UWM Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 12 speakers on the call.

Operator

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session.

Speaker 1

Good morning. This is Blake Colo, Chief Business Officer and Head of Investor Relations. Thank you for joining us and welcome to the Q2 2024 UWM Holdings Corporation's earnings call. Before we start, I would like to remind everyone that this conference call includes forward looking statements. For more information about factors that may cause actual results to differ materially from forward looking statements, please refer to our earnings release that we issued this morning.

Speaker 1

Our commentary today will also include non GAAP financial measures. For information on our non GAAP metrics and the reconciliations between the GAAP and non GAAP metrics for the reported results, please refer to the earnings release issued earlier today as well as our filings with the SEC. I will now turn the call over to Matt Ishpia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Speaker 2

Thanks Blake and thank you everyone for joining us today. For a while now we've been saying 2024 would be a better year for the industry than 2023. And although it hasn't been that much better yet, our production at UWM has been winning. The market might be getting better soon, which we'll talk about a little bit later. But industry volume in the first half of twenty twenty four versus 2023 is about the same.

Speaker 2

Most people are living in the purchased Druid market, but there's still tremendous upside that lies ahead. UWM has been winning. We had an amazing quarter, which we'll go through the details, but the market might be getting better here soon. While rates have stayed higher for longer, the broker channel continues to post share increases. As the latest data shows, the highest channel market share since 2,008.

Speaker 2

So we continue to see the data on mortgage loan officers migrating from retail to wholesale. We're excited about that upside and it's starting to happen. Now there's tremendous buzz on our campus as many of you saw at UWM Live. And those that were here saw firsthand our continued focus and investment in technology, which put UWM and the broker community in position to handle the significant increases in production that we anticipate when the Fed cuts rate multiple times over the next 12 months to 15 months. Now, let's look at the 2nd quarter performance.

Speaker 2

Whether we compare year over year or sequentially, the 2nd quarter was a great quarter. We closed $33,600,000,000 in total production within our guidance with over $27,000,000,000 coming from purchase. Our production is up 6% from the Q2 of 2023 and more impressive up 22% compared to the Q1 this year. In fact, it was our highest quarterly production since the Q1 of 2022. Our gain margin was 106 basis points at the higher end of the guidance and we generated net income of over 70 $6,000,000 and that includes a decline of $115,000,000 on fair value MSRs, which is tied to interest rates and out of our control.

Speaker 2

In the Q2, we announced a number of products and technologies that add speed and capacity to broker channel that really just didn't exist in 2020 2021. We're really excited to see these things come into action. 1st, Mortgage Matchup, our consumer facing website is now the official mortgage partner, the MBA and WNBA, and we're seeing more and more people going to this website every single day. Track Plus, which enables UWM to handle everything from the closing process from title, closing, disbursement. So the broker no longer has to go outside and work with a 3rd party title company or anyone outside and it saves the consumer 1,000 of dollars many times.

Speaker 2

This is a huge game changer and we're taking advantage of it right now and so are our brokers. We scaled PA Plus, which is Processor Assist Plus, a lot of brokers and their processors to choose which part of loan process they have UWM loan coordinator handle. This immediately adds capacity to our brokerage, which will become more critical as rates come down. Finally, we continue to invest heavily in our bolt underwriting system. This allows brokers to get initial approval in as little as 15 minutes and also is allowing our underwriters to do more business every single day with technology pulling the weight on a lot of the underwriting processes.

Speaker 2

The full impact of these investments will be apparent when we enter a refi market where you will see UWM and the brokers able to add significantly more increase in volume than the rest of the market, while still maintaining speed and the service we are known for. To put it bluntly, UWM and the broker community are thriving and are ready for when rates drop and they will drop. You guys know me and know I'm excited about the business and I'm excited as ever. But my 21 years of work is I never felt UWE is more prepared for the opportunity we are right now. We are prepared and we've been building for this opportunity and we're super excited.

Speaker 2

Now I'm going to turn things over to Andrew Hubercker, our CFO, and then I'll come back and chat later.

