The nation’s biggest mortgage lender, United Wholesale Mortgage, says it doesn’t need to take a page from the playbook of its fiercest rival, Rocket Mortgage, by amassing a massive loan servicing portfolio to grow its refinancing business.
While rival Rocket Mortgage seeks to boost refis by becoming largest U.S. loan servicer, UWM CEO Mat Ishbia says AI and competitive pricing will help mortgage brokers compete for borrowers.
UWM’s second quarter loan production numbers seem to back that up. While the company’s Q2 purchase loan originations were essentially flat from a year ago, at $27.3 billion, refinancing volume was up 93 percent over the same period, to $12.4 billion.
“Most people think you need to have the client in your servicing book to refinance them,” Ishbia said Thursday on the company’s Q2 earnings call. “We don’t refinance any borrowers — our brokers do.”
Mortgage lenders can either keep the servicing rights to loans they originate — earning fees from investors who own the loans by collecting monthly mortgage payments on their behalf — or sell the servicing rights to others for a more immediate payday.
In addition to generating fee income, servicing their own loans can give lenders an inside track when borrowers are ready to refinance or buy a new home.
But UWM’s investment in AI and other technology is helping mortgage brokers “deliver world class experience,” Ishbia said. That means “it really doesn’t matter how big your servicing book is — it gives brokers the ability to excel on refinances.”
While rival Rocket Mortgage is set to become the nation’s largest mortgage servicer this year through its acquisition of Mr. Cooper, UWM was content to let its loan servicing portfolio shrink to $211 billion as of June 30, down 13 percent from $242 billion at the end of last year.
Ishbia said that UWM only owns the servicing rights to about 2 percent of U.S. mortgages, but handled 11 percent of Q2 refinancings.
Mat Ishbia
“For us, [those statistics] really disprove the age-old theory that you must have the servicing to do the refi,” Ishbia said.
When Pontiac, Michigan-based UWM surpassed Rocket Mortgage in 2022 to become the nation’s largest provider of home loans, it did so largely by doing more business with homebuyers.
While Rocket’s streamlined online process makes it easy for homeowners to refinance their existing mortgage, UWM is a wholesale lender that works exclusively with independent mortgage brokers.
UWM says those mortgage brokers’ ties to local real estate agents and past clients have given the company an edge with homebuyers.
UWM mortgage originations by type
As mortgage rates climbed in 2022 and 2023 from the historic lows seen during the pandemic, the entire mortgage industry suffered as the highly profitable business of refinancing borrowers all but evaporated.
But UWM’s success in providing purchase loans to homebuyers made it the leading mortgage lender — a title it’s not about to give up without a fight.
Independent mortgage brokers who work with UWM and other wholesale lenders are handling about 30 percent of home lending — more than double the channel’s share in 2016, Ishbia said.
“Our goal is for brokers to be No. 1,” Ishbia said. “In my mind, that means 50.1 percent. I don’t know [if it will take] five years or 15 years, but we’re going to grind it out and make sure it happens. It’s best for consumers, it’s best for real estate agents, it’s best for loan officers, which is while the channel continues to grow.”
UWM’s Q2 purchase loan production was its third-best in the history of the company, Ishbia said. With $49 billion in purchase loan originations in the first half of the year, he said UWM is on course to do over $100 billion in purchase loans this year.
Rocket Mortgage is determined to boost its exposure to homebuyers through its acquisition of real estate brokerage Redfin. When the deal closed on July 1, Rocket rolled out preferred pricing to borrowers represented by Redfin agents the same day.
While Rocket can still claim to be the king of refis, it hopes to take a much bigger slice of that market through a merger with the nation’s largest loan servicer, Mr. Cooper, which is slated to close by the end of this year.
Rocket Mortgage’s ultimate goal is to capture 8 percent of the purchase loan market and 20 percent of refinancings, up from 3.9 percent and 11.3 percent in 2024, according to federal loan data analyzed by iEmergent.
When Rocket’s deal to acquire Mr. Cooper closes, it will be collecting payments on $2.1 trillion in outstanding loans from nearly 10 million homeowners, about 1 in 6 U.S. mortgages.
Being in the loan servicing business — collecting monthly payments from homeowners on behalf of mortgage-backed securities (MBS) investors — is a steady source of fee revenue. Mr. Cooper and Rocket’s loan servicing portfolios generated $4 billion in fee revenue last year.
But Rocket also sees the pending merger as an avenue to give its refinancing business a big boost by leveraging its past success in providing financing to 83 percent of its loan servicing customers when they’re ready for their next loan.
UWM’s shrinking mortgage servicing rights portfolio
While Rocket Mortgage’s servicing division consistently earns top rankings in consumer satisfaction surveys fielded by J.D. Power, Mr. Cooper has ranked below the industry average for more than a decade, going back to the days when it still did business as Nationstar Mortgage.
Mr. Cooper’s “recapture rate” on its $1.5 trillion loan servicing portfolio is closer to 50 percent. But Rocket sees a tremendous opportunity if it can bring the recapture rate on Mr. Cooper’s portfolio up — particularly if mortgage rates drop, and more homeowners have an incentive to refinance.
Although UWM has pulled its subservicing contract with Mr. Cooper and is working to bring servicing in-house, it’s been allowing its mortgage servicing rights portfolio to shrink. At $211 billion as of June 30, UWM’s loan servicing portfolio is only about one-tenth the size of Rocket and Mr. Cooper’s combined MSRs.
But Ishbia cited two technology tools that will help it compete for borrowers serviced by other lenders:
- LE Optimizer (LEO), a tool that provides a detailed analysis of competitors’ loan estimates (LE) and identifies opportunities for independent mortgage brokers to offer better deals.
- “Mia,” an AI-powered virtual assistant that answers inbound calls and makes outbound calls, asking and answering questions, taking messages and scheduling appointments.
“Mia is designed to help loan officers do more loans and get more business,” Ishbia said. “She is the ultimate loan officer. She works 24/7, 365 — she doesn’t get days off.”
On Wednesday, UWM launched “R/T 90,” a 90-basis point pricing incentive for “rate and term” refinancings, in which borrowers are seeking to get a lower interest rates than they’re paying on their existing loans.
Rocket and Mr. Cooper have also made big investments in AI. And next year, lenders who service their own loans will have less competition for repeat business due to new restrictions on mortgage “trigger leads.”
When the new rules take effect in six months, credit bureaus will only be able to sell mortgage applicants’ information to their current mortgage lender, loan servicer or any bank or credit union they have an account with.
Ishbia said that while the new rules for trigger leads could mean there will be less competition for borrowers, leads will still be available.
“People think [the new trigger lead legislation] means, ‘Oh, now I’ve got a client and they’re never going to be shopped. I’m going to be set,’” Ishbia told mortgage brokers in a Facebook bulletin. “That’s not how this is really going to go.”
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