Q2 2021 UWM Holdings Corp Earnings Call

Good morning, My name is Jen and I will be a conference operator today at this time I would like to welcome everyone to die you double U M Holdings Corporation second quarter 2021 earnings conference call.

<unk> have been placed on mute to prevent any background noise.

I'll start the speaker's remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question press the pound key thank you.

My Jocelyn you may begin your conference.

I am Matt Roslyn EVP of legal affairs, and Investor Relations. Thank you for joining us and welcome to the second quarter 2021 earnings call for UW Am Holdings Corporation before we start I would like to remind everyone that the conference call includes forward looking statements for more information about factors that may cause actual results to differ.

Materially from forward looking statements. Please refer to the earnings release that we issued this morning before.

Before introducing Matt I want to inform everyone on the call that our CFO, Tim Forrester cannot be with US today due to personal reasons, Matt SBA, Chairman and CEO of U W. M Holdings Corporation unite wholesale mortgage will be delivering both the business and the financial updates on today's call. Thanks, Matt appreciate it and thank you everyone for joining the call today, it's great to be here, especially after another outstand.

<unk> quarter here at U W. M. Before we start I just want to thank our team members here at U W. M. Our partners throughout America doing great things mortgage brokers independents out there proud to partner with all of them the second quarter.

Was our best quarter in company history from a volume perspective. So we're very excited about the results not only do we post record numbers production, but we almost doubled our prior quarterly production on purchase loans, that's going to make a big difference as we talk about later on at Perky production is an important measure them explain the details of how we think about it.

Later on in this call on our last quarterly call as I will do every time, but you know to hold us accountable to our numbers and what we say we delivered above what we expected in many respects and excited for you guys. Just see the results and talk about what's going to happen in Q3 as well.

We delivered $59.2 billion in production, beating our guidance of 50 to 55 billion at the time when most of our competitors guided to do less and did less volume our production was up over 20% at UW M compared to the prior quarter and resulted in an increase in overall mortgage market share by a significant amount at you Wm are.

Gain margin was 81 basis points in line with guidance and is actually a lower numbers than historic your numbers. However, we posted a solid profit we delivered $138.7 million of net income.

When I back out the $219 million to kind of fair market value of our MSR asset our core earnings as I like to call. It was approximately $358 million. That's the way I run the business I mentally add back or subtract if it's positive the.

The the change on the MSR really is more representative of what our business is the $358 million, we're very proud of and at the same time.

We think of how to run the business to make sure that we deliver great earnings from an operating perspective at all times and obviously the MSR asset we do not control the change in fair values, including impact of certain market assumptions and to me when assessing the health of our business I'd like to move the changes up or down.

On a fluctuating asset that I can't control.

We've already noted that on a sequential basis, our second quarter results represent a 20 plus percent increase in overall production I think it was actually 21% more exciting to me, though was the 97% increase in purchase production over the first quarter.

On a year over year perspective, Q2 looks great as well, we had a 90% increase in overall production and a 288% increase in perfect production.

Theres No mortgage company American as Catholic as we are the elite mortgage company in America, and we're proud to show to you quarter ending quarter out.

The second quarter was really interesting as it provided a glimpse into the future to our industry for a couple reasons first off the weighted average rate 30 year interest rate went to $2.99 from 2.8 O. So just about a 19 basically raising rates and you would've thought the whole industry shut down based on how a lot of people reacted.

That was only a small reason rates wait till goes from 2.99% to 4% and you'll see the strength of our business across the board the relative refi mix declined and purchase increase and became more important for mortgage originators, but purchase mix is not the thing we focus on we focus on purchase production because purchase mix looks really great. If you read.

By volume went down UWS refi volume actually stayed about flat, but we almost doubled our purchase business from 12 billion to 24 billion quarter over quarter. Some.

Some companies like to speak about purchase percentage or mix or really don't like to speak in a ball about it at all but it is important note that purchase mix can solely change by doing less refinance and that's really not the story. We're trying to tell we're trying to talk about the strength of our business, which is purchased business and when rates go from the 2.82.0.9 to three and a half or 4% that's.

Really when the the best mortgage companies will shine and we believe we are that company.

Just like in 2018 or the first quarter 2020.

You know you can see how people perform when the tide is out and not such frothy business. So second quarter 'twenty 4.06 purchase production, our best purchase quarter of all time.

Our best overall quarter of all time, and if you think about it.

If you had no refi business, we'd almost do a $100 billion.

Our purchase business in a year, which by far and away will be the number one mortgage company in America.

It's very important to understand this because our business the business model and history to prove that not only will regain the purchase share we retain it and maintain that business with our broker partners and our independent mortgage companies that we partner with how are we growing in this market simple speed and service our cost structure allows us to be profitable with lower margins, but the reality.

As we're closing homes faster and more efficiently than anyone in America real estate agents love that our brokers love that and that's how we continue to get more referrals and grow our business.

<unk> kills deals we talk about here a copy is never to run our purchase business once the broker closer personal ones. They stay with us they want to continue to send loans those and guess what the realtors want to as well we continue to close loans and 18 days, while the industries over 47 days were substantially faster than the market. Our client service remains best in class.

Our proprietary technology and uncle compromising team members proving our year to date net promoter at a plus 86.6.

While Q2 was a glimpse into the future with rising rates, we've seen rates drop a little bit in Q3, which means a lot of the heavy refi shops, our competitors will be able post decent numbers and better gain on sale margins in the third quarter. The reality is Q2 was a glimpse into the future and what this will look like in 'twenty 'twenty two 'twenty 'twenty three.

24, and UW M is the leap mortgage company now and we'll take a quick moment to talk about a quick update on the all in initiative that we announced on March 4th a lot of people a lot of the media like to spin things and say negative things about the all in initiative questioning the decision process want to make sure everyone understands that you know you Wm is very in tune with our client.