Speaker 3

Thank you, Matt. We were pleased with our 2nd quarter financial performance reporting positive GAAP net income for the quarter year to date. Importantly, we also remain profitable operationally and on an adjusted EBITDA basis before considering the net change in fair value of MSRs, which is largely outside of our control. Total production volume of $61,300,000,000 year to date is an approximate 13% increase from the 1st 6 months of 2023 and gain margin of 107 basis points is up from 90 basis points in the same period last year. These increases in volume and gain margin have allowed us to continue to invest significantly in our people, our technology and in the growth of the broker channel, while maintaining profitability.

Speaker 3

During the second quarter, we continued to execute on our consistent strategy of opportunistically selling MSRs and we have generated close to $2,400,000,000 in net proceeds from bulk and excess sales through the end of the Q2. Proceeds from these sales have been used to delever our balance sheet, increase production and invest in our business, while also maintaining a consistent dividend for our shareholders. These sales have been targeted at our higher coupon MSRs and allowed us to significantly de risk the portfolio. Most of our bulk and excess sales in the 1st 6 months of 2024 were of servicing rights on loans with coupons above 5.5 percent and approximately 1 third of our bulk sales were of Ginnie Mae collateral. The weighted average coupon of our portfolio declined from the end of 2023 to 4.31% even with year to date new production at higher rates.

Speaker 3

As of the end of the quarter, our capital and leverage ratios continue to fall within expected and targeted ranges in the current environment. We ended Q2 with total cash of just under $700,000,000 and no outstanding borrowings on our MSR or unsecured lines of credit. So liquidity and access to liquidity remain very strong. We continue to be prepared operationally and financially for different market cycles. Okay, I'll now turn things back over to our Chairman, President and CEO, Matt Ishpia for some closing remarks.

Speaker 2

Thanks, Andrew. I'll close with a few points before the Q and A. More and more American consumers are seeing the advantage of getting their mortgage through mortgage broker channel. It's undeniably the fastest, easiest and most affordable way to get a mortgage and the latest share numbers validate this. As I said before, in Q1, we saw the broker channel achieve the highest share of industry in the last 15 years.

Speaker 2

I would say that UWM and the broker stronger position heading into the next refi market than we were in 2020. But regardless of the market, we'll remain the best mortgage lender in America. Our focus will continue to be on providing elite service and technology to mortgage brokers, so they continue to serve with American consumers. Having been the number one wholesale lender for a decade now and number one overall lender for the last 3 years, we as well as the top purchase lender in America, our focus turns to making the broker channel number 1. To us, the broker channel is achieving over 50% market share.

Speaker 2

That may take us 3 years, 5 years or 20 years. But this is the target and this is what we're going to focus on because it's best for the consumers, it's best for mortgage brokers, it's also best for UWM. We're going to win as a team. Now turning to guidance, we expect Q3 production to be anywhere between $31,000,000,000 $38,000,000,000 and our gain margin between 85 basis points 110 basis points. With that being said, the last couple of days of the market has really made an inflection point where we can look at could the refi boom be here right now.

Speaker 2

Now, if the 10 year stays where it's at right now and mortgage interest rates stay where we are right now, we will beat this guidance from a production perspective. But I'm more excited about the Q4 and beyond if the tenure and rates stay where they're at. Obviously, rates could go back up 5 minutes after I talk on this call and will be exactly what I guided you. I want to make sure you guys know 31% to 38% and 85% to 110% is in line and we expect to be in those numbers, but there is a lot of upside ahead. The best part about the upside is this, we are the most prepared mortgage company in America.

Speaker 2

We've been building for this. We did not lay people off. We have been prepared for the opportunity. I always said the mini refi boom or a full refi boom, the 1st 6 months of when you make all the money and if that's what we're about to hit, we are in the best position ever at UWM. And I'm proud to share that with the shareholders and excited about the future.

