UWM’s margins are improving even as volume falters

UWM Holdings Corporation, the parent of United Wholesale Mortgage (UWM), produced lower mortgage origination volume in the third quarter of 2023 than the previous quarter – and more declines are expected to come. But volumes in Q3 came in at higher margins, close to the levels seen prior to the company’s Game-on pricing initiative that squeezed competitors out of the wholesale space. 

That’s one of the reasons UWM was able to deliver its second consecutive quarterly profit, and it was boosted positive performance of its servicing portfolio, according to documents filed with the Securities and Exchange Commission (SEC) on Wednesday. 

The Pontiac, Michigan-based lender announced a non-GAAP adjusted net income of $234.7 million in the third quarter, compared to $175.9 million in the previous quarter. The company’s GAAP net income in Q3 was $301 million. 

“While others choose to dwell on high mortgage rates and low housing inventory, at UWM, we remain focused on growing our market share and the broker channel,” Mat Ishbia, chairman and CEO, said in a statement. “We are investing in new technology and hiring new team members to ensure that we are prepared for the eventual turn in rates.”

UWM originated $29.7 billion in mortgage loans in the third quarter of 2023, lower than the $31.8 billion in the second quarter of 2022 and the $33.5 billion originated during the third quarter of 2022. UWM’s primary rival Rocket Mortgage originated $22.2 billion from July to September. 

UWM originated $25.9 billion in purchase loans in the third quarter, a decrease from $28 billion in the second quarter of 2023 and $27.7 billion in the third quarter of 2022. The company said it’s on track for its biggest purchase year ever.

The company’s total gain-on-sale margins increased to 97 basis points in Q3 2023, compared to 88 bps in Q2 2023 and 52 bps in the third quarter of 2022. Margins were close to the 99 bps level before the launch of the Game-on pricing initiative in June last year.       

The servicing business

Mortgage servicing rights (MSR) boosted the company’s performance in Q3 2023, with a $92.9 million increase in fair value. The company had $281.4 billion in unpaid principal balance of MSRs as of Sept. 30, 2023, compared to $294.9 billion as of June 30, 2023. 

UWM ended the third quarter with $900 million in cash and self-warehouse.  

Looking ahead, UWM anticipates the fourth quarter production to be between $19 billion and $26 billion. Gain-on-sale margins are expected to be between 75 bps and 100 bps. The company anticipates 2023 production to be between $103 billion and $110 billion.

Analysts at Jefferies said that the outlook reflects fourth-quarter seasonality and that UWM continues to capitalize on its improved market positioning following the Game-on initiative. 

“We consider UWMC’s ‘game-on’ strategy as a success as we have seen exits from wholesale from numerous (and meaningful) competitors over the past year,” the analysts wrote in a report. “While UWMC was sacrificing margins to grow market share and force competition out at the end of last year, the company appears to be reaping the benefits of this strategy this year, despite the persistence of challenging market conditions.”

UWM shares were trading at $5.50 on Wednesday morning, up 7.93% from the previous closing.

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