UWMC - NYSE

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation First Quarter 2024 Earnings Conference Call. [Operator Instructions] Blake Kolo, you may begin your conference.

Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us, and welcome to the First Quarter 2024 UWM 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 Mat Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Thanks, Blake, and thank you, everyone, for joining us today. I'm really excited about this earnings call. A lot of great things to talk about. We're extremely busy here at UWM. We're hiring hundreds of new team members, preparing for the future and the opportunity. And there's a great buzz around our campus that I wish all of you guys could feel. On our last call, I said we expected 2024 to be a better year for the housing and mortgage industry, and the first quarter supports what I expected. We are in the weeds of our business and have done a nice job executing on our game plan. With that said, I want to touch on a couple of main themes before getting into the quarterly numbers. First, the broker channel is the best place for a consumer to get a loan and is the best place for a loan officer to work. Knowing this, it's great to see how much the broker channel is growing in both share and people over the last few years. More and more loan officers, consumers and real estate agents are seeing what we have already known for a long time, that the mortgage broker is the best place to get a mortgage. Consumers and real estate agents are seeing it as well. It's very exciting. Second, and I want everyone to remember what I'm about to say next, it's something that I've been saying for years since becoming public. When rates are high, the brokers in UWM will always dominate, and that is exactly what has happened over the last 2.5 years or so. Now I'm telling you this, when rates go down, every mortgage company in America, including UWM, will look great. But remember, we are different because UWM was built to perform in both purchase and refi markets, and that's something I'm very proud of. Overall, it's been a tremendous start to the year, and we're excited about the momentum in our business. Now let's jump into the first quarter. We closed $27.6 billion in production for the quarter at the higher end of our guidance, with over $22 billion of this coming from purchase. I'd like to point out that we grew 13% from the fourth quarter, and more impressively, 24% compared to last year's first quarter. I don't think there's a lot of lenders that can say they've grown that much year-over-year. We've been guiding to 75 to 100 basis points for a long time, and I bumped it to 80 to 105 for the first quarter. We exceeded that guidance with a gain margin of 108 basis points. It was a very profitable quarter with $180.5 million in net income, and that includes a $15 million write-down on fair value. As these results demonstrate, we continue to deliver on our expectations by remaining focused on being the best mortgage lender in the country. That means continuing to invest in our people, in our technology, in our service no matter what others in the industry are doing. We know what we are good at and we know what we're great at. We don't try to be all things to all people and we win because of it. As you will hear from Andrew shortly, our financial business position is very strong, and we fully intend to keep rewarding our shareholders with a great dividend, as I've been saying quarter in and quarter out. We remain confident that the volumes and margin will remain strong in 2024, as we've been saying for the last couple of quarters, and we are uniquely positioned to capitalize on the next refi boom, whether it comes next month, 6 months or in 12 months. We are prepared. I'll now turn things over to Andrew, our CFO.

Thank you, Mat. 2024 is off to a great start, even during the quarter that is traditionally slower from a seasonal standpoint. We reported positive net income for the quarter and remain profitable operationally before considering the change in fair value of MSRs and on an adjusted EBITDA basis. We were pleased with our first quarter operational performance as we continue to invest and prepare for the next market cycle. We've discussed before our plans to opportunistically sell MSRs as a means of generating cash flows to support our ongoing operational, capital and financing cash needs. This continued in the first quarter. Our first quarter sales were accomplished at what we believe to be favorable prices and have allowed us to significantly derisk our MSR portfolio and delever our balance sheet while also supporting our ability to originate substantial new loan volume. As of the end of the quarter, our capital and leverage ratios remain within expected ranges in the current environment and generally consistent with or improved from the end of last year. Furthermore, our liquidity and access to liquidity, including cash and accessible borrowing capacity, increased by over $600 million from the end of 2023, bringing our total available liquidity to just under $2.9 billion. We believe that we continue to be well positioned operationally and financially for different market cycles. Okay. I will now turn things back over to our Chairman, President and CEO, Mat Ishbia, for closing remarks.

Thanks, Andrew. I'll close with a few points before the Q&A. I said on our last call that I believe that 2024 will be a better overall year for housing and the mortgage industry than in 2023. Everything you're seeing now confirms that, definitely at UWM. But as I always say, in regard to the market, we remain the best mortgage lender in America. Our focus will remain on providing elite service, technology, pricing and partnership to our mortgage broker partners. Lastly, I'm very excited for next week. We welcome about 5,000 of the mortgage industry professionals to our campus here in Pontiac, Michigan for UWM LIVE!, which has become the biggest annual mortgage event in America. I know many of you on this call have joined us in the past and I look forward to seeing many of you here again next week. Now looking forward to the second quarter, we expect production to be between $28 billion and $35 billion. And consistent with what I said before about margins, things continue to show signs of improvement. In the second quarter, we expect our gain margin will be between 85 and 110 basis points. As always, I really want to thank our team members, our clients and our shareholders. We've got a great team here at UWM. We're really proud of what we're doing and we're excited to continue to dominate together. Now let's turn it over to Q&A.

