Q4 2022 UWM Holdings Corp Earnings Call
Good morning, My name is Chris and I'll be your conference operator today.
At this time I'd like to welcome everyone to U W. M Holdings corporations fourth quarter and full year 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during this time simply press star followed by the number one on your telephone keypad.
If at any time you'd like to remove yourself from the queue. Please press star one.
Thank you Blake Colo you may begin your conference.
Good morning. This is Blake Colo Chief business Officer, and head of Investor Relations. Thank you for joining us and welcome to the fourth quarter and full year 2022 U M Holdings Corporation's earnings call before we start I would like to remind everyone that this conference call includes forward looking statements for more information about factors that may cause.
<unk> actual results to differ materially from forward looking statements. Please refer to the earnings release that we issued this morning, I will now turn the call over to Matt <unk>, Chairman and CEO of UWS, holding corporation and United wholesale mortgage thanks.
Thanks, Blake and thank you everyone for joining us today I. Appreciate you guys being here and looking forward to going through another great quarter and an awesome year here at UW at 2022 was great across the board and I've been saying all along a higher interest rate environment is where you'll see the best mortgage companies separate even further from the rest of the mortgage company remaining and we definitely saw that happened in 2020.
Two I'm confident you'd I mean, it's the best mortgage company America, because of our efficiencies in partnership with mortgage brokers.
Broker channels, the best place for consumers to get alone in the best place for loan officers to work and we're seeing that happen in front of all of our eyes with that being said you go game is not slowing down regardless of interest rates, we continue to invest in our people and our technology. We continue to focus on our effort to help brokers win in the market or 54% market share of the broker channel in the fourth quarter is proof of that partnership.
Has never been stronger and I'm sure everyone knows on this call that is an all time market share record in mortgage and it's truly the magazine accomplishment for the broker channel and for you Wm as their partner before talking about the fourth quarter I'd like to touch base on the new you know a few full year financial and business highlights. So first off best purchase year of all time twenties.
20 to about $91 billion. In addition, as our third best production year with 100 over $127 billion of total production.
We delivered almost $1 billion in profit in a market, where most lenders lost money you know, we're laying people off or went out of business altogether. I'm also very proud to announce that as our ninth consecutive quarter paying a 10 cent.
<unk> per share dividend, which is close to a 10% yield at today's stock price I explained nine quarters ago. When we first went public I feel comfortable paying this dividend and various marketing variance and we continue to demonstrate this in the best market conditions and even in very tough market conditions. This will continue.
Lastly, and most important to me while my competitors are cutting investments in laying off thousands and thousands of people. We continue to invest in technology take care of our people and have never laid off a single team member and our 37 year history I'm extremely proud of our team members and our brokers for Canadian push board and grind and ultimately win regardless of the market 2023.
There's another huge opportunity for U W. M. In the broker Huey to continue to separate ourselves further from our competition invest in the future and continue to win together as a team now lets look closely at the fourth quarter, we closed $25 $1 billion of production for the quarter about 21.7 of it is coming from purchase brokers are dominant purchase market and we see that.
You need to happen in 2023 and beyond as I mentioned earlier, you didn't has 54% brokerage market share in the fourth quarter, the highest share reading ever up from 41% in third quarter Theres, a 100% a result of argument to the broker channel our partners continue to improve and win regardless of the market, helping our partners grow faster than the rest of the market has been a huge part of this.
Success will remain dedicated to committed to helping the mortgage brokers across America dominate provide the best service rates and technology their consumers. So they can grow in their individual markets as they continue to win as well the fourth quarter was our second consecutive quarters of number one overall mortgage lender America and add a little perspective on this where the this is the third consecutive.
Every year is the number one purchase lender the eighth consecutive year as the number one wholesale lender and as I've said before doing mortgages look I wanted to do more he looks decent when rates are low and having success in a purchase market continues to set us apart high rate personal market are you succeeding or are you not that's a differentiator gws if you actually look at the Mark.
