The transcript from this week’s, MiB: Mat Ishbia, United Wholesale Mortgage’s CEO, is below.
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RITHOLTZ: This week on the podcast I have an extra special guest. Strap yourself in for this one. Mat Ishbia runs United Wholesale Mortgage. Not only are they the biggest wholesaler in the country, they’re also the number two overall mortgage lender. And he’s got a fascinating history from being a walk-on at Michigan State as a point guard to eventually being an assistant coach there, to joining his dad’s 12-person firm that was doing mortgages, to just enjoying explosive growth because they were doing the right thing. They did not get suckered into all of the liar loans and all of the ridiculous no-income check, the ninja loans, no income, no credit rating, no job — all that craziness United Wholesale didn’t participate in. And once the financial crisis ended, they just took over and became literally the biggest mortgage wholesaler in the country.
He is a fascinating guy. He’s done some really interesting things, so enthusiastic about the business. When you see a company that approaches things in the right way to watch them go from a 12-person firm in 2004 to a 9,300-person from, today, it’s — it’s really quite fascinating. You will see what I mean by his infectious enthusiasm and — and how much he is just so into running the company and — and — and how enamored he is about the entire mortgage business. It’s hard to listen to this and not become enthusiastic.
So — so with no further ado, my conversation with United Wholesale Mortgage’s CEO Mat Ishbia.
VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My special guest this week is Mat Ishbia. He is the CEO of United Wholesale Mortgage, the largest wholesale lender in the country and the number two overall mortgage lender. The firm has 9,000 employees and recently went public in the biggest SPAC ever. He is also the author of the book, “Running the Corporate Offense: Lessons in Effective Leadership from the Bench to the Boardroom.”
Mat Ishbia, welcome to Bloomberg.
ISHBIA: Well, thanks for having me. Glad to be here with you.
RITHOLTZ: So, I got so much stuff to talk to you about, but I have to start with you were a walk-on point guard for the team that won the national championship in college basketball. Tell us a little bit about that. How did playing for Coach Tom Izzo prepare you for the business world?
ISHBIA: Yeah. No, it was a great experience, and I wasn’t that great a basketball player. I was very good in high school obviously, became a walk-on at Michigan State for Coach Izzo and, you know, a great experience. In my first three years we went to three final fours. We won the national championship.
I got in the game. We were up by a lot, so I wasn’t a star player by any means. But I learned so much about team, about work ethic, about camaraderie, about building something special, about having big goals and working for them. I learned so much during my time there, and I — some people asked me what translates the business. And I said I could talk for eight hours about that because everything translates to business if — if you’re paying attention, listening, and learning. And so, I had a great experience playing there and — and once again winning the national championship, but just making lifelong friends and — and — and learning from Tom Izzo for many of those years.
RITHOLTZ: And, you know, when you talk about — you could speak for eight hours about this, I found the book fast, easy read. And there’s — it’s really all about how the concept of competitive sports very much translates into lessons for the corporate world, so — so let’s make that shift to the corporate world.
You — you joined the mortgage industry in — in ’04 when your father offers you a job at United Wholesale Mortgage. Back then, the company was 12 people. Tell us a little bit about your first entry-level job in the mortgage industry and — and memories from that period of 2003-2004.
ISHBIA: Yeah, it was a great, great thing. You know, my — I was coaching — I played basketball for four years and I got the chance to coach for a year, so I got to be on the bench sitting there with Tom Izzo, learning from him and meeting. And I got offered a college basketball job to be one of the youngest assistants or the youngest assistants in College Basketball Division 1 at the time.
I turned it down because my father said, hey, maybe you can — you know, and Izzo said to me actually maybe you can take some of the things you learned in basketball and (inaudible) to business, maybe do something bigger than being a head coach. And then my dad said, “I got a little mortgage (inaudible).” He’s a lawyer, he’s never actually worked here at the mortgage. I mean, he’s just like an entrepreneur. He has like seven or eight different businesses. This was a 12-person mortgage company in 2003. I joined as the 12th person. And it’s been a great experience all the way through.
What I started at though was the bottom job, everything about — I — I used to say that every job here, but I’ve got 9,003 people, so I can’t do every job now. But I — I — back then I took (inaudible) fax machine.
I learned underwriting. I learned closing. I learned everything from the bottom-up and really to understand not only our clients, but the consumers — consumers, clients, and our team members, and process. And so, it’s been — it was really just great going all through that process. I had no desire, no idea, no ambition of saying, hey, let’s build this to a 9,000 plus company — the number. I mean, we’re just trying to make it trying to survive at that point. And — and that’s what we are doing. And — and but, you know, learning the business from the ground-up was a huge advantage, and I still implement that with new people at our company to this day.
So — so let’s talk a little bit about survival. How did the firm weather the housing bust in the mid-2000’s. Not long after you — you joined, we saw the real estate market collapsed.
ISHBIA: Yeah. It was — it was definitely an interesting time to join. What I would speak about that is this. You know, back then we were so small, and we didn’t really know what we’re doing. We’re trying to figure out things, but we didn’t do a lot of those loans — subprime loans. So, the whole point was back then we were just trying to make it.
You know, I remember I was a sales rep in 2006 or five from — and I remember calling my father one time saying, “Hey, Dad, you know, we’re doing 50 loans a month, then relationships we’re going to do 65,000 closing this month.” So, it’s — it’s a whole different world, right? Doing 50 loans a month back then, I remember telling my dad, I go, “Dad, you know, if we did these types of loans, which are subprime, we can get a lot more business.”
