UWM Holdings Corp

NYSE:UWMC

Earnings Call Transcript 2021-Q2

[Operator]

Good morning. My name is Zen, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Second Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operator Instructions] Thank you. Matt Roslin, you may begin your conference.

[Matt Roslin, EVP of Legal Affairs and Investor Relations]

Matt Roslin, EVP of Legal Affairs and Investor Relations. Thank you for joining us, and welcome to the Second Quarter 2021 earnings call for UWM Holdings Corporation. Before we start, I would like to remind everyone that the conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued this morning. Before introducing Mat, I want to inform everyone on the call that our CFO, Tim Forrester, cannot be with us today due to personal reasons. Mat Ishbia, Chairman and CEO of UWM Holdings Corporation, United Wholesale Mortgage, will be delivering both the business and the financial updates on today's call.

[Mat Ishbia, Chairman and CEO]

Thanks, Matt. Appreciate it. And thank you, everyone, for joining the call today. It's great to be here, especially after another outstanding quarter here at UWM. Before we start, I just want to thank our team members here at UWM, our partners throughout America doing great things, mortgage brokers, independents out there, proud to partner with all of them. The Second Quarter was our best quarter in Company history from a volume perspective, so we're very excited about the results; not only did we post record numbers for production, but we almost doubled our prior quarterly production on purchase loans, and that's going to make a big difference as we talk about later on.

Purchase production is an important measure; I'm going to explain the details of how we think about it later on in this call. On our last quarter call, as I will do every time, I let you know to hold us accountable for our numbers and what we say. We delivered above what we expected in many respects and are excited for you guys to see the results and talk about what's going to happen in Q3 as well. We delivered $59.2 billion in production, beating our guidance of 50 billion to 55 billion.

At the time when most of our competitors were guided to do less and did less volume, our production was up over 20% at UWM compared to the prior quarter and resulted in an increase in overall mortgage market share by a significant amount at UWM. Our gain margin was 81 basis points in line with guidance and is actually a lower number than historic year numbers. However, we posted a solid profit. We delivered 138.7 million of net income. When I back out the 219 million to kind of fair market value of our MSR asset, our core earnings, as I like to call it, was approximately 358 million.

That's the way I run the business; I mentally add back or subtract if it's positive, the change on MSR is really more representative of what our business is. The $358 million we're very proud of, and at the same time we think of how to run the business to make sure that we deliver great earnings from an operating perspective at all times, and obviously the MSR asset, we do not control the change in fair values including the impact of certain market assumptions. And to me, when assessing the health of our business, I like to move the changes up or down on a fluctuating asset that I can't control. We've already noted that on a sequential basis, our Second Quarter results represent a 20% plus increase in overall production; I think it was actually 21%. More exciting to me, though, with the 97% increase in purchase production over the First Quarter.

From a year-over-year perspective, Q2 looks great as well. We had a 90% increase in overall production and a 288% increase in [Indiscernible] production. There's no mortgage company in America has [Indiscernible] like as we are the elite mortgage company in America, and we're proud to show it to you, quarter-in and quarter-out. The Second Quarter was really interesting as it provided a glimpse into the future of our industry for a couple of reasons. First off, the weighted average rate, 30-year [Indiscernible], went to 2.99 from 2.80.

So just about a 19 basis point rise in rates, and you'd have thought the whole industry shut down based on how a lot of people reacted. That was only a small rise in rates. Wait till it goes from 2.99 to 4%, and you'll see the strength of our business across-the-board. The relative refi mix declined, and purchases increased and became more important for mortgage originators. But purchase mix is not the thing we focus on, and we focus on purchase production because purchase mix looks really great if your refi volume went down. UWM 's refi volume actually stayed about flat, but we almost doubled our purchase business from 12 billion to 24 billion quarter-over-quarter.

Some companies like to speak about purchase percentage or mix or really don't like to speak about it at all, but it's important to note that purchase mix can solely change by doing less refinance. And that's really not the story we're trying to tell. We're trying to talk about the strength of our business, which is a purchased business. And when rates go from 2.8, 2.9 to 3.5 or 4%, that's really when the best mortgage companies will shine, and we believe we are that Company. Just like in 2018 or the first quarter of 2020, you can see how people perform when the tide is out in not such a frothy business.

So second quarter, 24.06 purchase production. Our best purchase quarter of all time, our best overall quarter of all time. And if you think about it, if you had no refi business, we'd almost do a $100 billion of purchase business in a year, which by far in a way would be the number one mortgage company in America. It's very important to understand this because our business is the business model in history to prove that not only when we gained a purchase share, we retain it and maintain that business with our broker partners in our independent mortgage companies that we partner with. How are we growing in this market? Simple; speed and service.

Our cost structure allows us to be profitable with lower margins, but the reality is we're closing loans faster and more efficiently than anyone in America. Real estate agents love that, our brokers love that, and that's how we continue to get more referrals and grow our business. Time kills deals we talk about here our Company is never true on purchase business. Once a broker closes our personal and they stay with us, they want to continue to send loans to us, and guess what, the reloaders want to as well.

We continue to close loans at 18 days while the industry is over 47 days. We're substantially faster than the market. Our client service remains best-in-class, with our proprietary technology, uncompromising team members proving our year-to-date net promoter at a plus 86.6. While Q2 was a glimpse into the future with rising rates, we've seen rates drop a little bit in Q3, which means a lot of our heavy refi shops, our competitors will be able to post decent numbers and a better gain on sale margins in the Third Quarter. The reality is Q2 was a glimpse into the future and what this will look like in 2022, 2023, 2024, and UWM is the lead mortgage company.

Now, I want to take a quick moment to talk about a quick update on the all-in initiative that we announced on March 4th. A lot of people, a lot of the media, like to spin things and say negative things about the all-in initiative, questioning the decision process. I want to make sure everyone understands that UWM is very in tune with our clients, and it's been an overall huge win for -- not only for UWM because that wasn't the focus. The focus is on independent mortgage brokers and consumers. It's been overwhelmingly positive. We are very in tune with what our clients need, and of course, media and our competitors love to spin the story, but the reality is this: black and white numbers.