And it's been an overall huge win for not only for you Wm because that wasn't the focus the focus on the independent mortgage brokers and consumers has been overwhelmingly positive we are very in tune with what our clients need and of course media and our competitors love to spin the story, but the reality is this black and white numbers UWS grew 21.

1% $49 billion to $59 billion, while one of our competitors, who is public went down from 103 to 83 billion or in their partner network rocket mortgage went from 41 billion down to $30 billion, it's not a discussion whether it was successful or not and other people can spend what they want it was an overwhelming success not only because of you wm's grew.

And some of our competitors non growth if you want to think of it that way, but the reality is this the alignment of the broker channel from our culture training licensing our clients are all in with your Wm and they're all in for the broker channel just like New Wm is and that the day March 4th was a changing factor for all of the independent mortgage brokerage.

In America, and we're proud to have made that decision that was very positive for the whole channel and consumers across America.

You know this year will be our seventh consecutive year of being the number one overall wholesale lender in the country and we're very excited about the growth and continuing to lead the broker channel as a partner with so many independent mortgage brokers throughout the country.

I'd like to summarize some of the production and look back on by saying that our solid foundation strong and established relation with our clients exceptional service position able to help us capture more market share.

In 2021, as we just did in the second quarter, but beyond going forward in the future. So we're very proud of where we're at at the same time, we have a lot of other good things going on so now let's talk about some other highlights.

Return to work.

So in June we welcomed back a lot of our Teamers by July 16th we had all of our team members back you're in Pontiac, Michigan.

Our culture is more alive than ever our 200 acre plus campus I'll work side have all 9000 of our clients coming in we have hundreds of clients coming into our office every week flying the Piney Act, Michigan to get trained to get coach to learn how to grow their business as they grow you Wm will grow in the broker channel will grow and that's a big part.

Our story and it's happening every single day.

We continue to reinvest in our business our people we've built some proprietary technology will save us over $8 million estimated this year on some proprietary things we've done with some docs document generation and document.

Storage areas that we've done we've evaluated the feasibility and we're looking forward to being the first mortgage company in America to accept crypto currency to satisfy mortgage payments, that's something that we've been working on and we're excited that hopefully in Q3, we could have actually execute on that before anyone in the country. Because we are a leader in technology and innovation we have.

A main committed to our 9000 team members, we're creating the best environment for collaboration and learning and growth here at you Wm and in the third quarter Youre going to hear about some game changing technology and innovation that we're rolling out. We're very excited is not things that other people have done we're trying to be a leader once again as we have been for years and we've got some big things that will be announced in.

Third quarter now.

Now.

With all that stuff I'm going to shift and as Matt mentioned, Tim forced our CFO cannot be available today for this call, but I will talk about our financials and our go through some of the details about our financials before we wrap up and take questions first thing I'd like to talk about our buyback as announced in the last quarter. We authorized we were authorized by the board of directors to buy back shares.

The exact details are in our filings, but in the summary, we purchased just under 800000 shares in Q2.

And a lot more sense.

If you add it all back.

Purchased well more than 2 million shares you know it and honestly at these prices you know if the float issue wasn't a big deal we could even buy more we have the authority to buy more and we'll continue to look at it but we are obviously very aware of our investors' concern about our float and that's why we can't buy you know even more shares back at this time. However, we do have the ability.

To do so and we'll continue to do so when that opportunity is there.

Q2 highlights net revenue $485 million comparable quarter of 831 million last year remember $290 million of that reduction was really the change in our accounting for MSR as its place reduction in fair value of.

MSR within revenue rather than expense, so it's really a $290 million difference there to change.

Our servicing income was higher due to our growing portfolio and interest income about our overall production volume increasing substantially over prior periods and liquidity front cash.

And cash equivalents remained over $1 billion, which significantly more than we operated in prior years.

Mortgage loans.

At fair value from Fort from 7.9 billion at the yearend to $12.4 billion at June 30. This increase is due to the overall production our entry into the Pls market to garner better execution in certain instances, then selling through agencies as well as renewal of our jumbo loan program, which has been a huge.

Success doing about 2 billion plus of that production per month wilmslow sold through private markets remain on the balance sheet a bit longer than we sell agencies, but the loans remain fully hedged in our readily marketable who don't believe this increase of risk profile in any way materially and it added benefit increased our net <unk>.

Interest income, which is something you can see in Q2 compared to prior quarters.

The fair value of our MSR increase from roughly 1.75 billion to $2 six 6 billion as the unpaid principal balance increased.

From 1.1 hundred $88.3 billion excuse me to 263 billion at June 30th the weighted average note rate on our mortgage servicer.

Portfolio is 2.97% as evidenced by the fact that in the last 18 months you didn't as Regina over $290 billion. It's a very young book from a seasonal perspective credit quality is quite strong delinquency rates over 100 over 60 days was 1.18% down from 1.93% and our prior.

Call we noted.

Extinguish our MSR line credit Inc.

And then comers of Msr's as well as issued debt to further support our investment in the business. The board of directors has approved and authorized a quarterly dividend of 10 cents per share of common ace Doc to.

Shareholders of record closing business September 10th to be paid on October 6th.

Our cost per loan improved from up to about $1400.90 from 16.62. This is such a key data point that people don't want to talk about but that's 43 basis points. So when we talk about our gain on sale of 81 and our cost is around 43 basis points, we can win and be profitable in all markets. These are.

All time low margins basically and we are very profitable across the board with our cost to originate and our proprietary technology, we're going to continue to win with our cost and we can continue to put pressure on all of our competition as you saw in the second quarter as most of our competitors went down in volume and at the same time some of them you lost money we succeeded.

