UWM Holdings Corp

NYSE:UWMC

Earnings Call Transcript 2021-Q3

[Operator]

Good morning. My name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

Thank you. Matt Roslin, you may begin your conference.

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

Good morning. I am Matt Roslin, EVP of Legal Affairs and Investor Relations. Thank you for joining us and welcome to the third quarter 2021 earnings call for UWM Holdings Corporation. Before we start, I'd 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. Please also note that along with the earnings release we posted on our Investor website and filed the slide deck, there will be reference in our prepared remarks.

I'd now turn the call over to Mat Ishbia, Chairman and CEO of UW Holdings Corporation and United Wholesale Mortgage.

[Mat Ishbia, Chairman and CEO]

Thanks Matt, appreciate it, and thank you everyone for joining the call today.

It's great to be here after another outstanding quarter here at UWM. Before we get into the details, want to thank everyone of you at UWM pretty do together here. Our team, our broker clients growing their business, everyone's working hard together and we appreciate our clients loyalty along with our team members continued efforts. We had another record-breaking quarter. We are on our way to our seventh consecutive year of origination growth.

I don't think there is another lender in America that can say that, since 2014 every single year we've grown here at UWM along with our second consecutive record breaking quarter along with our biggest purchase quarter of all time. Last quarter, I explained why purchase production is such an important measure of lender's health, especially in a rising rate environment, not the percentage, the actual volume which we're to go deeper into that in a minute, but let me go through the third quarter first.

First, we delivered another record quarter, $63 billion in production, beating our guidance of $57 billion to $62 billion and up 6.4% from the $59.2 billion prior quarter, which was a record as well, $26.5 billion of that was purchase, another record and up 10% compared to the prior quarter. Both of those quarters records were records, very, very proud of our purchase production. We're very proud to share it because we are the number one purchase mortgage company in America by standards of origination.

Our gain margin, gain on sale was 94 basis points up from 81 in the second quarter and the higher end of our range of 75 to 100 from the guidance that we guided in the last quarter, that's a 16% growth in our margin compared to prior quarter. As I said before and others indicated in their earnings call, UWM is not a victim of margin compression. As a number onw wholesale lender in the country, we control the margins and other lenders have to react to us based on what we do.

We are 100% wholesale and while our margin are in the mid-90s other lenders will continuously be lower than ours to remain competitive because of our amazing service levels, technology and speed to close loans. We make the process faster, easier and cheaper for mortgage brokers and thus we are winning in this wholesale channel.

We've seen a cycle where margins went from all-time highs to significant lows and now we're seeing some normalization sooner than most people expected. Realize these margins are part of strategy we plan, we continue retail mortgage margins are 350 to 500 which is thousands and thousands of dollars more out of the consumers' pocket on most loans, so it's more expensive to go to retail lender. Well, by keeping wholesale margins very low, its long-term business development play to help the wholesale channel.

Brokers offer consumers lower cost loans and keep the pressure on retail lenders. We expect the channel will continue to grow because as loan officer will continue to leave the retail channel and drilling the broker channel which is good for consumers, it's good for brokers and it's really good for new UWM. Once again, it's all part of the strategy to help brokers compete and at the same time grow the channel, which is a winning play for UWM. Our margins are more than just the numbers you see, it's a part of the strategy that's been working very well for years here at UWM.

Now, let's speak about net income. We delivered $329.9 million of net income, which is a great number compared to the previous quarter of $139 million. Now, last quarter, I talked about as a CEO I view our core business, I focus on things that I can control, I can't control whether rates go up or rates go down and how the MSR values go.

However, we had $170.4 million decline in fair values of MSR. So, when I take that out and add that back into our $329 million, it puts us right around $500 million of core earnings. Once again, that's what way, I look at it, that's different than GAAP, that's how I run this business, knowing that we're very successful and profitable going forward.

The quarter also looks great year-over-year up, 16% in overall production, 119% in purchase production, more telling is when you look at our performance relative to our peers from Q1 of this year through Q3, the first and fourth quarters are typically down in the mortgage business because of cyclical industry and usually purchases are slower in the first and fourth quarter, you can understand all the winter and all in-school being in session. But, in good quarters, our second and third quarter effect everyone to go up, but everyone else went down in those quarters except for UWM.

