UWM - Q2 2023

Transcript

Operator (participant)

Good morning, my name is Lisa. I'll be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation second quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the one on your telephone keypad. If at any time you would like to remove yourself from the queue, that is star one again. Blake Kolo, you may begin your conference.

Blake Kolo (Chief Business Officer and Head of Investor Relations)

Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us, welcome to the second quarter 2023 UWM Holdings Corporation 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.

Mat Ishbia (Chairman, President, and CEO)

Thanks, Blake. Well, I'd like to start by thanking everyone for joining the call. I really appreciate it. We're very excited here at UWM, proud of our team members, proud of our clients, and really proud of the amazing quarter we've had at UWM. The market, the data, the numbers we're seeing are all really strong, and we're going to talk more about that soon. Before I get into that, I want to start with one of the overarching themes in our industry, and that's the market. It's been a very difficult mortgage market over the last 18 months, but UWM has demonstrated the strength because of the foundation we've built for years and years. We can succeed in all market environments, as I have said, dating back to my initial roadshow when we went public, and every quarterly call since.

This quarter is evidence once again that UWM can succeed in all of these markets. While other companies are exiting the market, losing money, shrinking, and laying people off, we are the exact opposite. We are profitable, we are hiring, we are investing in technology, and we are planning to continue to grow. We know the refi boom, whether it's a long-sustained one or a mini refi boom, is going to come soon. The opportunities are usually in the first three, six months, maybe nine months, to really make money from a volume and margin perspective and really to grow your business. We are prepared for that now. Scale is the name of the game, and that is why we've been winning, and we're going to continue to win going forward. Our business model succeeds in the up markets and the down markets.

This is the ultimate down market. We are still winning. I can't wait for the big market to come. It's going to come. I don't know when, as I said. We are prepared at UWM. That's why we are different than everyone else. Let's get into the quarter's numbers first. We delivered $31.8 billion in overall production, beating our guidance. We set another new all-time quarterly record for purchase volume, $28 billion. We did $28 billion of purchase. That's more business than anybody else did business altogether, just our purchase volume. We're on pace for an all-time record purchase year here at UWM. Our gain margin was 88 basis points, well within guidance.

We made $228.8 million of net income, which is very profitable and more than we made last year in the second quarter when the market was significantly better and stronger. With that being said, some of the net income includes value of MSR moving up, a small amount of it. Just like I spoke last quarter, MSR value moving up and down doesn't really play into my business or our mind at all. Maybe we made only about $200 million when you take out the MSR adjustment, just like last quarter, people hit us for it. It doesn't really matter. We are running a profitable, successful business, no matter which way you look at it. You know, this is a hell of a quarter, given the environment.

Before turning it over to Andrew, our CFO, I want to touch on a few other highlights. The broker channel continues to gain momentum. In addition to the share growth we've seen in the channel the past year, we also continue to see loan officers joining the broker channel in big, big numbers. These things go hand in hand in my mind. You know, it's actually a multiplier effect. When a loan officer joins the broker channel, it's not like we just get loans one time. We get loans for potentially years and years to come. It's a big deal when they make the jump from retail to wholesale. In the second quarter, we tracked thousands more loan officers joining the broker channel, with more than half of them leaving the retail channel to join the broker channel.

I've said it before, and I'll say it again: not only is the broker channel the best place for a consumer to get a loan, it's also the best place for a loan officer to work. In the second quarter, we really enhanced our products as well. We rolled out a 1% down program, which is really helping lower-income borrowers achieve the dream of homeownership, which we feel is very important. We are excited about how that has been going. On the other side of the spectrum, we enhanced our jumbo products significantly to drive more volume there too, and help more consumers by clarifying programs for brokers and helping them succeed. We think there's a big opportunity in jumbo coming soon as well.

We already win in the conventional and government loans, you know, and the products to help us win brokers but helping the lower-end and higher-end loan sizes, we're focused on as well to really round out what UWM does. We also had UWM LIVE! event in the second quarter, which was a record event for us, with about 6,000 brokers and real estate agents attending. A lot of excitement and energy around the broker channel. We announced two big enhancements. One, the UWM portal, which helps the technology and efficiency for brokers, and the other one is PA+, which is really preparing brokers for scale. As I've said before, a lot of our competitors are laying people off. A lot of people aren't prepared for the next mini boom or big refi boom when it comes. Brokers are no different.

UWM is prepared. PA+ is a way to help them scale by helping them process and facilitate their loans, so they can go out and get new business. If a broker has to double or triple their business, they'll be ready because of UWM's PA+. We're really excited about that and the UWM portal. We rolled those out just a couple of months ago. Those things are things we're investing in now, that we might hit our expenses now, that we will see the rewards next year or whenever the refi boom comes. We're excited about both those things. These new products and processes are proof of the never-relax commitment that UWM has to the broker channel and growing at UWM. Now I'm going to turn it over to Andrew for a few more details on our financials.

