Mat Ishbia is optimistic about the mortgage market. The Pontiac, Michigan-based United Wholesale Mortgage (UWM) CEO believes that 2022 and 2023 are equally challenging years, but the market will improve in 2024. Meanwhile, 2025 and 2026 will be off the charts.
What does Ishbia think about surging mortgage rates, lack of housing inventory and monetary and policy pressures?
“That’s a people-who-are-losers mentality. And those people I don’t like being associated with,” Ishbia says. “We recognize what reality is. But it’s about the mindset; we think we’re winning now.”
Ishbia says that the wholesale channel should reach 33% market share by 2026, compared to the current level of 22%. He also said that the growth will be achieved despite competitors exiting the space in part because of Ishbia’s cutthroat pricing initiatives, which will play a smaller role going forward.
“Right now, there are 70 lenders out there. One lender leaving, two others leaving, it doesn’t matter at all,” Ishbia said. “It’s all about making sure they [brokers] have options.”
But hasn’t UWM limited brokers’ options by imposing an ultimatum and prohibiting brokers from working simultaneously with UWM and two competitors, Rocket Mortgage or Fairway Independent Mortgage?
“There were two companies out there that were doing stuff to hurt the broker community systematically,” the executive said. “The broker community is better because of that [the ultimatum].”
Ishbia answered a range of questions in an interview with HousingWire in early May during UWM Live!, its brokers’ network conference held in its sports center in Pontiac.
This interview has been condensed and edited for clarity.
Flávia Nunes: Where are we at in terms of the current mortgage market cycle?
Mat Ishbia: In the 2022 and 2023 markets, rates went up a lot. There’s a lot less refinancing and a lot more purchases. Is it the bottom? It’s hard to say it’s the bottom. However, I’d say a couple of months ago was when things were tight – from the fourth quarter [of 2022] – and the first quarter [of 2023] was slower because people will buy houses much more in the spring, summer and fall.
I don’t know if it’s the bottom or not, but the reality is 2022 and 2023 will be recovery years; it’s going to break. And 2024, 2025 and 2026, they’ll be the three best mortgage years in history because everybody that’s doing 6.5% and 7% right now is gonna eventually need to refinance. I think 2022 and 2023 are equally tough years. We’ll get a lot better in 2024. And 2025 and 2026 will be off the charts.
Nunes: Surging mortgage rates is one challenge, but inventory is another. How can the market recover amid a lack of home supply?
Ishbia: That’s a people-who-are-losers mentality. That’s what you’ll hear about on the earnings calls from some companies, but that’s just their excuse. The reality is there are a lot of people buying houses right now. The reality is you’ve got to compete, and you’ve got to win. We’re having a hell of a quarter. So, people who say inventory and rates and it’s bottom and it’s struggling, they just have a loser’s mentality. And those people I don’t like being associated with. So, the market is great. We’re on a great second quarter, and we’re going to keep on running. Brokers are out there and they’re winning.
Nunes: And how are you taking advantage when the market gets better?
Ishbia: The market is still very good right now; we’re winning right now. But the market is going to get better. Rates lowering frees up inventory. No one is selling their $300,000 house at a 3% interest rate to buy a $400,000 home at 6% because then their payments are going to more than double. So what if rates were 4.5%? People would then sell the house because it is not as big of a jump if they wanna upgrade. And that will free up when rates drop. I’m not concerned about it at all.
The stuff we’re doing in 2023 was built in 2020. The stuff I’m doing in 2024 has already been built. And we’re just working on the execution plans right now. We feel great about the strategy that we’re implementing and executing. All these other retail lenders are doom and gloom, saying: “The market is so hard, I gotta wait for next year.” We recognize what reality is. But it’s about the mindset; we think we’re winning now.
Nunes: Does it mean UWM will be back to overall profitability soon?