UWM grew 21%, 49 to 59 billion dollars. While one of our competitors, who are public, went down from 103 to 83 billion or in their partner network, Rocket orders went from 41 billion down to 30 billion. It's not a discussion whether it was successful or not. And other people can spin what they want. It was an overwhelming success, not only because of UWM's growth and some of our competitors' non-growth, if you want to think of it that way. But the reality is this, the line within the broker channel from a culture, training, licensing. Our clients are all-in with UWM, and they're all in for the broker channel just like UWM is, and that day, March 4th, was a changing factor for all the independent mortgage brokers in America.

And we're proud of made that decision that was very positive for the whole channel and consumers across America. This year will be our 7th consecutive year, being the number one overall wholesale under in the country, and we're very excited about the growth and continuing to lead the broker channel as a partner with so many independent mortgage brokers throughout the country. I'd like to summarize some of the production and look back on it by saying that a solid foundation, strong and established wage with our client's exceptional service position, [Indiscernible] to help us capture more market share in 2021, as we just did in the Second Quarter, but beyond going forward in the future.

So we're very proud of where we're at. At the same time, we have a lot of other good things going on. So now, let's talk about some other highlights. Return to work. So in June, we welcome back a lot of our team members. By July 16th, we had all of our team members back here in Pontiac, Michigan. Our culture is more alive than ever. At 200-acre plus campus, we're excited to have all 9,000. We have our clients coming in. We have hundreds of clients coming into our office every week, flying to Pontiac, Michigan, to get trained, to get coached, to learn how to grow their business. As they grow, UWM will grow, and the broker channel will grow.

And that's a big part of our story, and it's happening every single day. We continue to reinvest in our business and our people. We built some proprietary technology that will save us over $8 million estimated this year on some proprietary things we've done with some docs, document generation, and document storage areas that we've done. We've evaluated the feasibility, and we're looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments.

That's something that we've been working on, and we're excited that hopefully, in Q3, we can actually execute on that before anyone in the country because we are a leader in technology and innovation. We remain committed to our 9,000 team members, recruiting the best environment for collaboration and learning, and growth here at UWM. And in the Third Quarter, you're going to hear about some game-changing technology, an innovation that we're rolling out. We're very excited. It's not things that other people have done.

We're trying to be a leader once again, as we have been for years, and we've got some big things that will be announced in the Third Quarter. Now, with all that stuff, I'm going to shift, and as Matt mentioned, Tim Forrester, our CFO, could not be available today for this call, but I will talk about our financials and go through some of the details about our financials before we wrap up and take questions. First thing, I'd like to start with our buyback.

As announced in the last quarter, we were authorized by the Board of Directors to buy back shares the exact details on our filings, but in summary, we purchased just under 800,000 shares in Q2 and a lot more since. If you add it all back, we -- just purchased well more than 2,000,000 shares, and honestly, at these prices, if the float issue wasn't a big deal, we could even buy more, and we have the authority to buy more, and we'll continue to look at it, but we are obviously very aware of our investors' concern about our float, and that's why we can't buy even more shares back at this time.

However, we do have the ability to do so, and we'll continue to do so when that opportunity is there. Q2 highlights, net revenue, 485 million, a comparable quarter of 831 million last year. But remember, $290 million of that reduction was really the change in our accounting for MSR, just placed reduction and fair value of MSR within revenue rather than expense. So it's really a $290 million difference there to change. Our servicing income was higher due to our growing portfolio and interest income that filed our overall production volume, increasing substantially over prior periods. On the liquidity front, cash and cash equivalents remained over a billion dollars, which is significantly more than we operated in prior years.

Mortgage loans at fair value from 7.9 billion at the year-end of 12.4 billion on June 30. This increase is due to the overall production, our entry into the PLS market to garner better execution in certain instances than selling through agencies, as well as renewal of our jumbo loan program, which has been a huge success—doing about two billion-plus of that production per month. Loans sold through private markets remain on the balance sheet a bit longer than with sell agencies, but the loans remain fully hedged and are readily marketable.

So I believe this increase our risk profile in any way materially, and an added benefit increased our net interest income, which is something you can see in Q2, compared to prior quarters. The fair value of our MSR increase from roughly 1.75 billion to 2.66 billion as the unpaid principal balance increased from 1. -- 188.3 billion, 3 billion, excuse me, to 260.3 billion on June 30th. The weighted average note rate on our mortgage service portfolio is 2.97%, as evidenced by the fact that in the last 18 months, UWM has originated over $290 billion. It's a very young book from a seasonal perspective.

Credit quality is quite strong. Delinquency rates over 100 -- over 60 days was 1.18% down from 1.93%. In our prior call, we noted extinguished our MSR line credit in encumbers of MSRs, as well as issued debt to further support our investment in the business. The Board of Directors has approved and authorized a quarterly dividend of $0.10 per share of common A stock to shareholders of record closing business on September 10th to be paid on October 6th. Our costs per loan improved from -- up to about $1490 from 1662. This is such a key data point that people don't want to talk about. But that's 43 basis points.

So when we talk about our gain on sale of 81 and our cost is around 43 basis points, we can win and be profitable in all markets. These are all-time low margins, basically, and we're very profitable across the board. And with our cost originated in our proprietary technology, we're going to continue to win with our cost, and we can continue to put pressure on all of our competition, as you saw in the second quarter, as most of our competitors went down in volume, and at the same time, some of them even lost money, we succeeded and excelled because of our cost originated in our proprietary technology.

Now, Last Quarter we set guidance. And did we not only set it, but we also set higher guidance, and we beat it across the board. We realized record-breaking number's at UWM, and we're very proud of it. The solid foundation we put in place as producing exceptional results. Our technology platform, our operations, our team members, and what we're doing in the committee. We're very, very proud of what we're doing. Liquidity is strong. The broker channel is strong, and it's getting stronger, and UWM is going to continue to get stronger as we continue to make a big impact on the broker channel and all the consumers

they serve, and the Realtors, for that matter as well. One of the last points I wanted to leave you with is we were very, very profitable in one of the toughest market environments, [Indiscernible] margins, everyone else struggling, UWM, we won. And we're going to continue to win here at UWM. We're looking ahead, and we're in guide to 57 to 62 billion and, from a production perspective, in the gain margin between 75 and 100 basis points. We're excited about the third quarter, and I'm excited to take questions. So I'm going to turn it back over to you guys and take any questions you have about UWM and our second-quarter results or how we see the mortgage market playing out going forward.

