The Minnesota Department of Commerce has been busy this month sending letters to mortgage brokers who have traveled w/ their agent referral partners to UWM’s Pontiac, MI campus for its all expenses-paid Success Track training program. 

“Based upon a review of the documents & information obtained, it appears that there may be sufficient evidence to support an allegation that your attendance violated RESPA,” reads the letter to one broker who does business w/ UWM.

The investigator cites a possible violation of 12 U.S.§ 2607 (a), which states that “No person shall give and no person shall accept any fee, kickback, or thing of value” for title services or mortgage loans. The letter concluded by telling the mortgage broker that the Dept. of Commerce won’t be taking action against his license.

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UWM declined to comment, as did the Minnesota Dept. of Commerce.

This appears to be the first time a state regulator has targeted Success Track, a popular program in which UWM flies out mortgage broker partners & often their real estate agent referral partners to Detroit. They put them up in hotels near the Pontiac campus, have them meet various UWM staffers & take marketing/biz development training. Food & entertainment is provided. All at no cost. 

Brokers can network w/ agents at Success Track & learn tips & tricks from other brokers in attendance. Over the course of 2-3 days, agents receive continuing education credits.

Tens of thousands of brokers & their agent contacts have flocked to Pontiac for Success Track. The program kicked off pre-Covid, but only in recent years have agent partners of brokers been invited, wholesale sources said. While other wholesale lenders do provide on-site training & sponsor broker events, brokers inviting their agent referral partners is not commonplace.

Federal regulators at the CFPB under President Biden scrutinized UWM’s Success Track program, though no charges were ever filed. Federal law says a lender may sponsor legitimate training or conferences for brokers & agents so long as the payments aren't in exchange for the referral of business.

UWM has in the past said that the goal of Success Track is for agents/mortgage brokers to learn how to work most effectively w/ the lender & scale their business. UWM’s origination process is unique from other wholesale mortgage lenders & the training aspect is legitimate, sources said. 

Lawyers in the space told The Scoop that one central question investigators will likely scrutinize is whether UWM paying for the agent’s trip is considered an inducement on behalf of the broker partner, even though UWM has no direct tie.

Sources familiar w/ the investigation told The Scoop that current & past brokers w/ Edge Home Finance have received letters related to UWM potentially providing “a thing of value.” Edge is headquartered in Minnetonka, Minnesota (beautiful place!) & regularly brings agent referral partners to UWM’s campus. Attempts to reach Tom Ahles & Chris Hacker at Edge on Monday were not successful.

UWM is also facing a lawsuit from the Ohio Attorney General’s Office over the claim that UWM colluded w/ mortgage brokers to steer borrowers into loans w/ above-market rates & fees by “falsely” portraying brokers as independent, causing millions of damages in harm. The lawsuit alleges that UWM directed nearly all business from alleged "independent" brokers back to itself. 

The wholesale giant has always denied the steering allegations. UWM has said that brokers can send their business to tons of other lenders at any time. In essence, UWM is saying, “We are simply better than the competition, which is why brokers send us so much volume.”

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Mortgage credit card & rewards program Mesa is done, but there are lots of questions about where the money went 💸.

Founded by serial entrepreneurs Kelley Halpin & Peyton Heyslette, Mesa launched a year ago w/ the goal of rewarding homeowners for paying their mortgage. It’s similar to Bilt & Halpin raised a fair amount of money along the way, including a $24M round in August.

But on Dec. 12, Mesa abruptly shut down w/ little explanation.

"We are reaching out today to share the unfortunate news that, effective immediately, your Mesa Homeowners Card account will be closed,” an email to account owners read. “As such, your credit card will be deactivated, and you will not be able to make any new purchases or earn Mesa Points."

In early December, Mesa announced a new partnership w/ Omni Hotels & Resorts, including a points transfer program for members.

The Scoop will have more on the shutdown in the coming weeks. If you have a tip about Mesa’s collapse, reach out to me here. Greg Sher had an interesting take on it, check out his LinkedIn post.

AI company Anthropic had tested a vending machine powered by its Claude AI model in its own office & asked the WSJ if they'd like to be the first outsiders to try a newer, supposedly smarter version. Claudius, the model, would run the machine, ordering inventory, setting prices & responding to customers via Slack. Within days, Claudius had given away nearly all its inventory for free, including a Playstation 5 and been talked into for "marketing purposes" & ordered live fish. It also offered to buy stun guns, pepper spray, cigarettes & underwear. It ran out of money in a matter of weeks.

“The Project Vend experiment was designed by the company’s stress testers (aka “red team”) to see what happens when an AI agent is given autonomy, money—and human colleagues,” wrote the WSJ’s Joanna Stern. “Three weeks with Claudius showed us today’s AI promises and failings—and how hilarious the gap between can be.”

It is absolutely worth a read. Here’s a free gift link.

“I strongly disagree with how this is framed,” said one commenter. “This was not a failure of AI or a lesson about trust. It was a failure of systems design. You cannot run a financial or inventory system on ‘trust’ in a corporate environment unless trust is already deeply embedded in culture, incentives, and controls.”

The commenter is right, and it underscores the challenge mortgage lenders are facing. Their AI vending machines will make ‘bad’ decisions unless the people in charge have designed models w/ proper controls & are excellent managers. Garbage in, garbage out. Trust is not a substitute for governance & AI is not a substitute for controls.

I don’t know any LO who looks forward to doing mandated continuing education coursework. But it’s gotta be done. Or…does it? One mortgage broker took a pretty unusual approach to CE. The CSBS says Patrick Donlon, formerly of Trusted American Mortgage, instructed another person to complete his mandatory CE coursework & claim it as his own. As part of the settlement, he faces licensing bans & restrictions, plus $31K in penalties. Donlon has originated roughly $14M over the last 14 months.

U.S. mortgage providers are using insurance against errors made by AI tools that help them assess borrowers applying for home loans, according to the FT. 

AI startup MKIII screens potential customers on behalf of lenders & offers bundled insurance against the risk that these loans will underperform to expectations. Munich Re, the world’s largest reinsurer, is among the groups insuring loans originated through MKIII. The insurance against potential errors w/ MKIII’s AI model allowed the lenders to reduce the capital they had against the loans. 

Munich RE and AI insurance startup Armilla have both evaluated performance of MKIII’s software, w/ Munich RE directly covering the risk of the model “misfiring.” The insurance products “zero in on errors caused by the AI, rather than other factors,” the FT reported. Insurance would pay out if borrowers defaulted more frequently compared w/ the models’ predictions. 

Here’s a question to chew on during your holiday roast: Will these insurance policies cover the risk of class-action litigation by the millions of people who become excluded at scale by the AI algorithms?

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