RKT is winning the mortgage war.

I am not a financial advisor. Just an ape who loves RKT. Yes I am holding am long rocket. Let’s take a look at the evidence and show you how Mat’s empire, United Wholesale Mortgage, is crumbling to the ground. On March 04, 2021, UWM CEO Mat Ishbia issued an unusual ultimatum to wholesale brokers: choose either UWM or two of its major competitors, Rocket Companies, Inc. (“Rocket”) and Fairway Independent Mortgage Corporation (“Fairway”).   Ishbia stated, “If you look at Quicken and Rocket’s growth since 2016, it’s been almost exclusively in the partner network, is what they call it, but that’s the broker channel, wholesale business. They have been flat on the retail, but very big in wholesale.”  Ishbia states, “It is easier, faster and cheaper to do business with a mortgage broker.” Yet, he doesn’t wish to compete with Rocket or Fairway bringing many to question why? Ishbia also states, “We have industry leading technology and faster closing times.” If these statements from Ishbia are true, it begs brokers to wonder whether he is an industry leader or losing market share. Let’s take a look! So is it anticompetitive? This is where it gets more complicated. In antitrust law, details matter. Antitrust laws, such as Section 1 of the Sherman Act, are generally meant to prohibit undue restraints on trade. In this case, we have a vertical restraint on trade (e.g., between a wholesale lender and brokers) rather than a horizontal restraint (e.g., agreement between two competitors). It is also a multi-sided platform because, for each loan, there is a transaction between the lender and broker, as well as between the broker and consumer. Additionally, there are aftermarket effects to consider, such as sales of the originated loans on the secondary market and the provision of Payment Protection Insurance, among others. In this situation, all of this is assessed under the “result of reason.” The rule of reason requires a court to perform a fact-specific analysis of market power and market structure to determine the effect on competition. This is to distinguish between anticompetitive agreements that help consumers, and those that would harm them, the latter being unlawful. In doing so, the court may weigh the anticompetitive effects of the agreement against any procompetitive effects. That is why details matter. In this situation, there is anticompetitive behavior restricting a broker’s choice as to with whom it will work, coming from a wholesale lender with up to 40% market share. The brokers will certainly have fewer options in terms of lenders as well. Indeed, Rocket has states that it will invest $100 million into its broker channel and launched a new national mortgage directory in January with 43,000 different loan offers with which it works. UWM’s ultimatum will result in those innovations no longer being options for certain brokers that choose to work with UWM instead.   Overall, the precise market effects are beyond the scope of this analysis. For example, UWM makes much of the other 75 or so lenders it is allowing its brokers to work with, but whether their combined market share is significant enough such that healthy competition remains is unknown. However, the fact that UWM is targeting two of its biggest rivals, that those two rivals happen to be gaining market share, and that the rivals are investing substantial resources into the broker channel, suggests, at a minimum, that this developing situation deserves greater scrutiny and monitoring. This is courtesy of: Derek F. Dahlgren -partner at Devlin Law Firm LLC. UWMC is now sueing one of their largest brokers for 2.8 million because they worked with Rocket. Mat having to sue brokers is just another sign of weakness from a CEO who is losing market share in his only channel. This is a last ditch, desperation heave into the endzone to try and collect $2.8 million to hopefully keep his business afloat. Based on Mat’s “7 Ways to Win in 2022” presentation with brokers last week he told them that UWM did about $227B in orginations last year. Meaning, Q4 2021 volume is $55.7B. Which would be an 8.84% dropoff in volume from their Q3 2021 numbers. That is a bigger dropoff than the big banks who have already reported their Q4 2021 earnings. He also mentioned margins are currently at 80-90bps. Having to lower your margins so much just to get some business in the doors in not a winning strategy. If you provide the best experience to brokers and clients, then they are happy to pay more your services. Think about this: If 1,000 brokers across the country see this news and decide to no longer do business with UWM, and those brokers are each doing 10 loans a month that is 10,000 loans per month lost. 10,000 loans x $350,000 (average loan size) = $3.5B/month in lost orginations or $10.5B/quarter. WOW! You see