Andrew Hubacker (CFO)

Thanks, Mat. The momentum from Q1 carried over to Q2 as our production volume increased over the prior year quarter and was 43% higher than Q1 of 2023.

... Year-to-date, net income turned to a positive $90.2 million, and our operational performance, before considering changes in the fair value of MSRs, improved in both Q2 and year-to-date compared to 2022. Year-to-date gain 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 to a more targeted initiative. Furthermore, despite being in growth mode from a team member standpoint, expenses continued to moderate in Q2. Excluding servicing, interest, and other non-operational expenses, total expenses declined approximately 9% year-to-date. Overall, we delivered very solid financial performance in Q2, considering current overall mortgage market conditions.

We have previously discussed our 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. We continued to execute on these plans in Q2 by completing sales of MSRs while maintaining a total servicing portfolio of approximately $295 billion as the end of the quarter. Additional bulk sales on loans with a total UPB of approximately $26.2 billion were completed subsequent to quarter end, resulting in total proceeds from MSR and excess sales year to date of nearly $1.4 billion. We have maintained a strong balance sheet with total equity of approximately $2.9 billion and total accessible liquidity of approximately $2.8 billion as of the end of the quarter.

Mat mentioned our current strong competitive positioning from all of our efforts to provide superior technology, speed, and service to our broker partners and our significant investments in growing both the wholesale channel and our market share. We believe that our current financial strength also positions us very well to capitalize on future market opportunities. Okay, I will now turn things back over to our Chairman and CEO, Mat Ishbia, for some closing remarks.

Mat Ishbia (Chairman, President, and CEO)

Thanks, Andrew. I want to close with a few quick points. I'm pleased with how we have performed in this market. Like I said earlier, we did more purchase business than anyone else did in overall business this past quarter. We're on track for our biggest purchase year ever, even in this rate and inventory environment. We don't use those things as excuses. We use them to our advantage and continue to grow and dominate this mortgage business. Brokers are winning. This provides us a great foundation of business when rates do drop and the refis do grow. With that backdrop in mind, our proven strategy is not changing.

We've established a clear formula for long-term success in the mortgage market. It means we'll continue to invest in our team members, invest in tech and products to better serve our brokers, invest in the broker channel, and we'll continue to invest in our future by hiring new team members prepared for the opportunity ahead. I'm also very proud to report that for the 11th quarter in a row, we announced a $0.10 quarterly dividend. As I have said, 2023 has been a year the overall industry production is down. Mortgage spreads are wide. Consumers have faced rapidly rising rates. Yet, against this backdrop, we are growing share, breaking purchase production records, and continuing to invest in products and technology. Overall, the future is extremely bright at UWM. You can tell I'm excited.

For the third quarter, we expect production to be between $26 billion and $33 billion, and our margins in the range of 75 basis points-100 basis points. I'm going to turn things back over to the operator for Q&A.

Operator (participant)

Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. If at any time you'd like to remove yourself from the queue, please repress star one. At this time, we'll pause momentarily to assemble our roster. We will now begin the Q&A session. Your first question comes from the line of Kyle Joseph with Jefferies. Your line is open.

Kyle Joseph (Managing Director)

Good morning, Mat, Andrew, and Blake. Thanks for taking my questions. Just want to talk about origination capacity. Obviously, your, your volumes were up substantially quarter-over-quarter, and I, I know you guys did not undertaken any, any layoffs, but can you just, you know, give us a sense, are people working overtime to do that? Did you hire some more folks? Or how you're able to really, you know, drive volume up 40% quarter-over-quarter?

Mat Ishbia (Chairman, President, and CEO)

Thanks, Kyle. Appreciate the question. Yeah, so the, the, the answer is our technology. I talked about it multiple times. I guess... Well, I know you follow us pretty closely. Like, a lot of people don't realize, like, everything we've said for quarter-over-quarter-over-quarter, like, it's a strategy, it's a plan. The technology investments we made in BOLT and different investments have made it so we can handle the volume when we have an opportunity to go get the volume, and the opportunity was there, and the opportunity is gonna continue to be there right now, especially because we dominate the purchase market, and so do brokers. With that being said, you know, we're hiring. Everyone else is letting people go.

Right now, the hiring that we did, you know, where we did 200 people a month, 250 or 300 people in a month, last month or two, that doesn't really impact any operational capacity because it takes 6 months for someone to get ready. That's why I talk about the word scale. These other companies that are preparing, laying off and still, you know, playing these games are. Like, when the market turns, we don't know when it's gonna be. The first six months is when you make your money. The first six months is when you take your market share.

