Lykken on Lending

We’re currently experiencing the most aggressive shift in the industry, and the speed at which the market has changed is clear proof of it. There’s a lot to consider regarding how businesses in the industry will adapt to these changes. Here to share his unique perspective on the matter is Austin Niemiec, Executive Vice President of Rocket Pro TPO. In this chat with host David Lykken, Austin launches into a discussion about what truly makes a healthy industry and the big role the broker community plays in it. It’s high time to think about where your business is headed. Austin talks about the meaning of partnerships, the biggest threat to the broker community, and how to take your business forward. Don’t miss these tidbits of practical business advice by tuning in.

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The State Of The Broker / Wholesale Market

We’ve got a special guest coming on to talk about what’s going on in the industry. He’s one of the leaders in the industry, both the company as well as the individual. I’m talking about Austin Niemiec. Austin is the Executive Vice President of a Rocket Pro TPO. I’m sure you all know about the company. You’re going to get a chance to meet a dynamic leader. We’re going to be talking about what’s going on in the industry. Stay tuned and learn. We’ve got some great stuff. Austin, thanks for joining me on the show.

David, I am honored. Thanks for having me.

It’s good to have you here. You are a leader in the industry. I love your background but for those that don’t know you, give us a little bit of your journey to this point and how you got to where you’re at Rocket.

I was born and raised here in the great state of Michigan. I went to Hillsdale College, played football and graduated in ’08. It was a great year to get into the mortgage industry. People thought I was nuts, “What are you doing? Why are you getting into the industry? It’s on fire,” but I knew I wanted to stay in Michigan, work for a great company and get into sales where the more I put in, the more I got out of it. Back then, Quicken Loans is where I started. I started selling.

You started in Quicken Loans right from the very beginning. What a great company. He’s talking about an amazing success story. There are some great companies in Michigan. We are thrilled with what you have accomplished. I’m interested in your unique position in the marketplace to get your perspective on how the industry is going at large as a whole. Let’s channel it and focus more on the wholesale side. Give a broad perspective and then go into the wholesale part of it.

A lot is going on. I think of a couple of things. Everyone knows this. This has been one of the most aggressive shifts we have seen in the history of the industry and the speed at which the market has shifted. I was looking at some data from the MBA they put out. You look at Q3 of 2020, which wasn’t long ago. It was an all-time record for net income per loan across over 200 basis points in net income per loan and record volume at the same time. It was $1.5 trillion North of that in Q3 of 2020.

Wholesale Market: This has been one of the most aggressive shifts we’ve seen in the industry in the history of the industry.

You had the net income per loan at an all-time high on top of the record volume. Two years later, in Q3, you went from 200 basis points in net income down to negative net income across the industry. You’re losing money per loan. The volume has been caught by more than half compared to that same quarter. Two years is a very quick period to see that aggressive shift.

With that, you’re seeing the industry barbell a bit as far as I believe market share. When you look at where folks are headed, it’s barbelling into two areas. One is lenders with very strong balance sheets and a strong cash position like us and some large retail lenders that can withstand this rapid shift. That’s one area where everything is barbelling to. The other is the brokers, which I love.

It’s our part of the business because brokers are nimble. They don’t have a cost structure. They can lean on companies like us that have that strong balance sheet and then the folks in the middle or the midsize bankers that have the overhead. You’re building your tech but you don’t have that capital or the liquidity. That’s where it’s tough. You’re seeing a lot of folks get out of that space and move to one side.

You’re either going to be a well-capitalized mortgage banker and continue to do well or you’re going to end up going back for a season until this thing corrects to go back to brokering loans. I would like to get your perspective. Are you seeing this? In my perspective as a consultant in the industry, we seem to see a fair number of people that are mortgage bankers or IMBs saying, “We can’t compete at this. We need to roll back to brokering loans.” They have let their entire mortgage banking employees, underwriters and anyone affiliated with the banking part of it roll back. They have returned to being brokers for a season to be able to live to play another day.

We’re seeing several hundred brokers, companies and shops open up each quarter. We love it. We’re a big part of that business. There’s strong competition in the broker community with folks like us and others building the technology and infrastructure so that brokers can stay nimble and not have to invest there. It’s exciting.

Going back to the cost structure, we were at 200 basis points net profit. We’re negative for the second quarter in a row. That has never been in the history of our industry that we had two back-to-back quarters. We’re going to have 3 back-to-back quarters, hopefully not 4. That’s going to the point of the importance of being with a well-capitalized partner in this. How did the last few years get us to where we’re at?

