UWM broker ultimatum tied to 5 bps price drop at rivals

United Wholesale Mortgage (UWM)’s 2021 move to bar its broker partners from also sending loans to Rocket Mortgage drove an average price decrease of 5 basis points per loan at companies not targeted by the policy, according to a new academic paper.

The analysis, conducted by Spencer Stone of the University of Kentucky, looks at how an exclusivity provision affects competition when it blocks only some competitors rather than all. Stone used Home Mortgage Disclosure Act (HMDA) data from 2018 to 2022, merged with Fannie Mae and Freddie Mac single-family loan performance data.

The sample includes more than 400,000 loans, with 8.1% originated through the wholesale channel. Stone compared within-lender changes in wholesale versus retail prices for identical borrowers during the four months before and after May 2021, when the impact of UWM’s ultimatum first showed up in origination data.

“Prices on loans originated by non-excluded rivals decreased by 5 bps (on average) following the introduction of UWM’s exclusivity provision,” Stone wrote. “This effect was driven more by a reduction in interest rates than fees, which suggests that the observed price reduction was driven by a decrease in lender (rather than broker) prices.”

The paper argues that exclusivity provisions are rarely complete. Because they can’t fully block all competition, they create spillover effects as demand is reallocated to non-excluded rivals, but pricing frictions prevent these companies from targeting only displaced borrowers. As a result, borrowers who were never directly affected by UWM’s policy still benefited from lower prices.

According to the paper, UWM commanded a 41.74% share of the wholesale mortgage channel over the study period. Rocket Mortgage dominated the retail channel with a 13% share and was the No. 2 wholesale lender at roughly 20%. But Rocket’s wholesale share rose from 10% to 25% between 2018 and early 2021, driven by persistent price discounts in the wholesale channel relative to its own retail prices.

In March 2021, UWM told brokers they could either continue doing business with UWM or send loans to Rocket and Fairway Independent Mortgage Corp., but not both. The ultimatum was controversial among industry participants but was unanimously upheld as lawful by the courts, the paper noted.

Despite significant geographic variation in local overlap between UWM and Rocket — up to about 15% — the 5-bps price reduction at non-excluded rivals was uniform across markets.

Stone said these dynamics extend beyond mortgage lending to manufacturer-distributor agreements, employee noncompete agreements and technology licensing agreements — virtually any context where exclusivity exists but cannot fully bar all competition.

“The effects on the firms lying outside the scope of the exclusivity provisions are significant and have real impacts on consumers,” Stone wrote. “Thus, anti-trust regulators should consider these effects when evaluating the market impact of exclusive contracts.”

This article was written by Flávia Furlan Nunes and generated with the assistance of HousingWire Automation, then reviewed by a HousingWire editor before publication.