So, taking a look at our numbers from first quarter to second quarter to third quarter, is really an amazing thing to see us continue to grow and the rest of the market not. As you can see in earnings last three and four, we went up almost 30% from Q1 to Q3 and most big banks were flat, while the rest of the largest lenders were down between 10% and 25%.

Once again, rates just picked up, so it's because rates picked up just a bit, if rates continue to rise we will see them and with the tapering is said to begin, all these things have, we're going to see who really is the strongest mortgage coming in America, and that's where we want to position ourselves as not only the biggest but the best mortgage company in America, and we're proud of that.

As you've seen, we're guiding our production down based on the queue sequentially for the fourth quarter, but it will still be larger than the first quarter, which is a really important thing to note, as I don't think there is anyone in America that will do more business in the fourth quarter, like we will at UWM in the first quarter of 2021. So, we will be the only one that will show the strength of our business here at UWM.

That being said, we are extremely excited for 2022 because when you combine rising rates the power brokers embedded in the communities and UWM's low cost and power of our speed, service and technology it's a recipe for mortgage brokers in UWM to win together, that will happen in 2022, we're going to finish our all-time best year in 2021, we're excited to continue to gain a massive amount of market share in 2022, especially the type of purchase.

Let's dive deeper into purchase, because when rates are low, there's plenty of reprice to go around, but when rates rise we price slowdown or even disappear in some situations and purchase production is essential to lender's viability.

On July 1, the third year fixed rate was still in the high 2s, now at the Friday I believe it was like 3.09, 3.10, it's rising, now still very low in the overall context, but watch what happens if rates go to 3.3, 3.5, 3.7 and with the Feds confirming their catering you know that's what a lot of people are projecting. This plays into our strength as the number one purchase lender in America.

We have a strong record of sustained growth over the last four years and we'll continue to grow on the purchase side. Now, let's talk about the purchase volume, not the purchase percentage because purchase percentage just means I did less refis is what a lot people will tell you, we're actually talking about purchase volume, the pure number. We delivered over $50 billion in the last two quarters of purchase and we're not shy about sharing those numbers because it's really showing the health of any mortgage coming, not just UWM, can you originate purchase business.

History shows that we perform great in a rising rate environment, purchase oriented, again in 2018 rates went up, we're on a few lenders that grew and made money, while the rest of the industry really struggled on the origination side, not just hey we make money because the servicing book goes up, we make money on the origination side.

My point earlier about how we're the only mortgage company that's grown every year since 2014, making this the seventh consecutive year of growing mortgage origination, that's because in a rising rate all reducing rates environment UWM is going to win. Unmatched speed, great rates and low cost and outstanding service in that combine that with the local community focused on mortgage brokers is really a powerful combination.

You guys know, we talk about speed a lot, 15 consecutive quarters of less than 20 days application to close most lenders are 40, 45, 50 maybe even reaching higher 50 to 60 days for a long time over the last couple of years. The speed and service are referral catalysts for brokers. We hear anecdotes every day from where borrowers real like appreciate quickly, how quickly to close loans and help them get in homes and get paid faster. This helps consumers, brokers, loan officers at the broker shops, real estate agents and overall wholesale channel.

Our client service continues to be world-class with our year-to-date net promoter score of plus 87.1 which is off the charts for anyone that really follows Net Promoter Scores. Now, let's talk a little bit about technology.

Technology is a huge catalyst of our success and will continue going forward. Historically, we've leveled the playing field for mortgage brokers by providing tech that's previously only been available to loan officers at banks or mega retail lenders. Things like [indiscernible] Brand 360 among others have given brokers access to world-class point of sale, CRM loan origination systems that help them not only compete, but win when going head-to-head with retail loan officers.

In the third quarter, we took it to a new level and build multiple game-changing technologies and process technologies that will change the game for UWM and the brokers. The big one was called BOLT, another one was called Appraisal Direct, which I'll talk about, but BOLT, I'm telling you right now is a massive, massive change in the mortgage landscape and we'll be talking about for years and years to come.

And, I don't believe anyone will be able to match it for two, three, four, five years at the earliest probably more between 5 and 10 years, it's that good a technology - proprietary built using OCR, ADR proprietary technology to help give broker, clients certainly an answer on a loan within 15, 20 minutes.

