For the
But company management is more interested in a refinance boom to come in setting its strategy for the future.
Second quarter net income of $228.8 million includes a $24.6 million fair value gain recorded on its mortgage servicing rights portfolio.
Its operating income of 3 cents per share as calculated by Keefe, Bruyette & Woods missed estimates, a flash note from Bose George said.
"Volumes came in above our estimates but were offset by lower servicing income, while expenses and GOS margin missed," George wrote. "In terms of operating EPS, higher expenses (-$0.01 per share) drove the miss as higher production revenues (+$0.01) were offset by lower servicing revenues (-$0.01)."
UWM's first quarter loss of $138.6 million was the result of a $337 million fair value reduction in MSRs.
The company made
United Wholesale Mortgage produced $31.8 million in the second quarter, with approximately 88% of that, or $28 million coming from purchase activity. It did more in purchase than other lenders did overall, Chairman and CEO Mat Ishbia said Wednesday on the earnings call.
This compared with $22.3 billion in the first quarter ($19.2 billion being purchase) and $29.9 billion one year ago ($22.4 billion purchase).
But margins fell to 88 basis points — which Ishbia noted was well within previous guidance — from 92 basis points in the prior quarter and 99 basis points for the previous year. KBW expected a 95 basis points margin for the second quarter.
"We remain constructive on the fact gain-on-sale margins appear to be stabilizing with mortgage rates having already risen above 7%," Eric Hagen, an analyst with BTIG, said in a report. "We think there's room for margin expansion in response to larger and more sustained drops in interest rates, as lenders could potentially enjoy some bargaining power while capacity catches up to demand, although right now we think odds are low that mortgage rates can rally meaningfully while there's at least
Rocket produced $22.3 billion in the first quarter. Its partner segment — did $9.6 billion at a 93 basis point margin.
But Ishbia, in response to a question on the call, took a dig — without specifically saying Rocket — at the rival's new strategy to employ local loan officers.
Ishbia started the call noting UWM is hiring, partially in preparation for a future refinance market.
"We know the refi boom, whether it's a long sustained one or a mini-refi boom is going to come soon," Ishbia declared. "The opportunities are usually in the first three, six months, maybe nine months to really make money from a volume and margin perspective."
Because competitors are reducing headcount, they will not be prepared for when this business arrives, he continued. The Mortgage Bankers Association, whose July forecast
Fannie Mae thinks refis will go from just $59 billion in the current period to a peak of $143 billion in the third quarter of next year before falling again to $126 billion for the last three months of 2024.
And mortgage rates — which this morning's MBA Weekly Application Survey put at over 7% for conventional, jumbo and Federal Housing Administration loans — don't have to fall back to the 3% range to start the next refi market.
If rates slipped down to 5.875%, $4 trillion of loans become refi-eligible, Ishbia said. Furthermore, at that level, some existing mortgage borrowers that have a low rate mortgage but are hesitant to sell, are likely to list their property, helping to address the inventory shortage and driving the purchase market.
The refinance opportunity comes into play when rates fall a full percentage point from the borrower's current coupon, he noted.
But room exists for rates to fall because the current spread with the 10-year Treasury is closer to 300 basis points than the more normal 150 to 200 basis points, and narrowing is likely to drive the 30-year fixed rate lower, Ishbia said.
UWM is also working on opportunities in the jumbo business, where the depositories that typically dominate this market are pulling back because of bank failures and proposed capital rules, he noted.
In the second quarter, originations that were neither conforming nor government products (such as jumbo and non-qualified mortgages) totaled $1.6 billion, up from $930 million in the first quarter, but down from $2.1 trillion on a year-over-year basis.
UWM ended the second quarter with liquidity of $2.8 billion, including $0.9 billion of cash and self-warehousing capabilities.
"Cash is king," Ishbia declared. But the pullback among some warehouse providers actually is help for UWM's business model.
When companies like Comerica exit the business, some smaller mortgage bankers are deciding it is no longer a feasible model and go back to being brokers. And that ends up as a client win for UWM, Ishbia claimed.
UWM's mortgage servicing rights portfolio shrunk during the quarter to $294.9 billion on June 30, from $297.9 billion on March 31 and $308.1 billion one year ago.
It is an opportunistic seller of MSRs, which it will do only if it gets a good price as it did during the past quarter, Ishbia said, adding "If not, we'll sell none of it."
"Our liquidity is so strong right now, but I always like adding extra liquidity," he said.
UWM reported servicing income of $193.2 million, which does not include the $24.6 million positive fair value adjustment, while servicing costs totaled $31.7 million.
This compares with servicing income of $218.6 million, the negative $337.3 million fair value hit and costs of $36.8 million in the first quarter. For the second quarter of 2022, servicing income of $179.5 million and a $26.2 million fair value gain were offset by costs of $39.9 million.