This first, and we are prepared, and so we, the, the hiring and things we've done have zero impact on what we did in the second quarter, and will have zero impact on what we did in the third quarter or what we do in the third quarter. We are prepared for the first quarter or second quarter of next year when, when rates might drop, and that we might go from doing $30 billion-$40 billion or $50 billion, and we will be able to handle it at bigger margins, at more capacity than anyone in the country, and that's really when things happen. We're prepared. Scale is the word of the day for us, and that's why we're winning now, and that's why we'll continue to win.

Kyle Joseph (Managing Director)

Got it. Yeah, that makes sense. Then, just one follow-up for me. You touched on the jumbo opportunity in your remarks. You know, is that a function of what's going on with the banks? You know, how big of an opportunity is that for you guys?

Mat Ishbia (Chairman, President, and CEO)

Yeah, thanks, Kyle. Obviously, like I said, you follow the industry closely, so you know what you're talking about. That's an important point to understand, like, the capital rules and what impact they can make on banks and credit unions, and how that does not impact us non-banks and brokers. It also can impact correspondents with some of these smaller players or small warehouse lines. The bigger players that, that we work with, it's, it's not really relevant, but it's interesting to see what that will happen. That is part of the jumbo thought, along with other things I'm working on, we're working on here at UWM on the jumbo front. just to really capture those opportunities and help the brokers continue to grow, 'cause that's really the name of the game.

As the brokers grow, we grow, and even when you know, and that's what we're focused on. I think jumbo is an opportunity.

Kyle Joseph (Managing Director)

Got it. Thanks for taking my questions. Congrats on a good quarter.

Mat Ishbia (Chairman, President, and CEO)

Thank you.

Operator (participant)

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

James Faucette (Managing Director and Senior Equity Research Analyst)

Great, thanks. I want to follow up on those last comments around kind of competitive environment, et cetera. Last quarter, I think you mentioned you were deploying some of your excess cash to self-warehouse some of your production in order to help manage interest costs. What's your strategy been like during this quarter, given the elevated rate environment and the fact that some warehouse lenders seem to be pulling back?

Mat Ishbia (Chairman, President, and CEO)

Yeah. We, we use our excess cash the same way. It does limit our interest expense when we're doing that, and that's what we... We have a lot of cash, right? Cash is king. We keep a lot of cash on the balance sheet, we continue to do that. There's really no change in the strategy. The warehouse lines, I think that's, you know, like I said, that's, that's really not a story right now, to be honest with you. Maybe it's a story for some small correspondents, but they work with the other lender. Like, it's not affecting brokers, and it's not affecting a lender like UWM. Warehouse line issues are really not a concern at all with UWM, and obviously, we have the cash on top of that, but that's, that's not really a concern.

It's more a concern for some of the smaller regional banks that give out small lines to these little correspondents. I could argue that that's actually a positive for us, 'cause when those smaller warehouse lines kind of get out of the business, like we saw Comerica do recently and some other ones, what happens is those little lenders that use them say, "I can't do this anymore. Let me just go back to being a broker," and that becomes a big client for UWM. We've seen some of that happen, but once again, I don't think it's a huge mover right now.

James Faucette (Managing Director and Senior Equity Research Analyst)

Got it, Mat. I appreciate that color. Then just on, on pricing, you mentioned the couple of the pricing incentives in recent quarters, including Conventional 1% Down offering, as well as Game On, and some other initiatives. How much of a drag are those incentives having on your margin? I guess the bigger question is, do you have a lifespan in mind for any of these promotions?

Mat Ishbia (Chairman, President, and CEO)

Yeah, they're not a drag on our margins. Like, our margins are exactly where I want them to be in every aspect. That, that's not a, that's not a concern at all. To your question, though, how long are these things? You know, those are things that we don't really discuss and talk about, but the reality is, I think that these things that we do are all helping consumers, which we care about, brokers, which we care about, and helping the real estate community, which partners with our brokers. Then at the end of the day, it helps UWM and all of our investors and all our shareholders. We're going to continue to stay in the details, stay in the weeds, and, like, I'm involved with this every single day, if not hourly in the day.

So we know exactly where we are, where we want to be, and we're going to continue to be in the weeds of our business. So, there is no timing or ending of what we want to do on, on some of these things, and we're just building the relationship and deepening our relations with the brokers for when, you know, rates do drop or just helping brokers win right now, which they're winning, we're winning, and it's really an all-round success for UWM. I think you saw that in our quarterly numbers, and I expect you to see that again in the third quarter, too.

James Faucette (Managing Director and Senior Equity Research Analyst)

Yep. Thanks a lot, Mat.

Operator (participant)

Our next question comes from Bose George with KBW. Your line is open.