where this is going? Open your eyes people. This has sinking ship written all over it. The bad press and brokers leaving his platform will cost him way more than the $2.8 million he may or may not win in the court case. TLDR: Suing your broker partners is another example of Mat not doing the right thing for brokers or consumers. Can’t wait to see the backlash from brokers speaking out against this. This is not a sign of strength at all. Mat is not weighing the negative impact of this decision in 1 year, 3 years, 5 years or longer down the road. Would have been easier, and avoided the bad press to just tell that broker, “Hey, we shut off your access to UWM since we caught you sending loans to Rocket and Fairway.” Choosing a lawsuit here is so near-sighted that it can hardly be believed. Mat’s empire is crumbling, orgination volume is falling, margins are still falling. Now you see why they hired a new Head of Investor Relations? Matt Roslin (attorney for UWM) knew this lawsuit was coming and has to prepare for the case. He no longer has time to handle Investor Relations since he will be too busy trying to justify how this doesn’t violate laws that have been in place since Then you have this lovely posts. This is from one of the brokers that are having to lay off employees due to competitive pressure the UWM and RKT fight that UWM started. https://www.linkedin.com/posts/jasonvondrak_mortgage-business-smallbusiness-activity-6895476492676034560-sTQp Also some fun facts if you take a look at RKT’s web traffic is up big across the board! Rocket mortgage https://www.similarweb.com/website/rocketmortgage.com/ Rocket homes https://www.similarweb.com/website/rockethomes.com/ Truebill their new business they just bought https://www.similarweb.com/website/truebill.com/ Rocket autos https://www.similarweb.com/website/rocketauto.com/ Earning are coming up for both companies and I for one will be watching closely. I bought calls for RKT earnings because I think the markets priced in so much negativity from the Loan depot earnings and the fed that it rocket beats. The. Rocket will live up to its name. If I lose then. I’ll post the loss porn. AUTHOR EDIT: There's a lot of meat in the above post, but I can tell it in more of a narrative story form. UWMC has been number one in the wholesale mortgage originator market. It's in their name and it's all they do. Rocket is number one in other mortgage origination markets. Rocket and UWMC executives have been competing against each other forever. UMWC goes for the cut rate, bare bones, lowest possible cost deals. Rocket is more the pay-a-little-more-get-better-service operator. In the wholesale segment, they compete for customers and deals through all those mom and pop mortgage brokers everyone has in their town and country. Rocket has been nibbling at UWMC's market share a bit, so last year UWMC declared war and threatened all the local mortgage brokers that if they do business with anybody else UWMC would cut ties with them. Brokers like having options, including the lowest price one, UWMC. So the threat had some teeth to it. Some knuckled under to the ultimatum, some didn't. Some said they would but didn't really follow it. Fast forward to now. UWMC is having very hard times. They've slashed their profit margin to almost nothing, just to keep business flowing. They claim this is a smart strategy. A couple months ago, UWMC's wild man CEO announced a dilutive share offering. The stock collapsed. So he flip flopped and announced the opposite: stock buybacks. The fall stopped at first, then resumed. People wondering if he's crazy. Last week, he decided to sue one of his main customers for doing business with the other two major mortgage originators: Rocket and Fairway. He claims the customer was breaking the monopoly ultimatum UWMC instituted last year. Suing your customers is a baaaad look, obviously. Especially from such a position of weakness. Other current UWMC customers are afraid they could get bitten by this rabid dog too. But this week, it got worse. One of UWMC's customers announced employee layoffs, and explains the job loss was directly the fault of UWMC. They said UWMC had been withholding payment on the same basis of not wanting the broker to deal with other loan suppliers. When the broker asked for mercy, UWMC refused and sent them an unexplained demand for $300,000 in penalties. You can't devise a better way to scare off customers. Many indications are the mortgage origination market has gotten tough this last quarter, and UWMC was already showing signs of weakness before. UWMC is due to report earnings any day now. OP's thesis is that UWMC is self-destructing and stands to lose a lot of their dominant market share in the wholesale category to Rocket. It's a logical inference, and one he's been tracking and predicting for some time.