Our underwriters already lapped the competition and speed without sacrificing quality and now BOLT takes it to a whole another level where we can review the documents, review the work faster and easier. So, think about the process as it doubled down on the speed advantage basically. The early signs indicate that will be doubled, underwriting productivity in the next year it seems. Well, think about it - all underwriters already underwriting more loans than our competition; you can see that in our cost per closing.

But, at the same time, you can also see that if we double that, we're going to exponentially extend it, and if that helps us win in the rising rate environment again - huge thing. BOLT is going to be the future 2022, 2023 and beyond, and it's a huge, huge leg up on the competition. And, I also want to talk for a second I've said about Appraisal Direct. It's really a technology but really a process change. This has been the biggest pain point in the mortgage space for the last year but even beyond that. And, so what we're doing is trying to help, with great technology and putting the UWM process in place to make process better for operators, paying appraisers top dollar.

We are not taking a fee on these things like a lot of other companies, we don't take a fee, we want to make it sure the process is faster and easier. It plays right into our brokers who have better mindsets helping the brokers win across the board. And, so it's a big thing BOLT, Appraisal Direct, we also have the thing called the source. There's a lot of big technology we came out with in the third quarter and that stuff took a year plus to build a lot of this development and so it's really big stuff and we are very excited about what's happening.

You'll hear a much more about BOLT for years and years to come as this is really a game-changing technology that no one will be able to match for years and years to come. Now, I'm going to turn it over to our CFO, Tim Forrester, for more details about our financials.

[Tim Forrester, CFO]

Thank you, Matt.

The third quarter was successful for the company in a challenging environment. As Matt noted, our volume was a record led by continued growth in purchase volume. The competitive environment still has margins in a lower range as compared to the record margins we saw in the third quarter of 2020. However, we experienced improved margin over the second quarter of this year, as rates fluctuated and margins improved. The increased servicing portfolio delivered significantly greater revenue this quarter, as our portfolio continues to grow.

We also experienced improved overall interest income, which expanded more than interest expense as we self-funded more loans where we deployed available liquidity to fund mortgage loans. On the expense side, our staffing levels moderated a bit, leading to lower overall compensation expense, especially compared to prior year levels that included some volume-driven incentives.

We did incur more marketing expense in the quarter as the impact of the pandemic continued to lessen and we were able to spend more time supporting and training with our brokers. Our servicing cost increased, the trail of our revenue increases over comparable prior periods. This is an important feature both from an earnings view and also a cash flow perspective. As our servicing portfolio continues to grow, we continue to benefit from the cash flows, as well as the contribution for our performance. The key is our revenue growth has outpaced our expense.

The MSR portfolio is approximately $285 billion at September 30, with a weighted average interest rate of 2.95% down from 2.97% at June 30. Our forbearance rate is roughly 83 basis points.

So, we are continuing to observe better asset quality than the industry overall. As it has, historically, our delinquencies remain quite low. If rates continue to increase as expected with the announced tapering plans from the Fed, our servicing book becomes further insulated for potential downward pressures on valuation loss. The WAC or weighted average coupon is already well below the market and further upward movement on rates make it that much more attractive.

Now, we saw a modest amount of MSR in the third quarter and re-established relationships with several potential investors on terms we support and believe are favorable to our relationships. While retention of MSR is our preference, we balance that position with tactical sales to ensure we have access to markets if we anticipate the need to sell more MSR and to maintain appropriate balance or origination. To remind everyone, the pickup in sale is excluded from core earnings.

In the third quarter, we continue to deliver private label securitizations and work toward aggregating potential additional offerings for the fourth quarter, diversifying our means of disposition. While our collateral is primarily agency eligible, we continue to evaluate improved execution as well as alternative sources for putting our loans in the end investors' portfolios. Our unsecured debt continues to perform well and we recently received ratings upgrades on issuances, aligning with the outstanding bonds with our issuer rating. We believe these outcomes are result of continued operational performance, as well as our credit discipline.

