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The nation’s biggest mortgage lender lost $240.7 million during the first quarter, as a dip in mortgage rates forced United Wholesale Mortgage to write down the fair value of its mortgage servicing rights by $388.6 million.
UWM executives put a positive spin on the big picture in reporting earnings Tuesday, noting that loan origination volume was up 17 percent from a year ago to $32.4 billion, as the company did brisk business with homeowners looking to refinance.
Executives at the Pontiac, Michigan-based wholesale lender said they expect to originate $38 billion to $45 billion in mortgages this quarter, with gain margin of 90 to 115 basis points. The upper range of that guidance would represent UWM’s first $40 billion quarter since Q4 2021.
Mat Ishbia
“We haven’t hit over $40 billion since the real boom times, and we are going to do that this quarter,” CEO Mat Ishbia predicted on the company’s earnings call.
“Where everyone else is kind of hovering, our investments have been working,” Ishbia told investment analysts. “Our broker channel is winning. And then on top of that, the technology stuff that’s going to come out in the second quarter … it’s going to blow your mind, and it’s just the beginning of what we’re doing.”
UWM refinanced $10.7 billion in mortgages during Q1, nearly double the $5.5 billion in refi volume that came in a year ago, helping drive 5 percent revenue growth, to $613.4 million.
While purchase loan originations were essentially flat at $21.7 billion, UWM’s investment in AI and other technologies will allow it to ramp up its business with little impact on expenses, Chief Financial Officer Rami Hasani said on a call with investment analysts.
UWM announced a strategic partnership with Google Cloud last month to integrate AI and data analytics capabilities into its lending platform.
Rami Hasani
“We believe our business is currently in a position to handle twice our 2024 origination volume with minimal impact to our fixed costs,” Hasani said on his first earnings call since succeeding Andrew Hubacker as CFO on April 1.
Shares in UWM closed down 15 percent Tuesday after touching a new 52-week low, as shareholders also digested details of a plan to increase UWM’s “float,” or the number of outstanding shares, by up to 80 million shares.
Ishbia said that under a plan scheduled to go into effect on June 17, he’ll continue to own around 80 percent of UWM’s shares a year from now, down from 87 percent today. He said the company will continue to pay a 10-cents-per-share quarterly dividend — payouts that also benefit him and his family as majority owners.
Plans by rival Rocket Companies to acquire the nation’s largest loan servicer, Mr. Cooper, prompted UWM to end its subservicing contract with Mr. Cooper and announce last month that it will bring mortgage servicing in-house.
Ishbia said the plan is to start onboarding loan servicing at the beginning of next year, and “hopefully have it all in house by the end of next year.”
For now, UWM’s mortgage servicing rights (MSR) portfolio continues to shrink as it sells servicing rights for cash. UWM’s MSR portfolio shrank by 11 percent during Q1 to $214.6 billion.
UWM’s shrinking mortgage servicing portfolio
Mr. Cooper, Rocket Mortgage and UWM mortgage servicing rights (MSR) portfolios, including subservicing. Source: Company earnings reports.
Loan servicers collect monthly mortgage payments from borrowers, passing the money along to lenders or investors in mortgage-backed securities who have purchased the loans.
Big mortgage lenders often like being in the loan servicing business because the fees they can earn are a steady source of income that can even out ups and downs in the housing market.
Lenders who service their own loans are well-positioned to “recapture” borrowers when they’re ready to refinance or buy their next home.
But the constantly fluctuating valuations of mortgage servicing rights (MSRs) can create accounting headaches.
When mortgage rates fall, MSRs become less valuable because borrowers are more likely to refinance and end up with another loan servicer. But when mortgage rates rise, so does the paper value of a servicer’s MSRs. MSR valuations can push profits, as measured by net earnings, deep into the red or the black.
“As we’ve discussed several times, we have zero control over MSR values, whether it goes up or down,” Ishbia said. “So it’s really not that relevant to me. But we did have an amazing quarter and we’re profitable on all the [other] measures we look at.”
Another metric — adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) — remained positive in Q1 at $57.8 million, down 43 percent from a year ago.
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