Excel because of our cost too rigid in our proprietary technology.

Now.

Last quarter, we set guidance and then do we not only set it we set a higher guidance and we beat it across the board we realized record breaking numbers at you Wm and we're very proud of it.

Solid foundation, we put in place.

Is producing exceptional results our technology platform our operations our team members and what we're doing the committee. We're very very proud of what we're doing liquidity is strong the broker channel is strong and it's getting stronger and UW M is going to continue to get stronger as we continue to make a big impact on the broker channel and all the consumers they serve in the reorders for that matter.

As well.

One last point I wanted to leave you with is we were very very profitable and are one of the toughest market environments trough margins everyone else struggling UWS, we won and we're going to continue to win here UWS. We're looking ahead, and we're going to guide to $57.62 billion and.

Production perspective in Dean margin between 75, and 100 basis points. We're excited about the third quarter and I'm excited to take questions. So I'm going to turn it back over to you guys and take any questions you have about your Wm and our second quarter results or how we see the mortgage market playing out going forward.

At this time I would like to remind everyone in order to ask a question.

That's fine then the number one on your telephone keypad.

Boss for just a moment to compile the Q&A roster.

Your first question comes from the line of Steve Delaney JMP Securities LLC.

Thanks, Good afternoon, everyone and congratulations to management on on either beating or meeting your may 11th guidance for the quarter very strong med I say that and you're.

Youre welcome for one reason and we heard a lot of we didn't get a lot of clarity, but we heard there was a lot going on at the GSE is in terms of I guess, you could call it pricing actions or capital markets changes.

It obviously had.

Maybe.

It had less impact on you than it had on others. It would appear but could you share with us.

Just generally what was going on there and what I guess, we're really need to know is how much of this was a one time type plan pipeline impact and how much of this may be ongoing in terms of constricting.

Constricting the volume of business, you do with Freddie and Fannie Thank you.

Yes. Thanks for the question you know first off so everyone knows it's enforcer will be available for any questions.

This week next week.

Any follow up questions that I can't handle financially or you want to hear his perspective. He is available for you. So he's always available but to answer. Your question. Specifically you know obviously you know I know other companies you spoke about some changes and we kind of look at those changes and see that that happens.

For Fannie Mae, but I can't control, what Fannie Mae Freddie Mac view, and how that impacts our business and sometimes there's things that happened and it's retroactive. There also be some things that retroactive in a positive way also sometimes and so there's gives and takes in it in a positive way what I think the most important thing that's happening on this or that you won't see these types of things from some of our competitors are really with us.

At all obviously, we're prepared to be profitable really in all situations I talked about our cost originate but even on a compressed gain on sale quarter like this one the reality is this.

You know the wholesale market is.

Is becoming more and more known as quality strong lenders opportunity for growth and the best way for a consumer to get a mortgage and so with that being said, we think a lot of the the legacy if that's the right way legacy mindset around wholesale or around brokers or around some of the pricing actions that some of these places.

Take.

Are going to be a thing of the past in the very near future now does that mean, it's going to happen in third quarter for I don't know, but we do know that the markets are adjusting to you that the best way to get our mortgages through our wholesale lender through an independent mortgage broker and the quality and all the other aspects of the of our mortgage process people over here and that's why so many people are trying to join in the wholesale channel because it.

Such a strong channel everyone sees the mortgage brokers as the future of the industry and so some of the legacy rules and some of the things that other lenders have talked about that the GSE might've been imposed recently I think those are short term and I think it one day, we'll be talking on a quarter when he got reversed and all of a sudden we picked up some money in a positive way and that will happen then too.

Well definitely it doesn't sound like they put you on defense that's for sure whatever they did and I guess, what we'll hear about all of that over time, but just keep moving it forward I liked that hey look.

A quick follow up comment thanks for including the third quarter dividend in the press release.

40 sent a year, that's a nice 5% yield.

Where the stock is trading today and I think it will keep some people interested.

So look it's it's not it's a little it I'll, let others talk maybe more about the buyback, but it's somewhat.

Clearly unusual for a company to be paying a cash dividend also buying back shares but you know on the one hand do you know I was a little concerned that maybe the board would change its view on the dividend and to allocate more capital to to shares do you think it's possible I guess the board will make a decision every quarter, but at least in this quarter for the third quarter it looks like.

The board is doing both paying the dividend and buying back shares is that fair a fair assessment.

That's fair and I don't you know as the chairman of the board at this point I don't see a reason that we would not pay the dividend the dividend is a way to repay our shareholders and I plan on that going forward. Obviously, we have to vote on it and talk about it every single meeting, but theres no inclination there was no discussion.

Or any concern about continuing it forward the buyback was approved for $300 million and we have 24 months to execute on we executed a good amount on it and once again the float was larger I would be taking a lot more advantage of it because if the share price that right now with the dividend.

It's a ridiculously high yield as you're well aware of and we're happy to reward our loyal shareholders that way and we're to continue to do so going forward.

Thanks for the comments Matt.

Thank you.

Next question comes from the line of Henry Coffey Junior led Bush.

Good afternoon, and thank you for taking my call and if we're collecting votes here.

Given how your stock is trading relative to book and given the flow challenges.

I think the dividend is a terrific way to.

Return capital.

It seems to it's one of the more attractive aspects of the UWS.

The shares so.

If you are taking votes a vote in favor of the dividend.

Highly technical area I agree with you and Henry and I'm, a large shareholder too so we're on it.

You get to vote more than I do Sir.

Small item that we can get into this offline if it's if it's.

But in March.

G&A expense was $16.8 million and then in June It was 42.1.

Even though overall expenses were lower than we expected I was just wondering what that one item was all about.