Bose George (Managing Director of Residential Mortgage Finance)

Hey, good morning. I wanted to stick to the volumes. I mean, you guys ended Game On, but it looks like your share, you know, looks like it went up a little bit, and your volume came in above the high end of your guidance. Can you just talk about, you know, how that kind of played out, what you expect for share, and, and where you think you are in terms of your share of the broker market this quarter versus last?

Mat Ishbia (Chairman, President, and CEO)

Hey, thanks for the question. Yeah, I mean, you just described what's happened, and it's exactly what I said would happen if you look at our 2022, second quarter, and third quarter. We talked about Game On, and people are like, this is what we do all day, right? I expected it. This is what we expected. This is what we planned for. It's all part of the strategy. The thing that people don't get, and after 11 quarters of doing this, I figured that you guys would get... Like, when we talk about something, we explain something, this is what we do all day. This is not hyperbole. This is not BS. It's not rhetoric, like a lot of my competitors. We actually are doing it consistently, and hopefully, you've seen it.

So, am I surprised that Game On worked, and loan officers joined the broker channel, and our share went up, and then it's going to go down a little bit from the high end because we picked up our margin? Like, no, I'm not surprised at all. That's what we do, and that's what the plan is. I'd be surprised if it didn't. Now, from the market share, like, if you go back and you can listen to the recording, I think I said it a year ago, like, I expect that our market share would go up. We did not do it for a market share play, but once someone starts working with UWM, they realize how great we are and how easy it is to work, and that they can grow their business.

Once someone tries us, and some brokers didn't try us before 'cause they were so focused on price, Game On brought them into our tent, and then they say, "Wow, you guys are amazing. Like, I don't know why I care about 8 basis points or 12 basis points or 20 basis points no more," and they become our loyal partners. That's what happened, that's what we're proud of, and that's what we'll continue. Where market share is this quarter, like I said, I consider Game On a success. If we, if we go up from the 30% we were at that time, I think we've peaked at 50, and if we stay in the low 40s, it's a pretty big success.

you know, I think we're there. I think you see, you know, our higher numbers on purchase. Our, our, our brokers that are working with us is up. Our LOs that are working with us are up. Overall, we feel great about where we're at. Our strategy is working. At the same time, we're co-coming up with new strategy and new moves and new techniques to continue to win and continue to build this business for our partners, for our investors, for our brokers, and for our team members here at UWM.

Bose George (Managing Director of Residential Mortgage Finance)

Okay, great. Thanks a lot.

Operator (participant)

Your next question comes from the line of Doug Harter with Credit Suisse. Your line is open.

Doug Harter (Managing Director)

Thanks. Mat, you talked about, you know, kind of being prepared for the eventual turn in the market, whenever that may be. You know, how do you think about what that size of that market opportunity might be?

Mat Ishbia (Chairman, President, and CEO)

Yeah. Good, great question, Doug. I mean, it's going to be big, right? Like, every day that goes by is another day where my competitors lay people off, so they're becoming unprepared. Every day that goes by is another day where a lot of loans are closing at 7% and 7.25%, so it's a bigger supply opportunity for us. People, every day that goes by is another day that we're deepening relations with our brokers. Every day that goes by is another day on preparing for the scale. Like, I although everyone wants rates to drop, I kind of like where it's at right now. It keeps going, and it keeps building this monstrosity, if that's the right word, of an opportunity. Will that opportunity last for three months, six months, or three years?

I don't know, but I'm going to be ready, and we're going to be ready at UWM, and nobody else is. When will it come? I don't know. How big it will be? It's going to be pretty big. Think about this, Doug, like, we've had $2 trillion last year, $2 trillion this year, all at 7%. Rates go to... and rates don't have to go to 3. Rates go to 5.875, and you've got $4 trillion of loans that are refi eligible instantly. Flip around and say, "Don't forget, we're still at $28 billion of purchase. Let's just maintain that purchase volume." I think the refi volume will be significant.

Then, of course, my competitors that are all, you know, maybe struggling right now, and laying people off, will say how great their business model is, and you guys will probably write how smart they are, how they do good things, 'cause they're dependent on rates. We're dependent on the mortgage business or the economy being relevant. We're dependent on being alive and running our business. That's how dependent we are on running our business and being successful. They're dependent on rates. So when rates drop, we'll dominate, we'll do great. Everyone else will do great, too, and everyone will think that they're doing good things, and they'll talk about their strategy.

This has been the best thing, that you actually got to see what happens to the lenders when the market changes, and what we've done and what we're going to continue to do. We are ready, and we are the most prepared lender for a refi boom. Other places will figure it out, too, unless it's like a three-month boom, and then they say that they can't hire quick enough, and then they're going to lay people off again, and it's just they're in this little death spiral that they all live in.

Doug Harter (Managing Director)

Great. You know, I, I think historically, kind of people have thought about 50 basis points as the incentive. You know, I just how do you think about the incentives today? You know, is, is that lower within the broker channel than it might be in other channels?

