UWM revives its conventional 1% down mortgage loan program

Top wholesale lender United Wholesale Mortgage (UWM) is yet again ramping up efforts to gain more market share at the cost of potential profits.

On Wednesday, the Detroit-based lender announced that it is reviving the conventional 1% down loan option, which allows homebuyers to purchase a home with a 1% down payment.

Known as the “Conventional 1% Down,” the product is essentially a 3% down mortgage in which UWM pays an additional 2% — up to $4,000 — on top of the borrower’s 1% down payment. This gives the borrower a total of 3% to put down on the home.

“We are bringing back the Conventional 1% Down to give independent mortgage brokers a competitive edge with borrowers and real estate agents, while also helping make homeownership more affordable and accessible for borrowers across the country,” Mat Ishbia, president and CEO of UWM, said in a statement. 

While UWM is reviving this loan option for borrowers, the 1% down loan is not a new option for borrowers. Other lenders have rolled out similar programs over the years to drum up more volume, and these types of products function like a modification to Fannie Mae‘s HomeReady and Freddie Mac‘s HomePossible programs, which allow a 3% down payment — or what lenders refer to as 97% loan-to-value (LTV) — on conventional loans. 

While UWM is not working with a down payment assistance nonprofit or a government-sponsored enterprise (GSE), the product is subject to GSE’s guidelines, the company’s spokesperson said in an emailed response. 

Mortgage rates for the conventional 1% down program are comparable to the rates on Freddie Mac’s HomePossible product, UWM said. 

To qualify, homebuyers must have an income at or below 50% of the area median income (AMI), a minimum credit score of 620 and a 97% LTV to be eligible for UWM’s 1% down loan product.  Mortgage insurance is required, and the product is only available for buyers purchasing a primary one-unit single-family home, the company said. 

In a highly competitive environment in a higher-rate environment, UWM, the second-largest mortgage lender in the country, has been putting other price-cutting measures in place for brokers in order to gain market share.

At the start of the year, UWM said it would give brokers access to a total of 125 basis points (bps), with a maximum of 40 bps per loan, to apply their pricing enhancement on any loan. Dubbed “Control Your Price,” brokers are able to use the points for conventional, government and non-agency loans up to $1 million. 

Its “Game On” initiative, in which UWM cut slashed prices across all loans by 50 to 100 bps points in June 2022, led the wholesale lender to originate more loans than its rival, Rocket Mortgage, in the third quarter of last year while wreaking havoc on competitors with already compressed margins. 

UWM originated $33.5 billion in the third quarter of 2022, beating rival Rocket Mortgage by 31%. In the most recent quarter, UWM originated $25.1 billion in mortgage loans compared to Rocket’s $19 billion. 

Since UWM’s aggressive price cuts were rolled out, loanDepot has exited the wholesale channel and wholesale lender Homepoint has closed its origination business

UWM won’t need to look under the couch cushions for the money, either. The Detroit wholesale lender ended the fourth quarter with about $2.1 billion of available liquidity — including $886.2 million of cash and self-warehouse — and $1.25 billion of available borrowing capacity. This includes $750 million under a line of credit secured by agency MSRs and $500 million under an unsecured line of credit, according to its recent 8-K filing with the Securities and Exchange Commission (SEC). 

In Q4, UWM reported a non-GAAP adjusted net loss of $53.3 million, which was aligned with all the top U.S. mortgage lenders being in the red. The company accounted for an estimated 11% share of the overall mortgage market and a record 54% share of the wholesale channel for the fourth quarter of 2022.