A feud has erupted between metro Detroit’s two mortgage industry giants involving allegations of a smear campaign mocking Quicken Loans Inc.’s business practices.
Tensions between Quicken and Pontiac-based United Shore Financial Services LLC reached a fever point this summer after three United Shore employees were caught on surveillance video papering the blocks around Quicken’s downtown Detroit headquarters with derisive flyers aimed at Quicken’s loan officers.
The flyers, some taped to Quicken employees’ personal vehicles, claimed that Quicken offers lower consumer mortgage rates and higher pay potential to outside mortgage brokers than it does for its own in-house loan officers, which Quicken calls mortgage bankers.
United Shore Chief Executive Officer Mat Ishbia, who acknowledges that his workers passed out the flyers that he insists are accurate, even questions Quicken’s assertion that it is the nation’s No. 1 direct-to-consumer mortgage company.
Quicken said this week it stands by the accuracy of the data used to rank the company at the top.
The flyers also mocked Quicken’s company culture practices, known as “Isms” that were started by company founder Dan Gilbert, saying the newest “Ism” should be “Treat strangers (mortgage brokers) better than our mortgage bankers!”
Matching the surveillance footage with profiles on the networking website LinkedIn, Quicken found that the people distributing the flyers worked for United Shore, a firm whose business depends on independent mortgage brokers rather than in-house loan officers.
The incident and surveillance images were first reported nationally by housing news website HousingWire.
“Shore Mortgage employees were down here, putting out flyers and littering throughout the city, which we work pretty hard to make look great,” Quicken Loans CEO Jay Farner said in an interview at the firm’s headquarters at One Campus Martius. “It was disappointing to see.”
More importantly, Farner said the Shore workers hawked disingenuous claims. The flyers presented mortgage rates that didn’t account for the independent brokers’ compensation, he said.
“Someone was having their team members litter a bunch of crap,” Farner said.
Ishbia, whose firm is smaller than Quicken but growing faster, acknowledges that his employees did pass out flyers, but says he didn’t order the operation and was unaware it was happening.
Still, Ishbia insists that “every piece of information on those flyers was true and accurate. They didn’t break any laws, they didn’t slander anyone.”
Inflated Numbers?
The flyers incident was a rare public skirmish for the two nationally ranked mortgage companies, which have not been widely viewed as competitors because they specialize in different segments of the mortgage business.
But as the mortgage market has shifted away from Quicken Loan’s traditional strength — mortgage refinancings — and become a more home purchase-oriented market, Quicken could be coming into greater competition with United Shore.
Quicken self reports the data that leads to its ranking as the largest home mortgage lender in the country, an accomplishment that is central in the company’s advertisements and giant billboards in Detroit.
Privately held Quicken reports all its loans as so-called “retail originations” to the mortgage industry trade publication that ranks lenders.
That retail category includes the direct-to-consumer mortgages that are Quicken’s bread and butter: loans made to borrowers who dial its call center or go through its Rocket Mortgage website and mobile application.
But the retail category is supposed to exclude mortgages sourced through mortgage brokers, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance, the trade publication that produces the rankings.
Mortgages sourced from brokers fall under a different category, known as the broker channel or wholesale lending, even though lenders still underwrite those loans. Inside Mortgage Finance ranks United Shore No. 1 nationwide in that category with $19.3 billion in wholesale mortgages for the first half of this year.
According to Ishbia, if Quicken wasn’t adding broker-sourced loans to its count of retail loans, Quicken would not have passed Wells Fargo in the fourth quarter last year to become the No. 1 lender. Quicken has kept its lead in each successive quarter.
Quicken reported $41.5 billion in retail mortgages during the first half of this year. Second-place Wells Fargo reported $36.7 billion.
“I have no questions about it. They are not the No. 1 retail lender in the country,” Ishbia said in a phone interview this week. “They are the No. 2 retail lender in the country, and they should be very proud of that. And based on how great a company they are, I have no doubt they will become the No. 1 lender later this year or next year.”
Quicken disputes Ishbia’s assertion and says it rightly earned the No. 1 spot.
“He has no insight into anybody’s numbers; he’s just saying what he wants to say,” Farner said.
‘Extended retail’
Farner said Quicken has its own rubric and considers all the loans that it underwrites, closes and processes as in the retail category.
When an outside broker sources a loan, Quicken calls that an “extended retail” loan because Quicken provides more extensive processing of that loan than mortgage companies do in traditional wholesale lending, he said.
“If we process and underwrite and close that loan, it’s got our name on it, the client is using our technology, then in my mind, it’s a retail loan,” Farner said Tuesday.