I remember my dad saying to me, “Mat, you know, we’re not in here just to make money. We’re not going to lend someone money if they can’t pay it back,” so lending someone $200,000 with a house (inaudible) of $175,000, we’re just not going to do it.
No, we didn’t make a big stand because they just went somewhere else and got the loan done.
RITHOLTZ: Right.
ISHBIA: But we never did the subprime loans. And so, when those subprime loans all started crashing in ’07, ’08, ‘09, you know, we’re, you know, if you think of the old movie Forrest Gump, we’re like Bubba Gump Shrimp. We’re like the one shrimp boat left standing, like we are just doing the right type of loans focused on FHA and conventional. And we really grew because everyone else was worried about the problems that they — they had all these loans, and we had never done those.
And so, I — I look at as we didn’t really struck (inaudible) she was the catapult to our success by doing the right thing and the do what’s right mentality. It didn’t work real great in ’04, 05, ’06 (inaudible) has record years in mortgage. And we were not having those years because we aren’t doing those types of loans, but we — we — it came back to our way in ’08-’09 and — and ever since doing the right type of loans to the right borrowers.
RITHOLTZ: So post-financial crisis, the firm begins to expand and thrive. When did you take over as CEO?
ISHBIA: So, I — I was running the company probably starting in about ’08-’09. Officially, you know, CEO, maybe 2012 or ’13, but those years, you know, running the business, trying to build the company to the point where we went to. And the final thing was we had a small retail division, and when I became the CEO in 2000 — early 2013, I think, the — the key was I made a couple decisions, at that point, which was we’re not doing retail.
Retail is when, you know, is not as good for consumers, is not a good for loan officers, so I actually cut a department, and I moved them all to our wholesale channel and, basically, reran the wholesale business. No, we didn’t let anyone go, we just moved them, reallocated them into new teams, and we really started exploding from then.
RITHOLTZ: So, let’s fast forward a little bit to last year, last spring of 2020. The global economy is shutting down and the Federal Reserve comes out, not only do they cut rates to near zero, they commit to purchasing unlimited, quote-unquote, “unlimited amounts of mortgage securities towards the end of March 2020.” And naturally, mortgage bond prices skyrocket.
You guys, like a lot of other wholesalers, you would hedge interest rate risk. And suddenly, with these skyrocketing rates, you’re facing margin calls and a cash crunch. Tell us about that early pandemic period and how the Fed impacted what you were trying to do in terms of your balance sheet.
ISHBIA: Yeah, obviously, you know, the — the time of COVID and — and what happened we’re with the Fed and everything, first off, there’s no playbook for COVID. You know, no one had it like in the books, like what do you do when COVID comes in, how do you handle with the Fed? You know, it’s unprecedented times, unheard of crazy things happen.
When that stuff happened, you know, the way we saw forth is we work as a team. You know, so all — it goes back to the core teamwork, working together, figuring out how do we solve for different issues. And a lot of those things were short-term concerns, but the whole kind of (inaudible), you know, I’m real big on our culture and our team, and we have 9,300 people here and we all work here every day in the same location. We have about 1.5 million square feet, and we all work in the building together.
Sending everybody home was a big challenge because I never planned for work from home because that’s not what we believe in here. And at the same time, the — the — you know, people worry about their health, which is a scary thing. You didn’t know what was going on. There’s a lot of scary things going on, the Fed doing what the Fed did. A lot of crazy things happened, but we came out of it stronger.
We figured out, OK, how do we band together, figure out what to — how to handle the balance sheet concerns, the — the — the Fed with rates lowering, operational concerns then, people work from home, technology concerns. And not only that we managed through, we thrived. And that was a big part of our story and success.
You know, hey, everyone can do things when things are going well. What happens when thing — you kind of get stuck or punched a little with COVID …
RITHOLTZ: Right.
ISHBIA: … and how do you survive and thrive. And that’s what we did and we’re having our best year of all time not only from a volume perspective, but a — but a margin perspective and a profit perspective.
And at the same time, one of the things that’s key to our business is culture and team and family. When the pandemic hit, no one knew what was going to happen. I didn’t know, you didn’t know, nobody knew what was going on. And I told our whole team, at that point, hey, I said, “Listen guys, we will not lay off one person. Not one person will be laid off at our company. I’ve got your back, you’ve got my back. Don’t worry about your job. We’ll make it through this strong.”
And obviously it turned out to be a record year, but the point was we showed family first. I said you can’t lay your brother off, so we don’t lay each other off, we’re family. And I think that resonated with our team members to the point where they said, “Hey, listen, he’s all-in with me, I’m all-in with him, let’s go dominate,” and that helped catapult us to a record year last year. And — and we’re planning on doing more business this year.
RITHOLTZ: That’s quite — that’s quite fascinating, especially considering how much real estate transactions plummeted at least in the first half of the year, came back in the second half of the yea. But I want to stay with your balance sheet. So you’re looking at a little bit of a cash crunch, and you reach out to the bankers at Goldman Sachs and say, “Hey, I want to shore up our capital reserves because we think there’s opportunities coming.” Tell us a little bit about that process and — and what the final resolution was.
ISHBIA: Yeah. So when — when that happened you see that, you know, cash is king in any business. And so, you have a couple hundred million dolllars to run your business and you say, gosh, we — we — we’re — we’re competing like we’re the number two overall lender. The people we’re competing with are, you know, Rocket Mortgage, Wells Fargo, Chase, and Bank of America. That’s the top five.
These are not little companies I’m competing with. And we said, “Gosh, what’s the advantage they have?” They had access to liquidity and capital that I just don’t have. You know, this is …
RITHOLTZ: Right.
