UWM returns to profitability in Q1 amid MSR sales, improved margins

UWM Holdings Corp., the parent of United Wholesale Mortgage (UWM), returned to profitability in the first quarter of 2024 despite higher rates, a lack of inventory and a decline in the fair value of its mortgage servicing rights (MSRs). 

The quarter’s positive performance was supported by increased origination volumes at improved margins and servicing sales, which resulted in a non-GAAP net income of $141 million from January to March, compared to a $361 million loss in the previous quarter. 

Meanwhile, the GAAP net income was $180.5 million, inclusive of a $15.6 million decline in the fair value of MSRs, according to documents filed with the Securities and Exchange Commission (SEC) on Thursday. 

“We’re extremely busy here at UWM; we’re hiring hundreds of new team members preparing for the future,” Mat Ishbia, UWM chairman and CEO, told analysts during a call. “I said we expected 2024 to be a better year for the housing and mortgage industries, and the first quarter supports what I expected.” 

UWM originated $27.6 billion in mortgages in the first quarter, higher than the $24.3 billion in the previous quarter and the $22.3 billion originated in the first quarter of 2023. The company’s volume in the first quarter consisted mainly of purchase loans, representing $22.1 billion.

The lender’s mortgage production exceeded that of its primary rival, Rocket Mortgage, which generated $20.2 billion in closed loan volume from January to March. However, Rocket delivered a higher profit of $291 million.  

Ishbia told analysts he doesn’t think “a lot of lenders can say they’ve grown that much year over year” in mortgage production, and that’s happening, among other things, because UWM does not “try to be all things to all people.” 

One thing UWM has tried to improve is its jumbo offerings. The firm’s jumbo production strongly increased in the first quarter to $2.4 billion, up 33% quarter over quarter. The volume was also four times higher than in the same period last year. 

Pricing strategies 

UWM’s profit on each loan also increased in the quarter, exceeding the pre-Game On pricing initiative launched in June 2022. Gain-on-sale margins rose to 108 basis points in the first quarter, compared to 92 bps in the previous quarter and also in the same period last year. 

Analysts at Jefferies said in a report that, as a result of the Game On initiative, “we have seen exits from wholesale from numerous (and meaningful) competitors over the past two years.” They added that margins quickly “snapped back and now have moved in excess of the pre-Game On levels,” despite ongoing macro challenges. 

Regarding new pricing initiatives like Game On, Ishbia said, “I don’t foresee that right now.” UWM has focused on other ways to help brokers, such as investing in technology, he said. 

As UWM continues to sell MSRs opportunistically, its portfolio ended the first quarter at $229.7 billion in unpaid principal balance (UPB), compared to $299.5 billion in the previous quarter and $297.9 billion in the same quarter of 2023.   

“Our first-quarter sales were accomplished at what we believe to be favorable prices, and have allowed us to significantly de-risk our MSR portfolio and deliver our balance sheet while also supporting our ability to originate substantial new loan volume,” chief financial officer Andrew Hubacker told analysts. 

UWM ended the quarter with $2.9 billion of available liquidity, including $605.6 million in cash. 

The company anticipates second-quarter production between $28 billion and $35 billion. Meanwhile, the gain margin is expected to be between 85 bps and 110 bps. Ishbia said margins should sustain at this level and even go up when rates drop. 

UWM shares were trading at $7.41 on Thursday morning, up 3.64% from the previous closing. 

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