Speaker 2

And if the market turns back, we're still going to dominate in the purchase market we have been for the last couple of years. So we're excited about what's ahead. We'll see what happens. I'm really excited to see the Q3, Q4 and the upside and the possibilities ahead with UWM. Now at this time, I'll turn it over to the Q and A and we'll go through there.

Operator

And your first question comes from the line of Bose George with KBW. Your line is open.

Speaker 4

Hey, good morning. Actually in terms of rate expectations of the market, if the Fed does cut by a couple of 100 basis points as the forward curve is suggesting, but the yield curve steepens and say the 10 year doesn't go down that much, Do you think we could see a pickup in ARM production and that sort of contributes to overall volume increases?

Speaker 2

Yes. Thanks for the question. Obviously, it's hard to predict all the opportunities and possibilities out there. The Fed cutting rates as much as you described, it would be a massive movement in the markets in general. I'd have a hard time thinking the 10 year would not follow in some impactful way.

Speaker 2

Also understand the difference between how much the 10 year versus the 30 year fixed. So could ARMs become more relevant? Yes. I still believe 30 year fixed will be the prevailing product for the foreseeable future. But the Fed cutting rates even 25 basis points, which everyone in the market expects September 2017, 2018 whatever, will move the markets from a perspective of consumer demand, consumer awareness.

Speaker 2

It's the best marketing piece in the world right there. When the Fed cuts rate, it will lead every new station and every consumer will call their mortgage broker. And we think that will be more impactful than even the rate movement down. So we'll see how that all shakes out and what the impact will be. But we're on the cusp.

Speaker 2

We're not quite there yet, but we're on the cusp of a potential very interesting time here that we are very, very well prepared for and we've been waiting for here at UWM.

Speaker 4

Okay, great. Thanks. And then actually on the Track Plus program, like how much do borrowers save from that? And then like in terms of how you do you guys essentially sort of work with title insurers to sort of I guess reinsure that or how does that structure of that program work?

Speaker 2

Yes. Well, there's a bunch of different nuance and parts to it. But the key is the consumer saves 1,000 or 1,000 with an S at the end, on many transactions, if not all transactions through Track Plus. It's a really simple, easy way to close your loan. We're trying to make the process faster, easier and cheaper.

Speaker 2

It does all three. There's all different nuances with how we handle the risk. But from a perspective is we look at it as we're taking on little to 0 risk at all in our organization and we're saving consumers a lot of money and disrupting the title world. And it's going to happen because it's better for consumers. We're always what's better for consumers.

Speaker 2

And I'm sure you read about FHFA's title pilot. That's going to be better for consumers. What's better for consumers wins and that's why we're winning because brokers are better for consumers. It doesn't happen overnight, but it's all happening and title is another example of that.

Speaker 4

Okay, great. Thank you.

Speaker 2

Thank you.

Operator

And your next question comes from the line of Derek Summers with Jefferies. Your line is

Speaker 5

open. Hey, good morning, everyone. To follow on to kind of TRAC, TRAC Plus and PA Plus, could you provide any kind of incremental color on maybe adoption rates by your broker partners or any other color on how those products are trending?

Speaker 2

Yes. Thanks for the question. So a couple of things. The adoption rates actually have gone up significantly in the last 2, 3 months. What's happening is they're really just built for scale.

Speaker 2

There's 2 parts of the equation. Back in 2020 2021 when refis hit brokers lost market share. They didn't gain as much because one, we were well prepared. I would say pretty well prepared, not as good as we are today, but brokers were not. What we built with PA Plus and Track Plus is we're taking the guesswork out of it.

Speaker 2

The brokers don't have to hire up. The title companies don't have to hire up. Nobody has to hire up because UWM's technology and innovation and that we've hired up and are prepared is able to handle the scale. Remember, it's not just UWM handling scale because if brokers can't triple their business or double their business, how am I going to do that, right? How am I going to grow at a significant level if they can't?