[Operator Instructions] Your first question comes from Kyle Joseph with Jefferies.

Congrats on a great quarter. Mat, I just want to get your perspective. You guys have been seeing some good growth in non-agency volume. Is that primarily on the jumbo side? Or what are the drivers there?

Yes. Kyle, I appreciate the question. Yes, a lot of it has been on the jumbo side. Our brokers are really trying to be out there and compete for jumbo loans from a perspective with the banks and the credit unions out there that obviously do a great job with that stuff. That's the one spot that brokers have traditionally struggled with, and we're doing a much better job with that and they're doing some great things. So a big part of that is doing jumbo loans. And then those jumbo loans have non-jumbo friends that -- and referrals that come our brokers' way. So it's been a focus and we do a little bit of other non-agency but most of it has been in the jumbo space.

Got it. Yes. And then just moving over to servicing. I think we talked in the past about kind of a $300 billion range. But is that mostly just a function of the market and where you're seeing opportunities, like you said, to derisk and get attractive pricing and you guys don't really have a target there and it's going to be more market driven? Is that fair to assume?

Yes. We're always opportunistic, looking at the opportunities out there on MSRs. We're one of the few out there, originating a lot of business. So a lot of MSR buyers are coming to us and looking for volume, and we're the ones providing it because of the amount of originations we do on a quarterly basis. So we look at it opportunistically. We can hold the rest of the year, we can sell some more. We have all different things that we look at. It just depends on what the market conditions are.

Your next question comes from the line of Eric Hagen with BTIG.

Just looking at the guidance for the margin in the second quarter, just trying to square up how you saw the margin just in April relative to that guidance, just given what we saw in mortgage rates? That's just to benchmark how we think about the full quarter. And then when we look further out, I mean, how stable do you see that margin under -- even if rates were to maybe tick up from here and certainly, if they were to go lower, I mean, how do you see that? The stability of that margin from here?

Yes. Thanks for the question. So in general, I felt comfortable enough to raise the margin from 85 to 110 range. The way I look at it, my job is to try to give you guidance and be right in the middle of that guidance and try to put ourselves in that position. So based on where I see margins last quarter and where I see them trend this quarter, I felt it was the right thing to bump that range up. And as I told you for probably a couple of years, that 75 to 100 is kind of the bottom of the barrel wholesale margins. And now it's up to 85 to 110 range. And I see that continue to sustain. I see that going up when rates drop further. And so people -- some people think higher for longer, I'm not one of those believers. But let's just say, it's higher for longer then I would say that this is probably a range that I feel comfortable with for longer, if that's the right way to think of it. And then when rates do go down a little bit more, that's when margins usually will tick up a little bit.

Yes. That's really helpful. Looking at the strength in the stock, I mean, the momentum you seem to have here on the origination side, I mean one thing we've talked about is getting more participation in the stock, right? Raising the float, having an opportunity to support growth with maybe some fresh capital. I mean how should investors maybe start to think about that opportunity, just given the way you guys are trading and the outlook for the rest of the year?

Yes. No, it's a good question. I appreciate it. I guess my take is, we have a great base of investors right now, and I know a lot of them would like to be able to add more in right now. However, float is a concern. So we always look at it. We're opportunistic and look at those opportunities and see if there's something we can do. But we want to look at what our shareholders need and want, and the float is definitely something we talk about and are concerned about and consider all things.

Your next question comes from the line of Doug Harter with UBS.

Mat, can you just talk about kind of what you're seeing in the spring selling season, kind of both on the demand side and the supply side in terms of new purchases?

Yes, absolutely. I don't think it's reported up in the mainstream media, but we've seen a really strong purchase year so far, not just our mortgage company, but just in the market. I think inventories are up. They don't -- that's not a fun new story because it's positive. So a lot of people nationally doesn't talk about it. But inventory is up, housing values are strong and there's a lot of first-time homebuyers and people out there in the market. And Fannie Mae, Freddie Mac have done some good things to try to drive more first-time homebuyers and people into homes and opportunity out there. And so I think it's actually a really strong purchase market. I won't say like extremely strong as in like the best of all time, but it's a strong market, definitely stronger than it was last year and that's why we're seeing volume increases. And I think we were up 24% year-over-year, and that's in the first quarter on overall volume. And so purchases are strong and I think they'll maintain strong, being strong through the second and third quarter.

Great. And then, Mat, Freddie Mac has talked about possibly getting into second liens. Kind of what are your thoughts around that product? And how large could that opportunity be?