ISHBIA: … I owned 100 percent. You know, me and my — my brother and dad owned some percent, but there was no private equity. We had no investors in with us. It was just — you know, we built this thing from scratch.
And so, we said how do we make sure that we have the balance sheet and capital to compete with the biggest companies because we think we have the best platform and the best technology. Well, I — I — I — I have to have the cash and liquidity sources to do so. And so, met with some people, and we ended up going through the process of going through a SPAC and becoming a public company, which basically made it so that we have access to the same liquidity. We can monetize some of the things we’ve done, but it wasn’t about getting money out for me or for our company because I still own — after the whole thing I still own 94 percent of the company.
The whole point was putting us on a platform that I have access to these bankers, access to the liquidity, access to being on a level playing field. Put me on a level playing field and let’s compete head-to-head and we’ll see what happens. And that’s what we’re doing right now.
RITHOLTZ: Yeah, I see that — that competitive basketball nature is very much in evidence with you. And to put — put some flesh on the bones, so not only was this the biggest SPAC ever, you guys floated like a four, five percent of the company, meaning you still own the vast majority of it. And so, on paper, you — you’ve suddenly become one of the wealthiest people in the country. That has to be kind of a — a shocking thing to — to realize, hey, we were nervous and wanted to shore up our balance sheet, and then this happens. Tell us a little bit about what that experience was like.
ISHBIA: Yeah, you know, that was obviously something that was new to me. You know, it’s not like our company, you know, with our company valuation of $16.1 billion when we went public and — and me — you know, that wasn’t — the company didn’t get the valuation or didn’t grow when we went public. We — that’s what we’ve been all the time. But the — going public, put it out there in front of everybody, right, that the company is worth this …
RITHOLTZ: Right.
ISHBIA: … and that, Mat, you might be worth this. And, you know, I don’t pay attention to those numbers. The reality is I focus on how do I dominate my day-to-day, how do I help our company grow and win today.
Money follows success, if not the other way around, so I very rarely will get any money I have or money or profit or (inaudible) are you focus on the profits? I said I’m focused on winning. I’m focused on dominating our company. I’m focused on taking care of my team members and my clients. And when you do those things, you make a lot of money. Success is the — is the focus, money follows.
And so, the fact that I’m worth X dollars or whatever it may be that you put out there, it’s — it’s cool to see, you know, on paper for a second, then you go right back to the grind and say, you know, I’m not spending that money. My life has not changed one inch since we’re not going public. I’m still here at four in the morning, I’m still grinding until 6:30 tonight, I still love what I do, nothing’s changed. And so, therefore, to me it’s not a big deal, but at the same time, I know it gets a lot of headlines and people talk to me about — I get more people talk to me about that stuff than they used to obviously. So that’s a bit of little change in my life.
RITHOLTZ: Let’s talk a little bit about your business model and how different that is from some of the other lenders people might be more familiar with in the sense that you don’t work directly with consumers. You’re a wholesale mortgage underwriter. Tell us a little bit about that model and what some of the challenges are associated with that.
ISHBIA: Yeah. So, we don’t have the name brand recognition as the number one lender or even number three or four or five, but we’re number two overall lender, and this is how we think about it is our business is the exact same as everyone else’s. The difference is we’re wholesale, which means we offer lower rates, and you have to get our rates through an independent mortgage broker.
Mortgage brokers offer lower rates and fees to consumers. It’s — it’s not my opinion, it’s backed. It’s backed up by data after data after data point, that if you go loan to a, you know, mortgage broker at findamortgagebroker.com or wherever you may go to find a local mortgage broker, you will get lower rates. And so, what we’ve done is we provided — it has always been the case so you know, Barry. The difference is it’s always been the case you get lower rates, but what’s changed is we’ve — we’ve enabled them with technology. So, what we’ve done with our mortgage brokers, there’s 50,000 loan officers throughout the country. You have to get a loan through a loan officer. They’re either captive to one lender or they’re independent.
We work with the independent to say, hey, use our rates, use our technology and we’ll make it so you can compete with the biggest lenders in the world. And that’s what we’ve done. And that’s why our business has exploded is that we’ve basically democratized technology. We’ve enabled the mortgage brokers to succeed and thrive by giving them, of course, the lowest — lowest rate, but beyond the lowest rate is the best technology and fastest process (inaudible) because, you know, I’m an interesting industry.
Nobody wants my product. Nobody wants to mortgage. They want to buy the house. They have to get a mortgage to do it. They want to save the money, they got to get a mortgage. We’re selling a product nobody wants, we got to make it faster, easier, cheaper, and that’s what we’ve done with mortgage brokers.
RITHOLTZ: Really quite interesting. So, I’m a little curious, what are the advantages of being a non-bank lender versus a banking lender like Wells and Citis at the ability to work with independent mortgage brokers? What — what advantages does your structure give you?
ISHBIA: Yeah, so being a non-bank lender, a lot of people think, oh, that means you have less compliance, less regulatory. I argue the reverse. I have more compliance, more regulatory. I’m — I got (inaudible) 50 individual states. When you’re a federally chartered bank, you got to deal with one, right? You don’t have to deal with each state level. So, we have more compliance and more regulatory things.
I think in a lot of respect the big advantage is one of things that I think about building wealth in building success is the reason I can beat those companies and reason we have beat those companies is extreme focus. I’m not trying to be the best bank. I’m not trying to be the best everything. I’m trying to the best mortgage lender.
