Q3 2023 UWM Holdings Corp Earnings Call
Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the U W. M Holdings Corporation third quarter 2023 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.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Any time, you would like to remove yourself from the queue. Please read press star one.
Blake Colo you May begin your conference. Good morning. This is Blake Colo Chief business Officer, and head of Investor Relations.
For joining us and welcome to the third quarter 2023 U W. 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 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 Maddish via Chairman and CEO of U W. M Holdings Corporation, and United Wholesale mortgage Thanks, Blake I appreciate it and thank you to everyone for joining the call. We had another great quarter and I'm incredibly proud of our results and excited for the opportunity ahead.
I know that every loan we do today means that much more opportunity for us when rates go back down in the next 612 18 months and we're doing a lot of loans right. Now so things are going great. You're now seeing the reality of what I've been saying for years when rates rise both UW I'm in brokerage side, while others struggle. Despite about a 25 year high in mortgage rates and lower housing inventory, we continue to thrive in all aspects.
The business, including having one of our best purchase scores of all time, it's no secret why you'd have given the broker community continue to do so well in the purchase market.
Purchase transactions, where an expert they require more attention to detail they acquire a higher level of service for real estate agents consumers and brokerage everybody and they require an efficient process, where speed matters forgetting contract deadlines together, you Wm and independent mortgage brokers match. These needs perfectly we have world class M. P. S scores, which was actually a plus 86 for this quarter we have.
Tastic turn times that are the fastest in the industry right brokers with tools and technology ensure all transaction details or handle the speed and efficiency and amazing client service, we love purchase because it is hard for others to compete at our level and the business is less cyclical providing UW without stable and consistent volume and earnings as you continue to see.
And when revised churn when you will be ready because we are investing heavily right now does show our brokers will win bigger than ever and the Max refi cycle. The combination of our purchase business and scale and quality of our servicing book is so strong that our business can thrive in virtually all markets.
We embraced these cycles each time, they happened and we come out stronger and no. Other lender can say that I've always said, we'd rather be the best lender than the biggest but we've in fact been bolt all of last year and this year for the total numbers, but really the last five consecutive quarters and of course of the last nine plus years or nine years, or so and wholesale turning to our results for the quarter, we delivered 29.
Point $7 billion in overall production well within our guidance of that almost 26 billion was purchase volume as I talked earlier, we dominate in the purchase markets. We were doing more purchase volume the past few quarters than any other letter did volume period.
Our gain margin was 97 basis points at the higher end of our range and we generated $301 million of net income, which is inclusive of $92 9 million markup of our MSR portfolio, but as you know I always like to point out regardless of the direction that most of our mark were operationally profitable, which almost no mortgage company in the country can say this is the true barometer of our success.
In fact, I think we made more money this quarter than many of our competitors that are refi focused I've made all year, even five or six quarters worth that's how strong our business is right now I hope it is now clear more than ever that we're winning I also hope people realize that we have seen multiple mortgage can always look great in low rate environments, who went out of business in the last two.
<unk> are struggling significantly and that will continue to happen where all other companies are doing great. Once rates dropped but remember you W. M is excellent regardless of interest rates and that is why we are the obvious choice and the best in class mortgage originator in America and we thank all our investors that I've noticed that and continue to see that.
The opportunity how do we massive.
It might take six months 12 months or 18 months to get there, but I believe it's on the earlier end of that scale and when the market turns you'd have your own would be the most prepared mortgage company, where there's a big refi boom a mini refi boom, we will make the most of the opportunity and then I'll turn it over to our CFO Andrew for a few more details thanks, Matt.
Against the market backdrop of continued increases in interest rates, particularly towards the end of the quarter. We delivered strong financial results in Q3, and favorable sequential and year over year comparisons. This strong operational performance is the result of a consistently high volume of purchase originations gain margin on the high end of our guidance range and our continued.
Emphasis on prudent cost management.
Year to date, we've generated net income of $391 2 million and our core operational income before considering changes in fair value of Msr's increased sequentially and as compared to 2022 in Q3 and year to date.