With brokers being about 20% and that's being about 54% or about 11% of the overall mortgage market, which is crazy to think about while we only are in the wholesale channel. It's great for brokers, it's great for you Wm and we're continuing to win together as a team now in the fourth quarter. We showed a 62 and a half million dollar loss, but that's inclusive of about $151 million decrease.
A fair value of Msr's, so really operationally profitable once again, our gain margin was 51 basis, well within our guidance and the momentum of the broker channel has never been stronger the last six months since announcing game on strategy.
As a result of more retail loan officers joined the wholesale channel than ever before in addition, the second largest month of all time, our retail loan officers converting over was January of this year, just you know a month and a half ago and so on.
Amazing numbers and a lot of that stuff takes six 912 months for them to actually produce get going get licensed just over so all of the benefits. It's still not really come to fruition. We're really proud of the game on strategy and all the great thing that's done for the broker community and for UW him as a partner with brokers as you can tell I'm excited about 2023, a year in which we can expect.
Our competitive advantage to continue to become clearer to everybody as we continue invest in our people the brokers in our business. We know this formula works because we've seen it in similar market cycles. Every time, we've emerged stronger and more dominant right now is not any different before I turn things over to Andrew Walker I want to congratulate him on officially being named our Chief Financial Officer. He has done great work.
Since joining us over two years ago and I'm excited for him to continue to take this next step in his career and he didn't help you wm grow and be more successful so Andrew take it away.
Thanks, Matt.
We finished 2022 strong with fourth quarter production volume on the high end of our outlook and gain margin well within the range. We expected our fourth quarter profitability was impacted by negative MSR fair value marks, but we delivered strong net income for 2022, and a challenging and volatile mortgage market the rising rate environment throughout the year.
Resulted in positive MSR fair value marks, but our core purchase business was strong in 2022 with a year over year increase in purchase origination volume.
We've said this before but it's worth repeating.
Our servicing portfolio remains very strong with a total U P. B of approximately 312 billion as of the end of 2022 as newly originated and retained MSR is largely kept pace with sales and payoffs throughout the year.
With a low WAC very low delinquencies and high asset quality, our MSR portfolio remains strong and continues to provide balance to our business model, our recurring quarterly cash flow stream and strategic and a strategic source of additional liquidity, if and when we choose to sell or msr's in the bulk secondary market.
On the call last quarter, we discussed steps, we took in Q3 to further enhance our access to liquidity, which included establishing a line of credit secured by our agency MSR ours, our available borrowing capacity on the secured facility was $750 million at the end of the year and our total available liquidity increased to approximately 2.1 bill.
As of the end of 'twenty as of the end of 2022 compared to just over 700 million at the end of 2020 one.
We believe the measures we took last year and plan to continue to take in 2023 to enhance our liquidity will allow for our continued investments in.
In growing both the wholesale channel and our market share.
On the cost side, we continue to focus on prudent cost management and the current origination environment. Excluding the impact of an incremental addition to our repurchase reserves recorded in Q4 due to changes in estimates and increased interest expense from borrowings on our secured line of credit total expenses decreased in Q4.
Year to date total operational expenses are also down as our cost structure aligns with the current mortgage origination environment.
Okay turn things back over to our chairman and CEO Maddish behalf for some closing remarks, yeah. Thanks, a lot Andrew before the Q&A when I make a quick few points everybody 2023 will be the year that continues to separate the best lenders from the rest and we'll.
We'll continue to support the broker channel do everything we can to help them be successful and continue to grow at <unk>. We're investing in people process technology continuing to deliver the best service experience for our brokers. In fact this year, we expect to have 20000, plus loan officers out to our campus to get trained improve their game and continue to grow their business include.
Well as you want any of you guys know you Wm lie which has been a huge success. Many of you guys actually on the call are actually at it last year, but you can come again. This year. It's may 4th we expect to have that to be the biggest mortgage event of the year in all of the industry here at new Wm I'll be speaking at it we believe Tony Robbins will be speaking at it well a couple of great brokers, there would be a great all round event.
We'd love to have a couple of you out there lastly, I want to touch on ask me. The reason I think is undervalued by the best investment community.