All we do is dominate the mortgage process. We’re a big company, a smart company. Chase, Wells Fargo, these are great companies, obviously, but they got to do deposits, they got to do credit cards, they got to do bulk loans, they got to do …
RITHOLTZ: Right.
ISHBIA: … they have to do a bunch of things. And, therefore, they’re not extremely focused. I’m extremely focused. I got 9,300 people that focus on being the best wholesale mortgage around the country, and we have no question on what we’re trying to do every day. And so, I think singular focus is a huge advantage. And if I was a bank, that’s one thing that I probably wouldn’t be able to do because they — they want you to diversify in different respects.
RITHOLTZ: Right.
ISHBIA: But the thing is a mortgage, it’s not like this little thing you’re doing. This is a huge part of someone’s life and dominating on it, it’s like — it’s like the way I would explain is like the Wells Fargos and Chases and these big companies, they have to be, you know, a general doctor like your — your general practitioner, right? They’re your — but I’m the — I’m the heart surgeon.
When you — when you go to a heart surgeon, you don’t go to your main doctor, you actually want to go to your heart — the best heart person in the country. And that’s what a mortgage is. You only do it once every three or four years. You want to get the best in the country, and that’s what mortgage brokers are, and that’s what UWM does.
RITHOLTZ: So — so let’s hold aside the big banks like Citi, and Wells, and J.P. Morgan. What — what’s your advantage when you’re competing with firms like Rocket Mortgage or Quicken? How do you go head-to-head with the folks who are similarly like you really focused on just underwriting mortgages?
ISHBIA: I do not work them. It’s very simple, so I work them and I invest in technology. And so, I love that. I love that they have a similar set-up as us because we can compete head-to-head and we find out who’s better. And we believe in our model. We believe in doing right by brokers and consumers, and we have a different mentality than some of those other companies. So, there are companies — are focused on for — on profit, profit, profit. We’re focused on winning, winning, winning and profit follows. And that’s worked year over year as we continue to grow.
You know, when I took over in 2013, I think we did, you know, or 2014 — in 2013 when I took over, we do about $10 billion. We did $180 billion of mortgages this past year, and we’re going to do more in 2021.
RITHOLTZ: Yeah.
ISHBIA: And everyone else is not going to. Everyone can do well when rates are really low. Some of those competitors you talked about, they are extremely focused on refinance. Once again, that’s great when rates are two percent, 2.5 percent. It’s not going to be as great when rates are 4.5 percent. So, our business model is much more balanced, much more focused on consumers and brokers, and at the same time, I think it’s much more long-standing. And you’ll see that as we take over the number one spot in the coming years.
RITHOLTZ: So, I have a ton of interest rate questions for you. We’ll — we’ll circle back to that in a little bit.
ISHBIA: Sure.
RITHOLTZ: I want to ask about the speed of transactions. You guys seem to have a reputation for turning things around very, very quickly. Tell us a little bit about how you were built for speed.
ISHBIA: Yeah, well, once again, mortgages nobody wants, so you got to make it faster, easier, and cheaper. And so, cheaper, we already are that data and you can prove that. Faster, same thing, I — you know, a couple of our competitors obviously, one of them that you talked about earlier, Rocket, they went public and they — they touted a lot of their technology. And they’ve done a very nice job. Dan Gilbert has done a good job with their business and built something very successful.
But, you know, they talk about technology. How do you know you have the best technology, like what’s the measurement? Is it either your cost to originate, you know, expenses that you can — you can make things more efficient or you close on (inaudible), right?
Well, the industry closed loans about 47 days. Rocket did a great job. They’re closing loans in 29 days. They’re better than most. We closed only 16 to 17 days here. Our technology is differentiated because we built our technology from scratch. I got about 1,300, 1,400 tech — (inaudible) 1,250 — 1,250 to 1,300 technology people here at our company every single day grinding, working hard to make proprietary technology for our clients.
And so, speed solves everything. You make things fast like if we make a mistake, we solve it fast, right? We’re trying to figure out things, and so we’re always focused on speed. Nobody wants the mortgage process. You’re like, well, you got to call the underwriter, find out 30 days later what’s going on. It makes the process grueling and not fun when someone’s trying to buy a house.
And so, speed is a big deal. It’s tied to our technology and that’s how we differentiate it.
RITHOLTZ: The house I’m calling you from now — because we’re still working from home — we purchased in September 2014. And I cannot begin to tell you, I’m just laughing as you’re describing it, what an ordeal it was to get a mortgage for this house.
And I am a good — I have a great credit score. I’m putting a stupid amount of money down. This should have been a no-brainer. And I guess it was because everybody I was dealing with apparently had no brain, it was painful.
Do — do you hear those sort of complaints? Do people tell you like horrible, so let me tell you about what a disaster my mortgage was when they meet you personally?
ISHBIA: All the time. People — people have their mortgage stories, and especially we’re talking about 2014-’15, but the reality is this, people don’t know how to get a mortgage. They don’t know where to go. They think that you see a commercial and you go there. You call your bank …
RITHOLTZ: Right.
ISHBIA: … you go there. That — that’s the biggest problem. So, consumer education is a big focus and my — one of the reasons we went public was to help educate consumers and get myself out on a platform because if you go to findamortgagebroker.com or you call 1-800-BROKERS, you do one of those things, you will find a broker in your community, they will shop on your behalf. It will be a fast, efficient, cheap process. Period.