We are focused on growth as we continue to make investments in the wholesale channel and in preparing for the next interest rate cycle by hiring additional team members and rolling out new product and technology solutions. Nevertheless, our core operational expenses, excluding servicing interest and other non operational expenses are down approximately 4% year to date.
Balance sheet, including our capital available liquidity and leverage remained strong and very consistent with the past two quarters to date, we have generated just under $1 7 billion and net proceeds from sales of Msr's. We have continued to opportunistically sell msr's as market conditions warrant to fund our operational capital liquidity needs.
Despite these sales we have maintained sizeable and high quality servicing portfolio as originations of Emmis ours have largely kept pace with sales and payoffs.
Our MSR portfolio consisted of loans with a total U P. B just over 280 billion as of the end of the quarter, which continues to deliver significant recurring quarterly cash flows.
Quiddity and access to liquidity, including cash software house and accessible borrowing capacity under our secured or unsecured lines of credit approximated $2 9 billion as of the end of the quarter, which is largely consistent with the past two quarters and a significant increase from the end of last year. We continue to believe that our current financial strength positions us.
Well for any market cycle.
Okay, I'll now turn things back over to our chairman and CEO, Matt Hbf for closing remarks. Thanks, Andrew appreciate it I'll be brief so we can get to the Q&A I.
I may sound like a broken record here, but I know the marketing challenge for most businesses in the mortgage industry become the Pontiac, Michigan sometime love to see you guys out of the year Seattle things work at our headquarters our cultures vibrant we are hiring we are growing we are investing in technology and the 37 years, we've been in bids we've never laid off a team member and in fact in the third quarter. We hired over 1000 team members were going higher.
More again in the fourth quarter, we are growing the broker channel by yearend, we'll host over 25000 loan losses on our campus for training and development brokers are not slowing down and I think the market numbers are starting to show that your W. M is very strong and will continue to be weird damning, both purchase and the overall market by growing share with huge origination numbers.
Class service and technology that exceeds our clients' needs and we remain committed as ever to our shareholders and this will be our 12th consecutive quarter that we announced a 10 cent quarterly dividend. We are consistent in rewarding our shareholders and those who continue to believe in us and we appreciate them we plan to close the year out strong and for the fourth quarter, we expect production to be between 19 and 26 billion.
And our margin range of 75 to 100 basis points I'm going to turn it over to the operator now for Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. If at any time, you would like to remove yourself from the queue. Please re press star one at this time, we will pause momentarily to assemble our roster.
We will now begin the Q&A session.
Our first question comes from the line of Kyle Joseph from Jefferies. Your line is open.
Okay.
Hey, good morning, guys. Thanks for taking my questions.
I just wanted to get your thoughts obviously margins are very strong in the quarter I'll.
I will say good thing despite what rates did bid volumes or sorry guidance looks like you expect kind of normalized trends in the fourth quarter any sort of onetime items to call out there or any anything you'd highlight deck.
Yeah no. Thanks for the question, it's great quarter, No Theres nothing Theres no one time items nothing specific besides.
As we've talked about.
We're making sure brokers are competitive we set the margins on a daily basis.
It seems like it's going well.
I continue to guide in the same range 75 to 100 is that's what the margins in wholesale will be in the toughest markets and we obviously at the higher end of that margin for this quarter.
Got it and then on the MSR portfolio I know you guys are.
Yes.
Dennis the great talent.
And as you think about that the size of that portfolio.
The number of kind of the ballpark, we should expect to be in going forward.
Opportunistic we make the decision on a monthly basis, we all sit down and discuss what's best for the business.
But yeah, we feel good about it.
Basically in that I'll call it $300 billion range for three years now and so between two five and $3 50 seems like a right number or does it does it go down to $2 30 at some point does it go up to $3 70 at some point I'm, probably it will at one point, but right now we feel pretty steady that he is going to be a more of the same as what you see.
Got it and then one last one for me, Matt just on the I'm in Ireland and all the noise, we've seen and the real to our space. The last few few weeks.
I want to pick your brain and see how youre thinking about.
