Pontiac's UWM reports $138.7M profit, narrows gap with Rocket Mortgage
Rising interest rates, new technologies and maybe soon accepting cryptocurrency payments are part of United Wholesale Mortgage Holdings Corp.'s plan to surpass Rocket Mortgage as the country's largest mortgage lender.
Pontiac-based UWM on Monday recorded a net income of $138.7 million in the second quarter, down 74% year-over-year. Last year's pandemic-induced market boom is cooling with interest rates ticking up slightly and many people having already refinanced, increasing the competition among lenders.
Despite that, the country's largest wholesale lender surpassed its expectations, decreasing its gap with Rocket Mortgage with a record $59.2 billion in originations for the April-to-June quarter. UWM had forecast the total would be between $51 billion and $55 billion. Still, shares closed down 5% Monday at $7.46.
"The reality is when rates do go back up, that’s when UWM shines," CEO Mat Ishbia said during an earnings presentation. "That’s why Q2 was just a glimpse — a glimpse into what 2022 or 2023 or 2024 is going to look like with everyone else."
Ishbia has set his eyes on surpassing Rocket Mortgage by 2024 as the country's largest direct mortgage lender, despite UWM exclusively selling loans through mortgage brokers who find products and rates from various lenders for their clients. Rocket also does these wholesale loans, but it originates mortgages directly with homeowners, too.
Rocket Companies Inc., which includes Rocket Mortgage, title insurer Amrock LLC, automotive retail marketplace Rocket Auto and more, last week said it made $1.037 billion in profit in the second quarter and closed $83.76 billion in mortgages, which was up 15% year-over-year.
UWM's originations increased 90% even after losing some partners in March when Ishbia issued an ultimatum to brokers, saying UWM would no longer work with those who continued to do business with Rocket and Wisconsin-based Fairway Independent Mortgage Corp.
UWM expects third-quarter originations will fall between $57 billion and $62 billion. Rocket is predicting closing between $82 billion and $87 billion in loans.
In the second quarter, UWM's revenue fell 42% year-over-year to $484.7 million, and expenses increased 19% to $344.5 million. Gain margins were at 0.81%, down from 2.43% a year ago, but that was in line with the midpoint of its forecast. Ishbia noted costs per loan decreased 10% to $1,490.
"We can win and be profitable in all markets," Ishbia said. "These are all-time low margins basically and we are very profitable across the board. And with our cost to originate and our proprietary technology, we are going to continue to decrease our cost and put pressure on our competition."
The company expects the launch of a proprietary document management software platform this quarter will save it $8 million annually compared to purchasing from a vendor. More improvements are coming, Ishbia said, including the potential to accept cryptocurrencies as mortgage payments as early as this quarter.
"We’ve evaluated the feasibility," he said. "We are looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments."
In the second quarter, loans for home purchases jumped to represent 41% of UWM's mix for the quarter to a record $24.06 billion, up almost three times year-over-year. The rest of the $35.15 billion came from refinances, a 41% increase, as homeowners took advantage of interest rates that remain historically low and fair mortgage servicing value took a $219.1 million
The company has capacity to do more originations, Ishbia said. UWM's workforce almost doubled in size to about 9,000 people since the start of the COVID-19 pandemic, but it won't any longer see that explosive growth in headcount, he said.
"I don’t think we are going to go from 9,000 to 11,000 people this year," Ishbia said. "We will become the No. 1 mortgage lender in America whether it’s next year or the year after that or the year after that, and we might only have between 8,000 and 11,000 people, because we can actually handle the volume where we’re at now while at the same time with our technology continuing to make things better or more efficient."
The company's more than 60-day delinquency rate was at 1.19%, and its forbearance rate was 1.06% as the COVID-19 pandemic has created economic disruption.
The company ended June with $1.048 billion in cash and cash equivalents, an 84% increase from a year ago. On Oct. 6, UWM will pay a quarterly dividend of 10 cents per share of Class A common stock as of Sept. 10.
"You’re going to see UWM is the strongest and most elite mortgage company," Ishbia said. "We plan to prove it quarter in and quarter out."