UWM Broker Ultimatum Caused 5 Bps Price Drop at Rivals

United Wholesale Mortgage's (UWM) 2021 decision to prohibit broker partners from originating loans with Rocket Mortgage resulted in an average price decrease of 5 basis points per loan at companies not subject to the policy, according to an academic paper. The study, conducted by Spencer Stone of the University of Kentucky, analyzed how an exclusivity provision impacts competition when it selectively blocks some competitors. Stone utilized Home Mortgage Disclosure Act (HMDA) data from 2018 to 2022, combined with Fannie Mae and Freddie Mac single-family loan performance data, examining over 400,000 loans, with 8.1% originating through the wholesale channel.

The research compared changes in wholesale versus retail prices for identical borrowers within the same lenders during the four months preceding and following May 2021, when UWM's ultimatum began affecting origination data. The paper states that prices for loans originated by non-excluded rivals decreased by an average of 5 basis points after UWM introduced its exclusivity provision. This price reduction was primarily attributed to lower interest rates rather than fees, indicating a decrease in lender prices rather than broker prices.

The paper posits that exclusivity provisions are seldom absolute. Because they cannot entirely eliminate competition, they generate spillover effects as demand shifts to non-excluded rivals. However, pricing inefficiencies prevent these companies from exclusively targeting borrowers displaced by the policy. Consequently, borrowers not directly impacted by UWM's policy also experienced the benefit of reduced prices.

During the study period, UWM held a 41.74% share of the wholesale mortgage channel. Rocket Mortgage led the retail channel with a 13% share and was the second-largest wholesale lender, holding approximately 20%. Rocket's wholesale share increased from 10% to 25% between 2018 and early 2021, a growth fueled by consistent price discounts in the wholesale market.