I have the utmost confidence in that because I see it every single day, but most consumers, they get lured into some TV add or they hear something like they don’t really know how to do it. And so, that’s part of my mission right now is how do we get more people understand how to get a broker, even if doesn’t come to UWM. Go to findamortgagebroker.com. It doesn’t mean it’s going to come to UWM, it goes to one of the other — well, if you go there, then that — that — that professional can say, OK, Barry, what are you looking for? I’m looking at closing in 30 days at a great rate.
OK. Well, here’s the lender I’m going to go with that, rather than, well, here’s what we offer. It’s going to take 60 days and we’re going to be — like if certain lenders are paying on certain things, certain lenders are fast for certain things. Certain lenders cost more. They know these things. You have to go to the expert. You got to go like going to your general doctor and saying who’s the best heart surgeon. So, we’re bringing you the right place rather than just look it up online and say, “Oh, this guy said he does a good job of hearts,” you know, I’m not going with that guy.
RITHOLTZ: It’s funny because I recall using a mortgage broker in 2014, but a lot of — my Rolodex, a lot of my contact list of mortgage brokers, half these guys were out of the business. So, let me circle back and ask you a — a great financial crisis question. You know, what was the lesson from that? And — and what did you personally learn from companies like Countrywide that had such a successful business and then blew themselves up?
ISHBIA: What we learned is quality always win. And so, I want to be the biggest, but I’m not going to ever sacrifice being the best. We are the best mortgage company in America, and we — we’re proud of that. Our technology, our service, our pricing, everything is the best, but we are not the biggest. We are number two right now, but I will never.
I’d rather be number 38 as competitive as I am than sacrifice the quality of what we do. So, what happened in the past, and I don’t know Angelo Mozilo in Countrywide that well. All I know is I study things and see what people have done.
I know that the type of loans we do is the key, and people focus on like, oh, well, I could do more — I could do more loans right now. Right now I could — maybe I could be number one if I — if I open my credit box to do loans for people that may be are a little bit more on the gray area.
We, at our company, believe in long-term success not short-term, and we’re going to — we’re playing the long game, and so we’re going to focus on doing the right things because I’m going to be here running it. I’m going to — I still own 94 percent. Someone said, “Oh, your — your shareholders,” I go my shareholders, I have 1.5 billion shares. I’m the biggest shareholder.
I promise you I’m doing everything best for the shareholders all the time because I’m — I’m the biggest one. We’re all on the same team. But that does not mean what’s best for shareholders or best for anyone is to do something crazy in third quarter 2021 that we’ll pay for in 2024. And I think that’s what happened in the past in the mortgage industry as people got a little bit focused on greedy — got maybe a little greedy, maybe got a little over the skis on certain things. That’s not going to happen at UWM.
RITHOLTZ: Really quite interesting. Let’s talk a little bit about what’s going on with rates today. And, obviously, we have to look back at what took place last year. How did the pandemic impact home sales and prices? And — and when did you first start to see things in the mortgage market that, hey, things are getting a little low wacky out here.
ISHBIA: Yeah, you know, obviously after the — the pandemic or when the pandemic, you know, first started back in March of last year, you know, a lot of crazy things were happening. Rates dropped because the Fed is buying, you know, a lot of mortgage-backed securities. A lot of things happened that people were not expecting.
It all kind of settled down, it’s still buying a lot of mortgage — and rates were extremely low for the second half of last year. Thirty-year fixed in the two, which is never seen before, right? And so, 30-year fixed rate in the twos was what was common. And the crazy thing is it’s still common today, it’s still happening. And so, rates dropped, and I — I — I think they got as low as 2.5 30-year fixed, two and three-eighths 30-year fixed. So, if you’re getting a commercial loan, you should be getting 2.5 — two and three-eighths.
But then rates went up a little bit this year — a little bit — and — and (inaudible) all rates went up, everyone is going to slow down. Well, rates are still 2.875. You know, they’re still …
RITHOLTZ: Right.
ISHBIA: … all-time lows. And so, anyone that didn’t take advantage of it is still going to take advantage today. People that are buying homes, which is a big deal right now because that’s a big percentage of our business, they’re actually taking advantage of that. Hey, that $350,000 house, I can actually buy with 2.875 interest rate rather than 3.5 or four percent, which is actually giving them a great opportunity to buy a house (inaudible) they couldn’t buy because rates are so low.
So, rates are extremely low right now. They — I believe they’re going to stay low through the rest of this year, but they are going to tick up and they have ticked up a little bit so far.
RITHOLTZ: So banks are known for making money on the spread, and that spread gets wider the higher rates are, which raises the question, how hard is it to make money on a 30-year mortgage with rates under three percent? What does that do to your profit margin as an underwriter and a wholesaler?
ISHBIA: You know, it doesn’t really impact it much. So, you know, we’re not — we’re not portfolio of these loans. These loans are being securitized with Fanny Mae, Freddie Mac, Ginnie Mae. And so, whether the rates 2.875 or 3.875, the difference in what we make is not — is — is negligible. It’s the same thing. And so, I’d actually make an argument of the reverse that as rates go up, you make less because there’s less loans out there, so people are competitively …
RITHOLTZ: Right.
ISHBIA: … pricing their loans or are making — trying to squeeze their margins to get more business rather than make more money. And so, when rates are low is actually when people make a good amount of money on — on the loans because there’s so many loans out there, people don’t have to be as priced well.
That’s why it’s so important to go to a broker because if you go to some lender, you don’t know like you’re not in the business, Barry. You don’t know if three-eighths is the right rate or 2.75, you don’t know. But the mortgage broker will know and he’ll say, you know, you’re actually 2.75 and here’s the lender that we can sell it to and work with on it. And so, I think that’s an important thing is that as rates go up, it does not mean you make more money, it’s actually I could make an argument as the reverse in many respects.