Ishbia: It just depends on how you look at it. We made almost a billion dollars last year [UWM had $931.9 million in net income in 2022, including a $284.1 million increase in the fair value of MSRs]. I think that’s pretty profitable. If you take out the servicing rights marks, we make a whole bunch of money. When you look at the servicing values, those cover up blemishes or make you look worse than you are. I don’t even pay attention. We got to make money running the business. If you lose money in servicing, it’s just an asset that marks up and down based on how the rates were on March 31. It means nothing. But operationally, we’re very profitable.
Servicing rights are an asset I own that changes every day and that I have zero control over. I focus on things I can control, which is running the business operationally profitable: do more loans, watch the margins, and control our expenses to be profitable. In the fourth quarter, you saw a negative number on the headline. That’s not real, just like there are some quarters that a lot of companies show a really positive number, but it really wasn’t. We don’t pay attention to servicing assets. We focus on the business.
Nunes: What are UWM’s plans with MSRs? Do you consider acquiring these assets?
Ishbia: That’s how we are: we don’t buy other portfolios. Other places buy loans and act as if they originated. That’s not origination. That’s the correspondent channel. It’s not real. We actually originate every loan; we don’t acquire MSRs. We close loans; we do originate ourselves here at UWM. So that’s not our business.
Nunes: According to the Inside Mortgage Finance ranking, Pennymac is the top U.S. mortgage lender. How does UWM plan to compete with them?
Ishbia: Pennymac doesn’t originate loans. They buy loans. The only originators are retail or wholesale. Small retail lenders originate the loan, close it, and then sell it to Pennymac. Who originated the loan? The retail lender. They [Pennymac] are just like a big MSR acquirer. They should be more like Bayview, Lakeview, and Mr. Cooper, who buys a lot of servicing annually. And I love Pennymac, I respect them, and their CEO is a good guy. They have a good retail, direct-to-consumer, and broker business in the wholesale channel. That’s just a billion dollars a month, or a billion-and-a-half dollars a month. But you have to look at IMF direct funded numbers. [Pennymac’s loan acquisition and originations reached $22.8 billion in Q1 2023, with correspondent channel’s commitments at $21.7 billion.]
Nunes: Do you consider Pennymac a direct competitor?
Ishbia: Not at all. In the broker channel, they do like $500 million a month. They are good company. For the overall crown, they are not even the number two. Rocket is number two.
Nunes: UWM is the top originator in the country, but you got there with ‘Game On,’ an aggressive pricing strategy. What is your pricing strategy looking ahead?
Ishbia: Game On, as I talked about before, was an investment in the broker community to help more loan officers join the broker community and it helped the brokers who needed more loans in the toughest time in the market, which was the fourth quarter. It helped in the third quarter as well. We’ve kind of modified that strategy because, as I said, it wasn’t forever, but it was to help really catapult the broker community and it did that.
On the pricing stuff, I said that it’s 75-100 basis points. And even with my Game On pricing last year, we still finished at that range. [The company’s total gain-on-sale margins was 77 basis points in 2022, compared to 114 bps in 2021]
Nunes: What will that shift mean for the company’s market share?
Ishbia: We’ll keep the market share well above what we were before Game On. That will show success. We were doing 30% market share pre-Game On, and the broker channel was smaller. Now, with the broker channel bigger, we did 54% in Q4. In Q1, you will see without Game On, if we do 30% again, it’s okay. If I do 40%, you will say: ‘He did a hell of a job.” If I do 50%, that’d be off the charts. I don’t think it will be quite that number, but we will come back down to more normalized numbers.
Nunes: What role does the ‘Control your Price‘ initiative, which gives brokers discount points to play with, have in this strategy?
Ishbia: It just helps them to compete for loans. They already have the best pricing because brokers have better pricing than retail. So, they have the ability, if they need something for a borrower, they might help a borrower out. They can do that. Control Your Price gives them flexibility. I’m trying to give brokers control over everything: control your closings with UClose, control your underwriting with Bolt, and control your disclosures with our docs systems. And it’s kind of a little bit of trickiness. We have control behind the scenes of everything with our technology. But we give them control so brokers can have all aspects of the business.