Any sort of implications for the industry and opportunities at a restaurant you WMC specifically.
Well, obviously, there's a lot of.
Talk about it but also there's a lot of work to be done before anything actually number changes if something ever does change. So we stay close to it we're in the weeds of the business, we understand all the implications and what I always would tell you is with any change and I'm not suggesting this change will happen or should happen by the way, but with any change in the industry. The people that are most in June when you WNS.
One and other changes in the past, whether it's trade changes whether its guideline change like we usually win in those things when there's a little bit of fluctuation a little bit of uncertainty that's when the best lenders in the country when <unk> done that for years, and so I'm not suggesting this change will happen or any change will happen, but if something does happen I'm really confident that our ability to take advantage.
In a positive way help our brokers win helped reorders win and help consumers one at the same time.
Got it very helpful. Thanks for taking my question.
Thank you.
Your next question comes from the lineup of Bose George from K B W. Your line is open.
Hey, good morning.
I wanted to ask about the jumbo growth and it looks like that continues to go pretty well.
Do you think that will continue to grow as a percentage of the total volume and our banks sort of being a little less competitive there.
Yeah. Thanks for the question no I don't really see it being a big change from what you see I mean, it goes up and goes down.
I don't think you are.
Thanks competitive on jumbo more than other loans, yes, so as they back out of the market are a little bit or they struggled a little bit our focus on other things, where maybe the opportunity, yes, but that's not a driver of our success or volume its really yet.
A rounding error at best So jumbos are good opportunity brokers when brokers are the best option for consumers on all loans and that will continue to grow and continue to succeed with his jumbo whether its $81000 loans whatever it may be brokers are trying to do those loans and take great care of consumers.
Okay, great. Thanks, and then actually just going back to the gain on sale margin in the guidance just on the seasonality in <unk> could we see you know the margins.
Yes.
At the midpoint are sort of not at the high end of the range or just any thoughts there.
Yeah, I mean, I can give a range for a reason because I, usually expect us it's going to be somewhere in the middle of that range plus or minus is how I would think about it.
You are correct in pointing out cyclicality as lot of people don't understand if you're doing all revised theres no cyclicality in the fourth quarter and first quarter, but in real business mortgage business purchases fourth and first quarter are.
Our slower quarters than you saw it even if I. If you look at our first quarter earlier this year and so we expect it to be a little slower in the fourth the first quarter, that's why I guided to right guiding.
Spect us to.
To meet guidance and all aspects of the things I always say, which I've done I think for 12 consecutive quarters and we'll continue to do so so but yes, you are a student to point out that our fourth quarter and first quarter are slower mortgage months or quarters, and then second and third quarter, especially when you're doing it at a purchase and we're obviously the largest purchase under the country.
Okay, great. Thank you.
Okay.
Your next question comes from the line of Eric Hagen from <unk>. Your line is open.
Hey, Thanks, Good morning, maybe maybe one more on the margins.
Just wanted to get a sense of the competitiveness in the market just really at these rate levels and maybe whether you've been surprised by the stability in margins at these rate levels and even like why the broker channel might have more stable margins if rates stay kind of in this ballpark right now.
Yes, so like I've said for years.
I expect the margins daily so we make the decision what the margins are going to be we control those and.
And we always will control the margins.
In a positive way.
So it's not market driven it's not.
AUM driven and we're very involved with the details of it and we try to say great pricing. After the brokers the brokers be competitive, but the market doesn't dictate that as much I don't people you guys don't like to understand that or believed that but thats. Just the reality is that every day I look at the pricing I said it was our capital markets team personally I do it and.
We know what our margins are going to be and so that's why I'm very confident saying 75 to 100 and thats what it will be again this quarter and when the market changes to your point I think you're asking when the market changes and evolves that range will change instead of 75, why don't I might say, it's 80 to 105 or 85 to 110 or eventually I'll say 100 to 125 and then that.
Changes as the margins as the market changes, but.
This range.
Good.
Completely tied to what you're Wm does and others will follow.
Alright.
