UWM sues brokers who still do business with Rocket Mortgage
United Wholesale Mortgage Holdings Corp. this week sued two of its mortgage brokers who have continued to do business with Rocket Mortgage after forbidding them from doing so last year.
The Pontiac-based mortgage giant on Wednesday filed suits in U.S. District Court for the Eastern District of Michigan against Kevron Investments Inc. and Mid Valley Funding & Inv. Inc., both based in California. It alleges the companies agreed to its updated contract that caused an uproar and attracted a class-action lawsuit last year by requiring its broker partners not do business with Rocket Mortgage or Wisconsin-based Fairway Independent Mortgage Corp. UWM says the two brokerages continued to originate loans with Rocket anyway.
UWM exclusively sells mortgages through brokers, the middle party that works with homeowners and buyers, compared to Rocket, which sells loans through brokers as well as directly to consumers. UWM has alleged actions by Rocket and Fairway that it says hurt the broker industry's ability to grow long-term. It's championed itself as a fighter for the independent brokerages.
The suits filed this week now have UWM going after those partners who it says violated its contract just as its share price hit an all-time low on Wednesday, though the stock closed up 3.86% on Thursday.
Kevron Investments owner Kevin Rhatigan on Thursday declined to comment. A message was left with Mid Valley.
"All of our current clients are aligned with the 'All In' initiative and what it stands for," UWM said in a statement. "However, there have been a few brokerages who have breached this agreement. After further investigation into each breach and following a conversation with them, they continued to submit loans to UWM and Rocket Mortgage. Therefore, UWM is moving forward with legal action enforcing the penalties laid out and agreed to in the contract."
Provisions of the contract addendum state penalties for continuing to do business with Rocket include the larger between $50,000 or $5,000 per loan closed.
UWM says Mid Valley submitted at least 62 mortgage loans to Rocket since April 2021, when it agreed to its addendum. It's demanding at least $310,000 in liquidated damages. Kevron has submitted 22 loans to Rocket since March 2021, according to UWM, which is requesting an award of $110,000 in return. The mortgage company also is seeking attorney fees and interest.
Rocket Mortgage, a subsidiary of Detroit's Rocket Companies Inc., didn't respond to a request for comment on Thursday.
“The job of the broker is to find the lowest rates that make the most sense,” said Kevin Heal, analyst at Argus Research. The legal action “might actually turn mortgage brokers off to using their product. It’s anti-competitive.”
Fairway CEO Steve Jacobson echoed the sentiment in a statement: “Fairway believes brokers should always have a choice in who they work with. What is wrong with giving consumers a choice?”