When rates dropped in the third quarter of 2024, UWM Holdings Corp., the parent of United Wholesale Mortgage, notched its biggest production quarter in three years while improving margins due to a higher refi volume. However, it also made a more modest profit, mainly because of the financial impact of lower rates on its servicing book.
“The refi boom is not fully materialized, but we have seen a preview of it,” Mat Ishbia, chairman and CEO of UWM, told analysts during an earnings call on Thursday morning. “We’re able to capitalize on it instantly, while others were caught flat-footed.”
According to documents filed with the Securities and Exchange Commission (SEC), the Pontiac, Michigan-based company reported a non-GAAP net income of $23.3 million during the third quarter of 2024, compared to $59.8 million in the previous quarter.
Meanwhile, GAAP net income was $31.9 million, including a $446.1 million decline in the fair value of its MSRs, which Ishbia explained “is tied to changes in interest rates and has nothing to do with how we operate our business.”
UWM originated $39.5 billion in mortgages in the third quarter, higher than the $33.6 billion figure in the previous quarter and the $29.7 billion originated in Q3 2023. The company’s volume in Q3 2024 consisted mainly of purchase loans, which accounted for $26.2 billion.
However, refis business increased to $13.3 billion in the quarter, representing 33.6% of the total, compared to $6.4 billion in the previous quarter (19%) and $2.8 billion in the same period last year (12.8%).
“Product mix continued to shift towards government production in the quarter, with government production at 41% of total volume – versus 32% in the second quarter of 2024 and third quarter of 2023,” wrote Jefferies analysts in a report.
Ready to capitalize on refis, UWM structured a program that transforms individuals with no experience into loan officers in just five weeks and implemented an artificial intelligence (AI) technology, dubbed Keep, to send pre-validated opportunities as soon as borrowers can save in their monthly payments.
In October, it also announced a conventional cash-out loan product with a loan-to-value (LTV) ratio of up to 89.99% and no mortgage insurance. However, since rates went up due to the political landscape, Ishbia said that the product’s volume is not “as high as expected in a refi market.”
Gain-on-sale margins for UWM improved to 118 basis points during the third quarter, compared to 106 bps in the previous quarter and 97 bps in the same period last year. Executives said this is tied to the rates environment and products such as PA+ and TRAC+, which help brokers close loans.
“We all believe that the 10-year [Treasury yield] will be down below 4% and 3.75% over the next 6, 12, 18 months, potentially longer,” Ishbia said. “And you can kind of see that our volume and our gain on sale will go up, just as we’ve been saying for years.”
UWM’s Servicing book
Regarding its servicing portfolio, UWM ended the third quarter with a $212 billion unpaid principal balance (UPB), compared to $189.5 billion in the previous quarter and $281.4 billion in Q3 2023.
Executives said the company was shy on MSR sales during the quarter, with most of the deals in the first half of the year. Year-to-date, UWM has had net proceeds from MSR sales of approximately $2.6 billion.
UWM ended the quarter with $2.5 billion of available liquidity, including $636 million in cash.
The company anticipates fourth-quarter production between $34 billion and $41 billion. Meanwhile, the gain-on-sale margin is expected to be between 85 bps and 110 bps.
Regarding competition, Ishbia said he has “zero concern about that” because “I control the margins; they don’t.”
UWM shares were trading near $6.42 on Thursday morning, down less than 3.17% from the previous closing. This was amid an expectation of higher mortgage rates due to Trump’s election.
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