I appreciate that so how are you how are you guys thinking about conditions in the MSR market right now yeah, a lot of expectations for banks to be sellers of MSR and how you see that the capacity of large bulk buyers.
Yeah on the market.
Their capacity to buy more and how that develops and really what you think those buyers might be sensitive to going forward.
Yeah, So we've seen a very active market.
What we found actually after doing a little research and Blake Cole and his team do a great job. It is is realizing what.
Our business is and who we are is made it's our bids or maybe a little bit higher than others in the market and so we've seen a really great market, we get multiple good data we've recently.
We get people usually bidding up on it and it's really tough because we like to partner with people and be consistent with them, but a lot of people are looking for that product and I think as this new year starts people were looking for the product again, and there's less originations out there and there's less opportunities out there are less people to have the low rates and there's less people that are reaching the current product and so I think there's actually a really big market out there for MSR buying.
And MSR selling as well, obviously, it's a supply and demand issue and I think we have a lot of the supply and theres a lot of demand out there.
Gotcha, Thanks, Matt I appreciate you.
Thank you I appreciate it.
Your next question comes from the line of James Fawcett from Morgan Stanley. Your line is open.
Hi, Yes. This is actually Jeff Adelson on for James Good morning, guys.
Just.
Notice that the direct loan production cost are up 50% this quarter, even though your originations were down a little bit just wondering if there is anything to highlight there is a driver of those those costs this quarter.
Yes, so it's actually 1% down is that correct, Andrew you want to.
Yes.
Part of that is the initiative for.
Affordable programs are 1% down program.
That's where most of the increases there.
Not guide to what Youre asking is expected is something we are doing to help affordability, which FHFA Fannie and Freddie are very supportive of and so it's in that bucket, but that's not what it is our expenses are not a 50% on a loan by loan basis or a product on a variable cost basis.
Understood. Okay. Thank you for clearing that up and then just you know there's been a few headlines recently about.
Rate of loan repurchase requests for the industry increasing from from Fannie Freddie I'm. Just wondering if you guys are seeing anything there you know what kind of impact you're expecting for the industry.
Going forward.
No youre ginnie repurchase eligible loans are up but not necessarily related to that that issue something different. So just maybe just talk about that.
Yes, I think this is a hot topic in the industry and to give credit to FHFA director Sandra Thompson does a great job and she knows what's going on in the market and she realized it. After it's been brought to attention I think Fannie and Freddie are making changes to be more aligned with what the industry expects and what FHFA expects and so it's not been a real issue it's been more just.
Same old thing and I think actually with some of the changes, we're making I think it'll be even reduced even beyond what we've seen in the last 24 months I think it will be a positive change some of the stuff that Fannie Mae Freddie Mac are doing because.
Because I think some of it got a little bit out of normal course, because some of our interpretations tied to Covid do you want to get into the real details, but I think overall, it's not a big deal and it won't be a big deal going forward.
Okay got it thank you.
And again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from the line of Kevin Barker from Piper Sandler Your line is open.
Great. Thanks, Thanks for taking my questions just a follow up on some of the affordability.
Comments that you made.
Move down in credit scores.
Five <unk> from $6 20 is that move partly due to trying to expand the credit box and push to make it more affordable loans.
Maybe give some more color on that thank you.
Yes.
Not really tied to what the move was tied to the real issue is on loans that brokers are doing is they wanted to come to UW. The biggest request I did is they want to send a 100% of their business to us they want to use <unk> and so that's why we rolled out some non QM products. That's why we look at different things and Fannie and Freddie we roll out products, because our brokers want to use UWS.
Because they know that.
They'll get referrals from the real estate agents and the consumers because we make the process faster and easier and so that's where a lot of our products.
Expansions have been over the last two to three years is just helping brokers with loans that they are already doing.
And not really tied to of course, we do a lot of stuff on the affordability wished that 1% down program is a program that we're putting a lot of money towards to help FHFA, Fannie and Freddie hit their affordability goals with the lift and lift programs, but at the same time.
We're focused on.