Speaker 2

And so PA plus Track plus is basically taking the guesswork out of the game and saying, we've got the scale for everybody, brokers and UWM included and Track Plus and PA Plus. So the adoption has been pretty great, but it's not going to be at the levels that we expect because right now they don't need to scale because the market doesn't warrant it right now. Right now the market is still where the market was, where we're going through and going through the same numbers we've been seeing. So it's not creating it's not a huge scale right now, but it does remove a lot of bottlenecks in the industry in the brokers world and it makes it faster, easier and cheaper. And the word is scale.

Speaker 2

We're prepared for scale for not only for UWM but for our brokers and PA plus and Track plus does that.

Speaker 5

Thank you. Helpful commentary there. And then just to circle back to your commentary on guidance, is there a 30 year mortgage rate in mind where floodgates really open on a refi rally or how are you thinking about that?

Speaker 2

Yes. I mean, I think it's I don't know by the exact number to give you, but what I would say is the market where we're at now, if it ticks if the 10 year ticks down a little bit more from where it is today, like the range we're in right now is good, but we're on the cusp, right? So I can't give an exact number, but I do think that if the tenure drops down below the 3.75% range and we start getting in those ranges lower than that, it will spur refinance boom. And so we're not there yet. And like I said, after I talk on this in 10 minutes and it already has gone up a little bit today that everything is exactly what I guided you 31% to 38%.

Speaker 2

But there is a lot of upside and what I'll tell you is we're the most prepared company for that upside. And so if the rates drops more substantially and refis become relevant, we could do a substantial amount of more business. And when I say substantial, I mean like significantly, significantly more on a monthly basis. Not for this quarter most likely because this quarter is already almost baked if you think about it we're midway through August almost. But for the Q4, it could be exorbitantly higher numbers and with a rate drop a little bit further.

Speaker 5

Great. Thank you. That's all for me.

Speaker 2

Thank you.

Operator

And your next question comes from the line of Doug Harter with UBS. Your line is open.

Speaker 2

Thanks. Matt, can you just talk a little bit more about

Speaker 6

some of the investments you made this quarter and how you think about the incremental scale and volume and kind of how your expenses would look in a kind of in a significantly up volume environment?

Speaker 2

Yes. No, thanks for the question. So my expenses look very similar in a very we built this in. Like we didn't lay people off. We've been building.

Speaker 2

We've been preparing. I have about 8,000 people. I don't know the exact number, but roughly 8,000 people at our company right now. We are prepared. We've built some amazing technology, which I don't even want to speak to on this because it's just you'll see it when you see it.

Speaker 2

But we got some amazing things that we built and are ready for scale. And that's why I've been talking about like we are the most prepared. We've obviously been dominating for the last two and a half years. Every quarter I come on and tell you what we're going to hit, we hit it. We've been outperforming every other mortgage coming in America and it's not even close.

Speaker 2

And we are the most prepared mortgage coming. Now does that mean we're going to do the most volume of everyone when refis come? There's a lot of refi only shots out there, right. But we are extremely prepared. We are not going to miss a beat like the amount of volume that we got in today or yesterday versus what we've been getting in before is significantly higher and we can maintain that and manage that and handle that.

Speaker 2

And so I guess my perspective is the technology, the investment in people, in training, in all aspects of a technology innovation process has been significant. And it's not just been the last 3 months I've been doing it. We've been doing it for the last two and a half years, waiting for the day. And like I said, we're open. I'm not saying we're at the day, but we're getting close to that day.

Speaker 2

And when that day comes, which we all know is going to come, the best mortgage company in the country is going to thrive. And we're excited about that. And the brokers are going to thrive and we're excited about that. And our shareholders will get that benefit.

Speaker 6

Appreciate the insights, Matt. Thank you.

Speaker 2

Thank you.

Operator

And your next question comes from the line of Brad Kupinski with Piper Sandler. Your line is open.

Speaker 7

Thank you for taking the question. Just following up on Track plus can you discuss a timeline or plan to extend this beyond online refi transactions?

Speaker 2

Say that again?

Speaker 7

On Track Plus, like I know you mentioned at UWM Live that right now it's the capabilities for it are just online refi transactions. Is there like a timeline or plan to extend that out beyond just refi transactions?

