Q3 2024 Earnings Summary
- UWMC is well-prepared to capitalize on future refinancing market growth, with the CEO stating they can significantly grow very quickly without needing to hire more staff, thanks to investments in technology, hiring, training, and coaching. This positions UWMC to handle a lot more volume right now when interest rates decline.
- UWMC continues to dominate the wholesale broker channel, focusing exclusively on supporting brokers and helping them win. Despite competitors' attempts to enter the broker channel, UWMC maintains zero concern about increased competition and believes their commitment to brokers will sustain their market leadership.
- UWMC's investments in technology and new products like TRAC+ and PA+ are gaining traction, helping brokers save consumers money and differentiate themselves in the market. These innovations are expected to contribute to higher gain-on-sale margins and market share growth when the refinancing market returns.
- Increasing interest rates are pressuring gain-on-sale margins, as the company guided lower margins due to the backup in rates, with the 10-year Treasury yield rising to around 4.35%, 4.40%, 4.50%. CEO Mathew Ishbia acknowledged that if the market had stayed where it was, they would have guided to a higher margin, but due to higher rates, they expect margins between 85 and 110 basis points.
- Expected seasonal slowdown in both purchase and refinance markets in the fourth quarter, with purchase markets usually slowing down and refinance activity decreasing due to higher rates. Mathew Ishbia confirmed that the refi market has slowed down, and the company is depending on purchase volume, which is impacted by seasonality.
- Limited impact of new products due to higher interest rates, as the uptake of the new Cash-Out 90 product is hindered by rising rates since its rollout. Additionally, ancillary products like TRAC+ and PA+ are not expected to significantly boost gain-on-sale margins in the short term.
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Margin Outlook
Q: How do you expect margins to perform given recent rate moves?
A: Management expects gain-on-sale margins between 85 to 110 basis points in Q4, given the backup in rates to around 4.35% to 4.50% on the 10-year treasury. If rates had stayed lower, they would have guided to higher margins. Margins are tied to market movements, and as rates drop, margins can increase. They achieved 118 basis points last quarter, exceeding guidance. -
Volume Guidance and Impact of Interest Rates
Q: Can you discuss your volume guidance and how rates affect it?
A: Despite a slowdown in the refi market, management is confident in achieving $34 billion to $41 billion in loan volume for Q4. They note that they can quickly close loans in 10 to 14 days, unlike competitors, and are prepared to handle increased volumes when rates drop. If the 10-year treasury drops to 3.75%, they anticipate higher volumes and margins. -
Preparedness for Rate Changes and Refi Market
Q: How prepared are you for a potential drop in rates and increased refi activity?
A: Management states they are ready to significantly grow volumes without needing to hire more staff, thanks to technology enhancements and training. They are prepared to double the company when rates drop and expect to capitalize quickly on the refi market. -
Gain on Sale Margins
Q: What factors are influencing your gain-on-sale margins?
A: Gain-on-sale margins are influenced by the ability to handle capacity and market rates. When rates drop, margins tend to increase as borrowers focus less on price and more on closing quickly. The company expects margins to rise as the 10-year treasury decreases, benefiting both UWM and the industry. -
MSR Sales Expectations
Q: What are your expectations for MSR sales going forward?
A: The company will continue to be opportunistic with MSR sales, selling when buyers offer high multiples. They have no requirement to sell MSRs and will evaluate sales based on business needs and market conditions. -
Broker Channel Competition
Q: Are you concerned about increased competition in the broker channel?
A: Management has zero concern about competitors entering the broker channel, emphasizing that UWM dominates because they focus solely on supporting brokers. They control margins and believe competitors will follow their lead. -
Plan to Increase Stock Float
Q: Do you have plans to increase your stock float?
A: Management has taken creative steps to increase float and will continue to explore options, as float matters for stock price. They are not planning additional actions this year but acknowledge that the float is materially higher than six months ago. -
Adjusted EBITDA and Cash Flow
Q: Is your adjusted EBITDA a good reflection of cash earnings?
A: Management does not view adjusted EBITDA as reflecting cash flow, particularly due to the treatment of MSRs. The capitalization of MSRs is not excluded from adjusted EBITDA, but the sales of MSRs impact cash flow metrics. -
Ancillary Products Uptake
Q: How is the uptake of your ancillary products like TRAC and TRAC+?
A: The ancillary products are performing well, though adoption takes time. They are expected to help consumers save money and help brokers differentiate themselves, but they won't make a huge difference in gain-on-sale margins. -
Cash-Out 90 Product Uptake
Q: What is the initial uptake of the new Cash-Out 90 product?
A: The Cash-Out 90 product is a differentiator but has not seen high volume due to rising rates since its launch. Management believes it will see extremely high volume in a refi market when rates are lower.