[Operator]

At this time, I would like to remind everyone in order to ask a question, [Operator Instructions]

Your first question comes from the line of Steve Delaney of JMP Securities, LLC.

[Steve Delaney, JMP Securities, LLC]

Thanks. Good afternoon, everyone, and congratulations to management on other beating or meeting your May 11th guidance for the quarter. Very strong. Matt, I say that for -- you're welcome, for one reason and that we heard a lot of -- we didn't get a lot of clarity, but we heard there was a lot going on at the GSEs in terms of I guess you could call it pricing actions or capital markets changes.

It obviously had less impact on you than it had on others, it would appear, but could you share with us, just generally what was going on there, and what, I guess, we really need to know is how much of this was a one time pipeline impact and how much of this may be ongoing in terms of constricting the volume of business you do with Freddie and Fannie. Thank you.

[Mat Ishbia, Chairman and CEO]

Thanks for the question. First off, so everyone knows, Tim Forrester will be available for any questions this week; next week, if there are any follow-up questions that I can't handle financially or you want to hear his perspective, he's available for you. So he is always available. But to answer your question specifically, obviously, I know other companies have spoken about some changes, and we kind of look at those changes and see that that happens from Fannie Mae.

I can't control what Fannie Mae and Freddie Mac do and how that impacts our business, and sometimes there are things that happen, and it's retroactive. There also be some things that retroactive in a positive way also sometimes, and so there's gives and takes in it in a positive way, what I think the most important thing that's happening on this so that you won't see these types of things from some of our competitors or really with us at all. Obviously, we're prepared to be profitable really in all situations.

I talked about our cost to originate, but even on a compressed gain on sale, quarter like this one, the reality is this: the wholesale market is becoming more and more known as strong quality lenders, an opportunity for growth, and the best way for a consumer to get a mortgage. And so with that being said, we think a lot of the legacy, if that's the right way, legacy, the mindset around wholesale or around brokers or around some of the pricing actions that some of these places take are going to be a thing of the past in the very near future.

Now, does that mean it's going to happen in the third-quarter report? I don't know, but we do know that the markets are adjusting to that the best way to get a mortgage is through a wholesale lender, through an independent mortgage broker, and the quality -- and all the other aspects of a mortgage process, people are -- and that's why so many people are trying to join in the wholesale channel because it's such a strong channel. Everyone sees mortgage brokers as the future of the industry.

And so some of the legacy rules and some of the things other lenders have talked about that the GSCs might have imposed recently, I think those are short-term, and I think it one day we'll be talking on a quarter where they got reversed and all of a sudden, we picked up some money in our positive way, and that will happen then too.

[Steve Delaney, JMP Securities, LLC]

Well, it definitely doesn't sound like it puts you on defense. That's for sure. Whatever they did, and I guess what we'll hear about all that over time, but just keep moving it forward. I like that. And look, just a quick follow-up in the comment. Thanks for including the third quarter dividend in the press release, $0.40 a year. That's a nice 5% yield, one where the stock is trading today, and I think it will keep some people interested. So look, it's not -- it's a little, and I'll let others talk may be more about the buyback, but it's somewhat not completely unusual for a company to be paying a cash dividend, also, buying back shares.

But on the one hand, I was a little concerned that maybe the Board would change its view on the dividend and allocate more capital to shares. Do you think it's possible, I guess -- the Board will make a decision every quarter, but at least in this quarter for the Third Quarter, it looks like the board is doing both, paying the dividend and buying back shares. Is that a fair assessment?

[Mat Ishbia, Chairman and CEO]

That's fair, and I don't -- as the Chairman of the Board at this point, I don't see a reason that we would not pay the dividend. The dividend is a way to repay our shareholders, and I plan on that going forward. Obviously, we have to vote on it and talk about it every single meeting, but there's no inclination. There was no discussion or any concern about continuing it forward.

The buyback was approved for $300 million, and we have 24 months to execute. We executed a good amount on it. And once again, if the float was larger, I would be taking a lot more advantage of it because the share price is at right now. With the dividend, it's a ridiculously high yield, as you are well aware of. And we're happy to reward our loyal shareholders that way, and we're going to continue to do so going forward.

[Steve Delaney, JMP Securities, LLC]

Thanks for the comments, Matt.

[Mat Ishbia, Chairman and CEO]

Thank you.

[Operator]

The next question comes from the line of Henry J. Coffey Jr of Wedbush.

[Henry Coffey]

Good afternoon and thank you for taking my call and for collecting votes here. Given how your stock is trading relative to the book, and given the float challenges, I think the dividend is a terrific way to return capital. It seems it's one of the more attractive aspects of the [Indiscernible]. So if you're taking votes, I vote in favor of the dividend. On a highly technical area.

[Mat Ishbia, Chairman and CEO]

I agree with you, Henry, and I'm a large shareholder to use that were on the same team, you and me.

[Henry Coffey]

Yeah, right. I think you get to vote more than I do, sir. Smaller item, and we can get into this offline if it's -- but in March, your G&A expense was 16.8 million, and then in June, it was 42.1. Even though overall expenses were lower than we expected, I was just wondering what that one item was all about.

[Mat Ishbia, Chairman and CEO]

Yes. I think we can go offline on it, but it was just a reversal in the first quarter. So 42 was aligned with it. We -- are expenses actually went down as you saw. We just had a reversal on the Q1 of about 20 million, if I remember correctly, which puts us around 36, 37 on that same line item. So it was basically apples-to-apples, and our overall expenses have gone down, and that's why our cost originate has gone down as well.

[Henry Coffey]

That was very obvious. That it was -- all the other numbers moved in the other direction, and I was just curious about that one, but thank you.

[Matt Roslin, EVP of Legal Affairs and Investor Relations]

Q1 was a one-time out-of-period reversal over contingency. In Q2, there was a 5 million added, but when you net out, that line item is basically flat.