Speaker 2

Yes. So there's 2 parts to this Track and Track Plus. Track allows for purchases. Track Plus is refinance transactions right now. Once again, we can handle the purchase business, title companies can handle purchase business, brokers have been on the purchase business.

Speaker 2

We all understand that market. What Track Plus along with PA Plus along with a lot of things are built for is the market doubling in a week's notice, right? So think about like can the title companies handle double the volume? Can a broker handle double the volume? Can UWM handle double the volume?

Speaker 2

Well, the answer to UWM question is yes, we can. The answer to the broker question is yes, they can because of PA Plus. And the answer to the title company question is I have no idea, I don't really care because UWM can handle with Track Plus. So we're taking it into our own hands to handle double the volume and then one day notice, right. And so Track plus is built for that.

Speaker 2

And so it's online refinances, mutual closings, it's making the process faster, easier, cheaper for consumers. I have not built, although I have the ability to build it, I'm focused on scale. And so we have not focused on, hey, can we advance it to in person refinances or in person purchases, although we can do some of that with track. But my big focus is what am I going to do if the tenure or the rates drop overnight? And like I said, it almost happened Thursday, Friday.

Speaker 2

We're getting close and we're prepared for it. And that's what Track Plus is built for. And so, and adoption back to the earlier question, the adoption has been, I won't give a number, but substantially higher in the last 3 weeks or 4 weeks than it was 2 months ago, because it's starting to people are starting to feel and what we have been pushing people is, are you an early adopter? You better try this stuff and understand how Track Plus and PA Plus all this works. So when the rates do drop and that opportunity comes, can you double your business?

Speaker 2

You don't have to worry about it because UWM has got your back and we will see that happen. And so, we're very well prepared and we're excited about it.

Speaker 7

Thanks. And then could you just give an update on the dynamics playing out within the broker channel? Have you seen pricing be more rational and you're still seeing continued pullback from peers in that channel? Thanks.

Speaker 2

Yes. I mean, I think pricing has been rational for a while. I feel like I'm not concerned about wholesale. Like the truth is all parts of the market, if the rates drop a little bit further than they are today right everyone's going to get busy. And then what happens in rational pricing that maybe you're describing or pricing in general will change, because people will start a lot of our competitors bring in 75 to 100 loans a day.

Speaker 2

That's how small they are, right? We're much more big we're much bigger than all of them. Then going to 200 loans, can they double their business? I don't know if they can. And so what happens is they back off pricing.

Speaker 2

And so that will happen, But that's not just wholesale, that's retail, that's the whole industry. People that are not prepared and that's why we want to be prepared. So we don't have to do that. Our pricing, our margins, I feel really good about where our margins are. I feel really good about our volumes.

Speaker 2

We're very, very profitable as it stands today. Now the one thing to recognize when rates do drop and all these things you say rational pricing, but MSR values are going to plummet, right? So all these companies have huge MSRs and hopefully you've realized Andrew, Blake, our team of people here did an amazing job with our MSRs. If anyone caught that our WACC is lower now than it was at the end of the Q1 after we just did $33,000,000,000 of rates around the 7% range. Imagine that, right?

Speaker 2

And so we derisk significantly. So we'll still have an MSR write down, but we'll have origination write up, if you think of it that way, we're doing a lot of business. Everyone's going to have an MSR write down. So balancing those things, understanding what's happening is important, going forward. But I think that it will be interesting to see 10 people handle.

Speaker 2

So pricing rational, like margins will go up. They don't go down in refi booms, they go up. How much they'll go up? I'll hopefully be able to guide to next quarter, if the rates drop a little bit further than they are. Right now, I feel good about our range because that we're still off or off the lows, which I was a couple of quarters ago, 75 to 100.

Speaker 2

We're 85 to 110 and we're going to be in that range this quarter. Now the question is, if rates drop further, I expect margins to go up, and I'll guide that for the next quarter if that happens.

Speaker 7

Thanks for taking my questions.

Speaker 2

Thank you.

