UWM Attorneys Say Class Action Lawsuit Was Filed In Bad Faith

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By Kimberley Haas for The Mortgage Note

Lawyers for United Wholesale Mortgage are questioning the integrity of a class action lawsuit that claims consumers were duped into overpaying for their loans by brokers who sent most of their business to the lender.

In court paperwork filed on Sept. 17, lawyers for UWM say the lender became the victim of a coordinated campaign earlier this year when the hedge fund Hunterbrook Capital, its media arm Hunterbrook Media, and counsel for the plaintiffs publicly disparaged the company with the intent to lower its stock value.

“On April 2, 2024, Hunterbrook published a ‘report’ that disparages UWM, using inflammatory rhetoric and numerous improper or unsupportable allegations of wrongdoing. That same day, plaintiffs’ counsel filed this lawsuit, repeating verbatim many of the same quotes, charts, and accusations that appeared in the Hunterbrook Report. Before the report’s publication date (and the filing of this lawsuit), Hunterbrook ‘shorted’ UWM’s stock and went ‘long’ on one of its competitor’s stock (Rocket Mortgage) — betting that UWM’s stock price would fall to Rocket’s benefit,” the lawyers argued.

“The timing of the initial complaint — rife with many inflammatory allegations that were demonstrably wrong — was an integral component of the coordinated attack on UWM.”

Lawyers for UWM are asking for sanctions and to be awarded attorney’s fees, saying that the plaintiffs acted in bad faith.

The initial complaint, filed by Boies Schiller Flexner LLP, claimed that UWM participated in a pattern of racketeering activity by conspiring with brokers to withhold information from homebuyers while misrepresenting material facts to get these consumers to use the mortgage giant while financing their properties.

It was submitted on the same day as a report released by Hunterbrook Media linked UWM to $39 billion in mortgages sent to the lender by brokers who worked as loyalists.

Hunterbrook Media disclosed that Hunterbrook Capital shorted UWM and took a long position on Rocket’s stock as part of the report.

In a motion to dismiss, filed on June 21, UWM lawyers say the plaintiffs’ racketeering claims fail for lack of proximate causation, absence of cognizable enterprise, and failure to plead predicate acts of racketeering. The plaintiffs’ claims are also barred by notice-and-cure provisions in their mortgage agreements, the economic loss doctrine, and the Real Estate Settlement Procedures Act, they said.

Lawyers for UWM have tapped Alex Stricker, a principal at CRA International, who offered a declaration for the court.

According to the allegations against UWM, 8,665 loan officers at mortgage brokers sent the lender more than 99% of their mortgages, worth at least $11.7 billion.

After studying deed data, Stricker determined that almost 49% – or approximately 4,300 brokers – who sent more than 99% of their loans to UWM in 2023 closed just one loan during the entire year.

Almost 73% – or approximately 6,500 brokers – who sent more than 99% of their loans to UWM in 2023 closed three or fewer loans during the entire year.

Stricker added that Home Mortgage Disclosure Act data used by Hunterbrook shows that the average rate spread for loans closed by UWM in 2023 was 0.20%, a lower rate spread than the average rate spread for all retail loans (0.25%) and all wholesale loans (0.22%).

According to the plaintiffs, brokers who conspired with UWM instead of acting independently on behalf of consumers led to borrowers paying more for their loans.

In an amended complaint filed on Aug. 30, the plaintiffs’ lawyers attached an appendix listing 2,502 loan officers who allegedly funneled over 75% of their loans to UWM from 2021 to 2023. These loan officers sent 270,693 loans to UWM with a total value of over $93 billion, they said.

Lawyers for the plaintiffs argue that the data establishes the more a broker funnels loans to UWM, the more borrowers overpay.

“If the brokers who send 75% or more of their loans to UWM had actually shopped around to find their borrowers the best deal possible – i.e. a loan with the lowest origination fees available on the market – those borrowers would have saved, in the aggregate, well over $2.7 billion,” the lawyers wrote.

“As a direct and proximate result of UWM’s scheme, UWM has profited, and borrowers have lost billions of dollars.”

Leaders at UWM say that consumers save thousands of dollars working with an independent mortgage broker.

UWM issued a press release on Aug. 28 which stated that a recent study by Polygon Research concluded that consumers save an average of $10,662 over the life of a loan when working with an independent mortgage broker as opposed to a nonbank retail lender.

The study showed that borrowers also see savings on upfront costs. In 2023, consumers in the wholesale channel paid an average of 115 basis points upfront to obtain a 6.58% average interest rate, compared to 148 basis points upfront and a 6.60% average interest rate in the nonbank retail channel, according to the press release.

The study was supported by Willow Canyon Advisors and UWM.

If damages are awarded to the plaintiffs in the class action lawsuit, the amounts will be determined at trial.