Mat Ishbia (Chairman, President, and CEO)

No, I don't think it's lower in the broker channel. I think it's all about savings to the consumer. What makes sense? Like, is 50 basis points in rate drop enough to hit a refi boom? I don't know if it is. I, I think I, I lean towards more 75 to 100. Also remember, this, like I said, everyone's at 7%, but a lot of people are at 6.5, and some people are at 7.25. Like, the number I'm targeting, if it hits the high 5s, you're going to have a big, a big opportunity. Are there refis being done today? Yeah. I mean, I think it's 12% of our business or whatever the number is, 10%-15%. Some other companies...

I mean, if your business is still, you're still doing a lot of refis right now, and it's a big percentage of your business, you're obviously not winning in the purchase market. What will happen, what it needs to be, like, I believe doing right by the consumer is important. You know, these games that these players play that, like, "Oh, just lower it 0.25 point, and then they can, they can miss a payment," like, that's not really what we believe in. That's not what we want brokers to believe in. The number I think is 0.75 point in rate, is kind of the number I think. I think, you know, will a refi's opportunity come at 6.25 or 6? Yes. When it hits the high 5s, it'll be good.

The other piece that people don't recognize, when rates hit the high 5s, people that are at the 2.5, 3, 3.5 range, they're the ones that aren't selling their houses because it's so expensive to sell and buy another house. When it becomes a little more palatable, they'll sell their house. It opens up inventory, like, the purchase business will be great, the refi business will be great, and that's why I'm so bullish, and we've been bullish. I've been saying the same stuff for years now. It's just now we're starting to see the light at the end of the tunnel is coming, whether it's in 3 months, 12 months, 18 months. You know, I think it's sometime next year. I don't know exactly when.

Doug Harter (Managing Director)

Great. Great, Matt. Thank you.

Operator (participant)

Your next question comes from the line of Kevin Barker with Piper Sandler. Please go ahead.

Kevin Barker (Managing Director and Senior Research Analyst)

Great. Thanks for, thanks for having me on. I just wanted to ask about the growth in the government origination volume. You saw quite a bit of production volume growth, you know, I believe it's about 60% quarter-over-quarter, very strong. Could you talk about what you're seeing in that market in particular, and whether it's from a competitive dynamic or, you know, some of the pricing initiatives you're doing there? Thank you.

Mat Ishbia (Chairman, President, and CEO)

Yeah, thanks a lot. It's not really the pricing initiatives. A lot of times, you know, the government loans, a lot of them, a lot of the growth is in the FHA world. The FHA world gets, you know, competes a little bit with the home affordable programs from FHFA, which is Fannie and Freddie Mac. As Fannie Mae and Freddie Mac do less to help affordable homes, those borrowers go to FHA. If those borrowers go to FHA, FHA is the best option for them. Also, FHA did cut their MI, if you remember, which is their monthly MI, which actually made it so it was more advantageous sometimes to use an FHA loan than a conventional loan. Brokers are smart, borrowers are smart, they're going to go to the cheapest payment.

If the cheapest payment is FHA, we're a great FHA lender. We can dominate that market. If the market's conventional, we do it. Right now, you're seeing a little pickup in the FHA because the MIP cuts, maybe the affordability programs have not been as successful as FHFA has focused on, and Fannie and Freddie kind of do their own things in some of this stuff. We're going to continue to focus on it, but wherever is best for the consumer is what we're going to focus on. We do a lot of FHA. We do a lot of VA veterans. Veterans is still another big opportunity. We think veterans don't necessarily get the best opportunities, and we got to get them to FindAMortgageBroker.com, educate veterans, because they can save a lot of money, too.

We're continue to work on that, with veterans as well. Both veterans and FHA are both in the government world that you speak of.

Kevin Barker (Managing Director and Senior Research Analyst)

Do, do you expect the, the veterans loans to be a greater source of refinance originations over the next year, just given the rates or the streamline, the, the programs that are in place?

Mat Ishbia (Chairman, President, and CEO)

Yeah, exactly. Yeah. The veterans have great purchase programs and, and so does, and so does FHA, but they also have great refinance programs, the IRRRL and the streamline refinance. Those programs will help. That's back to the point is, like, you know, there are certain recruitment rules about how much the rate, back to the question about how much rates have to drop, and we want to make sure that the veteran or the FHA borrower or any borrower is saving enough money to make sense for it to be a great opportunity for them. I do think veteran loans, there are a lot of refinancing in that program, and that will come soon. I'm focused more on the veteran purchases, you know, and helping the veterans buy those homes.

There's things we can continue to do to help them along with FHA. That's why you're seeing the government pick up, because we're doing those things, and you see our government volume has grown significantly quarter-over-quarter, and I think you'll see it continue to grow going forward.