RITHOLTZ: So — so let’s say rates go over four percent at some point in the future. And right now, where are we, 50 percent of people have mortgages with rates under four percent? What does that mean for the volume of new originations? And what does that mean for refinancings?
ISHBIA: Yeah, it’s going to slow it down substantially. That’s actually going to be the part that helps UWM, my company, become the number one overall lender because we are not dependent. The number one lender right now does about 93 percent of their businesses is refinance.
RITHOLTZ: Really?
ISHBIA: So yeah, it’s great when rates are 2.875. What happens when that’s 3.875? Well, there’s going to be a lot less refinance.
It already slowed a lot of people down. If you follow, you know, our earnings call and — and — and the — the number one lender Rocket, they’re — they — they guided to do 15 to 20 percent less business in the second quarter they did in the first quarter because rates went up just from 2.5 to 2.875.
I guided the reverse. I said we’re going to do more business in the second quarter than the first quarter. And so, the point is when you’re doing purchases and your — like our business is not as cyclical. And so, rates — a lot of mortgage companies are strictly refinance shops. Well, that’s great in a 2020 boom year. What about 2022 rising rate year? How are you going to live? How are you going to survive? How are you going to succeed?
And that’s why we’re excited about the opportunities when rates do go up, we’ll win in a low rate environment. When rates go up, that’s actually went out. That’s the power of our business really shine.
RITHOLTZ: That — that’s really interesting. So in terms of those refinancings, how aggressively are people tapping the equity in their homes compared to — I don’t know — mid-2000’s, ’05, ’06? Is this really that large a driver? Someone says 92 percent of their business is refis. That seems to be really cyclical and — and rate-sensitive.
ISHBIA: It is. You got, you’re exactly right. There is some that’s cash out. And people tapping that with a house is probably (inaudible) less rate-sensitive, but it’s still rate-sensitive. You know, no one is going to — people — you know, and obviously housing value has gone up, there is a little equity (inaudible) houses.
But the reality is this, if your business is 90 plus percent, anything, you’re probably going to be in a tougher position especially if it’s someone you don’t control, which is the rates. Nobody controls the rates. I can’t keep rates low neither can the other lenders. You know, you got to — you — you got to live with whatever rates are, and you got to make the best out of them.
So if your business is two — one — one focused on — we really win when low rates happen, well, what happens when high rates happen, right? And — and that’s going to happen, right?
Even into the point that you made earlier, even if rates don’t go high from what you and I would think of as high, which is five, six, seven percent …
RITHOLTZ: Right.
ISHBIA: … relatively, these go to 3.5. It will stop three (inaudible) because that means almost everyone there’s no reason to refinance if you have a 3.25 percent rate or 2.875. So many people have a 30-year fix and a twos right now that they’re not going to be refinancing into a 3.5. So, therefore, the only time you really need to refinance is the divorce or a cash out, and people aren’t going to cash out and pay a higher interest rate unless they really need the cash out of their house.
RITHOLTZ: Interesting. You — you mentioned home prices ticking up. I keep reading lots and lots of people claiming it’s a bubble. What are your thoughts on these increased home prices? Is it just limited supply, limited inventory or is there something else going on here?
ISHBIA: Yeah. So, it’s limited inventory, but partially because remember we’re — we’re still finishing up this pandemic — we’re getting through a pandemic where, you know, there’s over a million consumers right now that aren’t making payments on their mortgage, so there is forbearance.
Well, what does that mean? Well, if I’m not making a payment on my mortgage, I’m (inaudible) not selling my house. It’s a pretty good deal I got going right now, right? And so, people aren’t selling at the pace that they should be. When that changes, I think there will be a lot more inventory hitting the market.
Now, is it a bubble? No, it’s not a bubble. Is that — well, depending on how you define a bubble.
Do I think housing value should be going up 10 percent a year? Absolutely not. I think they go up one of three percent a year, and that will be more normalized.
It’s not like 2008. Someone said to me, it’s just like 2008. I said it’s not like 2008. You don’t know what you’re talking about. It’s nothing like 2008.
2008 was a bubble bigger than this one, but it was built on a — a horrible cracked foundation in the mortgage industry. The mortgage industry is not like that. People are getting loans (inaudible) didn’t even qualify for back then. So when — and they’re also doing adjustment rates so then their rate went up, you had to sell and the whole thing collapsed. That’s not happening right now. I’m sure of that.
What is happening is that the $330,000 house today, that maybe should only be worth $320,000 because it’s kind of went up faster than you expected. Should you still buy it at $330,000? You probably should because, you know, unless you’re only going to do it for less than a year or two, because housing values is not going to go over than $330,000 down to $290,000. Maybe it’s $330,000, $332,000 next year and $334,000 the following year. It doesn’t go up fast, but you’re still getting it at a 2.875 interest rate. So, people thinking that this whole thing is going to collapse, they just don’t know what they’re talking about it. They’re just not right.
RITHOLTZ: Right, you got to focus on the cost to carry, not what you are actually paying. But — but that raises the interesting question. You mentioned adjustable rate mortgages. I’m kind of surprised to see a lot of ads for arms when rates are this low. What — what are your thoughts on — on people who are underwriting a ton of adjustable mortgages these days?
ISHBIA: Yeah. So adjustable rate mortgages these days are much different than back then. We don’t do very many at all. Well, actually, I — I could almost say we do zero because it’s — it’s not even a 0.1 of a percent of what we do. But we’ll call it — we don’t really do what we have on the rate sheet and it’s available. Well, here’s what I think about arms.
