UWM Holdings Corporation (NYSE:UWMC) Q3 2023 Earnings Call Transcript

UWM Holdings Corporation (NYSE:UWMC) Q3 2023 Earnings Call Transcript November 8, 2023

UWM Holdings Corporation beats earnings expectations. Reported EPS is $0.15, expectations were $0.05.

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. [Operator Instructions] Blake Kolo, you may begin your conference.

Blake Kolo: Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us, and welcome to the Third Quarter 2023 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 the earnings release that we issued this morning. I will now turn the call over to Mat Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Mathew Ishbia : Thanks, Blake. Appreciate it, and thank you to 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 much more opportunity for us when rates go back down in the next 6, 12, 18 months, and we’re doing a lot of loans right now. 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. 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 brokerage, everybody. And they require an efficient process where speed matters for getting contract deadlines. Together, UWM and independent mortgage brokers match these needs perfectly. We have world-class NPS scores, which was actually a plus 86 for this quarter. We have fantastic turn times that are the fastest in the industry. We 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 stable and consistent volume and earnings as you continue to see.

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, all of 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. We delivered $29.7 billion in overall production, well within our guidance.

Of that, almost $26 billion was purchase volume. As I talked earlier, we dominate in the purchase market. We were doing more purchase volume in the past few quarters than any other lender did volume, period. Our gain margin was 97 basis points at the higher end of our range, and we generated $301 million of net income, which is inclusive of $92.9 million markup of our MSR portfolio. 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. 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 are 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 in the best-in-class mortgage originator in America, and we thank all of our investors that have noticed that and continue to see that. 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 opportunity. I’m going to now turn it over to our CFO, Andrew, for a few more details.

Andrew Hubacker: Thanks, Mat. 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 is a result of a consistently high volume of purchase originations, gain margin on the high end of our guidance range and our continued emphasis on prudent cost management. Year-to-date, we’ve generated net income of $391.2 million, and our core operational income before considering changes in the fair value of MSRs increased sequentially and as compared to 2022 in Q3 and 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.

Nevertheless, our core operational expenses, excluding servicing, interest and other nonoperational expenses, are down approximately 4% year-to-date. Our balance sheet, including our capital, available liquidity and leverage, remains strong and very consistent for the past 2 quarters. To date, we have generated just under $1.7 billion in net proceeds from sales of MSRs. 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 of just over $280 billion 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 $2.9 billion as of the end of the quarter, which is largely consistent with the past 2 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. I will now turn things back over to our Chairman and CEO, Mat Ishbia, for closing remarks.

Mathew Ishbia : Thanks, Andrew. Appreciate it. I’ll be brief so we can get to the Q&A. I may sound like a broken record here, but I know the marketing challenge for most businesses in the mortgage industry. But come the panic, missing sometimes. Would love to see you guys out here and see how things work at our headquarters. Our culture is vibrant. We are hiring. We are growing. We’re 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 third quarter, we hired over 1,000 team members. We’re going to hire more again in the fourth quarter. 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, and I think the market numbers are starting to show that. UWM is very strong and will continue to be. We are dominating both purchase and the overall market by growing share with huge origination 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 rewarding 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 fourth quarter, we expect production to be between $19 billion and $26 billion and our margins range of 75 to 100 basis points. I’m going to turn it over to the operator now for a Q&A.

Operator: [Operator Instructions] Your first question comes from the line of Kyle Joseph from Jefferies.

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Q&A Session

Kyle Joseph: I 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 fourth quarter. Any sort of onetime items to call out there? Or anything you’d highlight there?

Mathew Ishbia : Yes. No, thanks for the question. It was a great quarter. No, there’s nothing — there’s no onetime items, nothing specific besides as we talk about, we’re making our brokers competitive. We set the margins on a daily basis. And obviously, it seems like it’s going well. And I continue to guide in the same range, 75 to 100, and that’s what the margins on wholesale will be in the toughest markets. And we’re, obviously, on the higher end of that margin for this quarter.

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

Mathew Ishbia : Opportunistic. We make the decision on a monthly basis. We also done — discuss what’s best for the business. But yes, we feel good about it. We’ve been basically in that, I call it, $300 billion range for years now, and so between $250 billion and $350 billion seems like a right number. Does it go down to $230 billion at some point? Does it go up to $370 billion 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.

Kyle Joseph: Got it. And then one last one for me, Mat. Just on the NAR ruling and all the noise we’ve seen in the realtor space for 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 risk for UWMC specifically?

Mathew Ishbia : Well, obviously, there’s a lot of 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 stay close to it. We’re in the weeds of the business. We understand all of 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. UWM has won 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 at the same time.

Operator: Your next question comes from the line of Bose George from KBW.

Bose George: 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 are banks sort of being a little less competitive there?

Mathew Ishbia : 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. 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 may be opportunity? Yes, but that’s not a driver of our success or volume. It’s really a — it’s around the year at best. So jumbos are 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.