Cost per loan. Again, cost per loan was solid in the quarter. We experienced cost-per-loan well inside our target of 1,500 which continued our performance from prior periods and maintaining discipline on spend, while our operations continue to execute efficiently. As we continue to invest in technology and innovation, we seek to improve such cost performance. As a reminder, when we discuss cost-per-loan, ours is a fully loaded cost without exclusions, excluding allocations on an incremental basis - it is all in.

As noted in the press release, the Board again authorized a regular dividend to be paid to our public shareholders consistent with our track record over our entire history as a publicly traded company. We are comfortable with the amount and timing, believe it is appropriate to reward our stockholders.

Also as noted in the press release, we have acquired approximately 2.7 million shares for our approved stock buyback program for roughly $21 million to date. We will continue to evaluate opportunities for buying back more stock as authorized within the parameters of the Board's approval as it represents an attractive return for us to do so. Those efforts will continue to be balanced with our desire to maintain or even establish more float for investors and maintain our profile and availability for future long-term investors.

We continue to evaluate the propriety of additional debt issuances to align with our MSR growth, tempered with the balance of debt levels relative to equity and the overall size of the MSR asset. We believe we are operating prudently, but embrace potential additional debt as it allows us to grow our MSR portfolio and benefit from the positive cash flows mentioned earlier.

Now, I will turn things back over to our Chairman and CEO, Mat Ishbia, for some closing remarks.

[Mat Ishbia, Chairman and CEO]

Thanks Tim, appreciate it.

As you guys just heard, our third quarter was a record-breaking across the board, we're very excited about it. The big part I spoke about is purchase. Purchase volume is a leading indicator of a lender's health and the most critical proof point of whether we can make money in a rising rate environment or lower rate environment, whether it's a $4 trillion industry or $1.5 trillion industry, it's a big difference.

Refis are easy, purchases a lot harder; it takes more expertise, more detail and UWM shines and so do independent mortgage brokers - they make the process faster, easier and cheaper. The broker channel will grow share next year and beyond as purchase becomes a bigger percentage of the business and retail loan officers are going to convert over as I talked about earlier.

As we look ahead, we expect to deliver between $52 billion and $60 billion in the fourth quarter of volume. That's going to be bigger than the first quarter; first quarter we did about $49 billion. There'll be no other lender in America that actually can do more volume in the fourth quarter than they did in the first quarter - we're proud of that. I'm also guiding our margin to be between 85 and 105 basis points, which is a higher guidance than I gave 75 to 100 for the third quarter.

We have seen the margin compression loosen across the board and I see that it'd still be lower than the norms, but maybe not as low as we had expected or people have talked about for a while and we see loosening up sooner. We're very excited about the fourth quarter but even more excited about 2022. UWM is laser-focused on showing all of you guys on this call that we are the elite and best mortgage company in America, just like our clients, brokers and consumers already noticed.

We are going to one day be the number one overall mortgage company in America from a volume perspective, but we will never sacrifice the loan quality and the process and the technology that we put in place and to do it. So, we will not lower our FICOs. We will not do different things to become number one, we're going to stay as being the best and soon be the biggest and the best.

We appreciate the partnership with all of you and we're looking forward to taking questions and I'm going to turn it back over to Matt Roslin.

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

Well, thank you Mat. Operator, at this time, we'll begin the Q&A session.

[Operator]

[Operator Instructions] Your first question comes from the line of Brock Vandervliet with UBS. Your line is open.

[Brock Vandervliet, UBS]

Mat just circling back on your closing there before the Q&A, see margin compression was I think sooner. Could you just put some greater, greater, greater dialog and description around that characterization.

[Mat Ishbia, Chairman and CEO]

Yes, thanks Brock. Thanks for the question. We're seeing, and I think the last quarter I thought that maybe it would be a prolonged lows and I said from all-time highs to all-time lows and we're seeing that loosen sooner than the - than we expected maybe and a lot of diverse back and so you saw our margins were strong relative to the second quarter, and the same time I don't think they're going to get back to the normalized numbers that we've talked about in the fourth quarter to first quarter. However, the prolonged margin compression does not seem as likely from where I sit today as it did maybe 90 days ago.

[Brock Vandervliet, UBS]

And, as a follow-up, it seems like for many investors who've got a bit of a pain trade going on right now with treasury rates headed down not up, could you talk about as you look at that guidance you've given for the fourth quarter what would kind of put you towards the bottom in the top of those of those guys? Can you kind of book end it a little bit?