We have control of our business the decisions, we make are intentional and for the long term success of the business. What I continue to tell you on these calls continues to happen quarter over quarter over quarter. I think we continue to demonstrate having greater control of our margins and our business in general I've consistently said that 75 to 100 annualized margins. What you can expect in a really.
Purchase heavy market or a higher rate environment and as you saw the full year ended in that range and now we're back to guiding that range again for Q1 2023 so realize with that said, we expect Q1 production to be between 16, and 23 billion and our margins should be in the range of 75 to 100 basis points, we have complete control of our business complete control of our margins complete.
Role of what's going on here at you Wm and we've again consistent with our message on strategy and the results have shown that I want to thank our amazing team members that you Wm for a great year in 2022, and we look forward a dominating again in 2023 I'll pause now and turn it back over to the Q&A for all of you guys and look forward to answering some of your questions.
At this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'd like to remove yourself from the queue. Please press star one at.
At this time, we'll pause momentarily to assemble our roster.
We'll now begin the Q&A session. The first question is from Bose George with <unk>. Your line is open.
Hey, good morning.
To start with the question and just on market share obviously very impressive level just in terms of both the share overall and at the broker channel.
Just can you remind us where you think the broker channel as a whole could go to and that with your share at 54% do you think that's peaked or and where do you think that trends.
Yes, thanks for the question I appreciate it.
So if you go back to the road show you when we went public and that's why I think it's important people go back and see what we said then is happening now.
I said back then was hey, you Wm could get to 40% market share in the channel and the broker channel should be 30% of the overall market I said, 33% by 2025 26 like I stated that I still believe in those numbers, 54% is off the charts crazy rate, 11% of the overall market right, but what I told you back then 40% of the broker.
Channel, 30% of the overall channel or the overall industry as brokers would be about 12% market share that's kind of what I still see that trend do I think you don't even let's say, 54% forever no, but I do think you'd be in the 11 and 12% of the overall market is very realistic and if you look at what we said.
Yes.
You know, we're a lot less impacted by the cycles as everyone else like no. One expected 2022, and we still made about $1 billion. We are very competitive very successful in market share and profitability and we continue to pay the dividend. So the way I look at the market share the broker channel will get to 30, then eventually 33% I think I stated by <unk>.
Five or 26, we will our belief systems, we can be at 40% plus of that market share so 40% of a bigger pie being 11, and 12% of the mortgage market in general one out of every eight or nine loans in America, we're pretty proud of that especially in a purchase market.
Okay, Great makes sense. Thank you and then just one on the margin guidance you know just to increase does that imply that it came on being a good sort of playing a smaller role.
In the first quarter.
Yeah. So we I look at it as game on has made a big impact we still have very very competitive pricing. That's why the margins are still in that 75 to 100 range.
As I told you I've control it I decided when we want to change things and tweak things and we've done things to help our brokers in certain ways and we have different initiatives out there to help brokers succeed in excel.
I don't know if that's your phone.
Sorry, no worries, it's all good.
And so.
So as you can see with game on our pricing, it's still extremely competitive brokers have extremely competitive pricing is helping them grow their business right now, but we aren't going to be at that investment of being at 50 basis point margins. As you saw for two quarters I don't expect that to continue unless they decide to do it again in the future right now I have no expectation of that 70%.
And I think that's good.
Because youll see everyone else will follow because we do control the margins in this industry.
Okay, great. Thanks, a lot.
The next question is from Eric Hagen with <unk>. Your line is open.
Hey, good morning, good to hear from you guys.
I've got a couple of questions. You know, we know that the interest rate buy downs have been popular for borrowers that are confronting affordability challenges are there any limitations that you see to continue offering that solution if rates had even higher and just maybe how valuable is that opportunity going forward.
Yeah. Thanks for the question, Eric appreciate it sort of buy down opportunities right. It's a two one bite on one O bite on it even a three to one buy down.
And I think the key is mortgage brokers are knowledgeable they understand they have those options.
Okay.
