UWM Q3 2023 Earnings Call Transcript

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November 8, 2023

There are 10 speakers on the call.

Operator

Good morning. My name is Rob, and I will be your conference operator today. At this time, I'd like to welcome everyone to the UWM Holdings Corporation Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Blake Kolow, you may begin your conference.

Speaker 1

Good morning. This is Blake Colow, Chief Business Officer and Head of Investor Relations. Thank you for joining us, and welcome to the Q3 2023 UWM Holdings Corporation's earnings call. Before we start, I would like to remind everyone that this conference call includes forward looking statements. Segment.

Speaker 1

For more information about factors that may cause actual results to differ materially from forward looking statements, please refer to the earnings release that we issued this morning. I will now turn the call over to Matt Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Speaker 2

Thanks, Blake. Appreciate it. Thank you, everyone, for joining the call. We had another great quarter, and I'm incredibly proud of our results and excited for the opportunity ahead. I know that every loan we do today means that and we're doing a lot of loans right now.

Speaker 2

So things are going great. You're now seeing the reality of what I've been saying for years. When rates rise, both UWM and brokers shine, while others struggle. Despite about a 25 year high in mortgage rates and lower housing inventory. We continue to thrive in all aspects of the business, including having one of our best purchase quarters of all time.

Speaker 2

It's no secret why UWM and the broker community continue to do so well in the purchase market. Purchase transactions require an expert. They require more attention to detail. They require a higher level of service for real estate agents, consumers and brokers, everybody. And they require an efficient process where speed matters for hitting contract deadlines.

Speaker 2

Together, UWM and independent mortgage brokers match these needs perfectly. We have world class NPS scores, which was actually a + 86 for this quarter. We have fantastic turn times that are the fastest in the industry. Who provide brokers with tools and technology to ensure all transaction details are handled with a speed and efficiency and amazing client service. We love purchase because it's hard for others to compete at our level and the business is less cyclical providing UWM with a stable and consistent volume and earnings as you continue to see.

Speaker 2

And when refis turn, we will be ready because we are investing heavily right now to ensure our brokers will win bigger than ever in the next refi cycle. The combination of our purchase business and scale and quality of our servicing book is so strong that our business can thrive in virtually all markets. We embrace these cycles each time they happen and we come out stronger and no other lender can say that. I've always said we'd rather be the best lender than the biggest, but we've in fact been both call last year and this year for the total numbers, but really the last 5 consecutive quarters and of course for the last 9 plus years or 9 years or so in wholesale. Turning to our results for the quarter.

Speaker 2

We delivered $29,700,000,000 in overall production, well within our guidance. Of that, almost $26,000,000,000 was purchase volume. As I talked earlier, we dominate in the purchase markets. We are doing more purchase volume in the past few quarters than any other letter did volume period. Our gain margin was 97 basis points at the higher end of our range and we generated $301,000,000 of net income, which is inclusive of 90 2,900,000 mark up of our MSR portfolio.

Speaker 2

But as you know, I always like to point out regardless of the direction of MSR, Mark, we are operationally profitable, which almost no mortgage company in the country can say. This is the true barometer of our success. And actually, in fact, I think we made more money this quarter than many of our competitors that are refi focused have made all year or even 5 or 6 quarters worth. That's how strong our business is right now. I hope it is now clear more than ever that we are winning.

Speaker 2

I also hope people realize that we have seen multiple mortgage companies look great in low rate environments who went out of business in the last 2 years or struggling significantly. And that will continue to happen. You hear how other companies are doing great once rates drop, but remember, UWM is excellent regardless of interest rate. And that is why we are the obvious choice and the best in class mortgage originator in America. And we thank all our investors that have noticed that and continue to see that.

Speaker 2

The opportunity ahead will be massive. It might take 6 months, 12 months or 18 months to get there, but I believe it's on the earlier end of that scale when the market turns. UWM will be the most prepared mortgage company, whether it's a big refi boom, a mini refi boom, we will make the most of the opportunity. I'm I'm going to now turn over to our CFO, Andrew, for a few more details.

Speaker 3

Thanks, Matt. Against the market backdrop of continued increases in interest rates, particularly towards the end of the quarter, We delivered strong financial results in Q3 and favorable sequential and year over year comparisons. This strong operational performance as a result of the consistently high volume of purchase originations, gain margin on the high end of our guidance range and our continued emphasis on prudent cost management. And our core operational income before considering changes in the fair value of MSRs increased sequentially and as compared to 2022 in Q3 year to date. We are focused on growth as we continue to make investments in the wholesale channel and in preparing for the next interest rate cycle by hiring additional team members and rolling out new product and technology solutions.

