the broker market on the origination side," said Kevin Heal, senior analyst for Argus Research Co. "It's an ambitious goal. There's potential, yes, but you're relying on the broker market maintaining their independence."
A Rocket spokesman referred comment to Guy Cecala, CEO and publisher of Inside Mortgage Finance.
The market "heavily favors Rocket," Cecala said. "Just because they're larger, they are in both the retail and wholesale space, and frankly, they are basically doing everything right now as far as maximizing originations. They are growing their business in the home purchase market."
Still, Cecala said: "United Wholesale has posted some pretty remarkable growth over the past few years. I don’t think anything is going to count them out."
Ishbia says homeowners save $3,700 in the first five years if they use a broker. Lenders tend to make less on loans in the wholesale channel because of the competition.
"We have to continue to educate that the cheaper, faster way to get a loan is through a mortgage broker," Ishbia said. "They shouldn't go to the top retail lender."
The wholesale channel represents about 20% of originations, according to UWM. Ishbia wants to see that grow to 33% by 2025 and save homeowners $23 billion in the next three years. It's gotten to around that level before prior to the housing market bubble burst when many brokers left the business.
UWM has increased its efforts to promote itself in recent years. Ishbia has made news television appearances, UWM has bought regional Super Bowl ads promoting brokers, and most recently announced its logo is replacing Troy-based Flagstar Bank on the Detroit Pistons' jerseys.
The goal also comes as experts predict interest rates will rise, which discourages refinancing. Experts view brokers as stronger in the purchasing market. If interest rates rise soon, Ishbia said UWM could meet its goal sooner than 2024. But at some point, there won't be too many people left to refinance.
"Rocket Mortgage has been growing steadily since 2008 or so through a refinance market, home purchase market," Cecala said. "They’ve shown a lot of resiliency and the ability to grow in a variety of conditions."
Rocket originated $320.2 billion in mortgages in 2020. UWM did $182.5 billion.
If UWM overtakes Rocket, the volume likely won't be as high as its record 2020, Ishbia said: "These last two years have been an anomaly in terms of high volumes and high margins. When it comes back to normal, it might take a smaller, more reasonable number in a purchase market."
Should UWM surpass Rocket and conditions return to a refinancing market, Ishbia still says UWM would seek to remain ahead: "I’m not interested in being No. 1 for the quarter and going backward. We will be there and growing there and widening gap and not the other way around."
The competition could have some negative effects on margins, however, which decreased in the industry year-over-year in the first quarter as interest rates ticked up a bit.
Rates have become similar across the industry, Argus' Heal said. UWM and Rocket have employed technology to allow them to close loans faster than their competitors, which allows them to originate more volume, though at a cheaper price. Intensified competition could place pressure on margins.
"We are not concerned about it at all," Ishbia said, noting the second quarter is expected to be a record quarter. "We expect to go from all-time highs to all-time lows. We've done it every time. It's not anything new for us. We are a very profitable company even at all-time low margins."
UWM shares are down 25% year-to-date. It went public through a special-purpose acquisition company on Jan. 22, a transaction announced in September. Rocket's are down 4% year-to-date.
Ishbia also shared two other goals the company has in the next three years. He wants its net promoter score, which measures customers' feelings about service, to be the highest of Fortune 1,000 companies. It is about 87 currently, which Ishbia says is fifth.
The company also wants a 92% rate of its employees saying they want to remain at the company for the next two years. It currently is at 90%.
The workers will return to their Pontiac offices starting June 14, and all 9,300 will be back by the end of July. Unlike Rocket, UWM is not adopting a hybrid model that allows for remote work.
"We’re better together," Ishbia said. "Our people know that. Our people are excited to come to the office. If it's not a good fit for them, that's fine. We are clear about team, family, working hard, collaborating, teamwork — all these things. We do that best when we are in the same building."