The last few years were a fantasy land in our industry. Rates hit a historic low. There’s equity in homes. People needed to save money. Everybody was in the money to refinance. It was a hot-purchase market at the same time. I don’t care who you were. Companies all across America were scaling and hiring teams.

You’re doing the same thing. How did you avoid some of the problems? I want to get to that at some point. I want to bookmark that question. We’re all fishing out of the same pond. It was all costing us the same amount of money. It goes to the capital capitalization benefit that Rocket has for certain but then how do you come back to reducing costs? Are you able to continue the volume up and keep rolling to not get caught in the mess that so many are in?

Everyone is reducing costs. You’re finding ways everywhere. You have to take a hard look at your balance sheet and find ways to reduce costs but that can’t be the only way. You can’t cut your way to profitability, market share, a great product and success. While being responsible and finding ways to become more cost-effective, you still have to innovate. You still have to focus on driving top-end revenue, trying new things and building new things.

A lot of companies aren’t focused on that. Here’s the way you get through tough markets. We have been through a lot of them and we have been doing this for almost 40 years. When you look at 3 or 4 tough markets, we didn’t cut our way. We innovated our way out of each and every one. That’s what we’re doing as a company. We’re continuing to innovate. You have to do both.

It’s working on both ends of the formula for sure. Is there anything more about how the last few years have gotten to where we’re at?

Everyone had built a bunch of capacities. We’re at a $4.4 trillion market in 2021. We’re on a run rate of $1.9 trillion. You’re seeing that capacity trying to catch up with reality. We’re not there yet as an industry but we’re getting closer as each quarter goes on. When you look at the rise of the broker, which is a space where I lead our wholesale channel, whenever there’s an incredible amount of competition, that’s when brokers soar.

You look at 2001 to 2006. Let’s look at history. There was amazing competition for the broker business. You had all these very strong competitors building and earning brokers’ businesses. The brokers were in control. Market share went up and then 2008 hit. The brokers got blamed for it. Lenders bailed. Everyone was sprinting out of the wholesale industry. Brokers lost control. Nobody was competing for their business anymore. You saw the broker market share go down dramatically.

In 2015, I came over to the wholesale side. You saw a lot of competition start to heat up. Brokers were in control. You saw brokers gain market share but there’s an interesting thing going on. You’re asking how we got here and what’s going on in the market. You’re seeing something interesting going on. We’re the second-largest wholesale lender in America but the largest is looking to reduce competition in a pretty bold way.

They’re using a very strong capital position. It appears to subsidize the pricing to eliminate the competition. That is a big concern.

It started before. You look back. COVID hit. Lenders had to make decisions. There were all sorts of risks. You had margin calls. You didn’t know what was going to go on with forbearance. On the wholesale side, we made a decision to stand strong for brokers. We kept rates low and kept our doors open whereas the largest wholesale lender in America decided to go into a corner, cap their rates and not take on the risk for brokers to avoid the margin calls and the questions with forbearance.

We took up UWM’s brokers, put them on our back and helped them get through that COVID period where there was record volume. Americans needed help. To go back to your question, once they came out of the corner, we said, “We’re back. We’re giving you an ultimatum. You can’t use Rocket anymore. You’re gaining shares. If you do, we’re going to sue you.”

It started there but to your point, you’ve got this game on pricing where they’re trying to take lenders out and saying, “We’re going to reduce rates for a couple of quarters to try to gain share and try to reduce our competition,” but what you’re seeing is loanDepot. They said, “We’re out of wholesale. We don’t want to play around.” AmeriSave and Finance of America got out.

Was it because of the pricing? I’ve been frustrated by this as well. I hate to see competition close their doors. Was it because of this? Was it extenuating market conditions as well? I’ve been thinking about this since you and I originally talked about this topic and agreed to have you on the show. Many factors are driving a lot of them. The cost of some of these guys was too high. They didn’t run a good operation as you did.

You haven’t caved and had to go out of business because of the competition. For anyone that goes out there, the prices are under the market. I get that. I understand that but are there other factors that went into that? I’m pointing to you and the way you’ve run your wholesale operation. It’s leadership. You have done a great job of staying as a class act and continuing to compete.

There are other factors. You look at everything that’s going on with capacities, cost structures and things of that nature but they realized there was a moment where if they drove the price down for a couple of quarters, then that would be the determining factor for some of these companies to say, “I’m going to get out of wholesale and focus on retail.” You’re seeing that. Brokers are losing options. The key to a very healthy industry, mortgage or anything is competition and having as many options as humanly possible. That means the broker has as many options as humanly possible. Anyone who limits that competition, whether you’re a CEO or a regulator, you’re harming the broker and the consumer. We’re seeing a lot of that.

