Q2 2024 Earnings Summary
- UWMC has heavily invested in technology and staffing, with approximately 8,000 employees , to prepare for increased mortgage volumes. They did not lay off workers and are ready for scale, stating they are "the most prepared mortgage company in America".
- The company's technological advancements, such as PA Plus and Track Plus, have seen significant adoption increases in the last 2-3 months. These tools enable brokers to handle more volume without additional hiring, positioning UWMC to capture more market share during a potential refinancing boom.
- UWMC's investments have resulted in closing times of 13-15 days, making them the fastest in the country by a long shot, while competitors take 40-70 days. This speed advantage is expected to widen if volumes surge, allowing UWMC to take more share within the broker channel.
- Rising expenses: The company's direct loan production costs and G&A expenses have increased significantly, and the CEO admits, "I really don't focus on expenses that much because I focus on winning and focused on growing." This lack of expense management could negatively impact profitability if revenues don't increase proportionally.
- Dependence on lower interest rates: The company's optimism and guidance rely heavily on interest rates dropping to spur a refinancing boom. However, if rates remain high or increase, this anticipated volume may not materialize. The CEO acknowledges, "Obviously, rates could go back up 5 minutes after I talk on this call."
- Potential pressure on gain on sale margins: The CEO is not confident enough to raise the lower end of the gain on sale margin guidance and admits margins could decline: "I won't say that it's never—it cannot go back down. That's why I have the range between 85 and 110." Lower margins could adversely affect earnings.
-
Impact of Rate Cuts on Volumes
Q: Will Fed rate cuts boost loan volumes?
A: Mathew Ishbia expects that if the Fed cuts rates, even by 25 basis points, it will increase consumer demand and awareness, leading to more mortgage activity. If rates drop further and the 10-year Treasury declines below 3.75%, it could spur a significant refinance boom. UWM is well-prepared for such an increase in volume. -
Margin Outlook with Lower Rates
Q: How will margins fare if rates drop?
A: Margins could increase if rates decline and volumes surge, potentially rising from around 100 basis points to as high as 130 basis points. This is due to capacity constraints in the industry; UWM is prepared to handle increased volume without sacrificing margins. -
Preparedness for Increased Volume
Q: Can you handle significantly higher volumes?
A: UWM is extremely prepared for a surge in volume, with approximately 8,000 employees and significant investments in technology. The company can handle double the business without increasing expenses proportionally. -
MSR Valuations and Sales
Q: How will lower rates affect MSR demand?
A: UWM expects that while MSR values may decline with lower rates, the demand for MSRs will remain stable as servicers buy them for the chance to refinance. UWM focuses on originating rather than buying MSRs and has derisked significantly by selling MSRs earlier in the year. Future MSR sales will be opportunistic but are not a current focus. -
Gain on Sale Margin Guidance
Q: What affects your margin guidance range?
A: The gain on sale margin guidance remains at 85 to 110 basis points. While recent quarters have been above 100 basis points, market volatility and rate movements necessitate maintaining the current range. If rates drop further, UWM may consider raising the lower end of the guidance next quarter. -
Technology Investments and Time to Close
Q: How do tech investments impact closing times?
A: UWM's technology investments have made it the fastest in the country, with loan closing times significantly shorter than competitors. These efficiencies are expected to be maintained even if volumes increase substantially, aiding in capturing more market share. -
Pricing Dynamics in Broker Channel
Q: What's happening with pricing in the broker channel?
A: Pricing has been rational, and UWM is not concerned about wholesale pricing dynamics. If rates drop and volumes increase, competitors may pull back on pricing due to capacity constraints, but UWM is prepared to maintain its pricing strategy. -
Adoption Rates of Track Plus and PA Plus
Q: How are brokers adopting Track Plus and PA Plus?
A: Adoption rates have increased significantly in the last 2–3 months. These programs are built for scalability, allowing brokers to handle more volume without additional hiring. The full potential will be realized when market volumes increase. -
Expansion of Track Plus
Q: Will you extend Track Plus beyond online refis?
A: Currently, Track Plus is focused on online refinance transactions to manage scale efficiently. While UWM has the capability to expand it to purchases and in-person transactions, the primary focus is on being prepared for a potential surge in refinance activity. -
Increase in Expenses
Q: Why did loan production costs rise this quarter?
A: Higher production volumes naturally lead to increased loan production expenses. Costs like credit reports have risen, but UWM focuses less on expenses and more on growth and winning market share. Expenses are expected to rise consistently with volume, tied directly to loan production.
Research analysts covering UWM Holdings.