Yes, I think we can go offline on it but it was just a reversal in the first quarter. So 42 was in line with our expenses actually went down as you saw we just had a reversal in the Q1 of about $20 million. If I remember correctly, it's correct, which puts us around 36.37 on that same line item.

So it was basically apples to apples in our overall expenses have gone down and that's why our cost originate in our.

It has gone down as well.

Right.

That was that was very obvious that.

It was all the other numbers moved in in the other direction and I was just curious about that one but thank you.

Q1 was a onetime out of period reversal of a contingency in Q2, there was a 5 million added but when you net out that line item is basically flat.

Cool thank you.

More interesting topic, you made a comment.

Yeah.

In the press release in the second quarter, we began seeing the term from the foundation, we built particularly growth in purchase production and also renewed focus on jumbo FHA or government lending in manufactured housing.

Wondering if you could tell us a little bit about both about two of those legs the jumbo business.

Which I'm assuming is is more of a pls securitization and then the manufactured housing lending.

Lending which is.

An area that that's that's been really quiet for some time.

Yes. So we're in a we're looking at ways to continue to help our clients serve their clients and so the jumbo product has been a huge success, we rolled it out I think I announced that it came out March 17th So really we didn't really get a full two quarter a full quarter of it because you know you don't really closed loans.

Until the middle to end of April on it but we did on average I think in the second quarter about $2 billion a month of that products. So just under $6 billion.

I think as 5.9 off the top of my head in those three months in and growing in July and.

So we feel really good about that product the nice part about that product as it wasn't quite 50%, but it was almost 50% purchase and so we talked about how it's going be a big purchase product as well just like FHA and just like manufactured homes is a much smaller product, but it's a nice way to take care of.

All consumers equitable housing is a big focus of ours and how we continue to do good things.

Route the country and quite honestly a lot of our brokers. They just want to use you wm. They want to have the consistency of our process and submit their loans to you Wm and so when there's a need to have the confidence that the jumbo comes to AWS, they're FHA do their VA of course their conventional loans do they have the consistency that when a reorder brings them alone in a transaction. They know can come in and out and closing 10 to 12.

20 days with UWS, so we rounded out our products a little bit. We obviously had our all time record quarter of $59.2 billion and we're going to have our biggest year in company history by a lot as well and so the growth that you Wm is not slowing down in and once again rates just ticked up a tad bit and everybody else fell off and we grew wait till rates tick up a half.

Point or a point and you'll see the value of these products along with our purchase focus and UW AUM will not only become the number one overall lender, but will continue to show great market share gains and a lot of great returns to our investors.

Given the housing group is very bullish on manufactured housing because of the role. It plays in affordable housing and the ability to give someone a house with a yard and security.

I know Fannie has been a lender somewhat Freddie Mac hesitant can you tell us from your own perspective, what's going on with the GSE is it manufactured housing and what role United will be playing in that going forward.

Yeah, you know, we're working with the GSE is on the product we're going to continue to offer the product to hopefully make affordable home federal housing are more available to more and more people and we think manufactured homes aren't going to become less of the market. There are only giving them more of the market and so we figured we'd get into it make it good.

Inroads and make sure our processes are tightened we actually had a lot of success in that we just rolled it out and in mid April. So it's still very new from our perspective of it of our business, but you'll see more of it in the third quarter and more going forward. As you know are our commitment to Ecuador and affordable homes.

Throughout America.

The.

Gain on sale margin competition.

The primary secondary spreads have actually improved.

Reasonably stable in July we don't quite know what to expect for August, but can you give us a sense of of what.

The competitive environment looks like in August on the gain front.

Yeah. So we're looking at you know our competition and we're continuing to monitor every one but the reality is we feel that we guided in a really good place we feel really comfortable with where margins are we can play in a in a place that other places can't based on our cost to originate we feel really good about the guidance I've given you guys along with.

On both the volume and gain on sale numbers and so I don't think it's becoming more competitive or less competitive I think you know the market is what the market is and we obviously are the leader, which drive a lot of that volume and margin compression or increase and so we're controlling it we feel really good about where we're at and we're highly profitable you know the way I look at it.

No.

Our core earnings we made over $350 million in the quarter grew our market share substantially grew 21% gained $10 billion of volume in all of our main competitors went down and so I feel really good about where everything that we can make three or $400 million in core earnings in a quarter and I feel really good about where we're at and then when.

Big opportunities come to make a little more margin you'll see the huge numbers that you saw the last couple of quarters before this.

Well, thank you and congratulations on a solid quarter.

Thank you.

Next question comes from the line of Doug Harter Credit Suisse. Your line is open.

Thanks, Matt, hoping you could talk a little bit about kind of how sticky you think some of these market share gains.

It will be.

All in.

And your need or desire to kind of keep some of the price match.

Promotions.

Yeah.

Yeah.

Yeah. So it's extremely sticky there, though the loyalty on the all in is black and white, that's not even a whether it's stickier not that those people are all in for the broker channel, which includes UWS and doesn't include chew lenders, which we pointed out that we're not doing the right things for wholesale brokers and so we made that stance.

But the stickiness there has been a.

<unk> there with our clients the growth has been significant with our clients and quite honestly is just the alignment across the board, where hey, you're all in for the broker channel. We're gonna help you continue to grow we're going to give you trainings were going to help you build your business help you with like all aspects of your business to grow and succeed and that's what's working and those clients are growing faster than the rest of the clients in the country and so we had a very few months.

Werent in the all in mentality and that's perfectly fine, but the great great majority of all independent mortgage companies are and that's why we've grown and we will continue to grow as their partner going forward and so.

That's a big part of it and so.

How the stickiness.

Nice match in talking about those things those things arent really driving volume those things are more of a confidence and explanation for our clients as they feel confident UWS prices great.