Kevin Barker (Managing Director and Senior Research Analyst)

Great. Just a quick, clarifying question. Andrew, I believe you commented, was it $26 billion servicing portfolio was sold after the quarter end? Could you clarify that? And then was there one sold during the quarter? I'm just trying to understand, see what happened during the quarter. Thanks.

Andrew Hubacker (CFO)

Yeah, after quarter end, just over $26 billion of UPB was sold, and during the quarter, I think it was about $28 billion of UPB was sold.

Kevin Barker (Managing Director and Senior Research Analyst)

Okay, great. Thank you, Andrew. Thank you, Matt.

Mat Ishbia (Chairman, President, and CEO)

Thank you.

Operator (participant)

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

Eric Hagen (Managing Director and Mortgage Finance Analyst)

Hey, thanks. Good morning. Good to talk to you guys. Maybe a couple of follow-ups here. I mean, what are you thinking could, could lead to growth of the broker channel itself? Like, as a share of the overall market, what would, you know, contribute to some relative growth for brokers? Then if, you know, second question here, I mean, if you were, if you were doing, say, like, 20% or 30% more volume than you're doing right now, how do you feel like that would drive your policy towards, you know, returning capital and keeping MSRs? You know, just following up on that last question, I mean, you've, you've been a seller of MSRs, so of other lenders.

Like, how do you feel like the volume of MSR sales for the market, you know, more broadly, just kind of drives your appetite to sell servicing and the value that you think you can get for it?

Mat Ishbia (Chairman, President, and CEO)

Yeah, so I'll answer the second question first, and you'll have to repeat the first one. The second question is like, we're opportunistic. If there's opportunities out there, we'll sell servicing. We also love the servicing asset. We have about $300 billion of it, and we'll continue to service clients and take great care of consumers and help brokers when that opportunity comes down the road for the refinancing of those consumers. You know, but we, we look at all opportunities, like my job and our job here is to make the right business decisions for our team members, our brokers, our, our shareholders, like, everyone. Like, we're thinking about everyone across the board. Right now, when there's opportunities to sell servicing, we'll do it. If we think it's a good price, if not, we'll sell none of it, right?

Whether we sell the whole thing, we sell access, we sell... Like, we have all these different options. Our liquidity is so strong right now, I always like having extra liquidity and more liquidity. Cash is always king. We've done it. We have $2.8 billion-$2.9 billion of access to liquidity, and we're in a great position across the board. I feel good about our MSR strategy. You know, Andrew's done a great job. Blake Kolo's done a great job, and we're in the weeds of that every day, and that's a day-by-day, week-by-week decision, and we capitalize at the right times to make the right decisions for our company. If you repeat your first question, 'cause I, I, I went on a tangent, so I want to make sure I get this one right.

Eric Hagen (Managing Director and Mortgage Finance Analyst)

Yeah, no, that was helpful. Thank you. I, I was asking about relative growth in the, in the broker channel itself. Like, you know, as a as a share of the market, what do you feel like the conditions would have to look like to, to see that, the channel itself grow?

Mat Ishbia (Chairman, President, and CEO)

Well, listen, loan officers continue to move over, right? We got to continue to dominate from a service perspective for the brokers, so they can continue to build relationships with realtors and continue to do these things every day. I think that from the last year, it was 20%, I think first quarter was 22% market share for brokers, so it went up 10%. I don't know if that's relative. It's not enough for me, but the fun part is, like, in a, in a sick mind that I have, is like, I like when it's still low, and we're still dominating. Like, imagine when it goes up. Like, there's no one in this industry that will tell you that broker market share is going to go down. There's no one in this industry.

I don't care if they're the biggest retail guys in the world, they'll be like, "Brokers are growing." Like, go back to like, everyone knows brokers are winning, and the fact that the numbers don't come through as big as I like, that's just like all upside, green pastures and rainbows and sunshine for UWM. When it goes to 22-25, to 27-30, like, when it happens, we're not going to do less business than we're doing today, right? It's all upside right now, and so I feel good about where it's at. We're prepared for scale, we're prepared for those opportunities, and brokers are growing, and brokers are succeeding, and brokers are loyal to UWM, and we're all winning together, and I feel great about our business.

Operator (participant)

Your next question comes from the line of Michael Kaye with Wells Fargo. Your line is open.

Michael Kaye (VP and Equity Research Analyst)

Hi, good morning. one of, one of your major competitors, who's both a direct-to-consumer lender and a wholesale lender, seems to be further emphasizing hiring local loan officers to better compete in a purchase mortgage market. The brand is obviously very strong and resonates with consumers. What strategies and tools are you trying to put in brokers' hands to better able to compete with a threat such as this, especially if the if they go after the distributed retail model in a much grander way?

