United Wholesale Mortgage (UWM) is fighting back against a group of borrowers who filed a class-action lawsuit in April that accuses the lender of structuring a “corrupt” scheme with brokers to steer loans.

On Friday, the top U.S. mortgage lender filed a motion to dismiss the case with prejudice in a district court in Michigan, stating that the suit “reflects an unprecedented and coordinated effort to smear” the defendants and “benefit market speculators.”

That’s because the case followed a Hunterbrook Media report indicating that UWM pressures brokers to send loans its way. The outlet is affiliated with the hedge fund Hunterbrook Capital, which went short on UWM shares following its investment recommendation.

Plaintiffs Therisa D. Escue, Billy R. Escue, Kim Schelble, and Brian P. Weatherill included nine claims in their lawsuit, such as violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act and Real Estate Settlement Procedures Act (RESPA). 

The allegations affect the lender, its parent entity, UWM Holdings Corp., its president and CEO, Mat Ishbia, and his holding company, SFS Holding Corp.

In a statement to HousingWire, a spokesperson for UWM said every single claim made in the class-action lawsuit is “meritless and riddled with flaws.”

“We’ve already seen tremendous success with the dismissal of other frivolous lawsuits against our business over the last few years and we are confident in the same outcome here,” the spokesperson wrote. “We will continue to aggressively defend all counts to the fullest extent and stand with the thousands of independent mortgage brokers who serve the unique needs of borrowers nationwide every day.”

Attorneys for the defendants did not immediately reply to HousingWire’s request for comments. 

UWM initiatives

The plaintiffs allege in the suit that brokers, rather than being independent, were corrupted by UWM when they joined the lender’s “All-In” initiative, which prohibits any broker who does business with UWM from shopping wwith rivals Rocket Mortgage and Fairway Independent Mortgage Corp. (Since then, Fairway has exited the wholesale channel.)

In response, UWM said the class action is a “transparent attempt to revive legal theories that two federal district courts have already rejected.” The lender is referring to litigation on this matter that has resulted in decisions that favor UWM, including cases involving Okavage Group and America’s Moneyline.

UWM also stated in the motion to dismiss the case that the plaintiffs did not show that Rocket and Fairway would have offered loans at better rates or conditions. 

Another mechanism criticized by the plaintiffs is the mandate that brokers accept a restrictive “lock-In” policy when working with UWM. This policy requires brokers not to shop after locking a loan, which usually occurs at the beginning of the loan process in the mortgage industry. 

In the case of UWM, however, “The transfer or sale by Broker of a Mortgage Loan locked in by UWM during the lock-in period to another entity shall constitute a violation of the Agreement, and the Broker shall be liable, and promptly indemnify UWM, for any loss sustained as a result thereof by UWM,” the plaintiffs mentioned in their complaint.

UWM defended its lock-In initiative by saying it’s “a common and economically rational provision.” The lender said it pertains to brokers but never “binds the borrower, who is free to walk away from UWM’s offer and choose another lender at any time before closing.” 

Regarding other allegations, UWM states that the borrowers’ claims of RICO violations “lack of proximate causation, absence of a cognizable enterprise, and failure to plead predicate acts of racketeering.” Meanwhile, the plaintiffs’ claims under RESPA are time-barred since their loans were closed more than one year ago, UWM argued.

According to the lender, the plaintiffs failed to comply with the notice-and-cure provision in their mortgage agreements, which requires them to provide UWM notice and an opportunity to “cure before racing to the courthouse.” This bars their suit in full, the lender said. UWM asks for the dismissal of all nine counts.  

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