Our products are great. Our service is the best our technology is the best our partnerships. The best let's continue to work with you and we can help you grow your business and it's it's not only resonated with them, it's been overwhelmingly positive where they understand it and they're all in with us and we're helping them grow and so our prices very sharp do I have to do.

Continue with our price matching those things those things are very very nominal amounts because quite honestly you saw our margins. Our margins are pretty good are prices are already really good and so we're going to continue to be aggressive with growing the broker channel because it's best for consumers. It's best for the brokers and is best for you Wm and our market share gains.

Were substantial seeing you know I think we are in the first quarter were 54 billion orders the number one spot and now we're 24 billion out of the number one spot. So a 30 billion dollar closing of the GAAP in one quarter wasn't so bad imagine if rates went up to three and a half or four you'll see a whole different game very soon.

And then just following up on kind of the margin outlook I guess, what what type of environment do you need to see to kind of go from kind of the two Q 81 basis points towards the upper end of the guidance range of 110 basis points.

Yeah, I think we guided to 180 to 100 and so I think you know do I think it will be 81 again no. That's why you know I think we got 75 to 100 actually but I think you know I don't see margins going down.

However, I don't see them going up much either and so the reality is this.

Margins are going to be in the range that we gave for.

For this quarter and I think I told you guys last quarter that I believe it's between three and six quarters. It could be at these all time lows, but it's not.

Not going to stay down here very long anywhere you see the overall year.

Base, averaging in the first quarter, along with second third and fourth it will be.

On the lower end of normalized but not as low as you see right now and I don't think there's that far off until the opportunity comes back to where it gets back to more normalized which is R. You know low to mid 100 numbers.

But it's not going to happen in the third quarter and I don't foresee it happened in the fourth quarter and so there's a there's a lot of dynamics that go into how we price and how we think about it and what we think will be the best way to deliver value to our shareholders. While at the same time, taking on market share and continue to grow and meet the vision and the and the goals of our company.

Thank you Matt.

Thank you Doug.

Next question comes from the line of Ryan Nash of Goldman Sachs. Your line is open.

Thanks, Good evening guys.

Hey, how are you.

So Matt.

Just talked about the fact that you think pricing can stay at these levels for three to six quarters.

You know you don't think its going to ease it sounds like for the next two so that would put us at four quarters I guess.

Big picture.

What do we need to see to sort of break this grid locked to eventually drive margins higher and then when I look at your margin.

Last quarter and expectations for this quarter it is a little bit lower than some of the others in the peer group. So my question is can you hold onto volumes as price eventually increases.

You have a margin in line with others, but also still drive the volume.

Yeah, Ryan Thanks, a lot. So first off our margins are not lower than anyone in my peer group. So we're on the same page home point as you know was substantially lower than us.

And not able to be profitable at those numbers, we would be as you know.

Rocket who.

They mix and match their partner book, its not really broker business their broker margins are actually well below ours.

They have 300 basis point plus margins on their affiliated affiliations wherever they call them.

Kind of Jumbo mall together, they're not a 116 basis point their wholesale margin well from our data well south of 50 year right around 50, so just to put it in apples to apples comparison, and so youll see that across the board. We are the leader the way that other lenders can get businesses they have to be substantially better price than us and that's what's going to have.

One is since they couldnt be we grew and they all shrunk youre going to see that trend again, and so unless they can be substantially lower than even rocket who was substantially lower at home point substantially lower they still both declined and so there's a combination of gain on sale along with business strategy the business strategy around purchase and our focus.

Yes.

On purchase is a big differentiator price sensitivity is not there as much on purchase and no matter what even if your price was 75 basis points, you were making zero on it brokers won't place a purchase of certain lenders because they cant actually deliver and so that's why I keep telling everyone win rate them rates went up 19 basis points and everybody you know when when crazy.

Margins compressed everyone did less business everyone's struggled wait till they go up 100 basis points. That's what we're going to be doing a 120, <unk> hundred $50 billion, maybe $200 billion, depending on exactly where rates are and everyone else would be well below us and so gain on sale margins, we feel great about where we're at no. One can originate alone at our cost structure and so we're going to use our proprietary technology.

We continue to enhance that I'm going to use that leverage whenever I see it.

Fit and it is the right decision for our business and our shareholders and it was in the second quarter as we had all time record quarter and it will be again in the third quarter similar type concept, where we will be successful other places, we'll get a little bit better volume because rates got a little bit better for them. So they can feel good about themselves for a quarter or two.

So, but the reality is when rates do go back up that's when you Wm shines in that's why Q2 was just a glimpse a glimpse into what 2022 or 23 or 24 was going to look like with everybody else, Ryan and youre going to see.

That UW M is.

Is the strongest and most of the mortgage company and we plan to prove it quarter in quarter out.

Got it thanks for the color and then.

You guys had a nice quarter on the expense side can you maybe just talk about further opportunities to rationalize expenses I think you talked about cost originate going from I think you said $16.62 down to $40.90, I'm curious where do you think that could go as you guys continue to leverage the investments you've made in the business and the technology that you've developed.

Yeah. So thanks, Ryan I think that's a real key part that a lot of people don't recognize is that cost to originate at 43 basis points wherever that number is.

It's a huge huge competitive advantage.

And Theres a lot of things, we're working on right now to actually drive that even further down now does that mean it will show up in the next quarter and next quarter. After that we're going to wait and see but we were doing different technologies that we rolled out one of them I spoke to which it is $8 million couple of others that can say it was 5 million here 2 million here theres opportunity there.

And you know all those inches add up the feet, which add up to miles and that's how we win and so we focus on every engineer every day at UWS.

Lot of things, but we're not confused.