back

RKT is winning the mortgage war.

bullish

I am not a financial advisor. Just an ape who loves RKT. Yes I am holding am long rocket.

Let's take a look at the evidence and show you how Mat's empire, United Wholesale Mortgage, is crumbling to the ground.

  • On March 04, 2021, UWM CEO Mat Ishbia issued an unusual ultimatum to wholesale brokers: choose either UWM or two of its major competitors, Rocket Companies, Inc. (“Rocket”) and Fairway Independent Mortgage Corporation (“Fairway”).

  • Ishbia stated, “If you look at Quicken and Rocket's growth since 2016, it's been almost exclusively in the partner network, is what they call it, but that's the broker channel, wholesale business. They have been flat on the retail, but very big in wholesale.”

  • Ishbia states, “It is easier, faster and cheaper to do business with a mortgage broker.” Yet, he doesn't wish to compete with Rocket or Fairway bringing many to question why? Ishbia also states, “We have industry leading technology and faster closing times.” If these statements from Ishbia are true, it begs brokers to wonder whether he is an industry leader or losing market share. Let's take a look!

  • So is it anticompetitive? This is where it gets more complicated. In antitrust law, details matter. Antitrust laws, such as Section 1 of the Sherman Act, are generally meant to prohibit undue restraints on trade. In this case, we have a vertical restraint on trade (e.g., between a wholesale lender and brokers) rather than a horizontal restraint (e.g., agreement between two competitors). It is also a multi-sided platform because, for each loan, there is a transaction between the lender and broker, as well as between the broker and consumer. Additionally, there are aftermarket effects to consider, such as sales of the originated loans on the secondary market and the provision of Payment Protection Insurance, among others. In this situation, all of this is assessed under the “result of reason.”

The rule of reason requires a court to perform a fact-specific analysis of market power and market structure to determine the effect on competition. This is to distinguish between anticompetitive agreements that help consumers, and those that would harm them, the latter being unlawful. In doing so, the court may weigh the anticompetitive effects of the agreement against any procompetitive effects. That is why details matter.

In this situation, there is anticompetitive behavior restricting a broker's choice as to with whom it will work, coming from a wholesale lender with up to 40% market share. The brokers will certainly have fewer options in terms of lenders as well. Indeed, Rocket has states that it will invest $100 million into its broker channel and launched a new national mortgage directory in January with 43,000 different loan offers with which it works. UWM's ultimatum will result in those innovations no longer being options for certain brokers that choose to work with UWM instead.

Overall, the precise market effects are beyond the scope of this analysis. For example, UWM makes much of the other 75 or so lenders it is allowing its brokers to work with, but whether their combined market share is significant enough such that healthy competition remains is unknown. However, the fact that UWM is targeting two of its biggest rivals, that those two rivals happen to be gaining market share, and that the rivals are investing substantial resources into the broker channel, suggests, at a minimum, that this developing situation deserves greater scrutiny and monitoring.

This is courtesy of: Derek F. Dahlgren -partner at Devlin Law Firm LLC.

UWMC is now sueing one of their largest brokers for 2.8 million because they worked with Rocket.

Mat having to sue brokers is just another sign of weakness from a CEO who is losing market share in his only channel. This is a last ditch, desperation heave into the endzone to try and collect $2.8 million to hopefully keep his business afloat. Based on Mat's “7 Ways to Win in 2022” presentation with brokers last week he told them that UWM did about $227B in orginations last year. Meaning, Q4 2021 volume is $55.7B. Which would be an 8.84% dropoff in volume from their Q3 2021 numbers. That is a bigger dropoff than the big banks who have already reported their Q4 2021 earnings. He also mentioned margins are currently at 80-90bps. Having to lower your margins so much just to get some business in the doors in not a winning strategy. If you provide the best experience to brokers and clients, then they are happy to pay more your services.

Think about this: If 1,000 brokers across the country see this news and decide to no longer do business with UWM, and those brokers are each doing 10 loans a month that is 10,000 loans per month lost. 10,000 loans x $350,000 (average loan size) = $3.5B/month in lost orginations or $10.5B/quarter. WOW! You see where this is going? Open your eyes people. This has sinking ship written all over it. The bad press and brokers leaving his platform will cost him way more than the $2.8 million he may or may not win in the court case.

