Q4 2023 Earnings Summary
- Increasing Gain Margins Signal Improved Profitability: UWM's CEO, Mathew Ishbia, indicated that the company is moving off its recent margin lows, raising the gain margin guidance from 75-100 basis points to 80-105 basis points going forward. This suggests that margins have bottomed out and are expected to improve, potentially leading to higher profitability. Ishbia mentioned, "I'm basically calling bottom. It's not going to get worse than it was. We're going to move it to 80 to 105 basis points going forward."
- Strategic Positioning to Capitalize on Growing Broker Channel: The broker channel's market share is approaching 23%, up from previous levels, and UWM is well-positioned to benefit from this growth. As the broker channel expands to compete for more loans, UWM expects to capture a larger volume of business. Ishbia stated, "As the broker channel continues to grow and get to 3 out of 10 or 4 out of 10 loans that we can compete for, UWM is going to grow as well."
- Investments in Technology and Broker Support Driving Market Share Gains: UWM is actively investing in technology and initiatives to support brokers, such as building PA+ and helping brokers handle scale. Additionally, the company is focusing on converting loan officers from retail to wholesale, with some top retail loan officers moving to the broker channel. Ishbia highlighted, "We're doing things. We built PA+. We built different things out to help brokers handle scale... And then the other part is converting loan officers over from retail to wholesale."
- The company's modest increase in gain margin guidance from 75-100 basis points to 80-105 basis points suggests limited margin expansion potential, which may constrain profitability growth.
- UWM's strategy dismisses the correspondent channel as an opportunity for growth, potentially limiting its ability to tap into a significant segment of the mortgage market.
- The company's growth is heavily reliant on the expansion of the broker channel, which currently represents around 23% of the market; limited growth in this channel could constrain UWM's future market share gains.
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Margins Increasing
Q: What will drive gain margins to higher range?
A: Margins are moving up from 75-100 bps to 80-105 bps, signaling the bottom is behind us. As the market improves, we expect margins to continue increasing in the coming quarters. -
Origination Volume Guidance
Q: Why is origination guidance range so wide?
A: Guiding to $22-28 billion in originations for Q1, expecting more business even in a higher rate environment. January and February are typically slow, but we have a good feeling about hitting our guidance as we consistently have done. -
Refi Activity Trigger
Q: When will rates spur significant refis?
A: When rates reach 5.75% to 6.25%, we'll see a lot of refi activity, as borrowers can save enough to make refinancing worthwhile. This will also boost purchase activity and margins. -
MSR Portfolio Size
Q: Target MSR portfolio around $300 billion UPB?
A: We aim for an MSR portfolio between $250 billion to $350 billion. Our fair value mark does not include recapture estimates, unlike competitors. -
Broker Market Share Growth
Q: Is broker share now at 25% of market?
A: Not quite; it's close at 22.84%, but growing. As broker share increases to 3 or 4 out of 10 loans, UWM will also grow, capitalizing on this trend. -
Pricing Initiatives Impact
Q: Effect of recent pricing initiatives on volumes?
A: Initiatives like Refi 100 create stickiness with brokers. Despite higher margins and rates in Q4 2023, we did more business than in Q4 2022, demonstrating the success of these strategies. -
Impact of Realtor Lawsuits
Q: How do realtor lawsuits affect brokers?
A: Brokers and real estate agents are closely linked. Changes may create opportunities for the best professionals to grow. We're not concerned; those deeply involved usually capitalize on change. -
Correspondent Channel Importance
Q: Will you gain share from correspondent channel?
A: We don't focus on the correspondent channel, viewing it as double-counted volume. Instead, we concentrate on expanding in the broker and retail channels. -
MSR Sales
Q: Did you sell any MSRs this quarter?
A: We did one excess trade in Q4 and continue to sell MSRs when opportunities arise, bringing in cash and building the business.
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