UWM sets another record for production in 3Q, anticipates strong 4Q

United Wholesale Mortgage, already having achieved its best year ever, expects to do more business in the fourth quarter than it did in the first three months of 2021, which was arguably the height of the refi boom.

Total production grew to $63 billion in the third quarter from $59.2 billion in the second quarter and $54.3 billion one year ago. More importantly, purchase volume increased to $26.5 billion from $24.1 billion quarter-to-quarter and $12.1 billion year-over-year.

The company is on its way to a seventh consecutive year of origination growth.

"I don't think there's another lender in America that can say that," Chairman and CEO Mat Ishbia said on the company’s earnings call. "Since 2014, every single year we've grown here at UWM, along with our second consecutive record breaking quarter, along with our biggest purchase quarter of all time."

Third quarter volume was higher than Ishbia's prior guidance of between $57 billion and $62 billion.

UWM Holdings had net income of $329.9 million in the third quarter, inclusive of a $170.5 million hit because of a decline in the fair value of its mortgage servicing rights.

"Operating earnings per share beat us largely on higher gain-on-sale income (+$0.03), lower total expenses (+$0.02), and higher interest income (+$0.01), partially offset by higher MSR amortization (-$0.03)," a note from Keefe, Bruyette & Woods analyst Bose George said.

In the second quarter, UWM reported $138.7 million in net income, but that included a $219.1 million reduction because of the decline in the fair value of MSRs.

For the third quarter last year, the company had $1.5 billion in net income, which was reduced by $68.9 million in expenses related to amortization, impairment and pay-offs of MSRs.

Gain on sale margin was 94 basis points, up from 81 in the second quarter and at the upper end of the 75 to 100 bps UWM had predicted. KBW expected gain on sale for the quarter to come in at 85 bps.

"UWM is not a victim of margin compression," Ishbia said. "As the No. 1 wholesale lender in the country, we control the margins and other lenders have to react to us based on what we do."

The mortgage industry has gone from all-time highs in gain on sale to significant lows. However, margin normalization is occurring sooner than people expected, he said.

UWM's margin strategy is "a long term business development play to help the wholesale channel," Ishbia said. "It's all part of a strategy to help brokers compete, at the same time grow the channel, which is a winning play for UWM."

On servicing
Its servicing portfolio stood at $284.9 billion as of Sept. 30, up from $260.5 billion three months earlier and $153.1 billion one year prior.

"As our servicing portfolio continues to grow, we continue to benefit from the cash flows as well as contributing to our performance," said Chief Financial Officer Tim Forrester. "The key is our revenue growth has outpaced our expenses."

However the company sold "a modest amount" of servicing rights during the third quarter, which Forrester said was intended to "reestablish relationships with several potential investors on terms we support and believe are favorable to our relationships."

The company's preference is to retain the MSRs it creates. But "we balance that position with tactical sales to ensure we have access to markets if we anticipate the need to sell more MSRs and to maintain appropriate balance of origination," Forrester said.

UWM is an opportunistic seller of servicing rights, Ishbia added, and its transactions are done at a higher amount than the company's book value.

In the past, UWM pledged to protect its mortgage brokers by not soliciting their customers for refinancings. So the MSRs are sold with non-solicit agreements for 36 months.

That time frame not only protects the broker, it creates good cash flow for the new investor.

"If someone wants to go and offer us a bundle of cash for something that we have as an asset, we can take advantage of that opportunity and continue to invest into our technology and our broker channel will do that as well," Ishbia said.

UWM was one of the first mortgage bankers to lift its conforming limit to $625,000, ahead of the anticipated announcement by the Federal Housing Finance Agency in a few weeks.

Ishbia is anticipating "a little spike" in UWM's assets in the fourth quarter as they hold these loans until they can be sold to Fannie Mae or Freddie Mac in January.

"It's a great way to do a lot of business and help the broker channel continue to advance so the loan size thing will be a positive move for UWM and for brokers and for consumers across America," he said.

For the fourth quarter, UWM anticipates originations between $52 billion and $60 billion range, with gain on sale between 85 bps and 105 bps.

"I don't think there's anyone in America that will do more business in the fourth quarter like we will at UWM [compared with] the first quarter of 2021," Ishbia said, referencing its Q1 production of $49.1 billion. "That being said, we're extremely excited for 2022 because when you combine rising rates, the power of brokers embedded in their communities and UWM's low costs and power of our speed, service and technology, it's a recipe for mortgage brokers and UWM to win together."