TLDR: Suing your broker partners is another example of Mat not doing the right thing for brokers or consumers. Can't wait to see the backlash from brokers speaking out against this. This is not a sign of strength at all. Mat is not weighing the negative impact of this decision in 1 year, 3 years, 5 years or longer down the road. Would have been easier, and avoided the bad press to just tell that broker, “Hey, we shut off your access to UWM since we caught you sending loans to Rocket and Fairway.” Choosing a lawsuit here is so near-sighted that it can hardly be believed. Mat's empire is crumbling, orgination volume is falling, margins are still falling. Now you see why they hired a new Head of Investor Relations? Matt Roslin (attorney for UWM) knew this lawsuit was coming and has to prepare for the case. He no longer has time to handle Investor Relations since he will be too busy trying to justify how this doesn't violate laws that have been in place since

Then you have this lovely posts. This is from one of the brokers that are having to lay off employees due to competitive pressure the UWM and RKT fight that UWM started.

https://www.linkedin.com/posts/jasonvondrak_mortgage-business-smallbusiness-activity-6895476492676034560-sTQp

Also some fun facts if you take a look at RKT's web traffic is up big across the board!

Rocket mortgage https://www.similarweb.com/website/rocketmortgage.com/

Rocket homes https://www.similarweb.com/website/rockethomes.com/

Truebill their new business they just bought https://www.similarweb.com/website/truebill.com/

Rocket autos https://www.similarweb.com/website/rocketauto.com/

Earning are coming up for both companies and I for one will be watching closely. I bought calls for RKT earnings because I think the markets priced in so much negativity from the Loan depot earnings and the fed that it rocket beats. The. Rocket will live up to its name. If I lose then. I'll post the loss porn.


AUTHOR EDIT:

There's a lot of meat in the above post, but I can tell it in more of a narrative story form.

UWMC has been number one in the wholesale mortgage originator market. It's in their name and it's all they do.

Rocket is number one in other mortgage origination markets.

Rocket and UWMC executives have been competing against each other forever.

UMWC goes for the cut rate, bare bones, lowest possible cost deals. Rocket is more the pay-a-little-more-get-better-service operator.

In the wholesale segment, they compete for customers and deals through all those mom and pop mortgage brokers everyone has in their town and country.

Rocket has been nibbling at UWMC's market share a bit, so last year UWMC declared war and threatened all the local mortgage brokers that if they do business with anybody else UWMC would cut ties with them.

Brokers like having options, including the lowest price one, UWMC. So the threat had some teeth to it.

Some knuckled under to the ultimatum, some didn't. Some said they would but didn't really follow it.

Fast forward to now. UWMC is having very hard times. They've slashed their profit margin to almost nothing, just to keep business flowing. They claim this is a smart strategy.

A couple months ago, UWMC's wild man CEO announced a dilutive share offering. The stock collapsed. So he flip flopped and announced the opposite: stock buybacks. The fall stopped at first, then resumed. People wondering if he's crazy.

Last week, he decided to sue one of his main customers for doing business with the other two major mortgage originators: Rocket and Fairway. He claims the customer was breaking the monopoly ultimatum UWMC instituted last year.

Suing your customers is a baaaad look, obviously. Especially from such a position of weakness. Other current UWMC customers are afraid they could get bitten by this rabid dog too.

But this week, it got worse. One of UWMC's customers announced employee layoffs, and explains the job loss was directly the fault of UWMC. They said UWMC had been withholding payment on the same basis of not wanting the broker to deal with other loan suppliers. When the broker asked for mercy, UWMC refused and sent them an unexplained demand for $300,000 in penalties.

You can't devise a better way to scare off customers.

Many indications are the mortgage origination market has gotten tough this last quarter, and UWMC was already showing signs of weakness before. UWMC is due to report earnings any day now.

OP's thesis is that UWMC is self-destructing and stands to lose a lot of their dominant market share in the wholesale category to Rocket. It's a logical inference, and one he's been tracking and predicting for some time.

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