United Wholesale Mortgages faces a potentially ugly legal battle from a few of his own constituents. Three California mortgage brokers say UWM pulled the rug out from under them in March when it changed the fee structure on mortgages that were quickly paid off by borrowers. The lawsuit seeks class action status.

On March 12, 2020, UWM executive Allen Beydoun appeared in a video sent to the roughly 100 mortgage brokers he said were responsible for above-industry prepayment speeds.

In the video, which was reviewed by HousingWire, Beydoun said the 100 or so brokers “negatively impact” prepayment speeds in the wholesale channel by refinancing “three to five times faster than the overall market. “. He called it a “churn” and said UWM determined it was a combination of higher individual compensation plans, no-fee loans, or potentially charging the borrower a higher rate. high initially to set up refinancing later.

UWM changed its policy this month so that brokers cannot refinance UWM loans that are less than 365 days old without repaying the commission or 1% of the mortgage (whichever is greater).

The three brokers – Rishi Bhasin, Anne James and Nelson Otero – are asking for between $ 10,000 and $ 77,000 in commissions on prepaid loans, claiming that UWM misapplied it to loans retroactively. In other words, they say UWM punished them for loans that were still outstanding and met the previous 180-day standard.

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“They have contractual obligations like everyone else,” said Scott Glovsky, counsel for the plaintiffs. “Just because it’s a big company doesn’t mean they can cheat on the deal. The contract they drafted contains clauses. They are required to comply with it.

UWM has yet to respond to the lawsuit, but the lender this week released a statement calling the claims in the lawsuit “baseless, if not frivolous,” and a source close to the lender argued that the lawsuit distracts attention from the larger churning issue, a practice the lender says it is trying to eradicate.

Company Position Is Fast Prepayment Speeds Damage Its Reputation with Fannie Mae and Freddie mac, investors in the secondary market, and this churning hurts borrowers because they should have received the best rate up front, not months later. The tariffs did not have changed enough in the meantime to justify another loan, said the source close to the company.

It’s worth remembering when it all happened. No one on March 12 could predict a year in which save original volume would lead to record profits. In mid-March, the lenders got scared and accumulated money. And GSEs were having conversations with wholesale lenders about concerns about increasing prepayment speeds, sources said. According to data from Federal Housing Finance Agency, the prepayment rate on all agency MBS reached 2.1% in October 2019 and increased to around 2.5% in March 2020. Black Knight data, the prepayment rate in October 2020 was 3.17%, the highest rate in over 16 years.)

Before Beydoun’s video made the rounds – and sparked difficult discussions on private mortgage brokers’ Facebook groups – UWM was not known to aggressively enforce EPOs, several brokers unrelated to the lender said. case at HousingWire.

But money was precious, and investors don’t like buying mortgages from lenders whose loans are paid off too quickly. If UWM, America’s largest buying lender, sends a strong message about what it sees as overly aggressive prepayment speeds, others in the industry are expected to follow suit. And by all accounts, they have. Several sources said the vast majority of brokers who received the video featuring Beydoun were in compliance with UWM’s new policy.

The brokers who filed the complaint claim that UWM’s churning claims are false and that the lender’s claim that their prepayment rate was three to five times the industry average was false.

“Of the 30 clients we funded with UWM in 2019, four of them refinanced with us beyond the 180-day EPO period, and none during that period. It’s 13%, ”Otero told HousingWire in an email Wednesday. “I sincerely doubt that this will be three to five times faster than the industry norm in a rate cut environment like the one we have experienced over the past two years. Mr. Beydoun also speculates that our company purposely has a higher compensation plan to somehow manipulate clients into higher interest rate loans so that they can be refinanced at a lower rate later. It’s just absurd. Their data is wrong.

James Kleimann is the Mortgage Editor at HousingWire. You can reach him at [email protected]

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