Speaker 3

Segment. Nevertheless, our core operational expenses, excluding servicing, interest and other non operational expenses are down approximately 4% year to date. Our balance sheet, including our capital, available liquidity and leverage remains strong and very consistent with the past two quarters. And Company. To date, we have generated just under $1,700,000,000 in net proceeds from sales of MSRs.

Speaker 3

We have continued to opportunistically sell MSRs as market conditions warrant to fund our operational capital liquidity needs. Despite these sales, we have maintained a sizable and high quality servicing portfolio as originations of MSRs have largely kept pace with sales and payoffs. Our MSR portfolio consisted of loans with a total UPB just over $280,000,000,000 as of the end of the quarter, which continues to deliver significant recurring quarterly cash flows. Liquidity and access to liquidity, including cash, self warehouse and accessible borrowing capacity under our secured and unsecured lines of credit, approximated $2,900,000,000 as of the end of the quarter, which is largely consistent with the past two quarters and a significant increase from the end of last year. We continue to believe that our current financial strength positions us well for any market cycle.

Speaker 3

Okay. I will now turn things back over to our Chairman and CEO of Matt Hishpea for closing remarks.

Speaker 2

Thanks, Andrew. Appreciate it. I'll be brief so we can get to the Q and A. I may sound like a broken record here, But I know the marketing is challenged for most businesses in the mortgage industry. But come to Pontiac Mission sometime, love to see you guys out of the year and see how things work at our headquarters.

Speaker 2

Our culture is vibrant. We are hiring, we are growing, we are investing in technology. In the 37 years we've been in business, we've never laid off a team member. And in fact, in the Q3, We hired over a 1,000 team members. We're going to hire more again in the Q4.

Speaker 2

We are growing the broker channel by year end. We'll host over 25,000 loan officers on our campus for training and development. Brokers are not slowing down. I think the market numbers are starting to show that. UWM is very strong and will continue to be.

Speaker 2

We are dominating both purchase and the overall market by growing share with huge origination of numbers, world class service and technology that exceeds our clients' needs. And we remain committed as ever to our shareholders. And this will be our 12th consecutive quarter that we announced a $0.10 quarterly dividend. We are consistent in awarding our shareholders and those who continue to believe in us and we appreciate them. We plan to close the year out strong and for the Q4 we expect production to be between $19,000,000,000 $26,000,000,000 and our margins range of 75 to 100 basis points.

Speaker 2

I want to turn over the operator now for Q and A.

Operator

Your first question comes from the line of Kyle Joseph from Jefferies. Your line is open.

Speaker 4

Hey, good morning, guys. Thanks for taking my questions. Just want to get your thoughts. Obviously, margins were very strong in the quarter. It's obviously a good thing despite what rates did, but volumes or sorry, guidance looks like you expect kind of normalized trends in the Q4.

Speaker 4

Any sort of one time items to call out there? Or anything you'd highlight there?

Speaker 2

Yes. No, thanks for the question. It was a great quarter. No, there's nothing There's no one time items, nothing specific besides as we talk about we're making sure brokers are competitive. We set the margins on a daily basis.

Speaker 2

And Obviously, it seems like it's going well. I continue to guide in the same range, 75 to 100 is that's what the margins in wholesale will be in the toughest markets. And we obviously have a higher end of that margin for this quarter.

Speaker 4

Got it. And then, on the MSR portfolio, I know you guys are opportunistically selling there. As you think about that, the size of that portfolio, is this 280 number kind of The ballpark we should expect to be in going forward?

Speaker 2

Opportunistic, we make the decision on a monthly basis. We all sit down and discuss what's best for the business. But yes, we feel good about it. We've been basically in that, I call it $300,000,000,000 range for years now. And so Between $250,000,000 $350,000,000 seems like a right number.

Speaker 2

Does it go down to $230,000,000 at some point? Does it go up to $370,000,000 at some point? Probably it will at one point. But right now, we feel pretty steady that It's going to be more of the same as what you've seen.

Speaker 4

Got it. And then one last one for me, Matt. Just on the NAR rolling and all the noise we've We've seen in the realtor space the last few weeks, just kind of want to pick your brain and see how you're thinking about any sort of implications for the industry and opportunities or risks for UWC specifically?