Arms are different today than back then. Back then it was two-year arms, 2.28 …
RITHOLTZ: Right.
ISHBIA: … with prepayment penalties, and the rates went up like a 0.5 percent, I mean — excuse me, a multiple percent per year or per adjustment period. These arms today are done through Fannie Mae, Freddie Mac. It’s — it’s what the CFPB — what they’ve done. They are much safer arms.
However, 30-year fixed, the twos, unless you’re selling in the next two or three years, how are you not taking a 30-year fixed at 2.875, right? And so, people — you know, most people are doing a fixed rate. I think sometimes people are market arms, and that’s part of the problem with why people don’t go. They go to these big commercials. You see someone is talking about arms (inaudible). You see a teaser rate of 2.25, oh, I want 2.25. When you call (inaudible) arm, you find out as a three-year arm or five-year arm, not really what you want, and then you end up staying with them and getting a 30-year fixed at a three and three-eighths and you don’t even know the difference that you should’ve got 2.75. And that’s part of the — the — the issue with going to a mortgage broker rather than going to these big lenders.
RITHOLTZ: So, let’s talk a little bit about the state of the national housing market. What are your thoughts here? It seems like the underwriting has become much more, let’s call it, circumspect or conservative than it was a decade or two ago.
ISHBIA: Yeah, absolutely. I mean, I think a decade or two ago, it wasn’t — it wasn’t responsible lending. There’s some things that happened back then that were not the right way. I think there’s a lot of rules in place now. It’s a very strong foundation of the mortgage industry. Right now, there is not these shake your loans being given like the way you want to help everyone get a house if they want a house, but you got to make sure that they meet all the criteria. They have the income, they have a job, the house is worth what they say it’s worth, right? There’s a lot of things you have to do.
And back then there’s a lot — I don’t know if the right word is (inaudible) your rules, crazier rules, rules that were not responsible lending. Right now, responsible lending — it’s not hard to get a mortgage right now, if you qualify. If you have …
RITHOLTZ: So …
ISHBIA: … if you pay your bills on time, and you have a job, and you make income, mortgages are easy to get. You got to, you know, find the right person to help you get it, but it’s not if you, you know — you know, self-employed and you don’t show any income, well, it’s a little different now. You actually got to prove that you make the income. Everyone wants a proof that you can pay your mortgage.
RITHOLTZ: Right. So, I just want to make sure I’m checking the right boxes. If you want a mortgage, you have to have a job, you have to have a credit history, and the house has to be worth what you’re paying for it. These are like crazy restrictive rules, I mean.
(LAUGHTER)
Who — who could buy a house …
ISHBIA: Exactly.
RITHOLTZ: … under those? What — what’s so amazing because what you’re saying is so obvious and self-evident, but how on earth did we ever go off the rails in the mid-2000’s where you don’t need a job, you don’t need a credit history, and who cares what the house is worth. That seems just absolutely insane.
ISHBIA: Yeah. Well, that — if greed got in the way, people started, you know, one upping each other, trying to think and — and — and they didn’t understand the consequences. The whole American, you know, world — really the whole world learned, and so now everyone understands it and the respect that housing drives the economy in such a way that (inaudible) and to — to mess up or break housing is not — is not a way that’s going to win long-term. And that’s what happened.
People got greedy, people got — we’re trying to make money. Things weren’t working well. They’re kind of one-upping each other on products and nuances, and — and the whole thing kind of fell apart. And I don’t think that — I don’t think I will see that happen again in my lifetime. It doesn’t mean that there won’t be some gray areas stuff going on, I’m sure there will be, but it’s not going to be at that extreme.
RITHOLTZ: So — so you mentioned earlier you’re going to see volume drop when rates run up some of the other mortgage underwriters. What happens to their underwriting standards? When they see their — their revenue dropped and their volume drop, do they start to get stupid again or what have they learned their lesson from, you know, 2008-’09?
ISHBIA: Well, so great question, and yes, they will start to get (inaudible) stupid or risk year or a little bit more, but because of what the CFPB did and a guy named Richard Cordray, so, you know, when they put in some rules, that basically restrict your ability ever doing it to the extremes. I’m not saying people can’t get into some of the gray areas, but on a mass scale, the extremes such as — back to our older joke or comment about no income, no job, here’s a loan, like that — that — that can’t be done anymore, right? That can’t be done anymore.
And so, therefore, there are some rules in place that is just really not going to be on a mass scale that you can get those things done. And so, I’m not concerned. Do lenders lower their standards? Absolutely, I’m sure they do when rates go up. But at the same time, it’s not going to be able to be lowered to put the American economy at risk like it did last time.
RITHOLTZ: So, I know the — the GSEs or government-sponsored entities like Fannie Mae and Freddie Mac focus mostly on the conforming world traditional mortgages. What about what’s become a very big segment, the — the jumbo mortgage market? How do you see that developing? Do you guys play in that space? Tell us a little bit about — because I know the real estate, it’s been growing very rapidly. What do you guys do in terms of jumbo mortgages, and how do you see that space?
ISHBIA: Yeah. So, it’s definitely in your space we do a lot of business that we do billions of dollars a month of it, so we’re doing a lot of businesses, but that — those loans are put 20 percent down, 740 FICO good credit score.
People — once again, the — the — the principles that we talked about where they have to have a job to show their income, they have to prove it. A lot of people are so employed, they actually have to show it on their tax returns in order to qualify for one of these loans. And so, that’s — those are good solid loans, and those are good solid borrowers, and those are who you want to be able to serve so that they can buy a house.