Mat Ishbia (Chairman, President, and CEO)

Thanks, Michael. I appreciate the question. I'm familiar with that company. I, I don't think highly of them or any of the things that they do. The reality is, understanding what that company is about, brokers know, too. If you remember, that company also is someone that all the brokers have left, although if you look at what they've said, they've kind of fallen off the deep end, too. Lost their CEO, fired their CEO, fired their president, fired their chief legal officer, CFO, everyone's gone because their business strategy doesn't work. With that being said, when refis come back, that company will probably do a lot of refis, the local loan officer strategy is a, is a silly concept.

It's just their way of saying, "We can't win in a broker market," and it's as though they're tipping their hat to UWM, "so we're going to try anything else we can do." The reality is, there's not a broker in America, and Michael, you know this, that doesn't think that UWM is the best partner for them and always does the right thing for brokers, and we'll continue to do that. Really, back to the last question that was asked to me about, like, well, how will brokers grow market share? The last time rates dropped, brokers weren't prepared, just like all these other lenders aren't prepared. When that happened, they couldn't process the loans, they couldn't originate the loan. They're, so the LOs are originating and processing.

We built that PA+, which I talked about earlier, which basically is helping brokers scale. Brokers don't have access, they, you know, like what happens when rates drop next year? If they say, like, they're going to double their business. Well, they can't double their processors. Everyone's going to go out and hire operations people. UWM has already built the scale for brokers to succeed, and PA+ is a big part of that. Part of the strategy is preparing for that. That company doesn't really matter to us, and that the reality of when you're asking about them, Michael, you know what they are in the broker channel.

They're not really relevant, and really, they're not really relevant in the overall industry besides when rates drop, which they'll be great again, when rates drop, I'm sure they'll tell you guys how great they are at that point, too.

Michael Kaye (VP and Equity Research Analyst)

Okay. Thank you.

Operator (participant)

Again, if you would like to ask a question, please press star, then the one on your telephone keypad. Your next question comes from the line of Stephen Delaney with JMP Securities.

Stephen Delaney (Managing Director and Senior Research Analyst)

Hey, Mat, great to be on with you, and congrats on another strong quarter.

Mat Ishbia (Chairman, President, and CEO)

Yeah, surprising, huh, Steve?

Stephen Delaney (Managing Director and Senior Research Analyst)

Yeah, man.

Mat Ishbia (Chairman, President, and CEO)

Let's go!

Stephen Delaney (Managing Director and Senior Research Analyst)

Not surprising. Listen, picking up on your comments with Doug about coupons. Do you guys... I'm sure you obviously know what your average coupon was on second quarter production. Is that something that you're, the average coupon, is that something that, that you and Andrew could share with the analyst community, or is that too much information that would, you don't want in the hands of competitors?

Mat Ishbia (Chairman, President, and CEO)

Thanks, Steve. Appreciate the question, buddy.

Stephen Delaney (Managing Director and Senior Research Analyst)

Yeah.

Mat Ishbia (Chairman, President, and CEO)

Yeah, appreciate that, and always appreciate the, the, the questions. That, that is pretty much public information. I don't have the number right in front of me, but if you look at some data, you can figure out what our average interest rate is and where the market is. I mean, generally, like just being general, not just UWM, but the market's basically like 6.75%-7% in the second quarter, right? If you think of it, that range.

Stephen Delaney (Managing Director and Senior Research Analyst)

Yeah.

Mat Ishbia (Chairman, President, and CEO)

I think maybe a little bit lower in, in some situations, a little bit higher. Like right now, and it might have been there was like a, a month in there that lowered rates, it depends on when you locked them and when they closed. The way I look at it is, rates are all in the sixes and low sevens, and if they're in the sixes and low sevens, that's why I keep saying high fives is, is, is, is the focus. When it hits high fives, and re-remember, the, the other people talk about the Fed keeps raising rates. People like to talk about that, talk about, talk about inflation. Don't forget, the spreads between the ten-year and the 30-year fixed are at all-time highs, too. It, like, it could be any day.

It really could be any day right now that rates could drop, and it doesn't need some crazy thing to happen. That, you know, like, it just means those spreads come back to normalized numbers instead of 300, like, down to 150 or 200, and boom, it's a refi opportunity for everybody. So we're really excited about that. We're prepared for it. We're not sitting here, you know, we don't need it to happen, but we're ready for when it does happen. Where a lot of our competitors need it to happen, so they can come back on these calls and sound rational to you, Steve. The reality is, we don't need it. We're excited for it, but we're going to keep winning in the meantime.

Stephen Delaney (Managing Director and Senior Research Analyst)

Yep. Well, I'd suspect Fed Funds Futures is saying that, that we're going to, we're going to go down over 100 basis points by the end of 2024, and I would suspect the long end of the market would follow the Fed, and, and, and you're going to follow the ten-year.