Operator

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

Speaker 8

Hey, thanks. Good morning. Hope you guys are well. Hey, following up on that point, I mean, how stable do you feel like margins are if rates are lower? Like even within the refi and purchase channels specifically, what do you feel like maybe accounts for differences in margins between those two channels if rates are lower?

Speaker 2

Capacity. It's just capacity. That's what accounts for differences. People can't handle it. So what's going to happen is rates are if rates do go lower.

Speaker 2

Right now, 85 to 110, it's all day. It's simple. It's easy. It's clean. I feel really good about hitting those numbers $31,000,000,000 to $38,000,000,000 Now if rates drop, like I said, let's just make up a number, I'm at $350,000,000 on the 10 year, okay, dollars 3.5 right?

Speaker 2

If it goes there, all bets are off, right? It could literally we could double our business, right? And the and now if rates drop and margins could go from the 100 range to the 130 range, like it could go to the numbers. I don't want to quote those numbers. I'm just giving you ranges that if the 10 year goes down substantially, that's not that's going to happen to everybody.

Speaker 2

Everyone's going to get lot of do with refinances because there's 1,000,000,000,000 of dollars of loans in the 7% 6.5% to 8% ranges. And so all of a sudden 30 year fix is 5.5%, 5.75%, man, people are going to refinance. And when the Fed lowers rates, people are going to think about refinancing. They're going to start calling and reaching out and mortgagematchup.com, going to independent mortgage brokers, that's going to happen. And so MSR write downs will be massive, origination volumes and gain on sale will go up.

Speaker 2

And so how does that balance out? You can determine how you want. Obviously, nobody controls the MSR write ups or write downs. We never take credit when it goes up. We don't want to take credit when it goes down.

Speaker 2

We want to focus on origination. And we're not that far away from those numbers. But once again, I'm not watching the market this morning. It could be already at 4 for all I know the 10 year and we're in our 3.80, 3.90, I don't even know what it's at, but whatever it's at, you can't control it. So we just have to be the most prepared company.

Speaker 2

That's my job as the CEO and Chairman and I think we're doing it. Hey,

Speaker 8

we like it. Following up on the MSRs, I mean any perspective on how you see the demand for MSRs developing with lower rates? Like do you see the risk of lower MSR values impacting the demand side from the folks who typically show up to buy MSRs?

Speaker 2

I don't know if I'll see. So first off, we sold a lot, opportunistically and understand the market and are seeing where the rates were. Do I see for us, we don't buy MSRs. We originate them. We originate loans where there's nobody in the country that originates more loans than us, obviously, which originates more MSR.

Speaker 2

And so, do I see a slowdown? I don't know if I'll see a slowdown on people buying MSRs, because that's the only way they can originate. They have to actually have those servicing loans to have a chance. That's not how UWM is. We don't need the loan to have a chance.

Speaker 2

Our brokers get the loans, because they're out there and they're the best for the consumers. And so I'm not as concerned about, will people not buy. People are going to still be buying. I'm not really in the mood to sell right now. We feel like we've de risked significantly and we're all about origination.

Speaker 2

A 1000% of our focus is on origination, being prepared, helping brokers be prepared and making sure we deliver to the shareholders, what I've been telling everyone. And I think we've been doing that. So it will be interesting. I don't think it will be a massive shift, but because a lot of those servicers buy beyond cash flows, they buy for a chance to refinance.

Speaker 8

Yes, yes. I appreciate you guys. Thank you so much.

Operator

And your next question comes from the line of Mark DeVries with Deutsche Bank. Your line is open.

Speaker 9

Yes, thanks. I was hoping to get a sense of what kind of improvements you think you're making with the technology investments in your time to close And kind of how durable that would be under significantly higher volumes? And what that might mean for your potential to take even more share within the broker channel if we get a surge in volume?

Speaker 2

Yes. So turn times are huge deals. Speed to close with all the technology, so I'm talking about technology saying, but all the world with trigger leads and all the things that go on, people need to close loans fast. And you get a borrower bought in, close the loan fast and efficiently. When rates do drop, you're going to see everyone's turn times back up.