[Mat Ishbia, Chairman and CEO]

Yes, you know, it's obviously going to depend on a couple of other factors but the reality is where the market is right now, we feel comfortable with our guidance. And, at the same time, we obviously have a month and about 10 days under our belt understanding what we've done in October, and where we're going to be. And, so I think that the numbers 52 to 60, 85 to 105 seem in the right ranges; however, there is still the hardest parts predict Thanksgiving, Christmas, the slowdown, what rates do, how loans close, MSR values, a lot of different nuances that can make it.

So, I think it's good to have the full range and go as low as 85 as high and as high as 105 and the margin as low 50 to as high as 60 on the volume. I feel comfortable, we are less cyclical than the rest of market, but the purchase market is I already said the big thing to look at it first quarter, fourth quarter usually the slower quarters for mortgage, second and third quarter the better ones.

We're going to beat our first quarter from a volume perspective and I don't think anyone else in the country will able say that after this quarter.

[Operator]

Your next question comes from the line of Steven DeLaney with JMP Securities. Your line is open.

[Steven DeLaney, JMP Securities]

Congrats to you and the team on another strong quarter. I was wondering - sure, I was wondering if you could comment sort of generally on the health financial condition of the broker industry and kind of just what you're hearing from your partners, the Group's coming off a couple of very strong refi years as we all know, so it's - we're still sort of going into adjustment to the new reality, and just share with us what you're hearing from your partners and also give us maybe an update on your broker partner count and where you expect that might go over the next year? Thanks.

[Mat Ishbia, Chairman and CEO]

Yes. So, thanks for the question. Appreciate it. So, we're seeing part of the strategy and part of understanding our business model is rates going up, rates going down, how do we react and how do we put ourselves in position to win. The broker channel is growing. What we're seeing right now is when rates go up and they started to go up couple of months ago and obviously have kind of been floundering in its low 3% range for a little while, but as they go up the retail loan officers convert over to brokers and they actually are doing that right now.

Usually, the first and fourth quarter are the best time reps because in the second and third quarter when things are hot people aren't really moving companies as often. So, right now, we see a really good tailwind on that dynamic and so more loan officers during the broker channel leaving the retail channel, which will then expand our pie. As I've mentioned earlier, whether it's a $4 trillion a year or $1.5 trillion a year, how is that going to impact UWM, it's not going to impact us like everybody else, because big part of that is the $1.5 trillion year will be a lot bigger percentage broker than a $4 trillion a year because of the refi, the service - service refi and the migration of retail although.

So, we feel really good about that. Our broker count is very strong. I don't have the exact number, but we are getting about 300 to 400 people loan officers into our office, I think it was 294, actually maybe 304 coming in our office to get trained. The broker panel, it's just you feel the energy of more loan officers want to be part of the broker channel. So, I see a lot of upside across the board and our broker channel is very strong, it is strong as it's been since pre 2008 and we're excited to continue to grow and we're obviously the leader by a long shot in the wholesale space, and therefore we'll grow with the channel

[Steven DeLaney, JMP Securities]

So, it sounds like you're saying you see the size of the wallet growing for the broker channel given the current broader environment in mortgages and you would expect to - your share of that increasing broker size of the pie to grow as well.

[Mat Ishbia, Chairman and CEO]

Exactly.

[Operator]

Your next question comes from the line of Henry Coffey with Wedbush. Your line is open.

[Henry Coffey, Wedbush]

Good morning and thank you for taking my call again. Congrats on a great quarter. I think we've all learn about this channel. I did have one friend close three already, got his loan done in two weeks, so congrats on a great business.

[Mat Ishbia, Chairman and CEO]

Thank you Henry, I appreciate that.

[Henry Coffey, Wedbush]

So, getting really picky technical number one question, number one, you had $170.5 million decline in the fair value of mortgages, how does that break down Tim between fair value marks and amortization?

[Tim Forrester, CFO]

I think, it's a combination of, I don't think it's amortization decay, payoffs along with the write-downs on the fair value assets.

[Mat Ishbia, Chairman and CEO]

Yes, and [indiscernible].

