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Shares in United Wholesale Mortgage are trading at a three-year high after the nation’s largest mortgage lender posted a healthy second-quarter profit, paid down debt and said it’s in prime position to capitalize and grow as mortgage rates continue to drop.
After a $115 million write-down in the fair value of its mortgage servicing rights, UWM reported $76.3 million in second-quarter net earnings.
Mortgage originations were up 6 percent from a year ago, to $33.6 billion — the highest level since Q1 2022. At 1.06 percent, gain margins were also an improvement from 0.88 percent a year ago.
UWM said it expects Q3 originations of $31 billion to $38 billion, with gain margins of 0.85 percent to 1.10 percent, in line with recent quarters.
While the outlook for lending is improving, UWM has also boosted its bottom line by more than $2 billion this year by selling off a big chunk of its loan servicing business. UWM’s mortgage servicing rights (MSR) portfolio shrank by 23 percent in Q1 and by another 17 percent in Q2, to $189.5 billion.
That helped UWM finish up the quarter with about $2.7 billion in available liquidity, including $680.2 million in cash.
Mat Ishbia
“We had a strategy coming in this year,” CEO Mat Ishbia said on a call with investment analysts. “The strategy was to de-risk, sell MSRs in the first three to six months of the year and prepare for scale, technology, and operationally … it’s playing out how we expected.”
Since hitting a 52-week low of $4.49 on Oct. 4 when mortgage rates were approaching post-pandemic peaks, UWM’s share price has been on the rise as investors grow increasingly bullish about the prospects for mortgage lending to pick up as rates come back down to Earth.
Shares in UWM hit a new 52-week high of $8.85 on Monday after two surprisingly weak jobs reports last week put mortgage rates in a tailspin. It was the highest valuation shares in the Pontiac, Michigan-based wholesale lender have reached in more than three years.
“We’re raising our price target to $10 from $8 following the earnings call and good Q2 results, as the stock remains our favorite way to position for lower interest rates,” BTIG analyst Eric Hagen said in a note to clients.
At 6.4 percent Monday, rates on 30-year fixed-rate conforming mortgages are down 87 basis points from a 2024 high of 7.27 percent registered April 25, and haven’t been lower since May 2023, according to rate lock data tracked by Optimal Blue. A basis point is one-hundredth of a percentage point.
Shares in UWM initially dropped 8 percent to $8.07 when markets opened after the release of earnings Tuesday morning but surged back to $8.66 in afternoon trading before closing the day at $8.50.
Shares in UWM rival Rocket Mortgage — formerly the nation’s largest mortgage lender, before ceding the title to UWM in 2022 — also hit a new 52-week high of $18.66 Tuesday, a 160 percent gain from $7.17 on Oct. 25.
Rocket last week reported that Q2 net income was up 28 percent from a year ago to $178 million, with mortgage originations growing by 10 percent over that time, to $24.7 billion. Rocket says artificial intelligence tools it’s developing will help it rapidly scale its business even more when mortgage lending rebounds.
Ishbia said UWM has also been investing in technology that will help the mortgage brokers the company works with make the most of any boom.
“In the second quarter, we announced the number of products and technology that add speed and capacity to the broker channel that really just didn’t exist in 2020 and 2021,” Ishbia said. “We’re really excited to see these things come into action.”
UWM’s consumer-facing Mortgage Matchup website — a searchable database that helps consumers find a local mortgage broker — is the official mortgage partner of the NBA and WNBA, and Ishbia said, “We’re seeing more and more people going to this website every single day.”
UWM’s newly updated TRAC+ program offers pricing incentives to mortgage brokers who agree to let UWM handle not only title review but closing and disbursement for clients who are refinancing existing loans.
Ishbia called TRAC+ “a huge game changer” because mortgage brokers “no longer have to go outside and work with a third-party title company or anyone outside, and it saves the consumer thousands of dollars.”
UWM also continues to “invest heavily” in its automated document recognition and processing system, BOLT, which Ishbia said allows mortgage brokers to get initial approvals in as little as 15 minutes and enables UWM’s underwriters to do “more business every single day, with technology pulling the weight on a lot of the underwriting processes.”
UWM Q2 refinancing up 69% from a year ago
Source: UWM earnings reports.
At $27.2 billion, purchase loans represented 81 percent of UWM’s Q2 2024 mortgage originations. That’s more than double the 40 percent share of business that purchase lending provided in Q2 2021.
While purchase originations were down 3 percent from the same time a year ago, refinancing grew by 69 percent, to $6.5 billion.
UWM originates more purchase mortgages than any of its rivals, but Ishbia said refinancing will be the biggest immediate opportunity if mortgage rates continue to fall as the economy cools.
“I always said the mini refi boom, or full refi boom … is when you make all the money,” Ishbia said. “If the market turns back, we’re still going to dominate in the purchase market as we have been for the last couple of years.”
UWM’s servicing portfolio shrinks by 40%
Source: UWM earnings reports.
While lenders typically sell the mortgages they originate to investors, many like to keep the rights to “service” those loans, collecting monthly payments from borrowers on behalf of investors.
Loan servicing not only generates fee revenue that can level out ups and downs in originations but can give lenders a leg up on competitors when borrowers are ready to refinance or buy their next home.
To boost its bottom line, UWM has trimmed its loan servicing portfolio by 41 percent since the end of 2021, when it was collecting payments on more than 1 million mortgages with outstanding balances of $319.8 billion.
As a result, Q2 income from loan servicing dropped 30 percent to $143.9 million compared to Q4 2023, when that line of business generated $206.5 million in revenue.
Andrew Hubacker
UWM has generated close to $2.4 billion in net proceeds through the end of the second quarter by selling mortgage servicing rights, Chief Financial Officer Andrew Hubacker said.
Proceeds from those sales have been used to pay down debt, increase production and invest in UWM’s business — while “also maintaining a consistent dividend for our shareholders,” he said.
(Ishbia and his family — including brother Justin and father Jeff, who both sit on UWM’s board of directors — collect $150 million in dividend payments every quarter, The Wall Street Journal noted in November.)
Asked if UWM will continue to sell servicing rights, Ishbia wouldn’t rule that out — if the price is right.
“I’m not saying we won’t sell any more MSRs, because people call us all the time to try to buy them,” Ishbia said. “However, it’s not a focus of mine right now. My focus is on origination, on scale and dominance in this industry. That’s what we’re focused on right now.”
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