UWM posts stronger profits than Rocket in Q2 2022

Wholesale leader closing the gap in origination volume with rival

United Wholesale Mortgage (UWM), the nation’s largest wholesale lender, posted a drop in origination volume and profits in the second quarter compared to the first three months of 2022. That’s despite maintaining its gain-on-sale margins and leaning on its mortgage servicing business.

But the Pontiac, Michigan-based lender improved its performance compared to the same period of 2021, which company executives attributed to adopting an aggressive pricing strategy to win in a purchase market. The result? UWM reported stronger profits than the market leader Rocket Mortgage in the second quarter and cut its arch-rival’s lead in origination volume.

UWM on Tuesday reported $215.4 million in profits from April to June, down 52.5% from $453.3 million registered in the first quarter of 2022. Compared to the second quarter of 2021, however, profits increased 55.3%.

Second quarter earnings were buoyed by a $26.2 million increase in the fair value of MSRs. UWM had $308.1 billion in the unpaid principal balance of MSRs as of June 30, 2022, compared to $260.5 billion one year earlier.

Mat Ishbia, chairman and CEO of UWM, said the company benefited from the larger momentum of the broker channel, which drove the results. “Not only were we able to deliver strong profitability, we also continued our streak of delivering significant purchase volume,” he said.

According to its earnings report, UWM originated $29.9 billion in mortgage loans in the second quarter of 2022, a 23% decrease compared to the previous quarter and a 49.5% decline year-over-year. (Rocket originated $34.5 billion in the second quarter and posted profits of just $60 million, down from $1 billion a quarter earlier.)

Purchase loans grew from 40.7% of the total origination volume in the second quarter of 2021 to 75% in the second quarter of 2022 to $22.4 billion, UWM said. Gain-on-sale margins remained at 0.99% in the second quarter, compared to the first quarter of 2022, and increased from 0.81% one year ago.

UWM forecasts loan production of between $23 billion and $28 billion for the third quarter, the same forecast that Rocket is projecting. Meanwhile, gain-on-sale margins at UWM in Q3 are expected to fall to between 0.30% and 0.60%, much lower than the level in the second quarter.

For 2022 overall, the expectation is gain-on-sale margins at UWM will average between 0.75% and 0.90%. 

UWM has been open about its strategy of engaging in a price war with its competitors. In June, the company dropped rates by 50 to 100 basis points across all loan types, following a two-month price-match trial in 30-, 45-, or 60-lock pricing by 1 basis point to a maximum of 40 basis points. 

“We are now taking advantage of our pricing power by making an investment in our future growth,” Ishbia said in a call with analysts. 

Ishbia declined to set a deadline for the aggressive pricing strategy. “We’re watching as it goes,” he said. “We’re gonna spend hundreds of millions of dollars, and we’re going to see billions of dollars in return.” 

Ishbia said a strategy built around attracting loan officers organically through aggressive pricing is cheaper than growth through mergers and acquisitions. “We have much more certainty in the results, control data and information, and quite frankly, it’s a lot cheaper,” he said. “However, I’m open-minded (about M&As).”  

To support its strategy, UWM had $958.6 billion in cash and cash equivalents in the second quarter, compared to $901 million in the prior quarter and $1 billion one year ago.

The servicing portfolio provided cash flow benefits for the company, with the sales of $73 billion in MSR value in the past six months, according to Andrew Hubacker, UWM’s principal financial officer. 

“The actions we hit by monetizing a portion of our MSR portfolio and the lines of credit we have put in place – and expect to put in place by the end of Q3 – will continue to provide more than sufficient capital resources to support the liquidity needs of our business, inclusive of our regular dividend,” Hubacker said.  

As of 11:45 a.m. EST Tuesday, UWM’s stock was trading at $4 a share, up 0.87% from the previous day.

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