Although I live in Michigan, I admit that I am not familiar with UWM participations (NYSE:UWMC) before this article. And yet, the UWMC action has gone public as one of the biggest SPACs in a 12-month period that has seen a record number of PSPCs.
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However, I know them now. It turns out that the company – as an indirect parent company of United Wholesale Mortgage – took an aggressive and controversial decision regarding its relationship with mortgage brokers. Specifically, UWM announced that it will no longer be working with a mortgage broker who also does business with rival Rocket Mortgage, which is part of Rocket companies (NYSE:RKT).
You have to appreciate the common sense of the CEO of UWM, Mat Ishbia. And Ishbia says less than 500 brokers out of 12,000 continue to partner with Rocket Mortgage. However, while UWM may have won this battle, the juice may not be worth the squeeze.
Mortgage brokers are a dying business
According to National Mortgage News, mortgage brokers are in decline. Since 2006, considered the peak of the industry, the number of mortgage brokers has fallen by 45%. To understand why, consider the year 2006.
It was the peak of the real estate bubble. Mortgage brokers work with wholesale mortgage brokers like UWM and Rocket. In 2006, there was a dizzying amount of product. As a result, many buyers were eager to allow a mortgage broker to analyze and compare different mortgage products.
Then the financial crisis hit. In the process, most if not all of the exotic mortgage products disappeared. And with the passage of the Dodd-Frank Act in 2010, lenders were required to verify a borrower’s repayment capacity and faced significant penalties for errors on mortgage loan applications. This has prompted many lenders to simply use in-house loan officers.
At the same time, the smartphone revolution has started. Before you knew it, there was an app that allowed consumers to compare mortgage products in seconds on their phones.
All of these things combined have reduced the need for a mortgage broker. The bottom line for me is that this is a Pyrrhic victory for United Wholesale Mortgage and shouldn’t weigh too much on your decision to buy UWMC shares.
One way to stand out
Despite my feeling that maybe it wasn’t a battle worth fighting for, I can understand what the UWMC is trying to do. The wholesale mortgage industry is going to be fierce. It’s a way the company tries to find that sometimes elusive “reason beyond the price”.
For his part, Rocket doesn’t appear to be as progressive as the announcement. In an interview with the Wall Street Journal, a spokesperson for RKT said the company’s platform for brokers increased its market share after UWM announced that brokers had to choose one side or the other. without competition.
Which company is telling the truth? In my experience, they are probably both telling the truth from their own perspective. The real winner can be potential borrowers.
Should you buy UWMC shares?
Whenever I have an action that usually elicits a suspicious reaction from the writers at InvestorPlace, I’ve learned that David Moadel is sometimes a voice against the tide. And that’s true with this one. While not giving UWMC stock its full approval, Moadel is giving speculative investors something to consider.
In fact, the most significant headwind UWMC equity investors may face is our own economy. There is no longer a glut of homes on the market, especially in the hot markets. Mortgage rates remain at historically low levels, but borrowers will no longer find a rate of around 2%. And when the weather warms, so will home sales, which means mortgage rates will continue to rise.
With that in mind, I see UWM as a commodity, so I see UWMC stock having a tough climb ahead of it.
As of the publication date, Chris Markoch does not hold (neither directly nor indirectly) any positions in any of the stocks mentioned in this article.
Chris Markoch is a freelance financial writer who has covered the market for seven years. He has been writing for Investor Place since 2019.
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