RITHOLTZ: Really, really, really intriguing. So, a recent Wall Street Journal edition had a column, real estate shows tech is no holy grail. What are your thoughts on — on these so-called iBuyers, these tech companies that offered almost like a used car? Hey, we’ll buy your house directly from you, you don’t have to list it for sale. Do you have any thoughts on — on that growing industry?
ISHBIA: Yeah. No, it’s interesting. I like that people are trying to innovate in the residential mortgage space, residential housing space. The reality is this. There’s — you got to always follow the money, right? Why is someone doing that? They’re buying your house today because they’re probably buying it below what it actually should be selling for, right?
And is that best for you? Is — is it that hard to sell a house these days? You know, so I guess my perspective is I’m not going to call them gimmicks because I’m sure there’s obviously some substantiated strong businesses. But the reality is, you know, those things aren’t going to become the mass, right? There — there’s — there’s different reasons they’re doing. Everyone is trying to make money in there, and if there’s a gap, there’s an arbitrage there that, hey, you want to sell your house for 300, I’ll buy it for 290 today so you don’t have to worry about and go buy another house, and I’ll try to sell it for 305. They’re trying to make an arbitrage right there anyway.
And so, do I think they’re longstanding? Maybe. Do I think they’re gimmicks? Yes. Do I think that they’re going to be mass scale? No.
RITHOLTZ: That’s really kind of interesting. And — and I want to just touch on — on the fact that you guys went public via SPAC. Tell us a little bit about what that process was like. Why did you decide that was the right way to go public?
ISHBIA: Yeah. So, we obviously are large enough and successful. I mean, (inaudible) SPAC goes back must be a questionable company, that’s not anything like — I mean, we — we — we — we made $3.3 billion in profit last year, so we went public through a SPAC because we chose that instead of an IPO. We chose that because we felt that was a better process for us for numerous reasons.
We also got partnered with Alec Gores in the Gores Group, and Alec did a great job and his team. You know, the way I think about is this, I’m going public. I’m not –I’m not going public again. So how do you go public in the most efficient way possible while having someone ride shotgun and kind of advice you? And that’s what Alec Gores and his team did. And so, we felt that going public through a SPAC was a better option for us than an IPO. And I would do it again the same way.
Now, you know, certain — (inaudible) always kind of different. I was (inaudible) the largest SPAC of all time and — but I don’t look at it based on valuations, I look at it as what’s the best way to do this. And I look at both options. And although everyone in the world tells you that IPO seems like a better option because that’s what everyone has always done, but I don’t live that way. I don’t live on whatever was always done it. What’s the best way? And we found that this is the best way, and — and I think I chose correctly.
RITHOLTZ: So what sort of guns have you gotten in terms of how to handle — suddenly, you’re the CEO of a public company. Have you gotten any good advice about that or — or who you’ve been speaking to about it?
ISHBIA: No, you know, I — I haven’t, you know, focused my time on like what I say there’s a saying in business like what got you here won’t get you there. And my perspective is what got me here will get me there. I’m going to stay in the weeds of my business. I’m not going to change what I do. I’m going to continue to take care of running our company for our team members, our clients, shareholders because I always run up for shareholders. The difference was shareholders were only (inaudible) back then, but now I got everybody in my company as a shareholder along with a lot of people in the public, which we’re excited about as well.
But take care of your team members, take care of your clients, take care of, you know, the end consumer. And at the same time, take care of your shareholders. And so, nothing is really changed in my business running daily. We obviously have more people on investor relations and we got people on financial side that would do anything, but running a business day-to-day.
I’ll not change what I’m doing and a lot of investors back — when we’re doing this back and a few were in our roadshow were investing in us, they wanted me to keep doing what I’m doing because that’s what they are buying into. They’re buying into our success and how we got to where we’re at and how we’re going to get to where we’re going.
RITHOLTZ: So what are the plans for all that capital that you raised? How do you want to deploy that?
ISHBIA: The big focus is, one, technology. Continue to invest in technology. We have done that and we’re continuing to innovate with that.
Second thing is we’re investing in servicing, right? We — we — we — we create the servicing assets that’s very profitable and successful. I used to have to sell it to bring in cash. Now I don’t have to sell it. I have still can sell it if the right opportunity, but I don’t need to sell. Now I can want to sell. It’s a big difference.
RITHOLTZ: Well, Mat, thank you so much for being so generous with your time. This has been really fascinating stuff.
We have been speaking with Mat Ishbia. He is the CEO of United Wholesale Mortgage. They are the country’s largest wholesale lender and number two overall mortgage lender.
I wish we could have done this in person. I get the sense that you were just a very animated, excited individual, and I get the sense your enthusiasm is totally infectious. And I could see why you’ve been so successful running the company.
ISHBIA: Well, thank you. I really enjoyed being part of it. Appreciate you and hope to talk to you again soon.
RITHOLTZ: Absolutely, thanks so much, Mat.
ISHBIA: Thank you.
RITHOLTZ: Thanks to Mat Ishbia for being so generous with his time.
If you enjoy this conversation, well, be sure and check out any of the previous 400 discussions we’ve done over the past six years — seven years, oh, my God. Time — time disappears. You can find those at iTunes, Spotify, bloomberg.com, wherever you listen to your favorite podcasts.
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I would be remiss if I do not thank the crack staff that helps put these conversations together each week. Atika Valbrun is my Project Manager. Paris Wald is my Producer. Michael Batnick is my Head of Research.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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