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Mortgage

UWM expects big margin decline in Q2

Wholesale giant still expects increase in origination volume

The parent company of United Wholesale Mortgage reported $860 million in net income during the first quarter of 2021, but there are clear signs that the going has already gotten tough.

In total, UWM originated $49.1 billion in closed loan volume in the first quarter, down from the $54.7 billion in the fourth quarter (but up from the $42.4 billion in originations a year ago). It also fell short of the $52 billion to $57 billion it had forecast in February.

According to the wholesale giant‘s quarterly earning statement, UWM posted a gain-on-sale margin of 2.19%, an 86 basis point decline from the 3.05% margin it posted in the fourth quarter. This follows broader industry trends, in which UWM and a group of other large lenders have cut pricing to gain market share, a bet that they can better weather smaller margins due to its substantial war chests.

“The first quarter of 2021 was not only the best first quarter in our 35-year history, it also marked our first quarter as a public company and solidified our foundation for growth,” said United Wholesale Mortgage CEO Mat Ishbia. “We believe we now have the capital, liquidity, technology, campus and staffing necessary to further scale our business and grow to become the largest mortgage originator in the country. We welcome the shift to more of a purchase market and the pressure on margins as we believe our business model is built to outperform competitors under those conditions. Moving forward, our priorities remain the same: our people, the industry-leading service we offer to our brokers, and creating long-term value for our shareholders.”

UWM’s quarterly earnings statement shows it did in fact increase its purchase business in the first quarter. The pure-play wholesaler handled $12.2 billion in purchase mortgages, up slightly from the $12.1 billion in the fourth quarter. Its declines came in refis, where it originated $33.6 billion in Q1, down from $37.6 billion in Q4.

UWM is forecasting production in the second quarter to be in the $51-$55 billion range, with an expected gain on sale margin between 75 and 110 basis points.

In a statement, Ishbia said UWM is in growth mode.

“While others in our industry guide towards lower volumes in 2Q21, UWMC is quite the opposite,” he said. “Because of our purchase focus and our broker network, we expect to do more business in 2Q21 than 1Q21 and believe that we will be one of the only mortgage companies in America that grows in a rising rate environment.

In early March, Ishbia instigated a fight with Rocket Mortgage and retail player Fairway Independent Mortgage, issuing an ultimatum to brokers who had done business with its rivals. Ishbia said the lenders were causing harm to the broker channel (they denied the claims and said UWM was simply being anti-competitive). Ishbia gave brokers just over a week to sign an addendum saying they would not work with Rocket Pro TPO or Fairway. If brokers violated the agreement, they would potentially face up to $50,000 in fines per month.

UWM told HousingWire in late April that approximately 600 of the 3,000 brokers didn’t sign the addendum.

The earnings statement doesn’t speak to the broker battle, but there’s a good chance Ishbia discusses it with analysts on the company’s earnings call on Tuesday morning.

The lender is also issuing a dividend of $0.10 to shareholders and repurchasing up to $300 million of stock over the next two years. Its stock has dropped from roughly $10 at its debut to $6.72 a share at the end of trading on Monday.

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