[Henry Coffey]

Thank you. On a more interesting topic, you made a comment in the press release in the second quarter. We began seeing the return from the foundation we've built, particularly growth in purchase products and also renewed focus on Jumbo, FHA, or government lending and manufactured housing. I was wondering if you could tell us a little bit about both -- about two of those legs; the Jumbo business, which I'm assuming is more of a PLS securitization, and then the manufactured housing lending, which is an area that's been really quiet for some time.

[Mat Ishbia, Chairman and CEO]

We're looking at ways to continue to help our clients serve their clients. And so, the Jumbo product has been a huge success. We rolled it out. I think I announced it. It came out on March 17th. So really, we didn't really get a full two quarters -- a full quarter of it because you don't really close loans at -- until the middle to end April on it. But we did, on average, I think in the second quarter, about $2 billion a month of that product. So just under 6 billion, I think it's 5.9 up the top of my head in those three months and growing in July.

And so we feel really good about that product. The nice part about that product is, it wasn't quite 50%, but it was almost 50% purchase, and so we talked about how it's going be a big purchase product as well, just like FHA and just like manufactured homes, is a much smaller product, but it's a nice way to take care of all consumers. Equitable housing is a big focus of ours, how we continue to do good things throughout the country. And quite honestly, a lot of our brokers just want to use UWM.

They want to have the consistency of our process and submit their loans to UWM. And so they have the confidence that the Jumbo comes, the UWM, their FHA due, their VA, of course, their conventional loans due. They have the consistency that when a reloader brings them a loan in a transaction, they know they can come in and out and closing 10, 12, 15, 20 days with UWM. And so we rounded out our products a little bit. We obviously are all-time record quarter of 59.2 billion, and we're going to have our biggest year in company history by a lot as well.

And so, the growth at UWM is not slowing down. And once again, rates just ticked up a tad bit, and everybody else fell off, and we grew. Wait till rates tick up a 0.5 or a point, and you'll see the value of these products along with our purchase focus, and UWM will not only become the number one overall lender but will continue to show great market share gains and a lot of great returns to our investors.

[Henry Coffey]

Given the -- how housing group is very bullish on manufactured housing because of the role it plays in affordable housing and the ability to give someone a house with a yard and security, I know Fannie has been a lender somewhat, Freddie Mac has it in, can you tell us in -- from your own perspective, what's going on with the GSCs and manufactured housing and what role United we'll be playing in that going forward?

[Mat Ishbia, Chairman and CEO]

Yes. We're working with the GSCs on the product. We're going to continue to offer the products and hopefully make an affordable home -- affordable housing more available to more and more people. And we think manufactured homes aren't going to become less of the market; they're going to become more of the market. And so we figured we'd get into it, making good inroads in it, make sure our processes are tight. And we actually had a lot of success in the -- we just rolled it out in mid-April.

So it's still very new from a perspective of it -- of our business. But you'll see more of it in the third quarter and more going forward is our commitment to Ecuador and affordable homes throughout America.

[Henry Coffey]

The gain on sale margin competition, the primary, secondary spreads have actually improved than reasonably stable in July. We don't quite know what to expect for August, but can you give us a sense of what the competitive environment looks like in August on the gain front?

[Mat Ishbia, Chairman and CEO]

Yes. We're looking at our competition, and we're continuing to monitor everyone. But the reality is we feel that we are guided in a really good place. We feel really comfortable with where margins are. We can play in a place that other places can't base on our cost to originate. We feel really good about the guidance I've given you guys along with -- on both the volume and gain on sale numbers. And so, I don't think it's becoming more competitive or less competitive.

I think the market is what the market is, and we obviously are the leader, which drives a lot of that volume and margin compression or increase. And so we're controlling it. We feel really good about where we're at, and we're highly profitable. The way I look at it is on our core earnings, we made over $350 million in the quarter, grew our market share substantially, grew 21%, gained $10 billion of volume, and all of our main competitors went down.

And so I feel really good about where everything is at. We can make 300, $400 million in core earnings in a quarter, and I feel really good about where we're at. And then when the big opportunities come to make a little more margin, you'll see these huge numbers that you saw the last couple of quarters before this.

[Henry Coffey]

Well, thank you, and congratulations on a solid quarter.

[Mat Ishbia, Chairman and CEO]

Thank you.

[Operator]

The question comes from the line of Doug Harter of Credit Suisse. Your line is open.

[Doug Harter, Credit Suisse]

Thanks. Mat, hoping you could talk a little bit about kind of how sticky you think some of these market share gains will be following the all-in need or desire to keep some of the price matches in [Indiscernible] for lacking a better word in the field you've been running.

[Mat Ishbia, Chairman and CEO]

Yes. It's extremely sticky. The loyalty on the all-in is black and white. That's not even whether it's sticky or not. Those people are all-in for the broker channel, which includes UWM and doesn't include two lenders that -- which we pointed out that we're not doing the right things for wholesale brokers. And so we made that stance. But the stickiness has been significant there with our clients. The growth has been significant with our clients.

And quite honestly, just the alignment across the board where, hey, if your all-in for the broker channel, we're going to help you continue to grow, we're going to give you training, we're going to help you build your business, help you with all aspects of your business to grow and succeed, and that's what's working, and those clients are growing faster than the rest of the clients in the country. And so we had a very few amounts that weren't in the all-in mentality, and that's perfectly fine.

But the great, great majority of all independent mortgage companies are, and that's why we've grown, and we will continue to grow as their partner going forward. And so that's a big part of it. And so how the stickiness, the price match and talking about those things. Those things aren't really driving volume. Those things are more of a confidence, and explanation for our clients to say, feel confident UWM 's prices great, our products are great, our service is the best, our technology is the best, our partnership is the best. Let's continue to work with UWM, and we can help you grow your business. And it's not only resonated with them, but it's also been overwhelmingly positive where they understand it, and they are all in with us, and we're helping them grow.

