UWM
Holdings
Corp.,
the
parent
of


United
Wholesale
Mortgage,
has
adopted
a
strategy
that
differs
from
its
peers
to
take
advantage
of
a
business
landscape
that
is
expected
to
include
lower
mortgage
rates
and
more
refinance
activity. 

The
Pontiac,
Michigan-based
company
has
opportunistically
sold
mortgage
servicing
rights
(MSRs)
with
higher
coupons
to
deleverage
its
balance
sheet
and
invest
in
the
origination
business
—
for
example,
by
offering

incentives
on
some
refi
loans.
Meanwhile,
competitors
such
as


Mr.
Cooper
and


Rocket
Mortgage
have
acquired
servicing
assets
at
higher
coupon
rates
to
offer
refis
and
other
products
to
customers
when
rates
drop. 

Mat
Ishbia,
chairman
and
CEO
of
UWM,
said
in
a
call
with
analysts
that
when
rates
drop,
lenders
will
“get
flooded
with
refinances”
because
of
trillions
of
dollars
of
loans
originated
in
the
6.5%
to
8%
range.
Volumes
will
increase,
as
will
gain-on-sale
margins.
In
turn,
“MSR
write-downs
will
be
massive,”
he
added.
   

“Obviously,
nobody
controls
the
MSR
write-ups
and
write-downs.
We
never
take
credit
when
it
goes
up.
We
don’t
want
to
take
credit
when
it
goes
down.
We
want
to
focus
on
origination,”
Ishbia
said.
“For
us,
we
don’t
buy
MSRs,
we
originate
them.
I
don’t
see
a
slowdown
in
people
buying
them
because
that’s
the
only
way
they
can
originate.”  

As
a
result
of
the
strategy,
UWM
reported
a
non-GAAP
net
income
of
$59.8
million
during
the
second
quarter
of
2024,
compared
to
a
profit
of

$141
million
in
the
previous
quarter.
Meanwhile,
GAAP
net
income
was
$76.3
million,
including
a
$115.3
million
decline
in
the
fair
value
its
MSRs,
according
to
documents
filed
with
the

Securities
and
Exchange
Commission
(SEC). 

UWM
originated
$33.6
billion
in
mortgages
in
the
second
quarter,
higher
than
the
$27.6
billion
figure
in
the
previous
quarter
and
the
$31.8
billion
originated
in
Q2
2023.
The
company’s
volume
in
Q2
2024
consisted
mainly
of
purchase
loans,
which
accounted
for
$27.2
billion.

To
compare,
UWM’s
primary
rival,
Rocket
Mortgage,
generated
$24.6
billion
in
closed
loan
volume
from
April
to
June.
But
Rocket
also
delivered
a
higher
profit
of
$171
million. 

Gain-on-sale
margins
for
UWM
declined
to
106
basis
points
in
the
second
quarter,
compared
to
108
bps
in
the
previous
quarter
and
88
bps
in
the
same
period
last
year.
Ishbia
said
he
expects
“margins
to
go
up”
in
a
lower
rate
environment.

Analysts
at

Jefferies
said
in
a
report
that,
following
the
implementation
of
its

“Game-On“
initiative,
when
UWM
cut
margins
to
gain
market
share,
“we
have
seen
pricing
quickly
improve
above
historical
levels,
as
we
believe
the
broker
market
remains
firmly
bifurcated.”

In
a
report
on
Tuesday
morning,
the
analysts
added
that
“purchase
volumes
represented
81%
of
the
volume
mix,
as
the
company
continues
to
capitalize
on
the
purchase-oriented
originations
market.
However,
we
expect
this
mix
to
begin
to
shift
modestly
to
refinance
volume
in
the
near
term.”

Servicing
book

Regarding
its
servicing
portfolio,
as
UWM
continues
to
sell
MSRs
opportunistically,
it
ended
the
second
quarter
at
$189.5
billion
in
unpaid
principal
balance
(UPB),
compared
to
$299.7
billion
in
the
previous
quarter
and
$294.9
billion
in
Q2
2023. 

The
company
generated
nearly
$2.4
billion
in
net
proceeds
from
these
sales
in
the
second
quarter.
Most
sales
involved
servicing
rights
on
loans
with
coupons
above
5.5%,
with
one-third
being

Ginnie
Mae
collateral.
As
a
result,
the
company
said
its
portfolio’s
weighted
average
coupon
(WAC)
was
4.31%
on
June
30,
compared
to
4.58%
on
March
31. 

Looking
forward,
Ishbia
said
the
company
is
not
focused
on
selling
MSRs
to
lessen
risk.
Rather,
it
is
preparing
to
scale
its
operational
technology,
since
that
was
the
strategy
for
the
first
three
to
six
months
of
the
year.

“It’s
playing
out
how
we
expected,“
he
said.
“I’m
not
saying
we
won’t
sell
any
more
MSRs,
because
people
call
us
all
the
time
to
try
to
buy
them.
However,
it’s
not
a
focus
of
mine
right
now.
My
focus
is
on
origination,
scale
and
dominance
in
this
industry.” 

UWM
ended
the
quarter
with
$2.7
billion
of
available
liquidity,
including
$680.2
million
in
cash. 

The
company
anticipates
third-quarter
production
between
$31
billion
and
$38
billion.
Meanwhile,
the
gain-on-sale
margin
is
expected
to
be
between
85
bps
and
110
bps.  

“The
last
couple
of
days,
the
market
has
made
an

inflection
point
where
we
can
look
at
‘could
the
refi
boom
be
here
right
now?’“
Ishbia
said.
“If
the
10-year
[Treasury
yield]
stays
where
it’s
at
right
now
and
mortgage
interest
rates
stay
with
that
right
now,
we
will
beat
this
guidance
from
a
production
perspective.

“We’re
not
quite
there
yet,
but
we’re
on
the
cusp
of
a
potential,
very
interesting
time.”

UWM

shares
were
trading
near
$8.50
on
Tuesday,
down
less
than
2%
from
the
previous
closing
amid

stock-market
turbulence
tied
to
investor
fears
of
a
recession
in
the
U.S. 

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