Confused on our competitive advantage, which is our technology. Our technology is elite is the best in the country not only for our clients, but internally as well and that drives our cost to originate which is elite to it makes a big difference and so everyone can look good when theres a lot of volume because their cost originate isn't isn't going to isn't going to choke them out.

Little bit, but when rates are as low as the as rates go up a little bit in your cost originate is not that great. You'll bloated infrastructure you have.

Different locations throughout America and all these different these different places that you have to pay for it regardless fixed costs.

They they struggled a little bit more and you'll see that in the future. We don't know when but youll see it.

Thanks for all the color Matt.

Thank you.

Next question comes from the line of Tommy Shine K B W. Your line is open.

Hey, good afternoon, guys. Thanks for taking my question.

Yeah. So we've seen that you guys have continued to add to the team member head count now up to about 9000 tons.

Ignore that you expected continued to be able to grow the dollar amount of your production even when the market.

Moderates a bit back to more normalized levels.

Yeah. Thanks for the question. So yes, 9000 young people, we got a lot of families that depend on us and we're proud to have that many great team members joining our company.

The reality is we think that we are not in any position of concern around team members and we are continuing to hire pretty aggressively now at the size of 9000, you always have.

Some people that you know you know.

Attrition that happens right and so we're not I don't think we're going to go from 9000 to 11000 people. This year. So I feel really good about you know I believe and I think I've stated this before that we will become the number one overall mortgage company in America, whether it's next year the year after the year after that and we might only have between eight and 11000 people because we can actually handle the volume where we're at right now.

While at the same time with our technology, continuing to make things better and more efficient we don't need to add head count to do more volume and so we're able to do more business as we stand today and so we're not going to be growing the team member count aggressively, but we feel really good spot and so I don't think our expenses, which is tied to team members, which is about 65% to 70% of our costs.

Are going to be going up much from where we see them today.

Great. Thanks, and then just on a different topic, yes.

So you saw the interest income increase in U partly attributed that to a longer hold period times.

Just looking at the balance sheet, you can see the loans held for sale, obviously jumped pretty significantly over the corner from 1 billion to $12 billion and then you also noted that.

Post COVID-19 than you temporarily increased off more house funding facilities I just wanted to see if those are all kind of interrelated and sort of what the reasoning for that for the longer hold period of time.

Yeah. Thanks for the question and so there's opportunity out there obviously the interest income is tied to that so that that makes sense, you got that right, but the opportunity for us we've always been so efficient with selling our loans to Fannie Mae Freddie Mac, even ginnie Mae very efficiently. We didn't have any programs that could not go to them. So we didn't have jumbo back then.

Higher to this and so and then also the Pls market was not something that we are accessing now all of those things are in play more jumbo, which is a couple billion dollars a month that generally just takes longer to be sold and then at the same time. We also have the pls market, where we have some investment properties second homes that we can take out we've done a couple deals out in the market and we're in the process.

So we actually get the aggregate hold those loans, although they can go directly the GSE, we can aggregate hold them and actually have an arbitrage, where we can pick up profitability and so theres a lot of different spots in our business. That's one of them that you are speaking of not only interest income went up but a little arbitrage on some gain on sale. There's a lot of your spots, where we can pick up margin pick up what people will think our pennies.

But pennies times 60000 loans, a month or whatever the number is 150000 loans in the quarter. It really adds up and so those are opportunities for us and so we look at that and we have a great capital markets and financing that are looking at all these inches we can pick up and one of them was on the interest income that you saw and the arbitrage maybe on some gain on sale on some of these are private.

Label of Securities.

Okay I appreciate the explanation.

Thank you.

Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Next question comes from the line of Ryan Carr of Jefferies. Your line is open.

Hey, good afternoon, guys and thanks for taking my questions.

Yeah.

In terms of capital return.

Had a lot of progress.

With respect to expanding the purchase volume and really being able to expand the momentum that you've had following the.

Initiatives I'm, just curious when you're thinking about it from a priority standpoint going forward between the dividend.

Buybacks and maybe reinvesting in the business and kind of where your decision making is.

In that respect.

Yeah. Thanks for the question Ryan So first off we're always reinvesting in the business. That's what that's the main focus is growing the business to make sure. It's strong stable business that has great returns for our investors than on the return of capital the dividend, we're very proud of and we're gonna planning on continuing that as we as I mentioned earlier, because I think it's the right way to reward our.

Loyal shareholders, and we're going to continue and based on how low the stock prices right now it's amazing yield for anyone who is buying our stock and so that's a great opportunity as well and now on the buyback once again.

You know I don't have all the levers I can because of the lack of float right now and I think that's actually if some of the drag on our stock price and so I have to figure out how to get more float out there not less and so therefore I'm looking at all different ways and I'm very being very creative to figure out ways to.

I'll provide more float because that's the way I told people during our road show that.

As the majority owner, obviously would help provide more float to the market and so I'm working on that and so its kind of go in a little counterintuitive, because I'd love to buy back a lot of shares at prices below $10 like they are below $8, maybe even where it's at right now.

I love to be able to buy shares back however, I have to be cognizant of the flow in and honoring what I said I would do so we're looking at creative ways to provide get more float out in the market and at the same time, we'll continue to pay a dividend as we announced and looking at all different opportunities to reward our showrooms, but investing in the business is what we've always done and we're going to continue to invest in technology because it creates a major.

<unk> differentiation and moat around our business as we continue to grow in scale.

Got it that makes a lot of sense and then kind of going off of that you know you really have invested in growing the business and expanding it, especially given kind of the growth in Danbury amazing quite frankly success, what you've seen to this point.

You also mentioned in the release.

Because you are seeing from these investments going forward the $8 million for the balance of the year, but how do you really think this is going to play in and from a cost savings perspective going forward.