Those are still viable those will continue to be viable those don't go away or change those are very good opportunities.
And whether it affects affordability or really what they reward for us to give a borrower the consistency of a 30 year fixed, but a lower rate or the lower payment for the first two or three years or one year, depending on the buy down of the buy down product and it's been a very successful product instead of real estate agents and sellers lowering their price you can you.
Can contribute towards a buy down and it creates opportunity we're seeing a lot of it and it's been very successful and we're the largest personal lending a country, we're kind of leading on that and people are using it quite a bit right now.
Okay.
Yes, that's really helpful detail.
So there's lots of focus out there on bulk MSR supply and there being a pretty robust pipeline I'm. Just curious how you guys are thinking about the opportunity in sort of the value in selling MSR is against that backdrop, even how you think about you know.
Doing that versus drawing against the MSR financing that you have thank you guys.
Yeah. Thanks for the question on that you know so.
I think theres a lot more made out of this crazy amount of supply hitting the market I think that's a little bit more of a fun media story than a reality.
UWS liquidity is extremely strong we think the MSR market is actually more liquid than you guys are recognizing.
We're taking advantage of that if we want to we have complete control of it we can either a tap the MSR line as you pointed out or B cell Msr's cell to act like we have all different options liquidity is not a concern I mean, let me say it differently. When he is always a concern in any mortgage business, it's not a concern for you Wm.
Great job that our finance team and our our MSR sales team everyone's been doing to make sure that we don't have to think about that stuff and so we're opportunistic we're in exactly the position we want to be our MSR book is strong it produces a lot of liquidity and at the same time, we want to sell we can sell that as well and so I think a lot more has been made of theirs.
Okay.
Because of who we are that people want to buy our servicing and when you're a company. That's maybe struggling people don't want to buy your servicing because the rep and warrants and other things where the strongest mortgage company in America period, and people know that so for us it's not an issue I don't think it's as much of issues people make but maybe it's a little more for some of the weaker counterparties.
Yeah. That's helpful detail. Thank you guys very much.
The next question is from Doug Harter with Credit Suisse. Your line is open.
Thanks.
<unk>.
I apologize if this was asked but just can you talk about how you think your market share trends.
As you kind of have pulled back from from gain on and how sticky are kind of the additions.
Uh huh.
Our.
Brokers that you that it will be.
Yeah. Thanks for the question. So Doug you know I think I talked about even when we rolled out a game on that's the expectation of what I consider success on it and so my expectations game on was not a market share play.
It obviously helped market share it was all let's grow the broker channel play helped the loan officer in the broker channel get New real estate is bill released ships when more loans continue to educate consumers that and educate the market would you guys say I'd be happy to road, it's $9400 cheaper to go through a mortgage broker than a retail or Mega Mega Bank, that's why the big Megabanks, we heard wells.
Back out you see rocket falling through you know through the ground. All of these companies are really struggling because they are charging so much more to consumers game on.
Accelerates that and shows even more and so you know it's gonna be.
Very interesting to watch and see how that happens in that.
Margaret you, obviously went up do I expect our market share to stay at 54% no I, probably don't expect it to stay there, but I never expected it to get there to be clear. What we said was hey can we get over 40% in maintaining that level. We've seen this happen before we did this isn't like a new thing we just weren't public last time I did it back in 2019, we've seen it we know.
The stickiness, we understand how to control the stickiness and makes your clients understand the value because once a loan officer and you can call any loan offs, you want Doug and the Morgan go to find the mortgage broker dotcom called loan officers asked them and they'll say once you use you would have given you realize it's faster it's easier it's cheaper they look good to realtors. They look at it consumers why would they not usually going to be I mean, so game on.
Hell bring a couple of those loan officers to use UW them that haven't in a while and they see it theyre going to see the value of gws and theyre going to stick with us for the long term we've seen it happen before youll see it play out will happen quarter right.
Let's say, 54% I don't think so but it will be higher market share than I had before it absolutely without question.
I appreciate that thanks, Matt.
Thank you.
The next question is from Steve Delaney with.
