United Wholesale Mortgage CEO Mat Ishbia has set the goal of topping arch-rival Rocket Mortgage by 2024. The second quarter earnings report shows he still has quite a bit of work ahead of him.
The wholesale-only lender originated $59 billion in mortgages in the second quarter, generating $139 million in net income, UWM disclosed in its earnings report on Monday. The $59 billion was higher than the $51 billion to $55 billion the wholesaler had forecast. It also represents a gain on the $49 billion originated in the first quarter of 2021.
But other indicators suggest more challenging quarters ahead. Net income fell from $860 million in the first quarter to $139 million in the second quarter. And UWM’s gain-on-sale margin slipped to 81 basis points in Q2 2021, down from 243 bps a year ago and 219 bps in the first quarter of 2021.
“We demonstrated the strength of our business by delivering our best quarter of all-time in terms of overall production and purchase production,” Ishbia said in a statement. “As we have said previously, UWM is built to succeed not only when there is a refi boom and margins are at record highs, but also when margins are compressed and purchase business drives the volume.”
Indeed, the Pontiac, Michigan-based lender did greatly ratchet up purchase volume. According to the earnings statement, UWM originated a record $24 billion in purchase volume in Q2 2021, up from $12.2 billion in Q1 and $6.2 billion a year ago. Refinancings fell to $35.1 billion in the second quarter, a decline from $36.9 billion in the first quarter but well above the $22.9 billion a year ago.
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While UWM was profitable in the second quarter, the decline in income could speak to broader challenges in the wholesale space. Another Michigan wholesaler, Homepoint, lost $73 million in the second quarter. Its executives pointed to a “challenging operating environment caused by significant competitive pressure and volatility in the capital markets” as reason for the drop.
Meanwhile, Rocket Mortgage reported origination volume at $84 billion in the second quarter, with profits north of $1 billion. The Detroit-headquartered lender, which operates in the wholesale channel but does the bulk of its business as a direct-to-consumer retailer, disclosed gain-on-sale margins of 278 basis points overall. Its gain-on-sale margin in direct-to-consumer was a robust 466 bps, but the margin in its broker-driven partner network was 116 bps.
Rocket, which originated $320 billion in mortgages in 2020, has pursued a strategy of developing a product for every segment of the home ownership and sales process. Earlier this month it revealed that it would be developing a real estate brokerage and an iBuying arm.
UWM, which originated $182.5 billion in 2020, by contrast, is tightly focused purely on originating mortgages through brokers.
Even as margins slip, the reality is that a few select companies, especially Rocket and UWM, have the cash and the capital in place to manage around anything the mortgage market throws at them, Henry Coffey, a mortgage and housing analyst at Wedbush Securities, previously told HousingWire.
“They also within their respective channels have something special. In the case of United, its cost to originate loans is in the 50 basis point range — that’s an all-in cost, fully loaded, everything but servicing expense. Rocket is probably in the 60s on that basis. And the number three, Homepoint, is probably 75 basis points on that basis. So, you know, you have got the cash, you have to have the capital, but you also have to have the operating structure that allows you to, at least on a GAAP basis, be profitable.”
UWM also experienced a decline in the valuation of mortgage servicing rights to $260.51 billion at the end of June. In all, it had a $219 million drop from the first quarter.
The lender will have its earnings call on Monday at 4:30 p.m.