Going into the environment that we're at.

Randy.

Margin wise.

I think it's going to be huge and so the difference is the $8 million is one thing is a couple of million here a couple minute here and I know that sounds small, but it actually does add up but the big stuff is on the efficiency gains and so we have some technology that we're building proprietary in house, that's going to help our team member, let's just call it will say conservatively, 5% to 10%.

Increased by the 10% increase of our team members, which means you don't have to hire as much to continue to grow. So we could really do instead of $20 billion in a month, we could do 30 billion a month with our team potentially right now and not have to hire more people. That's a big difference right and maybe 30 billion to a little exaggerated we'll call. It maybe 25% above what we are doing so well call it 25%.

28 billion comfortably right now you Wm and so that gives us a huge huge upsides well because of our technology and people don't recognize it because everyone says they got great technology will the way you know someone's got great technology is how long does it take them to closed loans were at 18 days of what else is at $47.50 wherever they're at and then what are cost originate.

And those are the two factors that really determined whether you have great technology or if it's just a sales pitch and so we feel really good about our technology and where we're going with it and how it is going to help drive our costs. So that we can play in when we're at 43 basis points. It can be really hard for somebody to compete with us if we want to really put pressure on people now we're not planning on doing that we feel good about where the market's going.

And being able to make nice gain on sale margins, but we have the ability of competing at the highest level with anyone to grow this business not only being the biggest but the best mortgage company in America.

Yeah, absolutely and I would say in any one that comes to visit fees.

You mentioned that you're building the technology and the degree and final question for me just given where rates are at at this point I'll hand, it come back in just curious to see what kind of trends you saw throughout the second quarter did you see it.

Volume and demand.

At least on the container side through the brokerage through the last half of the month and kind of what do you think at this point in the quarter and just demand wise as Wayne said that kind of come where they're at.

We're seeing huge demand so I know a lot of people would like to say the inventories tight and yet inventories tight, but theres people buying houses out there and it's a major major levels right now and so seeing $24 billion of purchase at UW I'm in a quarter.

I think if I, even said you guys in the first quarter was that maybe we get the 15 billion one quarter of this year and so seeing 24 billion massive demand and the key is other people aren't seeing it because people are going to the brokers because the brokers are local the reorders no broker to get the loans closed fast and efficiently. They don't want to go to those other lenders and so the real.

<unk> inventory and quotations is like that's the reason why that's not the reason why we had a pretty good purchase quarter and when inventory continues to grow now could we do more yeah, but people, we could probably do more but people are buying homes every single day and the inventory out there doesn't have constraints. However, it does not constrain you from being successful in the purchase business because.

So many houses for sale and if you can close fast which is a big differentiator for us because people that are selling houses theyre getting cash offers the game, but if they can to offer from our borders broker of ours. It says Hey, 15 days, no contingencies or 15 days appraisal only contingency and they take that offer we closed. It informed 12.14 15 days, we're doing that a lot which is giving our broker.

As a way to get out there and get more business and that's why our purchase business grew and our overall business grew.

In the second quarter.

Alright, Thanks, Matt and thank you, Matt RASM as well and congrats on the quarter.

Thanks, Brian appreciate it.

Next question is.

Coming from the line of Michael Kaye.

Your line is open.

Pick up in competition in our wholesale on the screen you Stuart that would seem to enhance the value proposition to the broker channel.

Lower mortgage rates offered to consumers. So I've been somewhat surprised when I look at mortgage industry employment data when we saw mortgage broker employment growth actually stole out over the last couple of months I wanted to hear your views on why you think broker employment has slowed and do you have confidence that the broker market is poised to continue growing.

Yeah. Thanks, Michael I appreciate the question so I have.

Zero confidence in any of the data that you have on the labor.

I don't know who that is but.

I don't know if you're on mute that lines that you might yeah, sorry, it's Mike sorry about that okay alright.

Having fun, but my perspective is that the.

The data on the labor reports that that means zero to me it doesn't even crossed my mind is a relevant data point cause I don't know where they're pulling from a household I have data here, which is a 70 loan officers started their own broker shop last month, almost 200 loan officers, we help find a broker shop, leaving retail I've talked to I'll say three of the top.

20 loan officers in America that are at retail shops, and they all have the intention of starting their own mortgage broker shop in the next six to nine months, calling me personally and reaching out and visiting our campus I have no question that the broker channels growing not even a thought it's like it's just it's like it's like as sure as I'm sitting here I know, it's happening and the problem is I don't know what the.

Okay sure the employment stuff I can't really speak to that but the reality is brokers are growing and when rates go up that actually and you talked about the pricing competition, Michael which is a various do thought because.

One of those strategies around on us having lower gain on sale margins is the retail lenders that have branch models that are you know.

I won't say dinosaur models, but they kind of are dinosaur models.

The caliber retails the the I think the guaranteed rates alone depots. The fairway independents, all nice companies do a good job, but the reality is those loan officers offering consumers higher rates.

Right isn't going to last long those one offs and those companies don't have the infrastructure to actually lower margins down low enough. So the loan officers, saying, hey, listen I can't be working at this retail shop offering my consumer a quarter 0.3 eights higher in rate.

Well it could be offering a better rate or making more commission is an independent mortgage broker I want to move the only reason they don't move as because our pipelines are so full and so when rates go down it's like man I got 38 loans in my pipeline I'm not walking away from this right now it's messy to move and so what we saw in the second quarter as a lot of people, reaching out rates got a little better at the end of zinc Gordon early to <unk>.

Third quarter, so people they pause on that but the reality is the more differentiation between retail pricing in wholesale pricing that there is the more likely that these loan officers migrate from retail to wholesale and that will only grow our channel and so the brokers being one out of three mortgage at a 33% by 2025, that's going to happen we are making there.