Yes. I mean it's interesting, and Freddie Mac and Fannie Mae both do a good job of trying to innovate and come up with ways to help consumers and grow the mortgage pie in a positive way. It's a good program potentially. I think it's still months and months out if it came out, and that product is really already served in the market today through home equity lines of credit and other products that are already out there, can Freddie Mac do them better potentially, a little cheaper potentially. Yes, yes. But it's not material in any way, shape or form.

Your next question comes from the line of Bose George with KBW.

Mat, can you give us your thoughts on some of the potential changes that could happen in the title insurance industry? And can you remind us what you guys have done in terms -- to date in terms of reducing title cost from some of your programs?

Yes. Thanks for the question. You're obviously in the weeds of the business, I understand that. The title insurance business is one of those parts of the industry that are ripe for disruption, right? Charging consumers a lot of money for a product that doesn't require a lot of cost. And so reality is that's going to get disrupted at some point. We're doing some things to help lower the cost for consumers on title. And it's been extremely successful so far, and we're going to continue to lean in on that. And title insurance companies, which we work great with. We work with a lot of title companies and lot of them do a lot of great things and we're great to be partners with them. But we're always looking at ways to make things better for consumers and help brokers grow and succeed. So title insurance isn't going to go anywhere. They're going to be part of the industry and they do great things. But there is going to be some disruption and some movement because there's a better way to do things for consumers, a lot of people look at it, and we're one of those people that look at it.

Okay. Great. That's helpful. And then just one on the MSR. So the sale, MSR sales, can you just talk about the sale price relative to the carrying value since it looks like some of that went through the fair value mark on the MSR?

Yes. I mean, interesting is depending on the time of the month and where rates are at that moment, the prices are right in line with what our carrying value is. And so sometimes you pick up a little, sometimes you lose a little bit. In general, it's been not a material negative or positive, to be honest with you. So it's good because we're actually one of the few out there that sell enough MSRs to know that we're carrying it at the right values, where some others maybe carry out values that we think are unattainable in the sale market.

Your next question comes from the line of Brad Capuzzi with Piper Sandler.

Just going back to the origination guidance, can you just give us a sense of scenario that would bring it to the low end of the range and what scenarios that would bring it to the high end of that range? And then just are you seeing any different industry trends during this year's spring selling season?

Yes. I mean, so I think the -- once again, my job is to try to guide you guys and I give a range that I feel like we'll hit in the middle of that range. And so what would make it go up or down, obviously, a spur on interest rates lower could maybe help us at the higher end of it. I don't see that happening or exceed the range to your point. And at the same time, could rates really go up enough to hit us below? I just really think it's a good range to be honest with you, $28 billion to $35 billion. I think last year, we did about $31 billion in the second quarter. And so I think if we can exceed last year's number, that would be a really big number. And we exceeded last year's number in the first quarter. But last year, second quarter, we had a great quarter if you look back at the numbers. And so I think where margins are at along with where volumes are at, I feel really good about our business and able to handle this. And we're prepared. The one thing that we haven't really talked about, we are prepared for when rates do drop. If rates drop tomorrow, we'll be ready. If rates drop in 6 months, we will be ready. If they drop in 12 months, we will be ready at UWM to capitalize on an opportunity. That's been a big part of our hiring and strategy along the way. And hopefully, you can see that in some of our numbers as we've hired people and grown. And we're ready for the volume to pick up significantly. But at the same time, we're very profitable, very successful at these ranges, at these margins, at these volumes, and I feel really good about the numbers I provided in the speech earlier.

And then just a follow-up. In terms of the pricing initiatives you have for the brokers, how has that driven increased volume? And do you expect to roll out further initiatives going forward?

Yes. I mean, we always are looking at everything. How do we make things better for brokers? How do we help the brokers win more loans? How do we help the brokers grow? And so price initiatives is just one of those many tools. We have other things that we look at. How do we roll out new technology? We've done some things on whether it's tied to AI, whether it's tied to innovation that people don't even speak about or understand but our brokers understand. And so there's things we're always constantly trying to roll out to help them grow. Price is just one of those minor category that you can do to drive volume, help them win more business. But in a purchase market, price is less relevant. It's more about, can you take care of the client, make it fast, easy, simple, get them in the house on time and then obviously, be affordable. And so those are all the things that we're working on. And so I feel really good about the technology, the innovation we're providing to brokers to help them grow their business and we're going to continue to do that. And whether a price initiative or something comes out, at some point, we always look at that stuff, but I don't foresee that right now, I foresee more other ways to help them grow.

We currently have no questions in our queue at this time. I will now turn the call back over to management for closing remarks.

Yes. Well, thank you, guys. Thanks for the questions. We're really proud of the quarter and we're excited about this quarter that we're in right now, too, and we're going to keep doing great things. So we appreciate you being on the call. Thank you for the questions and supporting UWM. Have a great day.