Q1 2024 Earnings Summary
- Strong Purchase Volume Growth: UWM reported a 24% year-over-year increase in overall volume in the first quarter, driven by a strong purchase market, which is expected to continue into the second and third quarters.
- Increased Gain Margin Guidance: UWM has raised its gain margin guidance to a range of 85 to 110 basis points for the second quarter, up from the previous range, indicating stronger profitability per loan and confidence in sustaining or improving margins.
- Prepared to Capitalize on Rate Drops: UWM is well-prepared to capitalize on potential drops in interest rates, having invested in hiring and strategy to handle significant volume increases when rates fall, which could significantly boost their business.
- Reliance on Interest Rate Declines for Future Growth: The company anticipates improved volumes and margins when interest rates decrease. Mathew Ishbia stated, "when rates do go down a little bit more, that's when margins usually will tick up a little bit." If interest rates remain high for longer than expected, this could constrain the company's growth prospects.
- Limited Stock Float May Restrict Investor Participation: The company's low float could limit stock liquidity and make it less attractive to investors. Mathew Ishbia acknowledged, "we have a great base of investors right now... However, float is a concern." There are no immediate plans to increase the float, which may limit the stock's appeal.
- Potential Risks from Mortgage Servicing Rights (MSR) Sales: The company relies on opportunistic MSR sales, which may not always result in gains and could sometimes lead to losses. Mathew Ishbia explained that on MSR sales, "sometimes you pick up a little, sometimes you lose a little bit. In general, it's been not a material negative or positive." This reliance on MSR sales could expose the company to market volatility and impact earnings.
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Margin Guidance
Q: How stable is your margin outlook amid rate changes?
A: We raised our margin guidance to 85 to 110 basis points. We expect margins to sustain at this level and potentially increase when rates drop further. Even if rates remain higher for longer, we are comfortable with this range.
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Origination Volume Guidance
Q: What could bring origination volume to low or high end of guidance?
A: Our guidance is $28 billion to $35 billion in origination volume. A drop in interest rates could push us toward the higher end. We believe this range is solid and feel good about exceeding last year's second-quarter volume of $31 billion.
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Market Outlook
Q: What are you seeing in the spring selling season?
A: We are experiencing a strong purchase market, stronger than last year. Inventories are up, housing values are strong, and first-time homebuyers are active. We saw a 24% year-over-year increase in overall volume in the first quarter.
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MSR Sales and Valuation
Q: How do MSR sale prices compare to carrying values?
A: MSR sale prices are generally in line with our carrying values. Sometimes we gain a little, sometimes we lose a little, but overall it's not materially positive or negative.
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Capital Structure and Float
Q: Thoughts on raising float to increase stock participation?
A: We have a great investor base, but float is a concern. We're opportunistic and always consider ways to address this while focusing on shareholder needs.
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Non-Agency and Jumbo Loans
Q: Is non-agency growth driven by jumbo loans?
A: Yes, growth in non-agency volume is primarily on the jumbo side. Brokers are competing for jumbo loans and doing a much better job.
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Pricing Initiatives for Brokers
Q: How have pricing initiatives impacted volume?
A: Pricing initiatives are one tool among many to help brokers grow. In a purchase market, price is less relevant; we focus on technology and service to help brokers succeed.
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Title Insurance Disruption
Q: Thoughts on potential changes in title insurance industry?
A: The title insurance industry is ripe for disruption, charging consumers a lot for a product that doesn't require much cost. We're working on lowering title costs for consumers and will continue to do so.
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Freddie Mac's Second Liens
Q: What are your thoughts on Freddie Mac getting into second liens?
A: It's interesting but wouldn't be material. The market already offers such products, and while Freddie Mac might offer them slightly cheaper, it's not a significant opportunity.