Speaker 2

Well, obviously, there's a lot of and we'll talk about it, but also there's a lot of work to be done before anything actually ever changes, if something ever does change. So we stayed close to it. We're in the weeds of the business. We understand all the implications. And what I always would tell you is with any change, and I'm not suggesting this change will happen or should happen by the way, but with any change in the industry, The people that are most in tune win.

Speaker 2

UWM is one in other changes in the past, whether it's trade changes, whether it's guideline changes, like we usually win in those things. When there's a little bit of fluctuation, a little bit of uncertainty, that's when the best lenders in the country win. UWM has done that for years. And so I'm not suggesting this change will happen or any change will happen, but if something does happen, I'm really confident that our ability to take advantage of it in a positive way help our brokers win, Help realtors win and help consumers win

Speaker 5

at the same time.

Speaker 4

Got it. Very helpful. Thanks for taking my questions.

Speaker 5

Thank you.

Operator

Your next question comes from the line of Bose George from KBW. Your line is open.

Speaker 6

Hey, good morning. Actually, I wanted to ask about the jumbo growth. I mean, it looks like that continues to go pretty well. And do you think that will continue to grow as a percentage of the total volume and our banks Yes, sort of being a little less competitive there.

Speaker 2

Yes, thanks for the question. No, I don't really see it being a big change from what you see. I mean, it goes up and goes down. I don't think are banks competitive on jumbo more than other loans? Yes.

Speaker 2

So as they back out of the market or a little bit or they struggle a little bit or focus on other things, Will there maybe be opportunity? Yes. But that's not a driver of our success or volume. It's really a it's a rounding air at best. So Jumbos are a good opportunity brokers win brokers are the best option for consumers on all loans and that will continue to grow and continue to succeed whether it's jumbo, whether it's $81,000 loans, whatever it may be, brokers are trying to do those loans and take great care of consumers.

Speaker 6

Okay, great. Thanks. And then actually just going back to the gain on sale margin and the guidance, Just on the seasonality in 4Q, could we see the margins sort of at the midpoint or sort of not at the high end of the range or just any thoughts there?

Speaker 2

Yes. I mean, I give a range for a reason, because I usually expect us it's going to be somewhere in the middle of that range, plus or minus is how I always think about it. You are correct though in pointing out cyclicality. A lot of people don't understand. If you're doing all refis, there's no cyclicality in the Q4 and Q1.

Speaker 2

But in real business, Mortgage Business Purchases 4th and 1st quarter are slower quarters. And you saw it even if you look at our Q1 earlier this year. And so we expect it to be a little slower in the 4th and Q1. That's why I guided the right guiding. I expect us to meet guidance in all aspects of things I always say, which I've done, I think, for 12 consecutive quarters and will continue to do so.

Speaker 2

So, but yes, you are astute to point out that, 4th quarter and Q1 are slower mortgage months or quarters and then second and third quarter, especially when you're doing a lot of purchase and we're obviously the largest purchase lender in the country.

Speaker 6

Okay, great. Thank you.

Operator

Your next question comes from the line of Eric Hagen from BTIG. Your line is open.

Speaker 7

Hey, thanks. Good morning. Maybe one more on the margins. Just want to get a sense for the competitiveness in the market Really at these rate levels and maybe whether you've been surprised by the stability in margins at these rate levels and even like why the broker channel might have more stable margins The freight to stay kind of in this ballpark right now.

Speaker 2

Yes. So like I've said for years, I set the margins daily. So we make the decision what the margins are going to be. We control those And we always will control the margins, in a positive way. So we so it's not market driven, It's UWM driven and we're very involved with the details of it and we try to set great pricing up for the brokers and help the brokers be competitive.

Speaker 2

So the market doesn't dictate that as much. I know people you guys don't like to understand that or believe that, but that's just the reality Is that every day I look at the pricing, I said it with our Capital Markets team. Personally, I do it. And we know where our margins are going to be. And so that's why I'm very confident saying 75 to 100, and that's what it will be again this quarter.

Speaker 2

And when the market changes to your point, I think what you're asking, when the market changes and evolve, That range will change. Instead of 75 to 100, I might say, hey, it's 80 to 105 or 85 to 110 or eventually I'll say 100 to 125 and then That changes as the margins as the market changes, but when it's in this range, it's completely tied to what UWM does and others will follow.

