UWM Holdings Corporation, the parent of United Wholesale Mortgage (UWM), was another mortgage lender that returned to profitability in the second quarter of 2023, just like its primary competitor Rocket Companies and the origination segments of Mr. Cooper and Pennymac.
UWM’s performance was boosted by an increase in the fair value of mortgage servicing rights (MSRs) and higher origination volumes, despite lower margins from April to June, per documents filed with the Securities and Exchange Commission (SEC) on Wednesday.
The Pontiac, Michigan-based lender announced a non-GAAP adjusted net income of $175.9 million in the second quarter, compared to a $106.8 million net loss in the previous quarter. The company’s GAAP net income in Q2 was $228.8 million.
“Unlike others that are more reactive to cyclical market conditions, we will continue to be aggressive in our technology and product investments. We are hiring right now, whereas the industry as a whole is continuing to cut back on capacity,” Mat Ishbia, chairman and CEO, said in a statement.
UWM originated $31.8 billion in mortgage loans in the second quarter of 2023 “despite a historic decline in industry-wide origination volume during 2023,” according to Ishbia. The volume exceeds the expectation of a production between $23 billion and $30 billion in Q2.
Originations in Q2 2023 came higher than the $22.3 billion in the previous quarter and $29.1 billion during the second quarter of 2022. To compare, Rocket Mortgage originated $22.3 billion from April to June.
UWM originated $28 billion in purchase loans in the second quarter, an increase from $19.2 billion in the first quarter of 2023 and $22.4 billion in the second quarter of 2022.
Ishbia told analysts that UWM did more purchase business in Q2 than any other lender did in mortgages overall, and the company is on pace for an all-time record purchase year.
“Other management teams seem to have forgotten that during a mortgage boom, the majority of the opportunity is in the first six months. Companies that are not prepared for those events react late, hire late, train late and miss most of the opportunity,” Ishbia said.
Ishbia said thousands of loan officers in the second quarter joined the broker channel, more than half of which left from the retail channel. UWM is recruiting new staffers, hiring hundreds of employees in June and July. These employees, however, are not contributing to the earnings now as they take six months to get ready, Ishbia said.
The company’s total gain-on-sale margins decreased to 88 basis points in Q2 2023, compared to 92 bps in Q1 2023 and 99 basis points in Q2 2022.
Andrew Hubacker, UWM’s Chief Financial Officer, told analysts, “Year to date, the gain-on-sale margin of 90 basis points is solid and right in the middle of what we continue to guide to in this competitive market.”
“This is also a significant increase from the last half of 2022 when we had our Game-on pricing as we have transitioned from this more broad-based pricing strategy into a more targeted initiative,” Hubacker said.
In April, UWM launched a 1% down payment program for conventional loans, in which the lender is paying a 2% grant up to $4,000 for a total down payment of 3%. Ishbia said initiatives like that have no date to end.
After releasing its earnings, UWM announced it will remove loan-size pricing adjustments (LLPAs) on loans under $100,000. The company will also pay up premiums for market-based pay-ups on 30-year fixed conventional loans of $200,000 and below.
New initiatives also include the Control Your Price program, which gives discounts for brokers to play with. UWM has increased the basis points limit that brokers can apply to loans over $1 million from 20 bps to 40 bps. UWM will also double or triple the Control Your Price basis points brokers apply on all non-agency jumbo loans, depending on their compensation plan, limited to 120 basis points.
UWM anticipates the third quarter production to be between $26 billion and $33 billion. Gain-on-sale margins are expected to be between 75 bps and 100 bps.
Regarding its servicing business, second-quarter earnings were impacted by a $24.6 million increase in the fair value of MSRs. UWM had $294.9 billion in the unpaid principal balance of MSRs as of June 30, 2023, compared to $297.9 billion as of March 31, 2023.
UWM plans to “opportunistically sell MSRs in 2023, as market conditions warrant to support the operating and capital liquidity needs of the business while maintaining a sizable and high-quality MSR portfolio that provides a recurring quarterly cash flow stream,” Hubacker said.
During the 2Q 2023, UWM sold $28 billion in UPB. Additional bulk sales of loans with a total of $26.2 billion were completed after the quarter ended, resulting in total proceeds from MSR and excess sales year to date of nearly $1.4 billion, Hubacker said.
UWM ended the second quarter with $900 million in cash and self-warehouse.
Looking ahead, Ishbia said a refi boom, whether a long and sustained or a mini refi boom, is “coming soon,” mainly if rates decline between 75bps and 100 bps. The opportunities are usually in the first three, six, or maybe nine months to make money, he said.
“We are prepared for that now. Scale is the name of the game,” Ishbia said.
UWM shares were trading at $6.71 on Wednesday afternoon, up 6.32% from the previous closing.