Speaker 2

We're the fastest in the country right now, 13, 14, 15 days. We're the fastest in the country by a long shot. We will maintain that across the board or if we get a little bit worse, we get worse by a day. Everyone else is 40, 45. They might go to 50, 60 days, some places might go to 70 days to close loans.

Speaker 2

That's what happened before and that's what will happen again. And so our gap will widen because of our technology and because of our service levels and because of our staffing levels. Now with that being said, the technology we've invested in, I'm going to hold some of that back, some of the things that we've done, because some of the stuff we've done, I think is going to really wow a lot of people in some really means I'd rather not get into all the details as of yet because we're it's not ready to be talked about, but we have built a lot of we have 1700 technology people at our company every day working on technology for one focus, growing the broker channel, helping brokers win, helping UWM win, making things faster, easier for consumers. Like that's what we focus on all day. We don't have people in different countries and all around the country, all around America working from home doing there in our office and we have one team, one focus and one goal, in all in one building.

Speaker 2

And so we're all focused on it. There's some great technology stuff. Some of it you've seen or heard about PA plus Track plus Bolt, all of these things, but then there's some you have not heard about, but we are really excited about it. But the biggest thing for you is, you know, speed matters. Speed will matter for consumers, saving $100,000,000 $150 and for brokers and originators, it matters.

Speaker 2

And they lose loans, they trade loans, they compete with people for loans and closing loans fast matters and we are the fastest in the country by a long shot.

Speaker 9

Got it. Thank you.

Speaker 2

Thank you.

Operator

And your next question comes from the line of Terry Ma with Barclays. Your line is open.

Speaker 10

Hey, thank you. Good morning. Just had a follow-up on the gain on sale margin. It's been pretty consistent the last two quarters above 100 basis points. So I guess the question is kind of what gets you to the low end and maybe going forward what gets you comfortable kind of raising the low end of the guide?

Speaker 2

Yes. Well, so obviously a lot of things move. So people think we did I think 108, 106 back to back quarters which were pretty good numbers. But if I felt confident that we would never be in the 85 range, I would move that off the bottom. I won't say that it's never it cannot go back down.

Speaker 2

That's why I have the range between 85 and 110. There's a lot of movements, right, like with a lot of volatility in markets, which we've seen actually as we're all aware of. That actually makes hedging and margins very, very tough to come by. MSR valuations go up and go down that impacts the valuations on pricing on a day to day basis, hour to hour basis. And so I don't feel that it's like if I felt more confident that hey, it never be 85, I would change the number.

Speaker 2

So 85 to 110 is the guidance. I feel good about that. Do we try to have bigger margins? Absolutely. Do I feel good about our margins?

Speaker 2

Absolutely. But there's still 50 days left in this quarter. There's a lot of movement that could happen. Rates could go up, rates could go down, volatility impacts things hedges, a lot of aspects. And so keeping that range, it's good.

Speaker 2

We feel good about 85 to 110. And then to the question about what will make me move off the bottom. I think if the rates drop a little bit further, I could see myself moving off that bottom next quarter. I think that if we see a steadiness again this quarter and rates take a little bit more of a dip, I feel confident in our capacity ability that I could move that number the next quarter on the bottom up a couple of different levels, one level or two level potentially. And we'll look at that, but not yet.

Speaker 2

It's not there. I still think $85,000,000 to $110,000,000 is the number. And like I said, I haven't looked in the market. It could be 85 to 110 next 3 quarters for all I know based on what the market does. But I'm excited about moving off that number hopefully next quarter if the rates come down a little bit further.

Speaker 10

Okay, got it. That's helpful color. And then just on the MSR sales, you guys mentioned you'd be opportunistic, but you also mentioned you'd derisk meaningfully at this point. So I guess going forward, can you maybe just talk about your appetite to sell higher coupon loans just given the demand still there?