It was a research analyst your line is open.
Thanks, Good morning, Matt and everyone at U W. M Lata.
A lot of focus obviously on originations side of the business, but love to talk about servicing for a bit.
Rising rates, where the economy really hasnt broken from an employment standpoint, yet but at some point.
Higher rates are going to have an impact just curious if youre seeing any increase in delinquency special servicing servicing advances. It obviously followed delinquency and are your cost per unit on the servicing side of the business are you seeing any pressure there that those are moving higher.
Yeah.
Yes. So thank you for the question.
Focus on the servicing I understand that it's important and so what we've done differently is this.
<unk> not been effective at no no impact at all right and so our delinquency is one thing that people don't give us credit for us.
Although we're the largest lender in the country.
I focus on being the best lender in the country. We've been the best three years, the delinquency rate at new Wm is lower than almost anyone in the country. The FICO scores of these loans you took them does is the highest in the country. So not just comparing to other non banks and I'm looking at banks non banks credit unions. We are the lead on this and so our delinquency rates lastly, one for I guess.
The numbers are just aren't impacting so lower delinquency rates do we have better credit quality, which we have not doing the level that we don't go below 612.
Computer go lower credit scores Theyre trying to do they're doing riskier loans, we just don't do it and so therefore, my servicing cost stay low delinquency stay low my concerns about employment going unemployment.
Employment unemployment going up impact it's less of an impact were the same thing on originate where less cyclical were less impacted or a little bit more.
Protected on the same exact thing because of our business strategy and business model on the type of loans, we do.
That's helpful and just one last comment and question I guess is look it's been widely publicized that you've been successful in your bid to acquire a leading NBA franchise. So congratulations on that.
We're seeing exciting part of your life I guess from an investor standpoint, and U W. M. C. What could you say to your investors or would you. If you can what impact if any on that successful business opportunity what impact could that have on your equity commitment to U W. M.
See going forward because of that new opportunity. Thank you. Yes. Thank you for the question. So first off yes, we're really excited about the Phoenix SUNS in Phoenix Mercury.
Something completely outside of U Wm and been a lifelong dream and suddenly I'm excited to be involved with with that being said there was actually zero impact actually I would reverse that and say there is probably a positive impact on new Wm and my leadership here not only the notoriety of me, but the broker channel in general and educating consumers either bigger platform personally more people.
Following the more people listen to me more people learning and being educated about brokers. It's only going to help is not taking any more of my time I actually you can argue that I spend more time trying to.
To find the right thing and getting lucky enough to get the sons and Mercury was like the elite of the elite.
And then I actually think I have more time on my hands now that I'm not chasing a team and trying to find the right thing for me and then I actually can focus on new Wm and so.
Zero impact is probably what I would say, but I would probably say in the Riverside a positive impact on UW I'm in the broker channel and consumers with the new platform we have.
<unk>.
Thank you I appreciate it.
Yeah.
Are there any other questions.
There's some in the Q maybe.
Okay.
Operator is there any other questions I see some into Q.
If not we can close the meeting down, but I want to make sure I answered those couple of questions that are out there.
Yeah.
Okay.
Yeah.
Yeah.
Once again, operator are there at let's say if there's questions in the queue I see couple of different analysts.
<unk>.
I don't know if he could open up the line for it looks like Kevin Barker.
If he can speak.
Okay.
Yeah.
Alright, well I think there's some issue with the operator, if anyone wants to reach out actually Kevin I see a couple of question. There you can reach out to Blake Colo business Officer head of Investor Relations. You can also I'm happy to jump on the call, but I guess I'll close with this.
Amazing 2022 at UWS 2023, I'm, so optimistic about and excited about the opportunity ahead, we are the biggest and best mortgage company in the country and we will maintain that and continue to grow and dominate take the market share continue to help brokers win and help consumers across the board in new Wm and our investors are going to be excited about it with the dividend at all.
All the great things, we've got going so thanks for the questions. We're excited about 2023.
Yeah.
Fantastic.
<unk>.
Okay.
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