And so our prices are very sharp. Do I have to continue with price matching those things? Those things are very, very nominal amounts because, quite honestly, you saw our margin. Our margins are pretty good. Our prices are really good. And so we're going to continue to be aggressive with growing the broker channel because it's best for consumers, it's best for the brokers, and it's best for UWM. And our market share gains were substantial seeing, and I think we are in the first quarter, we were 54 billion out of the number 1 spot. And now we're 24 billion out of the number 1 spot. So, a $30 billion closing of the gap in one quarter wasn't so bad. Imagine if rates went up to 3.5 or 4, you would see a whole different game very soon.

[Doug Harter, Credit Suisse]

And then, just following up on kind of the margin outlook, I guess, what type of environment do you need to see to go from the 2Q 81 basis points towards the upper end of the guidance range of 110 basis points?

[Mat Ishbia, Chairman and CEO]

Yes, I think we guided to 100, so 80 to 100, and so do I think it will be 81 again? No, that's why I think we got 75 to a 100, actually, but I think I don't see margins going down. However, I don't see them going up much either. And so, the reality is this: margins are going to be in the range that we gave for this quarter. And I think I told you guys last quarter, and I believe it's between 3 quarters and 6 quarters. It could be at these all-time lows. But it's not going to stay down here very long.

When you see the overall year, base averaging in the first quarter, along with second, third, fourth, it will be on the lower end of normalized but not as low as you see right now. And I don't think there's that far off until the opportunity comes back to where it gets back to more normalized, which is our low to mid-100 numbers. But it's not going to happen in the third quarter. And I don't foresee it happening in the fourth quarter. And so there's a lot of dynamics that go into how we price, and how we think about it, and what we think the best way to deliver value to our shareholders, while at the same time taking on market share and continue to grow and meet the vision and goals of our Company.

[Doug Harter, Credit Suisse]

Thank you, Matt.

[Mat Ishbia, Chairman and CEO]

Thank you. Doug.

[Operator]

The next question comes from the line of Ryan Nash of Goldman Sachs. The line is open.

[Ryan Nash, Goldman Sachs]

Thanks. Good evening, guys.

[Mat Ishbia, Chairman and CEO]

Hey, how are you?

[Ryan Nash, Goldman Sachs]

Good. Matt, you just talked about the fact that you think pricing can stay at these levels for 3 to 6 quarters, and you don't think it's going to ease. It sounds like for the next two, so that will put us at four quarters, I guess. Big picture, what do we need to see to break this gridlock to eventually drive margins higher? And then, when I look at your margin, last quarter, and expectations for this quarter, it is a little bit lower than some of the others in the peer group.

So my question is, can you hold on to volumes as price eventually increases and achieve a margin in line with others, but also still drive the volumes? Thanks.

[Mat Ishbia, Chairman and CEO]

Yeah, Ryan. Thanks a lot. So first off, our margins are not lower than anyone in my peer group. So, we're on the same page. Home Point, as you know, was substantially lower than us and not able to be profitable at those numbers. We would be, as you know. Rocket who they mix and match their partner book. It's not really broker business, and their broker margins are actually well below ours. However, they have 300 basis points plus margins on their affiliations, whatever they call them. And they kind of jumbo them all together. They're not 116 basis points.

Their wholesale margins are well from our data, well south of 50 or right around 50. So just to put it, an apples-to-apples comparison. And so you'll see that across the board, we are the leader, the way that other lenders can get businesses, they have to be substantially better priced than us. And that's what's going to happen is, since they couldn't be, we grew, and they all shrunk. You're going to see that trend again.

And so unless they can be substantial and lower. Even Rocket, who was substantially lower Home point substantially lower, they still both declined. And so there's a combination of gain on sale, along with business strategy. The business strategy around the purchase and our focus on purchase is a big differentiator. Price sensitivity is not there as much on purchase. And no matter what, even if your price was 75 basis points, you were making 0 on it. Brokers won't place a purchase to certain lenders because they can't actually deliver.

And so that's why to keep telling everyone when rates went up 19 basis points. And everybody went crazy. Margins compressed, everyone did less business, everyone struggled. Wait till they go up 100 basis points. That's when we're going to be doing 120, $150 billion, maybe $200 billion depending on exactly where rates are, and everyone else will be well below us. And so gain on sale margin, we feel great about where we're at. No one can originate a loan at our cost structure. And so, we're going to use our proprietary technology to continue to enhance that.

And I'm going to use that leverage whenever I see fit and as the right decision for our business and our shareholders. And it was in the second quarter as we had an all-time record quarter, and it will be again in the third quarter, similar type concept where we will be successful. Other places will get a little bit better volume because rates got a little bit better for them. So they can feel good about it. There were sales for a quarter or so. But the reality is when rates do go back up, that's when U WM shines, and that's why Q2 was just a glimpse, a glimpse into what 2022 or '23 or '24 is going to look like with everybody else, Ryan ' and you're going to see that UWM is the strongest and most elite mortgage Company and we plan to prove it quarter-in, quarter-out.

[Ryan Nash, Goldman Sachs]

Got it. Thanks for the color. And then you guys had a nice quarter on the expense side. Can you maybe just talk about further opportunities to rationalize expenses? I think you talked about cost to originate going from I think you said 1,662 down to 1,490. I'm curious. Where do you think that could go as you guys continue to leverage the investments you've made in the business and the technology that you've developed? Thanks.

[Mat Ishbia, Chairman and CEO]

Yeah. Thanks, Ryan, I think that's a real key part that a lot of people don't recognize is that cost to originate that 43 basis points, whatever that number is. It's a huge, huge competitive advantage. And there's a lot of things we're working on right now to actually drive that even further down. Now, does that mean it will show up in the next quarter or the next quarter after that? We're going to wait and see, but we were doing different technologies that we rolled out. One of them I spoke to save d us $8 million. A couple of others that could say was 5 million a year, 2 million a year. There's opportunity there. And all those inches add up the feet, which add up to miles, and that's how we win. So we focus on every inch here, every day UWM.

There is a lot of things, but we are not confused about our competitive advantage, which is our technology. Our technology is elite. It is the best in the country, not only for our clients but internally as well. And that drives our cost to originate, which is elite too. It makes a big difference. And so everyone can look good when there's a lot of volumes because they are cost to originate, isn't going to choke them out a little bit. But as rates go up a little bit and your cost to originate is not that great, you have bloated infrastructure, you have different locations throughout America, and all these different places that you have to pay for, regardless of fixed costs. They struggle a little bit more, and you will see that in the future. We don't know when but you will see it.