Mat Ishbia (Chairman, President, and CEO)

Yeah

Stephen Delaney (Managing Director and Senior Research Analyst)

... it looks like 2024 could give us, you know, it's, it's not, it's not silly to be talking about lower rates at this point. I get your point about, you know, you got, you got to get it, be there, scaled up and ready to go for that first 6 months. That's great.

Mat Ishbia (Chairman, President, and CEO)

The way I think about that, Steve,

Stephen Delaney (Managing Director and Senior Research Analyst)

Okay.

Mat Ishbia (Chairman, President, and CEO)

One, one comment, Steve. I, I think it's definitely a reason to think that we're going to outperform the market.

Stephen Delaney (Managing Director and Senior Research Analyst)

Yeah, and to that point, can do you have handy, I don't care whether it's today or June 30, like, employee headcount and broker count? Just so we get a sense of how much growth there's been year to date there.

Mat Ishbia (Chairman, President, and CEO)

Yeah, I don't have the numbers I don't have those numbers handy, but the reality, you could always talk... I know you talked to Blake Kolo. He can get you some of the information, but the way we look at it is, you know, obviously, you're a big company. Some people leave. We're hiring. I think we hired 350 people in July, which is actually new information because that's actually in the third quarter, so you can understand our focus. None of those people, and as I answered the question earlier, none of the hires, whether it's 200+ people in June, 300+ people in, in July, none of those people are contributing to our success right now.

Stephen Delaney (Managing Director and Senior Research Analyst)

Yeah.

Mat Ishbia (Chairman, President, and CEO)

They'll contribute to our success next year. Like, we're preparing. It's like, it's like you're building this opportunity when everyone else is slashing, slashing, slashing. What I've tried to explain to people is like, sometimes these refi booms aren't five years running. They might be three months, six months, and if you're not prepared, you can't take advantage of it. You can't grow market share. PA+, the scale that we have, the technology we have, the partnerships we have, we're ready for it, and we're going to be ready when it happens. In the meantime, we're still going to have record purchase quarters, just like we did $28 billion, and we don't need any refis. We don't need anything to be successful.

We're going to win in all markets, and that's why I stood back in my road show, and I know you followed us back then, Steve, and everyone's seen every quarter consistently successful. Thanks for the comments, Matt. Blake, I'll follow up with you on those numbers. Appreciate the time.

Operator (participant)

Your final question comes from the line of Vilas Abraham with UBS.

Vilas Abraham (Director and Equity Research Analyst)

Hey, everyone. Thanks for the question. Just real quick, just one from me. Can you talk a little bit about new production, MSR multiples, how that's contributing to the margin, and just how we should think about that dynamic moving forward? Thank you.

Mat Ishbia (Chairman, President, and CEO)

Yeah, thanks for the question. The, that new production multiples on MSRs doesn't really contribute to really any of the, the volume or the mar- I mean, it's just, it's just a number that's plugged in based on the assumptions that we have along with everyone else has. If you look at a lot of those things, I think our assumptions are maybe a little more conservative than other places, which makes me feel like I got a little upside in it. The reality is, I don't think that really is moving any needles, tied to margin, tied to volume. I mean, new production is the game right now, and purchases, back to the point on, are not the most price-sensitive borrowers. Purchases is they want to buy a house. Our focus is on helping those borrowers find a house faster, easier, and cheaper.

The reality is, nobody really wants a mortgage. Like, I'm in the mortgage business, no one wants a mortgage, they want the house. How do we make it fast, easy, and cheap? That's what we focus on. Understanding rates, understanding like the MSR values tied to the rates, like, it's, it's not really contributing in a positive or negative way. It's just, it's just a number that's plugged in. Rates are the rates. People are buying a house at 6.875 or 7 or 6.75 or whatever it is. The real game, though, comes down when rates drop. When they do drop, that opportunity will be there for UWM. Even if they don't drop for another two years, which I don't think, but let's just play it out.

Then we're going to make $200+ million a quarter over the next couple of years, still make $1 billion. Like, we're, we're going to be doing just fine. So when refis do come, though, that's when you make billions with an S at the end in a year, and the opportunity is there, and so we're prepared for it. I don't know if the MSR, you know, assumptions really make big movements plus or minus basis point here or there. I don't think it really moves the needle much.

Vilas Abraham (Director and Equity Research Analyst)

Okay. Thank you.

Mat Ishbia (Chairman, President, and CEO)

Thank you, everyone, for joining the call. I know you're all real busy and have a lot of things going on. We appreciate the support. Obviously, Blake Kolo and Andrew and our team here is all available if you ever have any more questions, but we appreciate it. We're excited about the second quarter, we're real excited about the third quarter as well. We're going to keep doing it with brokers. Thanks for the support. Have a great day.

Operator (participant)

This concludes today's conference call. You may now disconnect.