Speaker 7

Right. I appreciate that. So how are you guys thinking about conditions in the MSR market right now? A lot of expectations for banks to be sellers of MSR and how you see the capacity of large bulk buyers Yes, in the market and their capacity to buy more and how that develops and really what you think those buyers might be sensitive to going forward?

Speaker 2

Yes. So we've seen a very active market. And what we found actually after doing a little research and Blake Cole and his team do a great job of this is Realizing what our business is and who we are has made it so our bids are maybe a little bit higher than others in the market. So we've seen a really great market. We get multiple bids anytime we bring something out.

Speaker 2

We get people usually bidding up on it and it's really tough because we like to partner with people and be consistent with them, but a lot of people are looking for that product. And I think as this new year starts, people are looking for the product yet and there's less originations out there and there's less opportunity out there, less people that have the low rates and there's less people that are originating the current product. And so I think there's actually a really big market out there for MSR buying, and for MSR selling as well. Obviously, It's a supply and demand issue. I think we have a lot of the supply and there's a lot of

Speaker 5

demand out there. Got you.

Speaker 7

Thanks, Matt. We appreciate you.

Speaker 5

Thank you. I appreciate it.

Operator

Your next question comes from the line of James Faucette from Morgan Stanley. Your line is open.

Speaker 8

Hi. This is actually Jeff Adelson on for James. Good morning, guys. Just noticed that the direct loan production costs were up 50 This quarter even though your originations were down a little bit. Just wondering if there's anything to highlight there as a driver of those costs this quarter?

Speaker 2

Yes. So it's actually 1% down. Is that correct, Andrew? You want to?

Speaker 3

Yes. Part of that is the initiative for our Affordable programs, our 1% down program. That's what most of the increase is there.

Speaker 2

So it's not tied to what you're asking. This expense is something we're doing to help affordability, which FHFA, Fannie and Freddie are very supportive of. And so it's in that bucket, but that's not what it is. Our expenses are not up 15% on a loan by loan basis or product on a variable cost basis.

Speaker 8

Understood. Okay. Thank you for clearing that And then just there's been a few headlines recently about rate of loan repurchase requests for the industry increasing from Danny, Freddie, just wondering, if you guys are seeing anything there, what kind of impacts you're expecting for the industry, going forward. And I know your Ginnie The repurchase eligible loans were up, but not necessarily related to that issue something different. So just maybe just talk about that.

Speaker 2

Yes, I think this is a hot topic in the industry and to give credit to FHFA, Director Sandra Thompson does a great job and she knows what's going on in the market and She realized it, after it's been brought to her attention. And, I think Fannie and Freddie are making changes to be more aligned with what the industry expects and what FHFA expects. And so it's not been a real issue. It's been more of just same old thing. And I think actually with some of the changes they're making, I think it will be even reduced even beyond what we've seen in the last 24 months.

Speaker 2

So I think it will be a positive change, some of the stuff that Fannie Mae and Freddie Mac are doing, because I think some of it got a little bit out of normal course because of some of the interpretations tied to COVID, if you want to get to the real details. But I think overall it's not a big deal and it won't be a big deal going forward.

Speaker 8

Okay, good. Thank you.

Operator

Your next question comes from the line of Kevin Barker from Piper Sandler. Your line is open.

Speaker 9

Great. Thanks for taking my questions. And just a follow-up on some of the affordability comments that you made. I know you should move down in credit score to 580 from 620. Is that move partly due to Trying to expand the credit box and push to make more affordable loans.

Speaker 9

Can you just maybe give some more color on that move? Thank you.

Speaker 2

Yes, that's not really tied to what the move was tied to. The real issue is on loans that brokers are doing is They want to come to UWM. The biggest request I get is they want to send 100% of their business to us. They want to use UWM. And so when they that's why we roll out some non QM products.

Speaker 2

That's why we look at different things company. Sandy and Freddie, we roll out products because our brokers want to use UWM because they know if they use UWM, they'll get referrals from the real estate agents and the consumers Because we make the process faster and easier. And so that's where a lot of our products expansions have been over the last 2 to 3 years. It's just helping brokers with loans that they're already doing and not really tied to of course, we do a lot of stuff on affordability, which is that 1% down program is a program that we're putting a lot of money towards to help FHFA, Fannie and Freddie hit their affordability goals with VLIF and LIF programs. But at the same time, We're focused on making sure we take care of our brokers and we'll continue to increase wallet share and dominate the client experience for the brokers because that matters because we know that a lot of the loans that brokers are doing, they're going to be refinancing the clients here in the next year or 2 years.