[Ryan Nash, Goldman Sachs]

Thanks for all the calls, Matt.

[Mat Ishbia, Chairman and CEO]

Thank you.

[Operator]

The next question comes from the line of Thommy McJoynt of KBW. Your line is open.

[Thomas McJoynt]

Hey, good afternoon, guys. Thanks for taking our questions. Yes. As we've seen, you guys have continued to add to the team member headcount now up to about 9,000. Is that a signal that you expect to continue to be able to grow the dollar amount of your production, even when the market moderates a bit after more normalized levels?

[Mat Ishbia, Chairman and CEO]

Yes, thanks for the question. Nine thousand people, we got a lot of families that depend on us, and we're proud to have that many great team members joining our Company. The reality is we think that we are not in any position of concern around team members, and we're continuing to hire pretty aggressively. Now at the size of 9,000, you always have some people that attrition that happens, right? And so we're not -- I don't think we're going to go from 9,000 to 11,000 people this year.

So I feel really good about -- I believe, and I think I've stated this before, that we will become the number 1 overall mortgage company in America, whether it's next year, the year after, 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 right now while at the same time with our technology continuing to make things better and more efficient.

We don't need to add headcount to do more volume. And so, we're able to do more business as we stand today. And so we're not going to be growing the team member accounts aggressively, but we feel a really good spot. And so I don't think our expenses, which is a tie that team members, which is about 65% to 70% of our costs, are going to be going up much from where we see them today.

[Thomas McJoynt]

Great, thanks. And then just on a different topic. Yes. You saw the interest income increase, and you partly attributed that to longer hold period times. And just looking at the balance sheet, you can see the loans held for sale obviously jumped pretty significantly over the quarter from 5 billion to 12 billion. And then, you also noted that post-quarter end, you temporarily increased some warehouse funding facilities. I just want to see if those are all kind of interrelated and what the reasoning is for the longer hold period time s.

[Mat Ishbia, Chairman and CEO]

Yes. Thanks for the question. And so there's opportunity out there. Obviously, the interest income's tied to that. So that makes sense. You got that right. But the opportunity for us, we've always been so efficient with selling our loans to Fannie Mae, Freddie Mac, even Ginnie Mae very efficiently. We didn't have any programs that could not go to them. So, we didn't have jumbo back then prior to this. And so, and then also the PLS market was not something that we were accessing.

Now, all those things are in play. More jumbo, which is a couple of billion dollars a month. That generally just takes longer to be sold. And then, at the same time, we also have the PLS market where we have some investment properties, second homes that we can take out. We've done a couple of deals out in the market, and we're in the process of [Indiscernible], so we actually have to aggregate to hold those loans; although they can go directly to the GSCs, we can aggregate and hold them and actually have an arbitrage where we can pick profitability.

And so there's a lot of different spots in our business. That's one of them that you're speaking of. Not only interest income went up by a little arbitrage on some gain on the sale. There's a lot of response where we can pick up margin, pick up what people would think are pennies, but pennies times 60,000 loans a month or whatever the number is, 150,000 loans in the quarter, it really adds up. And so those are opportunities for us. And so we look at that, and we have a great capital market and financing that are looking at all of these inches we can pick up, and one of them was on the interest income that you saw and the arbitrage maybe on some gain on sale on some of these private-label securities.

[Thomas McJoynt]

Thank great. I appreciate that [Indiscernible]

[Mat Ishbia, Chairman and CEO]

Thank you.

[Operator]

[Operator Instructions] Next question comes from the line of Ryan Carr of Jefferey's. The line is open.

[Ryan Carr, Jefferey's]

Hi, good afternoon, guys, and thanks for taking my question. First is in terms of capital returning; you've had a lot of progress with respect to expanding the purchase volume and really being able to expand the momentum that you'd have following the all-in initiative. Just curious where you are thinking about from a priority standpoint going forward between the dividend buybacks and maybe reinvesting in the business and kind of where your decision making is in that respect.

[Mat Ishbia, Chairman and CEO]

Yes. Thanks for the question, Ryan. So first off, we're always reinvesting in the business. That's the main focus of growing the business to make sure there's a strong, stable business that has great returns for our investors. Then on the return of capital, the dividend we're very proud of, and we're going to planning on continuing that as we as I mentioned earlier because I think it's the right way to reward our loyal shareholders and we're going to continue. And based on how low the stock price is right now, it's an amazing yield for anyone who's buying our stock.

And so that's a great opportunity as well. And now, on the buyback, once again, I don't have all the levers I can because of the lack of float right now. I think that's actually some of the drag on our stock price, and so I have to figure how to get more float out there, not less. And so, therefore, I'm looking at all different ways, and I'm very -- being very creative to figure out ways to provide more float because that's something I told people during our roadshow that I, as the majority owner, obviously, would help provide more float to the market.

And so, I'm working on that. And so, it's kind of going a little counterintuitive because I love to buy back a lot of shares at prices below $10 like they are below $8, maybe even where it's at right now. And I love to be able to buy shares back. However, I have to be cognizant of the flow in honoring what I said I would do. So we're looking at creative ways to provide -- get more float out in the market, and at the same time, we'll continue to pay a dividend as we announced. And we are looking at all different opportunities to reward our shareholders. But investing in the business is what we've always done, and we're going to continue to invest in technology.

It creates a major differentiation and moat around our business as we continue to grow in scale.

[Ryan Carr, Jefferey's]

Got it. That makes a lot of sense. And kind of going off of that, you really have invested in growing the business and expanding it, especially given the growth in a very amazing, quite frankly, the success that we've seen to this point. When you also mentioned in the release kind of some of the savings that you're seeing from these investments going forward, the 8 million for the balance of the year. But how do you really think this was going to play in from a cost savings perspective, going forward, going into the environment that we're in, especially margin-wise?