I’m a big fan of capitalism. I am a capitalist. I like capitalism. The free enterprise system can be self-cleansing when you have that but this is one of those situations where capitalism may have turned. We have seen the uglier side of it when it eliminates competition because ultimately, it should be about the consumer for all of us. It’s not just having the most market share. It’s providing the broadest amount of products. I’m sure others would say, “Other competitors do,” but what have you seen around the product offering that’s going on? What does your product mix look like? How do you keep yourself relevant to the needs of the consumer that you’re serving through the broker?

Any time that volume goes down in our industry, people start to look at unique products and try to find a niche or something to replace the volume.

There’s nobody that does that better than you. If it’s not, you come up with a unique name for a product that didn’t exist or that existed before but you make it look new. I admire the marketing and how you go about it. It’s brilliant.

It’s one of our isms. Our core philosophy here at Rocket is the packaging is just as important as the content, meaning most people have the same product, whether you’re a broker. You’re selling the same stuff but some choose to focus on, “How could I rename this? How could I package it? How could I get someone’s attention with it?” Sometimes the way you package it is more important than the actual contents or the product itself. When I look at our product offering to the broker, we are for the truly independent mortgage broker. That’s who we are at Rocket.

We’re for the truly independent mortgage broker that says, “I’m in control. I don’t need anyone to tell me what to do.” I want to work with a good company that has a great portal. I believe our portal is the best product out there in the wholesale space from pricing to close. It’s clean and crisp. It helps originators price a loan, register a loan, lock a loan and close a loan better than anyone. We’re not going to do every product known to man but we’re very balanced. It’s all conforming to FHA/VA, Ginnie, Fannie, and Freddie. We’re working very closely.

I would love to talk about affordability here in a little bit because it’s an interesting topic. We’re diversifying some of the affordability products. As far as interest rates are concerned, we don’t play gimmicks. A lot of wholesale lenders go down and come up. If you look over the last few years, we’re very consistent and competitive. That’s what brokers appreciate and like about us. It’s something that they can rely on. There’s a diverse product mix, a great technology portal, and a consistent price. That’s why we’re a great asset to brokers.

You’re a great asset to the industry. I love the way you work. We have always said this about Quicken, what you do, and the corporate culture. You’re a marketing and technology company that happens to be in the mortgage business. It’s how it’s best framed up. That shows up in how you compete. Let’s get into product diversity. Talk a little bit about some of the things that you’re doing to help home ownership and expand home ownership in America through your products. Talk about that.

Another key theme that will relate to your question is affordability. I was looking at some more MBA data. Over the last few years, the average payment on a conventional mortgage across America is $1,200. Over the last quarter, that has risen from $1,200 to almost $2,000. Think about that. Rates are a big deal. Values haven’t declined yet to get to the point to make it affordable. You’ve got this incredible opportunity for one of the largest demographics hitting the market to buy their first house but homes have never been more expensive.

You’re seeing Fannie and Freddie lean into that. We’re working closely with Fannie and Freddie. They rolled out Home Possible®, HomeReady® and BorrowSmart℠. We have an awesome and unique credit on BorrowSmart℠ to help people with the down payment. You saw them roll out their new caps on all the adjustments on Home Possible® and HomeReady®. Those are big wins, especially for first-time home buyers but we’re doing things above and beyond that here at Rocket.

We have what we call credit upgrades, which we give to brokers. They can help people work with our team to increase credit scores and either get to a point where they qualify or get a way better score to increase or decrease the rate. We’re doing verified approval letters with the broker community so that we can take this big wave of Millennials and Gen Zs that never bought a house and make sure they’re qualified before they’re going out and looking for the right type of home.

We rolled out our manufactured home product to the broker community, which is having a ton of success because manufactured homes are affordable. They’re hitting the market quickly. There are a lot of things we’re doing. You’re going to see a lot more innovation around affordable products with the agencies. We’re working very closely with them as well. That will be a key theme over the next years.

When you talk about this, it’s about being a good partner. You’re often referred to as a good partner or a true partner. Explain what you mean by that. How do you define a good or true partnership?

We call our brokers our partners. Sometimes we even refer to them as a family but a partnership in life is something that is mutually beneficial to each other. Whether it’s marriage, a friendship, a business partnership, or our partnership with brokers, it’s got to be mutually beneficial to both sides. We are structured in a very unique way much different than most wholesale lenders in the fact that we have the largest retail mortgage company in America that is very diverse.