Speaker 2

And we We want to make sure they have an amazing experience. If they use other lenders, quite honestly, the experience isn't the same, thus they don't get the loan back. That's why people want to use UWM.

Speaker 9

Okay, great. Thanks for that color. And then just going back to the servicing and some of the MSR sales, how How much of a servicing portfolio did you sell in the 3rd quarter? Sorry if I missed it in your commentary. And then I noticed that the weighted average Coupon drifted higher as well.

Speaker 9

It went to 4.2% from 3.84%, which would seem that It might be lower coupon MSRs that you're selling. What the average coupon was on the servicing that you are selling and how much it was? Thank you.

Speaker 2

Yes. The average weight On our rates, weighted average coupon is a little higher. I think that's mostly because we do a lot of loans right now. So we're doing $29,000,000,000 of business at 7.5%. That's going to obviously drive your average WACC up.

Speaker 2

So it's got nothing to do with it. Where we do some service details. We sold some higher WACC and some lower WACC. It's all tied to we originated a lot of loans. So you won't see other lenders numbers move as much because they don't do any business, mortgage business that we're in.

Speaker 2

So that's kind of what we're seeing.

Speaker 9

So what percent of your portfolio now has is greater than a 5% WACC or coupon and then which may present an opportunity to refinance and we do see a little bit of softening of rates in the future.

Speaker 2

The loans that we're doing now usually have a whack over 5%. I don't Look, I just had a random arbitrary number 5%. I don't know why you picked that number, but it's got nothing to do with what we're looking at. So the loans we do now are higher than 5%. They're actually probably all like 6.5%, 7.5%, even 8% rates.

Speaker 2

And the loans that we did before are usually lower because that's what happens with rates. I think you follow

Speaker 9

the market.

Speaker 2

So There's really no data there that would make sense to go through.

Speaker 9

I'm sorry, maybe I misasked the question. It was more about How big the servicing portfolio, how much of it is the higher WACC or higher average coupon? That was just more about the performance of the production. Once again,

Speaker 2

the loans we originate are higher. The loans that we had from years ago were lower. We got a lot of loans. I don't have like the exact breakdown of MSRs. This is not relevant in any aspect of

Speaker 5

the business. So but thank you for the question. Okay. Thank you.

Operator

Your next question comes from the line of Mikhail Goberman from JMP Securities. Your line is open.

Speaker 5

Hey, good morning, Matt. Thank you for taking the question. Just kind of a hypothetical scenario question from my end here. And definitely, hopefully, the The scenario won't come to pass, but if we do get some sort of consumer recession in the, let's say, middle part of next year, How do you guys see that affecting the industry competitively and more specifically for United Wholesale? How do you guys see that affecting the company operationally financially in terms of volumes, margins and the MSR book?

Speaker 5

Thanks. Yes.

Speaker 2

So obviously, almost throughout history, and you can track this and check the data, recessions usually Our let auto recessions with lower interest rates with the mortgage market has been really successful. So if there was a recession, I actually would argue that it's It's going to be really good for our business as because with lower rates and then lower rates mean a lot of refi activity, even more purchases, more people will sell their houses, more opportunity. And There's really no negative to that if that happens. I think what you've seen in the last 2 years is the worst it can be for mortgage lenders. And a lot of mortgage lenders have gone out of business.

Speaker 2

A lot of them lose money all the time. A lot of them have laid up a bunch of people. And we're the strongest mortgage company in the country and we've made a lot of money obviously, but we also are hiring. We're prepared for the next opportunity. And so when that opportunity comes, whether it's because of a recession or because the Fed lowers rates or because of inflation or because of some war or whatever may happen, When rates do drop, other lenders will do really well, but we've all seen now a glimpse into the future of what lenders are the best in these markets.

Speaker 2

And so whether recession or whatever happens, we'll be prepared for the lower rates. And in the meantime, we'll continue to win and be successful as you've seen quarter after quarter going forward. So we appreciate it. Thank you for the question.

Speaker 5

Thanks, Matt. Good luck going forward.

Speaker 9

Thank you.

Operator

That will wrap up the Q and A portion. I would like to turn the call back over to Matt Ushbya for some closing remarks.

Speaker 2

Thank you for the time today. We appreciate you all being on the call and look forward to another great quarter in the Q4 and we'll talk to you guys soon. Have a great day. Thank you.

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Earnings Conference Call
UWM Q3 2023
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