[Mat Ishbia, Chairman and CEO]

I think it's going to be huge, and so the difference is, the 8 million is one thing is a couple of million here, a couple on there. And I know that sounds small, but that actually does add up, but the big stuff is on the efficiency gains. And so, we have some technology we're building proprietor ins house. That's going to help our team members. Let's just call it. We'll say conservatively 5% to 10% increase. Well, 5% to 10% increase of our team members, which means you don't have to hire as much to continue to grow. So we could really do instead of 20 billion in a month, we could do 30 billion a month with our team potentially right now and not have to hire more people.

That's a big difference, right? And maybe 30 billion's a little exaggerated; we'll call it maybe 25% above what we're doing. So we'll call it 25 billion to 28 billion, comfortably right now at UWM. And so that gives us a huge, huge upside, because of our technology. And people don't recognize it because everyone says they got great technology. Well, the way you know someone's got great technology is how long does it take them to close loans? We're at 18 days, and everyone else is at 47, 50, whatever they're at. And then what our cost originate. And those are the two factors that really determine whether you have a great technology or if it's just a sales pitch.

And so, we feel really good about our technology and where we're going with it, and how it's going to help drive our costs so that we can play in this and work 43 basis points. It's going to be really hard for somebody to compete with us if we want to really put pressure on people. Now we're not planning on doing that. We feel good about where the market is going and being able to make nice again on sale margin. But we have the ability to compete at the highest level with anyone to grow this business. And not only being the biggest but the best mortgage company in America.

[Ryan Carr, Jefferey's]

Absolutely and I would say in anyone that comes to visit and sees the momentum that you built in the technology, they would agree. Final question for me, just given where rates are at this point, on how they kind of back in, it's curious to see -- to hear what kind of trends did you saw throughout the second quarter. Did you see a ti -- like a pickup in volume and demand at least on the consumer side through the brokers, through the last half of the month, and what do you think at this point in the quarter? And we just demand why do rates have kind of come where they're at?

[Mat Ishbia, Chairman and CEO]

We see huge demand. So I know a lot of people will like to say the inventory's tight. And yeah, the inventory's tight, but there are people buying houses out there. And it's at a major, major level right now. And so seeing $24 billion of the purchase at UWM in the quarter, I think if I ever said to you guys in the first quarter, was that maybe we get the 15 billion one quarter this year. And so it seems 24 billion, massive demand, and the key is, other people aren't seeing it because people are going to the brokers.

Because the brokers are local, the realtors, those brokers get the loans close fast and efficiently. They don't want to go to those other lenders. And so the reality is the inventory in quotations as like that's the reason why that's not the reason why we had a pretty good purchase quarter. And when inventory continues to grow. Now, could we do more [Indiscernible] But we could provide? You more, but people are buying homes every single day, and the inventory out there does not have constraints.

However, it does not constrain you from being successful in the purchase business because so many houses are for sale and if you can close fast, which is a big differentiator for us, because people that are selling houses, they're getting cash offers, they're getting -- they're thinking to offer from our borders broker bars that say, hey, 15 days, no contingencies or 15 days appraisal only contingency. And they take that offer. We closed an informed 12, 14, 15 days. We're doing that a lot, which is giving our brokers away to get out there and get more business. And that's why our purchase business grew in our overall business grew in the second quarter.

[Ryan Carr, Jefferey's]

All right, thanks, Matt, and thank you, Matt Roslyn, as well, and congrats on the quarter.

[Mat Ishbia, Chairman and CEO]

Thanks, Ryan. Appreciate it.

[Operator]

The next question is coming from the line of Michael Kaye of Wells Fargo. Your line is open.

[Michael Kaye, Wells Fargo]

Pick up and competition in the wholesale industry. You would still -- that would seem to enhance the value proposition of that broker channel with lower mortgage rates offered to consumers. So I've been somewhat surprised when I look at mortgage industry employment data. When we saw mortgage broker employment growth, access stalls out over the last couple of months, I wanted to hear your views on why you think broker employment is slowed, and do you have confidence that the broker market is poised to continue growing?

[Mat Ishbia, Chairman and CEO]

Yes. Thanks, Michael; I appreciate the question. So I have zero confidence in any of the data that you have on the latter, but my perspective is that the data on the labor reports means zero to me. It doesn't even cross my mind as a relevant data point because I don't know where they're pulling up from a [Indiscernible] hold. I have data here which is a 70 loan officer started on broker shop last month, almost 200 loan officers, we help find a brokerage shop leaving retail.

I've talked to, and I'll say, 3 of the top 20 loan officers in America that are at retail shops, and they all have the intention of starting their own mortgage broker stop in the next 6 to 9 months, calling me personally and reaching out and visiting our campus. I have no question that the broker channel is growing, not even a thought. It's just -- it's like as sure as I'm sitting here, I know it's happening. And the problem is I don't know what the data of [Indiscernible] employment stuff. I can't really speak to that, but the reality is brokers are growing, and when rates go up, that actually in the -- you talk about the pricing competition, Michael, which is a very astute thought because one of those strategies around us having a lower gain on sale margins is the retail lenders that have branch models that are I won't say dinosaur models, but they kind of are dinosaur models.

The caliber retails the -- I think the guarantee rates alone depots the fairway independents; all nice companies do a good job, but the reality is those loan officers offering consumers higher rates, right? It isn't going to last long. Those [Indiscernible] in those companies don't have the infrastructure to actually lower margins down loan up. So, the loan officers are saying, hey, listen, I can't be working at this retail shop offering my consumer a quarter-point [Indiscernible] higher and rate while I could be offering a better rate or making more commission as an independent mortgage broker; I want to move.

The only reason they don't move is that their pipelines are so full. And so when rates go down, it's like, man, I got 38 loans in my pipeline. I'm not walking away from this right now. It's messy to move. And so what we saw in the second quarter is a lot of people reaching out. Rates got a little better at the end of the second quarter and early in the third quarter, so people pause on that, but the reality is, the more differentiation between retail pricing and wholesale pricing that there is, the more likely it that these loan officers migrate from retail to wholesale, and that will only grow our channel.

And so the brokers being 1 out of 3 mortgages or 33% by 2025, that's going to happen. We are making that happen. We are working with them and the loan officers transitioning is a big part of that.