We have titles, auto solar, and retail. We do a lot here in the city of Detroit. We’re incredibly diversified and well-capitalized. We build a ton of technology. We can take our strengths and use that to give many of those strengths to the broker community so that they can do what they do best, which is build relationships in their community, sell, and market. They don’t have to worry, “Our rate is going to be erratic with this company. Do I have to go out and build?”

We’re stronger together. It was one of our brand campaigns. That’s one element. When I say a true partner, we’re truly leaning on each other’s strengths to make each other better but going back to what we were talking about earlier, I also think a true partner earns the partnership through value, honesty, and integrity. I don’t think a true partnership is, “Work with me or I’ll sue you. Work with me but you can’t work with others.”

We want to compete. Brokers win when lenders like us and others are competing for their business. When the broker is in charge, is the boss, and makes us compete with others, that’s when the broker is at its strongest point. You’re seeing folks out there trying to destroy that philosophy and take away a broker’s true superpower. A true partner competes for the business and earns it. They don’t force it through pricing wars, contracts, lawsuits, and things like that. That’s what I mean by a true partner.

I’m thinking about what you said. You are the largest retail lender in the nation and one of the most successful. I remember sitting with Bill Emerson at one of the executive conferences where the NBA gets all the executives together. I can’t remember the leadership group. I watched Emerson and how he sat there with such confidence and humility and how he talked and listened to the others but in his mind, you could almost see he almost felt sorry for him because of their thinking. He thinks differently.

This group thinks differently. How you compete is different. I like competing rather than getting into a dysfunctional approach to the whole thing but how does having the largest retail platform and having a TPO operation work side by side? How do you address potential conflicts? How do you address the issues that could arise? “We’re nervous about dealing with the number one retailer out there.” How do you address that?

Our number one advantage to the broker community is the fact that we’re the largest retail lender in America. Our competition will try to say the opposite, inject fear and scare people but this is such a big market even when the market shrinks to where it’s at. We’re the largest retail mortgage company in America. Don’t quote me on this because it depends. We have 6% to 7% of the market, meaning 93 out of 100 loans are out there going somewhere else.

It’s interesting. 20% of the time, brokers are competing with brokers at 3 to 4 times the rate. They’re competing with our retail side. It’s interesting to say that’s your biggest competition. We like to think that in an infinite mindset, this isn’t a war where there are winners and losers, we’re all fighting over this tiny little pie and everyone is out to get each other.

We truly believe it here at Rocket. It’s part of our culture. The numbers and money follow. They don’t lead. This world is a huge place with so much opportunity. To get back to your question, retail isn’t a threat to our partners. We’re able to build all the things because we’re the largest retail mortgage company in America. We get the best mortgage insurance because we’re the largest retailer. We give it to brokers to sell. They win business.

You look at COVID. We were able to stand strong for the broker community while others went into a corner. Why? We’re very well-capitalized. We had great liquidity. What happened? Brokers were able to set records with us because we have the largest retail mortgage company in America. Brokers use our brand. As consumers sometimes they don’t know about a broker’s brand. They’re nervous.

They could say, “Have you heard of Rocket?” The consumer says, “I’m a partner with them. I have the ability to leverage.” That’s why we say we’re stronger together with the broker community. People look at it as a threat. In my opinion, it’s a finite mindset. People look at it as, “How do we leverage each other’s strengths?” That’s an infinite mindset. That’s why I believe we’re the best option for brokers out there.

Wholesale Market: We’re stronger together with the broker community. It’s a finite mindset. How do we leverage each other’s strengths?

When you look at where we have been as an industry, we have not innovated. The greatest amount of innovation has shown up with the Quicken and Rocket story. It’s an amazing success story. I look to the future. I would love to get your perspective on what you see both short-term and long-term. Our short term is this challenge that we’re going through in contraction in the volume and costs going through the roof. Most companies haven’t reacted enough. It’s probably the real problem but the short-term problem is where we and the market are at and also the long-term picture. Are you bullish about it? Why?

From an innovation standpoint, I agree with you. If you go back in time 20 years ago and you were a loan originator and you looked around a mortgage company’s office, you would say, “What has changed? We’re still locking rates for 30 to 45 days. We’re still taking 1003s.” They would probably say, “What is this little computer everyone is holding in their hands?” It’s called a cell phone but outside of that, it does look very similar. However, some cool things are going on in the industry that you will see help consumers.

We have a fully digital tip-to-tail mortgage experience. It’s almost our product giving to brokers but consumers can go from the app all the way to close and do it fully digitally. Is that going to change the world? No, but we’re catching up with other industries as well as an industry. That’s a big deal. I believe someone is going to figure out we’re doing some cool stuff with AI and the way that we underwrite loans. We can get to a point where we’re consistently closing loans in 6 to 7 days. We’re already seeing it happen.

