United Wholesale Mortgage Holdings Corp. sets a public deadline for when it says Rocket Companies Inc. will surpass to become the largest mortgage lender in the United States: 2024.
The three-year target is ambitious, experts say. It’s heating up the Pontiac-based lender’s longstanding feud with its Detroit-based rival Rocket Mortgage, who currently holds the title. According to the trade publication Inside Mortgage Finance, UWM is ranked #4 behind PennyMac Financial Services Inc. from California and Wells Fargo & Co. in Iowa. Being number 1 has been a long ambition of UWM CEO Mat Ishbia.
“We’re not like all other mortgage companies,” Ishbia told The Detroit News. “We’re much less reliant on refinancing and we’re less cyclical. We’re more scalable in technology.”
UWM is already #1 in one channel – the wholesale market where it works exclusively with mortgage brokers, the middle workers who shop around at lenders to find homeowners the best rates and products for them. Rocket is No. 2 in wholesale lending, but also works directly with homeowners in the retail segment.
To outperform the competition and do what no lender has done before, more homeowners need to do business with real estate agents, Ishbia and experts said. And the refinancing market, where Rocket is particularly strong, must shrink.
“If volumes continue to rise, Rocket will be more in favor than UWMC, but if we get higher rates it will be beneficial for the broker market on the origination side,” said Kevin Heal, senior analyst at Argus Research Co. “It’s an ambitious target. There is potential, yes, but you trust the brokerage market to maintain their independence.”
A Rocket spokesperson referred comments to Guy Cecala, CEO and publisher of Inside Mortgage Finance.
The market “has a strong preference for Rocket,” Cecala said. “Just because they’re bigger, they’re in both retail and wholesale, and frankly, they’re basically doing everything they can to maximize production right now. They’re growing their business in the home-buying market.”
Still, Cecala said: “United Wholesale has had some pretty remarkable growth in recent years. I don’t think anything will let them down.”
Ishbia says homeowners will save $3,700 in the first five years if they use a real estate agent. Lenders tend to earn less from wholesale channel loans due to competition.
“We must 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 largest retail lender.”
According to UWM, the wholesale channel represents about 20% of the originations. Ishbia wants this to increase to 33% by 2025 and save homeowners $23 billion over the next three years. It got around that level before the housing bubble burst when many real estate agents left the company.
UWM has stepped up its efforts to promote itself in recent years. Ishbia has made news television appearances, UWM has bought regional Super Bowl ads promoting real estate agents, and most recently announced that the logo will replace the Troy-based Flagstar Bank on Detroit Pistons jerseys.
The target also comes as experts predict interest rates will rise, discouraging refinancing. Experts consider brokers to be stronger in the procurement market. If interest rates rise quickly, Ishbia said UWM could reach its target earlier than 2024. But at some point there won’t be too many people left to refinance.
“Rocket Mortgage has grown steadily since 2008 or so through a refinancing, home-buying market,” Cecala said. “They have shown a lot of resilience and the ability to grow under a variety of conditions.”
Rocket spawned $320.2 billion in mortgages in 2020. UWM did $182.5 billion.
If UWM catches up with Rocket, the volume probably won’t be as high as the 2020 record, Ishbia said: “The past two years have been an anomaly in terms of high volumes and high margins. When things get back to normal, it might take a smaller , more reasonable number in a procurement market.”
Should UWM outpace Rocket and conditions return to a refinancing market, Ishbia still says UWM would try to stay ahead: “I’m not interested in being No. 1 for the quarter and going backwards. We’ll be there and there grow and widen the gap and not the other way around.”
However, competition could have some negative effects on margins, which fell year-on-year in the sector in the first quarter as interest rates rose a bit.
Rates have become comparable across the industry, said Argus’ Heal. UWM and Rocket have used technology to close loans faster than their competitors, allowing them to generate more volume, albeit at a lower price. The intensified competition could put pressure on margins.
“We’re not worried about it at all,” Ishbia said, noting that the second quarter is expected to be a record quarter. “We expect to go from record highs to lows. We’ve done it every time. It’s nothing new for us. We’re a very profitable business, even with low margins all the time.”
UWM shares are down 25% so far. It went public on January 22 through a special acquisition company, a transaction announced in September. Rocket’s are down 4% so far.
Ishbia also shared two other goals the company has over the next three years. He wants the Net Promoter Score, which measures customers’ sense of service, to be the highest among Fortune 1,000 companies. It’s currently about 87, which Ishbia says is fifth.
The company also wants 92% of its employees to say they want to stay with the company for the next two years. It is currently at 90%.
The workers will return to their Pontiac offices from June 24, and all 9,300 will be back by the end of July. Unlike Rocket, UWM does not adopt a hybrid model that allows remote work.
“We’re better together,” Ishbia said. “Our people know that. Our people like to come to the office. If it doesn’t suit them, that’s fine. We are clear about team, family, hard work, collaboration, teamwork – all these things. We do it best when we be in the same building.”