United Wholesale Mortgage has filed a motion to dismiss a lawsuit filed by three independent mortgage brokers last year whom the lender accused of “churning.”
The Pontiac, Michigan-based wholesale mortgage lender filed a motion this week saying that the three named brokers – Rishi Bhasin, Anne James and Nelson Otero – were among the 75 brokers it found to be abusing an early pay off provision (EPO) to bank more commissions.
“In 2020, UWM became concerned the EPO period was not effectively curbing the potential for churning,” Miller Law Firm PC wrote on behalf of UWM. “(The company) noticed a tiny (number) of its independent brokers were refinancing loans three to five times faster than industry standards.”
Crain’s Detroit first reported on the motion to dismiss.
The drama began just as the COVID-19 pandemic was beginning to cripple the nation. On March 12, 2020, UWM executive Allen Beydoun appeared in a video sent to the roughly 100 mortgage brokers he claimed were responsible for higher-than-industry-average prepayment speeds.
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Beydoun said that the brokers were “making a negative impact” on prepayment speeds in the wholesale channel by refinancing “three-to-five times faster than the entire market.” He characterized it as “churning,” and said that United Wholesale Mortgage determined it was a combination of higher individual compensation plans, doing no-cost loans, or potentially charging the borrower a higher rate initially to set up a refinance later on.
Later that month, UWM changed its policy so that brokers couldn’t refi out of UWM loans that were less than 365 days old without paying back the commission or 1% of the mortgage (whichever was greater).
Bhasin, James and Otero say UWM improperly applied the EPO to loans retroactively, punishing them for loans that were still in the pipeline and had conformed to the previous 180-day standard.
“They’ve got contractual obligations just like everyone else has,” Scott Glovsky, the plaintiffs’ attorney, told HousingWire in December. “Just because they’re a large corporation doesn’t mean they get to cheat on the deal. The contract that they drafted has terms on them. They’re required to comply.”
UWM has called the lawsuit, which seeks class-action status, as “frivolous.”
In its motion, United Wholesale Mortgage lawyers said the firm amended its early payoff provision for a small percentage of brokers who they accused of churning. “UWM made this contractual change to protect consumers,” its attorneys wrote. “Within months of this contractual amendment, the vast majority of affected brokers changed their behavior and were returned to the 6-month EPO.”
Bhasin, James and Otero are seeking damages between $10,000 and $77,000 in unpaid commissions.
UWM, which works with over 11,000 mortgage brokers, went public last month at a valuation of $16.1 billion. It hauled in a record $182 billion in mortgage originations in 2020, with profits topping $3.37 billion.
In the first quarter, the wholesale lender is projecting closed loan volume between $52 billion and $57 billion, and a total gain margin of between 200 and 235 basis points, which would be a significant increase over the 95 bps from the first quarter of 2020, but lower than that of the fourth quarter.
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