It’s a major exception to the rule but it’s very possible for us to get to that.

A lot of it is the vendors. We can move as fast as we want inside but with a mortgage, you’re working with other parties, whether it’s VOEs or third-party vendors. We’re building tech and APIs into some of this stuff that will help those things become more automated.

I look at demographics. That’s one of the things I’ve always been inclined to study. I remember Harry S. Dent wrote some very predictive books. He was acting on some things that he claimed. He missed some other things because of the timing of the demographic behavior such as the Gen Z-ers and Millennials and when they’re acting. We all thought they were going to start buying homes. You look at the recent MBA data we listened to in Nashville at the annual conference. Forty percent of Gen Z-ers and Millennials own homes. If you compare that to the other demographic groups as a percentage of ownership, we have a huge opportunity.

I am extremely bullish about this industry. I believe that the broker has a chance to survive this time. The ice age or the big freeze that hit them was them getting blamed blind because they were on the front line of offering the products that were ill-conceived for a sustainable housing journey. It caused the creation of the CFPB, which is interesting. We’re seeing it go up before the Supreme Court, whether or not the legality of the funding for CFPB is going to hold up.

There are a lot of changes coming out all the way around but the demographics would suggest we have a great future. I am bullish about the mortgage broker being the biggest participant in this retail party. Do you agree with that? I’m assuming you’re hoping for that. You run the TPO division there at Rocket. I would assume so but is there any more color you would add to it? Are there other reasons to be more bullish or to be bullish at all?

The biggest threat to the broker community is if lenders continue to get out of the space as we have seen in the last couple of months because of an entity wanting to drive everyone out. If one entity drives lenders out of the space, then the reason they want to do that is you have margin control. You don’t have to compete. When people don’t compete, the parties that receive get weaker. In this case, it’s the broker. The broker is ultimately in control. This is capitalism. The broker ultimately still can determine the rules of the game.

We’re seeing hundreds of brokers a month that sign that ultimatum start to come back over to us because they don’t like what’s happening. It can’t just be two. As long as brokers have 10, 8 or 6 strong lenders holding each other accountable to innovation, a great price and great turn times, brokers will continue to grow. However, if it consolidates to one and brokers turn into a net branch, that is not good for the broker. That’s a giant threat to the broker community and the broker model.

Would you agree that this is a pendulum swinging and we have gone to an extreme? As the market and interest rates come back aligned, that’s going to make people want to get back out and buy. This is going to create an environment for more competition to come in. Is this a pendulum thing? Is this something that you think is a real threat long-term?

It’s a threat if brokers don’t hold lenders accountable but I’m very confident. Brokers are incredibly smart individuals that understand the business better than most. They’re starting to vote with their feet. You’re seeing them hold lenders accountable. As long as brokers take back control and you’re seeing it happen, it’s going to be a beautiful thing for brokers to continue to see market share growth for sure.

I have been grateful for you to want to come to the show here. You reached out to me, Austin. I’m pleased that you did. Our guest has been Austin Niemiec. He is the Executive Vice President of Rocket Pro TPO. He oversees the entire TPO operation or third-party originations for the broker world. Austin, you’re doing a great job. I wish you continued success. I would love to have you back and give us more updates as you see the perspective. We have a huge audience. A huge segment number of the audience is the brokers. I would love to have you back and continue to talk. Thank you. I appreciate it.

I’m honored. It was a great time, David. I would love to be back. I appreciate you.

We will make sure that happens. Thank you.

Important Links

• Rocket Pro TPO
• loanDepot
• AmeriSave
• Finance of America
• Home Possible®
• HomeReady®
• BorrowSmart℠
• CFPB
• https://www.RocketMortgage.com/
• https://www.LinkedIn.com/in/Austin-Niemiec-431412139/

About Austin Niemiec

Austin Niemiec (Knee-Mick) is the Executive Vice President of Rocket Pro TPO. He oversees a team based out of Detroit and Charlotte who provides the highest level of service to thousands of partner brokers, correspondent lenders, regional banks, and credit unions across the country. Rocket Pro TPO partners provide incredible service to their clients while tapping into the expertise, technology, and award-winning process of Rocket Mortgage.

Before his current position, Austin served the company by leading the Account Executives at Rocket Pro TPO. He joined Rocket in 2009 as a mortgage banker, where he grew to understand the varied needs of homeowners through his work with thousands of clients.

Austin earned a bachelor’s degree in Business, Management, and Marketing from Hillside College, where he was also a member of the football team. Austin resides in the Detroit area.