[Tim Forrester, CFO]

Yes, and actually for the pickup in 2021, there's going to be a collection the realization of cash flows, so there's the majority of its a realization of cash flows are pay-offs, which I think it's $217 million and then there is the assumptions that the market assumption changes that happen that we have no control over, it's about $61 million that increased. And, so that's the majority of changes. And, then there is realized - we had some sales of the MSR that affected it as well. So, when you look at $170 million a majority of that's the collection but really the collection is about a third of that 217 and two thirds of that is the pay default.

[Henry Coffey, Wedbush]

And, your thoughts on why speeds are sort of high still, are you actually seeing healthy levels of refinance from your internal servicing?

[Mat Ishbia, Chairman and CEO]

Yes, so Henry, no we're not and the speeds are not high actually the speeds are the lowest they've been in two years at UWM and we're actually lower than the market right now. So, you actually seeing a big part of that is because our WAC or weighted average coupon is 2.95% and the market's right now in the 3% range. So, therefore, a lot of our loans are not in the refinance in the money if you think of it that way and so we won't - we'll speed up loans always refinance of course; however, we're excited to see a slowdown in that in the fourth quarter and beyond.

[Tim Forrester, CFO]

And, in the third quarter, you're going to see a little bit of that prepayment that I mentioned, the payment forth, that's really a lag through the quarter. So, when we're looking at prepayment speeds now and we look at some of the reports that come out in industry and really kind of this week speeds have really declined, especially for us in a very attractive level.

So, what we're reporting for the third quarter is reflective of what actually gets paid in July, August and September and not affecting the books then which is an event that really comes from some interest rate movement really from June and earlier in the year even July.

Some of our portfolio that we may not have had the fortunate circumstance be able to pull back through a broker, those things lag you, Mat mentioned the 60 days it takes for others to execute a refi or a loan, now if it would have gone through us it probably would have been done in 10 to 14 days, but that's a little bit of a lag you'll see, and in the third quarter that's reflective of the July, August and September as well.

[Henry Coffey, Wedbush]

And, now speeds appear to be getting better, you're right, that's going to be extremely helpful. I think Mat, you're probably sick and tired of asking - answering this question, but I'm going to ask it anyways, so 2019 was a growth year, 2020 was a growth year, some people depending I know you talk to 2021 is going to be "an up year" that's what Inside Mortgage Finance is saying that a lot of people think their numbers are pretty aggressive, others are saying that it's going to be kind of a flattish year and then everybody has a pretty negative view on 2022 down 20, down 30, I mean who knows what the final numbers are going to be.

How - what is the - what are the elements that drive in that kind of market, what are the elements that drive how you UWMC approaches things, you - how do you build we now how you build share, how do you build volume, how do you have to staff or re-staff for that kind of market? What does technology do to help you kind of manage through that cycle? I mean it's - there's going to be some headwinds out there, how does in absolute dollar terms, how does UWMC manage through those headwinds?

[Mat Ishbia, Chairman and CEO]

Yes. No. Thanks for the question Henry, happy to answer it and go through it with you and anyone that wants to talk about it. So, couple of things, the '19 and '20 years and '21, one thing I'll mention on whether it's Inside Mortgage Finance or a lot of people's numbers it is a lot of double counting in there with correspondents, they're actually not originating the loan. There is no origination being done, it's being done by a company who sells it to them.

So, I think sometimes it's double counting going out which makes the numbers look really big or they're really not that big even in this year, the year we're in right now. It's actually how many actually were close, you can't close a loan twice, so if one lender closes it and sells it to Wells Fargo or PennyMac or another correspondent both companies are counting it and you guys all look at that as origination, but it can be only originated one.

So, there's a lot of double counting, which makes it the industry look like it's bigger than it really is right now and that's one part that kind of address your 2019-20 and even this year '21 across the board.

Now, 2021 will be an all-time record year at UWM. We've already exceeded what we did last year and we still got two months left to go and so we're seeing all-time record here at UWM by a long shot. Now, to think about next year and how do you handle the headwind, there's a couple of things. Let's talk first, technology; we differentiated with technology while 1200 technology, people here are building stuff from start to finish.

