UWM’s losses double in Q1, but margins climb to 92 bps

Lender registered a non-GAAP adjusted net loss of $106.6 million in Q1

UWM Holdings Corporation, the parent of United Wholesale Mortgage (UWM), reported a financial loss in the first quarter amid a decline in the fair value of mortgage servicing rights (MSRs) and falling origination volumes. The wholesale lender posted financial losses in the first quarter, but the company increased margins as it pulled back on its aggressive pricing strategy. 

The Pontiac, Michigan-based lender announced a non-GAAP adjusted net loss of $106.6 million in the first quarter, double the $53.3 million net loss in the previous quarter. The company’s GAAP net loss in Q1 was $138.6 million, according to documents filed with the Securities and Exchange Commission (SEC) on Wednesday morning. 

Higher rates and lower inventory hurt the company’s production in the first quarter. UWM originated $22.3 billion in mortgage loans in the first quarter of 2023, compared to $25.1 billion in the previous quarter and $38.8 billion during the first quarter of 2022. Its top competitor, Rocket Mortgage, originated $17 billion in the first quarter of 2023.  

UWM recorded $19.2 billion in purchase loans in the first quarter, a record for the quarter. But that figure was down from $21.7 billion in the fourth quarter of 2022 and relatively flat compared to $19.1 billion in the first quarter of 2022. 

“Production volume was at the high end of our expectations, setting us up for a better 2023 than originally anticipated,” Mat Ishbia, UWM’s CEO, said in a statement. “While we can’t control interest rates or the effect of those fluctuations on our MSR portfolio, we can control our operational profitability and have demonstrated that our business model performs despite the natural cyclicality that occurs in the mortgage industry.”

As UWM’s executives indicated in the previous quarter, the company’s total gain-on-sale margins increased to 92 basis points in Q1 2023, compared to 51 bps in Q4 2022 and 99 basis points in Q1 2022.

In June 2022, the company launched the program ‘Game On,’ slashing prices across all loans by 50 to 100 basis points. However, UWM decided to pull back on that strategy, transitioning to another program that gives 125 basis points to brokers as a discount for any loans, with up to 40 basis points per loan. According to mortgage compliance experts, it could be risky.

First-quarter earnings were impacted by a $337 million decline in the fair value of MSRs. UWM had $297.9 billion in the unpaid principal balance of MSRs as of March 31, 2023, compared to $312.5 billion as of December 31, 2022.

According to Andrew Hubacker, UWM CFO, the company sold two MSR bulks on loans with an aggregate UPB of $90 billion in Q1. UWM’s 10Q filing shows they brought in nearly $1 billion in proceeds. The company also sold excess servicing cash flow of $63.4 billion for proceeds of $305.5 million in the first quarter.

“We continue to believe the measures we have taken to enhance our liquidity and strengthen our balance sheet will allow for our continued investments and growing both the wholesale channel and our market share,” Hubacker said. 

UWM ended the fourth quarter with $1 billion in cash and self-warehouse. 

The company anticipates the second quarter production to be between $23 billion and $30 billion. Gain-on-sale margins are expected to be between 75 bps and 100 bps.  

“It’s still a tough time for most lenders. This is a time when scale, efficiencies, investment in technology and business strategy on purchase are showing the winners separating from the rest,” Ishbia said. 

Ishbia estimates UWM went from a 30% market share in the wholesale channel before the Game On strategy to 55% after the program. “If our market share stayed in the 40% range, that’d be a massive success.”      

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