UWM Holdings took a loss on a GAAP basis for both the fourth quarter and full year 2023 resulting from
But the company emerged as the nation's no. 1 lender not just in overall and wholesale production, but in terms of purchase mortgage originations.
Its fourth quarter purchase production of $20.68 billion topped
The servicing mark of $634.4 million turned the company from an operating profit as measured by the non-GAAP metric of adjusted EBITDA of over $99 million to a net loss of $461 million.
The fourth quarter net loss compared with net income of $301 million in the third quarter and a fourth quarter 2022 net loss of $62.5 million.
UWM missed consensus estimates in terms of operating earnings, but was "largely in line" with Keefe, Bruyette & Woods, Bose George said in a flash note put out before the earnings call.
The volume numbers beat George's expectations of $24.2 billion, as did the gain on sale margin of 92 basis points; George had predicted 90 basis points.
For the full year, UWM lost on a GAAP basis $69.8 million in 2023, as compared with $931.9 million of net income one year prior. The 2023 loss was driven by an $854.1 million MSR value hit.
"With respect to MSRs, unlike some of our competitors, we have not historically specifically hedged the MSR portfolio," said Andrew Hubacker, chief financial officer, during its earnings call. "Rather, we maintain our portfolio at levels such that we are confident that fair value impacts due to interest rate declines will over time, be more than offset by an increase in origination income."
So instead, UWM uses MSR sales as the "most efficient" way to hedge the portfolio, Hubacker continued.
Not using a financial hedge means that when rates go down, as they did for most of the fourth quarter, MSR values decline. The flat-to-rising rate environment of recent weeks means that UWM has recaptured some of that, Mat Ishbia, chairman and CEO explained later on in the call.
UWM's production volume is also affecting the MSR valuation.
"The truth is we have a bigger write-down or write-up than other people, because we're the only one actually originating loans
When asked about servicing recapture rates, Ishbia reiterated UWM's policy which states that the borrower is the broker's client. He also took a dig at other lenders, including rival Rocket Mortgage by name, saying those firms have been taking the borrowers away for years and that was the wrong thing to do.
When asked how
He said the cases "[create] opportunity for the best real estate agents, the best [mortgage] brokers to take advantage of it and create a new opportunity to grow their business. Just like years ago [loan officer] comp changed in the mortgage market, brokers were supposedly gonna lose comp and brokers actually thrived because of it.
"So I look at these things as opportunities," Ishbia said.
Ishbia said the company was coming "off the bottom" in the first quarter regarding forecasting UWM's margins, to between 80 basis points and 105 basis points, and total volume between $22 billion and $28 billion.
"We still think there's room for margin expansion in response to larger and more sustained drops in interest rates," BTIG analyst Eric Hagen said in a note issued following the call. "Lenders could potentially benefit from a window of bargaining power while capacity catches up to demand, although right now we think odds are low that mortgage rates can rally meaningfully while [mortgage-backed securities spreads in the secondary market are somewhat biased to remain near historical wides."
Hagen expects for the full year, UWM to do more than its total volume of $108 billion in 2023. "The wide range for volume this quarter is understandable given the rate environment, including some higher propensity for loans to fall out of the pipeline because of the volatility."