Nunes: We saw competitors exiting the wholesale channel as pricing got much more challenging. How does it affect the goal of increasing the wholesale channel’s market share?
Ishbia: Ask the brokers out there how many lenders they work with. If there are less than five, then you have a problem. Right now, there are 70 lenders out there. One lender leaving, two others leaving, it doesn’t matter at all. It’s all about making sure they have options. As a broker, you have to have lenders competing at the same time for technology, service, partnership, price and underwriting time. That’s the benefit. When you’re retail, you only have one option, so they don’t have to compete with anyone.
The point is to get the broker channel back to that 33% market share. We target 2026. So a couple more years to get there. I believe that’s realistic. There’s still a lot of work to do to get there. It depends on the refi boom and purchase market and how the brokers react. But we feel pretty good about how many LOs converted from retail to wholesale. We watch those numbers closely, but we feel pretty good about that target.
Nunes: I spoke to a loan officer who is sending almost all of his loans, 98% to be exact, to UWM. Isn’t his brokerage firm effectively working as a UWM branch?
Ishbia: He’s not sending 98% because he is required to. He’s sending 98% because we are the best. We have to be the best every day. If we are the worst in a month, he can send it to those other lenders right away. And that’s why wholesale is so hard. Most lenders don’t want to be great every day. Your technology has to be fantastic every day. Your pricing has to be sharp every day. They have options. They don’t work for me.
Nunes: But hasn’t UWM tried to limit brokers’ options when it imposed the ultimatum two years ago, prohibiting brokers from also sending loans to Rocket and Fairway? How does it play out?
Ishbia: The goal was: there were two companies out there that were doing stuff to systematically hurt the broker community. And they [brokers] don’t work for Rocket and Fairway; they don’t work for me. So, I can’t tell them what to do. But I can say: ‘If you want to work with the best lender, you can’t help them [Fairway and Rocket] anymore because these companies are trying to hurt you. And whether you know it or not, I know it. And it’s been proven. I have data to support it. It’s no big deal if they decide to go elsewhere. But 95%-97% of all came with UWM because they understood. Even the ones that stayed with them have switched over since. The broker community is better because of that.
Rocket is being sued right now, and it’s because they lied about it. If you notice in the complaint, it said that Jay Farner tweeted out: “Since All In, all these brokers are joining our channel.” They were lying, and Dan Gilbert retweeted it. They’re suing both of them for providing public lies.
[Ishbia is referring to a derivative lawsuit filed on May 22 in Michigan by a shareholder accusing Rocket Companies, its board of directors and executives, including Farner, of breaches of fiduciary duties and violations of federal laws. In response, a Rocket’s spokesperson told HousingWire the lawsuit’s “hodgepodge of allegations is a work of fiction – based on a complete distortion of reality,” all stock sales were done in complete accordance with company policy and the company will vigorously defend its reputation and hold accountable anyone who makes false claims.]
Nunes: UWM is also the target of lawsuits regarding the ultimatum, no?
Ishbia: The reality is if a broker breaks the contract and if they have, we will address it, and we will win. And then we’ll take that money and put it towards findamortgagebroker.com to help the rest of the brokers because we don’t want the money.
Nunes: You mentioned before that UWM will grow organically. Why is it not part of your plan to expand through M&As?
Ishbia: We believe that culture and people are the keys to success. I can’t acquire some companies in California and Minnesota and try to put [into place] this culture. It’s like a cheating way to try to get more volume anyways. We organically grow and build.
Nunes: Bloomberg reported in early April that more than two-dozen current and former employees say UWM has a toxic work environment, with racial disparities, sexual harassment, drug use and bullying by managers. Can you comment on these allegations?
Ishbia: We will not comment on that.