Happened, we are working with them and our loan officers transitioning as a big part of that.

Thanks, Thanks that makes a lot of sense second question you touched on this a little bit, but I wanted to get more perspective on that price matching promotion that you have I believe us originally slated to expire in June well, it's been extended multiple times I think the way business.

August how often you see broker clients actually utilizing this broker matching or is this more of like a marketing toward a health care account execs, rather than an actual negative from a gain on sale margin perspective, and lastly, do you plan to extend it once again.

Thanks.

Yes. Thanks for the question. So I have not decided on that extended once again, so I have not made that decision yet.

It is not a big drag on the gain on sale to answer your question.

I'd gotten negligible because the reality is our price is very good our brokers are very confident our brokers feel good about using new Wm, our salespeople have the confidence to go out and call them and so it's really not been much of a drag on it.

It's been more of a positive and that's why we have continued and extended it a couple of times. So we will continue to look at it and see if it has the value to continue it or if there's something else. We look at doing to continue to help our mortgage brokers grow their business. If they are growing UW M is growing and if we're growing then our shareholders can be happy as we continue to build our business.

Thank you Matt.

Okay. Thank you. Thank you for the question.

Next question comes from the line of semi a culture of Deutsche Bank. Your line is open.

Hi, Thanks for taking my question.

You talked about investments in technology and in Q2, you launched a proprietary document management software I was wondering if you could provide more color on that and second what is the impact of that does it changed.

The closing.

Period in any way and.

How does it make the process more efficient.

Yeah. Thanks for the questions from me I appreciate it.

The one I spoke about on the call earlier today.

One example, because there are a couple of different things out there, but the example, you're speaking of is a way to it does not affect anything it's basically taught our it's an internal system that we were paying a vendor and we basically built it proprietary made it better for our team members made our people more efficient made it more.

<unk>, if you think of it that way for our clients because there's only a little use for our clients, but a little bit for them, but mostly internal and it saved us a multiple millions of dollars and it will continue like this these savings are not just a onetime savings. It's a monthly savings because we were paying a monthly fee and as we continue to grow those savings actually will be bigger I think the $8 million is a low <unk>.

But I'm just trying to be conservatively, you know that the technology work, we put in place does make an impact not only on the bottomline, but on our efficiencies too.

Got it thank you.

Thank you.

I think we have time for one more question operator.

Yes.

One final question. Your final question comes from the line of James Fawcett of Morgan Stanley Your.

Your line is open thank you.

Thank you very much.

And I'm glad to be able to wrap up here I wanted to go back to you.

Your brokers and those relationships and I'm wondering.

Couple of things is that first any idea or sense of.

Your share with brokers in the U S kind of where you're at and.

To add incremental ones and then secondly, as you think about kind of growing the share of the broker channel itself I think that the argument around kind of the better pricing and even better service in some cases may resonate, but I'm wondering if there are other things that you could or should be doing to support growth.

Brokers, whether it would be direct advertising or investment or some of these other areas beyond the support that you mentioned, even as new brokers look to set up their own operations. Thanks a lot.

Yeah. Thanks for the question so.

Our market share with brokers I think the numbers will come out soon but I think we're gonna be well north of 30% in Q2, if you think about the three or four top competitors of ours. All went down and we went up substantially and so I'd be very surprised if we werent well into the thirties, and and growing and we will be at 50%.

Of that in the coming years, because brokers choose us they prefer to work with you Wm as long as we're in the ballpark on price while at the same time, delivering our technology our service.

Along with being Great partners now on the partnership side, how can we help them continue to grow we obviously have.

Help build a website called find the mortgage broker dot com. We also have a phone number one 800 brokers where people call in get calls every day, where they call in and we find them a local broker in their area, where consumers can actually we can warm transfer them tool broker. That's the right person in that community to help that consumer and so we are doing more and more things.

And we are going to continue to do more and more things on the marketing side, but the reality is this there's three ways. We can help consumers brokers growth one is consumers educating consumers because the reality is you guys can help me. Once you. If you all got it was up right at Heartland tremendous, but it's faster it's easier and it's 100%. It's cheaper. So it was 100 don't think 99% whatever.

Want me to stay sub factually correct, but it's going to be cheaper for the consumer it's a better deal for the consumer to go through a broker then they go through any of these large retail lenders.

That's not an opinion, that's fact backed up with data right now.

The second thing is you know reorders, they're educated and their learning really quick. They know you conduct go call, a reorder and find out who they want or they won't refer loans in certain places and you know who those places are because of course, when obviously they can't close purchases and that's why people a lot of people that are doing a lot of visits right now are refi only interest refinancing their servicing book that's now.

How we've done our business and then the last piece is loan officers I talked a little bit about earlier loan officers, leaving in migrating from these retail lenders that's going to happen right because it's best for the L. O. It's best for the consumer why wouldn't happen, it's only not happening because there wasn't a big difference being retail and wholesale pricing, we fixed that and the second reason was they're so busy because.

They have so many loans in our pipeline will rates going up we will fix that so when rates tick up you will see a major migration over and so all these things will help move the channel in a positive way for independent brokers and a rising tide will lift all boats and all the brokers will continue to grow and thrive and we're proud to be part of that with them.

And so I think thats all the questions I don't know it won't turn it back to the operator, but before I do I just wanted to say thank you all questions. Tim Forrester will be available. If you want to talk anything else I think I answered everything at anyone needed, but we're here for you guys and Matt Ross in my Investor Relations Edp is always available as well, but we appreciate the support and we're glad to share another rare.

Breaking quarter here, you Wm and excited to talk to you again after the third quarter and share our results again. Thank you for the time.

This concludes today's conference call you may now disconnect.

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