Speaker 2

Yes. We're opportunistic with everything with selling MSRs. Like we're not really focused on it. Like we had a strategy coming in this year. The strategy was to derisk, was to sell MSRs in the 1st 3 to 6 months of the year and prepare for scale, technology, operationally and it's playing out how we expected.

Speaker 2

And so I'm not saying we won't sell any more MSRs because people call us all the time to try to buy them. However, it's not a focus of mine right now. My focus on origination, on scale and dominance in this industry right now and that's what we're focused on right now. So will we sell more? Possibly, but it's not a focus of mine right now, or our organization because we're focused on those other things.

Speaker 2

Okay, great. Thank

Speaker 4

you. Thank you.

Operator

And your final question comes from the line of Ryan

Speaker 2

America.

Speaker 11

I just had a quick one on expenses here. I noticed that direct loan production costs were up pretty significantly in the quarter. If you could just provide any color there and as well as G and A as well. Just any color you could provide there and factors to consider looking forward, that'd be great. Thanks.

Speaker 2

Yes. So there's a lot of nuances and a lot of different things. But I guess I'd say naturally when you do more production, you're going to have more loan production expenses, right? We help cover credit reports. The credit report costs are going up.

Speaker 2

A lot of different things have gone up. But I really don't focus on expenses that much because I focus on winning and focus on growing. And right now is a growth mode, not an expense. Like you've even heard a lot of my competitors who've been playing the game of cutting expenses. You don't hear them talking about that anymore because the game's changed.

Speaker 2

We're focused on winning, which is revenue, which is origination, gain on sale, more brokers growing, loan officers converting the broker channel and being prepared for the refinance opportunity along with the purchase opportunity, which I haven't hit on as much because all I'm talking about refinances when rates stop a little more, more people sell their houses, purchases will pick up, inventory will pick up. It's going to be a big swing of opportunity. And so the expense game, your our expenses will go up consistently with our volume. But it's like it's time to loan production and it's not really relevant. Our G and A and like our overall just expenses from team members, like we're in a pretty good spot.

Speaker 2

We're still hiring, but we're not hiring extremely high numbers because we've got our team, we've got our technology, we've got our systems and we feel really good about where we're at. So the focus right now is on growth, scale and being prepared and we are. Liquidity is great. We derisked on MSRs. Expenses, yes, we'll watch them, but that's not the game right now.

Speaker 2

The game is winning and we're going to focus on winning right now. Thank you.

Speaker 11

Got it. Thanks.

Speaker 2

Appreciate the question.

Operator

And that will wrap up our question and answer portion. I would like to turn the call back over to Matt Ishbia for closing remarks.

Speaker 2

Well, thank you very much. Thanks for all the questions. Really appreciate the support and the great questions that were there today. If you have any other follow-up, of course, Blake Cole is always available on our team. And we look forward to a great quarter and talk to you next quarter.

Speaker 2

Have a good one.

Operator

Ladies and gentlemen, this concludes today's conference call and you may now disconnect.

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Key Takeaways

  • In Q2, UWM closed $33.6 billion in production—up 6% year-over-year and 22% sequentially—with a 106 bps gain margin and $76 million net income despite a $115 million MSR fair‐value headwind.
  • UWM deployed new broker-channel tools—Mortgage Matchup, Track Plus, PA Plus and the Bolt underwriting system—to boost speed, capacity and cost savings in anticipation of multiple Fed rate cuts.
  • The broker channel achieved its highest market share since 2008 as loan officers shift from retail to wholesale, cementing UWM’s #1 wholesale and purchase lender status and driving a long-term target of >50% broker share.
  • Through Q2, UWM generated $2.4 billion in MSR sales—focusing on coupons >5.5%—to de-risk its portfolio (average coupon down to 4.31%), reduce leverage, fund investments and support dividends, ending the quarter with ~$700 million in cash and no drawn lines.
  • For Q3, UWM guides $31–38 billion in production and 85–110 bps in gain margin, highlighting “significant upside” if rates stabilize or decline and reaffirming its operational readiness for any market cycle.
A.I. generated. May contain errors.
Earnings Conference Call
UWM Q2 2024
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