He offered more details in a subsequent interview:
“Every experience that our clients go through is a retail experience,” Farner said. “There’s a lot of expense to process a loan in a retail fashion, and brokers don’t want to carry that expense any longer, so they say, ‘Hey look, I’ll take an application, but you guys do all the retail work.’ ”
Quicken’s unique method for counting and classifying mortgages could have helped it attain its No. 1 ranking.
Data from the Thomson Reuters information service shows 11.8 percent of the loans Quicken made in the second quarter for government programs or government-backed housing entities such as Fannie Mae and Freddie Mac were broker-sourced or other non-retail loans. That figure rose to 15.5 percent in July, according to the data.
Those figures would include the majority of Quicken’s mortgages, as the company has said that about 95 percent of its loans are backed by government programs and housing entities.
If those non-retail ratios are correct, and were applied across Quicken’s entire loan portfolio and the mortgage industry rankers tossed aside Quicken’s point that its broker-sourced loans are actually a type of retail loans, Wells Fargo & Co. could potentially still be the nation’s top retail lender. (Wells Fargo still holds a top ranking in a broad category that counts loans purchased from other lenders.)
A Wells Fargo spokesman told the Free Press that it doesn’t have any comment on Quicken Loans’ reporting practices or lender ranking. For its part, Wells Fargo does not do any broker-sourced loans, the spokesman, Tom Goyda, said.
Cecala of Inside Mortgage Finance said his publication uses government data whenever possible to check lenders’ self-reported numbers. Most of Quicken’s numbers are self-reported because Quicken is a private company, he said.
No Wholesale?
In the rankings, Quicken doesn’t report doing any wholesale lending, which is underwriting for broker-sourced loans. Yet Quicken operates an in-house division, called Quicken Loans Mortgage Services, that works with independent mortgage brokers to underwrite their clients’ loans.
“I do know they do wholesale business for a fact,” Valerie Saunders, executive director for the National Association of Mortgage Brokers, said this week.
Quicken does not disclose the percentage of its loans that involve independent brokers. Those would be the loans it considers “extended retail.”
United Shore’s sole focus is wholesale lending, which accounts for more than 99 percent of its business with just a handful of direct mortgages for Shore’s own employees, Ishbia said. United Shore is significantly smaller than Quicken in revenue and employees.
Ishbia said that Quicken has become a more direct competitor in what United Shore considers wholesale lending as the mortgage market has shifted in recent years toward home purchases and away from refinancings, Quicken’s traditional strength.
Quicken also doesn’t disclose its ratio of purchase to refinance loans.
“From my perspective, I’d say in the last three years they realized that (mortgage) rates weren’t going to stay low forever and they had to start doing something different,” Ishbia said. “That’s when they started focusing so hard on wholesale.”
Quicken CEO Farner said the company’s purchase mortgage business has been growing.
“We will do more volume this year than we did last year and our purchase business is at record levels,” Farner said. “As the market shifted, we shifted our marketing; … we’re still doing heavy refinance because there’s a great opportunity out there, but also purchase.
If you only looked at purchase, I think we’d be top five or six in the country.”
About Those Flyers
Farner said that after Quicken confronted United Shore about the disparaging flyers in Detroit, the same flyers began to appear outside Quicken’s offices in Phoenix, but this time were distributed by third parties.
“When we asked the gentlemen he said, ‘Look, I just got hired by somebody that paid me $300, $400 to come down and hand out these flyers,’ ” Farner said.
Someone also sent another 300 flyers through the mail to Quicken employees, he said.
As for the content of the flyers, Farner said customers receive about the same mortgage rate whether they go through Quicken directly or through a broker.
“At the end of the day, the rate that the client receives is in a pretty tight range,” he said. “Then you look at all the other things like service, technology, who’s servicing your mortgage over the course of time, et cetera. And those are the differentiators that cause people to win and lose in this marketplace.”
Turning the tables, Farner questioned whether United Shore has given an accurate picture of its own numbers.
The Quicken executive pointed to the $1 billion in annual revenue that United Shore reported to Crain’s Detroit for the business publication’s report this summer on the 50 fastest-growing companies in metro Detroit. United Shore, also privately held, was No. 1 on that list.
“Our friends up the street mentioned that they did $1 billion in revenue in 2017. Well, if you took a look at the math … even with a margin that is probably giving them more credit than what they are at, it comes out to about $337 million in revenue — not a billion,” Farner said. “Just be honest and truthful.”
Ishbia laughed off that critique and said he stands by the revenue figure.
“Luckily I don’t depend on Jay Farner’s math to calculate my financials. I am very comfortable with what my financials state.”