[Michael Kaye, Wells Fargo]

Banks, banks, and that make a lot of sense. The second question you touched on it a little bit, but I wanted to get more perspective on that price matching promotion that you have. I believe I was originally slated to expire in June. That's been extended multiple times. I think the way this is the end of August. How often do you see broker clients actually utilizing this broker math, or is this more of a marketing tool to help your account execs rather than an actual negative from again, on sale margin perspective. And lastly, do you plan to extend it once again? Thanks.

[Mat Ishbia, Chairman and CEO]

Yes. Thanks for the question. And so, I have not decided if I'm gonna extend it once again. So, I have not made that decision yet. It is not a big drag on the gain on sales to answer your question. I'll call it negligible because the reality is our prices very good. Our brokers are very confident. Our brokers feel good about using UWM. Our salespeople have the confidence to go out and call them. And so it's really not been much of a dragon.

It has been more of a positive. And that's why I've continued it and extended it a couple of times. And so we'll continue to look at it and see if it has the value to continue it. Or if there's something else we look at doing to continue to help our mortgage brokers grow their business if they're growing, UWM is growing. And if we're growing, then our shareholders and be happy as we continue to build our business.

[Michael Kaye, Wells Fargo]

Thank you, Matt. Thank you.

[Mat Ishbia, Chairman and CEO]

Thank you for the questions.

[Operator]

The next question comes from the line of Sameer Kalucha of Deutsche Bank. Your line is open.

[Sameer Kalucha, Deutsche Bank]

Hi, thanks for taking my question. You talked about investments in technology, and in Q2, you launched the proprietary document management software. I was wondering if you could provide more color on that. And second, what is the impact of that? Does it change the closing period in any way? And how does it make the process more efficient?

[Mat Ishbia, Chairman and CEO]

Yes. Thanks for the question, Sameer; I appreciate it. The one we -- I spoke about on the call earlier today is just one example because we have a couple of different things out there, but the example you're speaking of is the way that -- it does not affect anything. It's basically taught our -- it's an internal system that we're paying a vendor, and we basically built it proprietary, made it better for our team members, made our people more efficient, made it more agile if you think of it that way for our clients because there's only a little used for our clients, but a little bit for them, but mostly internal.

And it saved us multiple millions of dollars, and we will continue. These savings are not just one-time savings. It's a monthly saving because we're paying a monthly fee. And as we continue to grow, those savings will actually be bigger. I think the $8 million is a low estimate. We are just trying to be conservative. But we know that the technology work we put in place does make an impact not only on the bottom line but on our efficiencies too.

[Sameer Kalucha, Deutsche Bank]

Got it. Thank you.

[Mat Ishbia, Chairman and CEO]

Thank you.

[Matt Roslin, EVP of Legal Affairs and Investor Relations]

We have time for one more question, operator.

[Operator]

Yes, we only have time for one final question. Your final question comes from the line of James Faucette of Morgan Stanley. Your line is open.

[James Faucette, Morgan Stanley]

Thank you very much. I'm glad to be able to wrap up here. I wanted to go back to your brokers and those relationships. And I'm wondering a couple of things. Is that first, any idea or sense of your share with brokers in the U.S. where you're at and potential to add incremental ones and then secondly, as you think about kind of growing the share of the broker channel itself, I think that the argument around, kind of the better pricing and even better service, in some cases, may resonate.

But I'm wondering if, if there are other things that you could or should be doing to support the growth of brokers, whether it'd be direct advertising or investment or some of these other areas beyond the support that you mentioned, even as new brokers look to set up their own operations. Thanks a lot.

[Mat Ishbia, Chairman and CEO]

Yes, thanks for the question. So on the -- our market share, because I think the numbers will come out soon, but I think we're going to be well north of 30% in Q2. If you think about it, the three or four top competitors of ours all went down, and we went up substantially. And so I'd be very surprised if we weren't well into the '30s and growing, and we will be at 50% of that in the coming years because brokers choose us. They prefer to work with UWM as long as we're in the ballpark on price while at the same time delivering our technology, our service, all being great partners.

Now on the partnership side, how can we help them continue to grow? We obviously have helped build a website called Find More. Please broker.com. We also have a phone number of -800 - brokers where people call in. They call us every day, where they call in, and we find them a local broker in their area where consumers can actually -- we can warm transfer them to a broker that's the right person in that community to help that consumer. And so we're doing more and more things, and we're going to continue doing more and more things on the marketing side.

But the reality is this; there are three ways we can help brokers grow. One is consumers, educating consumers because the reality is that you guys can help me want to if you will, I'll get it right on [Indiscernible] and through. But it's faster, it's easier and is 100%, it's cheaper. So it's, I won't say 100, I'll say 99%, whatever you want me to say. It's factually correct. But it's going to be cheaper for the consumer. It's a better deal for the consumer to go through a broker than to go through any of these large retail lenders. That's not an opinion; that's a fact backed up with data. The second thing is realtors, they're educated, and they're warning really quick.

They know when you can go call a realtor and find out who they want to -- They won't refer loans in certain places, and you know who those places are because obviously, they can't close purchases. And that's why a lot of people that are doing a lot of business right now are refi only and just refinancing their servicing book. That's not how we've done our business. And then the last piece is loan officers. I talked a little bit about earlier loan officers leaving and migrating from these retail lenders; that's going to happen, right? Because it's best for the LO, it's best for the consumer.

Why wouldn't it happen? It's only not happening because there wasn't a big difference in retail and wholesale pricing. We fixed that. And the second reason was they're so busy because they have so many loans in their pipeline. Well, rates going up will fix that. So when rates tick up, you will see a major migration over. And so, all these things will help move the channel in a positive way for independent brokers, and a rising tide will lift all boats, and all the brokers will continue to grow and thrive. And we're proud to be part of that with them.

And so, I think that's all the questions. I don't know if -- we're going to turn it back to the operator, but before I do, I just want to say thank you all for your questions. Tim Forrester will be available if you want to talk about anything else. I think I answered everything as anyone needed, but we're here for you guys, and Matt Roslin, my Investor Relations EVP is always available as well. But we appreciate the support, and we're glad to share another record-breaking quarter here at UWM and excited to talk to you again after the third quarter and share our results again. Thank you for the time.

[Operator]

This concludes today's conference call. You may now disconnect.