Making sure we take care of our brokers and we will continue to increase wallet share and dominate the client experience for the brokers because that matters, because we know that a lot of the loans that brokers are doing they're going be refinancing the clients here in the next year or two years and we want to make sure David the amazing experience that they use other lenders quite honestly experienced isn't the same that they don't get the loan back that's why people want to use.
UWS.
Okay, great. Thanks for that color and then.
Just going back to the servicing and some of the MSR sales how much.
How much of a servicing portfolio would you sell in the third quarter, sorry, if I missed missed it in your commentary and then I noticed that the weighted average coupon drifted higher as well it went to four 2% from $3 84.
Which would seem that it might be lower coupon.
I'm, sorry that you're selling.
Could you confirm what the average coupon was on the servicing that you are selling and how much how much. It was thank you.
Yes.
The average weight on our rates.
The average coupon is a little higher I think that's mostly because we do a lot of loans right. Now so we're doing $29 billion of business at seven 5% that's going to obviously drive your average way out of whack up. So it has got nothing to do with it when we do some servicing sales we sold some higher WAC and some lower whack. It's all tied you we originate a lot alone. So you won't see other lenders.
<unk> numbers move as much because they don't do any business mortgage business that we're in so that's kind of what we're seeing.
So what percent of your portfolio now.
Has.
It's greater than a 5% WAC or coupons.
And then which may.
Is that an opportunity to refinance that we do see a little bit of softening of rates in the future.
The loans that we're doing now usually have a whack over 5% I don't look this isn't a random arbitrary number of 5% on no why did you pick that number but that's got nothing to do with what we're looking at so long as we do now are higher than 5%, they're actually probably all like 657 hundred 75, 8% rates and the loans that we did before are usually lower because thats what happened with rates I think you follow.
The market. So there's really no data there that would make sense to go through.
I'm, sorry, maybe I missed that question. It was more about how big that servicing portfolio, how how much of it is.
The higher WAC.
Or higher average coupon.
It's just more about them once again for Covid.
Once again the loans, we originate are higher the loans that we had from years ago were lower we got a lot of loans I don't have the exact breakdown at Amazon is not relevant.
And any aspect of the business so but thank you for the question.
Okay. Thank you.
Your next question comes from the line of Mechelle Guberman from JMP Securities. Your line is open.
Hey, good morning, Matt. Thank you for taking the question just kind of a hypothetical scenario question from my end here and definitely you hopefully the scenario wont come to pass, but if we do get some sort of consumer recession in the let's say middle part of next year. How do you how do you guys see that affecting the industry competitively.
And more specifically for for United wholesale.
How do you guys see that affecting.
The company operationally financially in terms of volumes margins and <unk>.
MSR books. Thanks.
Yes, so obviously.
Throughout history, and you can track this and check the data recessions usually.
Our led out of recessions with lower interest rates with the mortgage market has been really successful. So if there was a recession I actually would argue that it's actually going to be really good for our business because they will lower rates and then lower rates mean, a lot of refi activity, even more purchases more people will sell their houses more opportunity and so.
Theres really no negative to that if that happens I think what you've seen in the last two years is the worst it can be for mortgage lenders and a lot of mortgage lenders have gone out of business a lot of them to lose money. All the time a lot of them have laid off a bunch of people and we are the strongest mortgage company in the country and we've made a lot of money obviously, but we also are hiring we're prepared for the next opportunity.
So when that opportunity comes whether it's because of a recession or because the fed lowers rates because of inflation because of some war or whenever it may happen when rates do drop other lenders will do really well, but we've all seen now a glimpse into the future of what lenders are the best in these markets and so what a recession or whatever happens we will be prepared for the lower rates and in the meantime, we will continue to win.
And you can be successful as you've seen quarter after quarter.
Going forward. So we appreciate it thank you for the question.
Thanks, and good luck going forward.
Thank you.
That will wrap up the Q&A portion I would like to turn the call back over to Matt you should be there for some closing remarks.
No. Thank you for the time today, we appreciate you all being on the call and look.
I look forward to another great quarter in the fourth quarter and we will talk to you guys. Soon have a great day. Thank you.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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