I talked about BOLT, BOLT is a big play because it makes - it gives the brokers certainty, it gives the brokers the ability to give answers to realtors and consumers quicker and the same time it helps control cost to originate because our team will be able to do even more loans per day per person and so people don't understand the whole gravity of that technology, but you'll see that next year at this time and for sure in '23.

And, so going into a tougher year just think of it that way, I think that BOLT is a huge part of it, so technology, one thing. The other big one is, I kind of talked about the last question was about loan officers converting as the market shrinks and those easy refinances are not in your pipeline, you start to look around and say why are other loan officers offering consumers better deals, because consumers get better deals through a broker.

And, so those loan officers are starting to transfer over to broker shots whether they start their own or they call us and we help place them at a local mortgage broker in their area and then therefore they get better rates, they get better technology and they're able to give better service to their clients, it's a win-win-win.

But, they don't really leave when they got 31 loans in the pipeline because rates are 2%, because it's hard to transfer and leave when you're not an independent and that's what brokers are and retail loan officers are not, so we're seeing that transfer. And then, the third piece is purchase, I talked about it a lot of my prepared remarks, which was it's not a purchase percentage game, it's a purchase volume game, and we did over $50 billion in the last two quarters of just purchase volume.

And, so the real thing is, there's going to be less business in 2022 than there was in 2021, we all know that, but that does not mean UWM is going to necessarily do less business. Now, what I look at it is when we do less business, when we would do more, how is the market going to shake up, there's a lot of variables.

But, here's what I do know and you can mark this down and you can hold me accountable next year. Our market share will go up drastically, we will do more business in broker channel overall, the broker channel will do more business but UWM will do more business as a market share percentage than other companies next year, and that's because everyone else who's living on this servicing book churn and burn the refi those guys - their day comes to an end eventually when you're WAC or weighted average coupon is lower than the rates in the market. There's only so much refinancing left out there in those situation.

Now, I could be wrong and rates go to 2%, everyone has had a heck of a year again, but if rates go to 3.5%, you're going to really see where people are and that's where we're going to shine and so we're excited. Converting retail alone, the technology differentiator, which helps on cost to originate and making the process faster and easier, and in the purchase market those all things are going to be a huge part of 2022 and beyond.

[Henry Coffey, Wedbush]

And, just one last question. In the broker channel, there are so whole new sub channels opening up or is it more just you win one person at a time and people a day whatever the pace is instead of one at a time sort of thing or are there new sort of sub channels opening up that you can explore?

[Mat Ishbia, Chairman and CEO]

Well, hopefully by the next call, I'll be able to share with you. First off, it's usually you're talking to one person, however, we're talking to a person who is leaving and I won't mention the company or the names that people are obviously leaving and he runs a large branch of 18 loan officers, the whole branch is coming over the broker channel, he's starting is own brokers and all 18 of those will come with them, right.

So, those examples are not - I'm talking to one or not but our team is talking to one but it's 18 coming with him. And, same thing was, is one we, loan officer that's just leaving and wants to get placed, this is the catalyst. As once, they join our broker shop they call their friends that used to be at the retail shop and obviously I won't name names and then they all start migrating over and so you're going to see a lot of it, and I'm going to get more colorful data for you guys to see it, and I'd love to get you to talk to certain loan officers and see that, but this is not just a trend.

This is what's going to be going forward, because as I've said before, it's better for a loan officer to work at independent mortgage broker shop and it's better for consumers to go to independent mortgage brokers, that channel is going to grow and we're going to grow with it.

[Operator]

Your next question comes from the line of Bose George. Your line is open.

[Bose George, KBW]

Good morning. I just wanted to go back to the purchase market information, I mean your share looks like it went up pretty meaningfully. Just can you talk about strategies for doing that, are you attracting brokers who do more purchase, you're helping your brokers do more, Yes, just any color on the impressive growth in this quarter?

[Mat Ishbia, Chairman and CEO]

Well, thank you for the question and the comment, appreciate both. So, it's a combination of a lot of things, one is how do we help our current loyalist, our current brokers that do lots of loans with us, every single one, how do we help them getting with real estate shops? How do we help them get in with more purchase business? And, so their strategies - we actually did a webinar couple of days ago and the last week about this and I told him, one of the best loan officers, they're actually two great loan officers in the country and talked about purchase strategies, how do you build your business with the real.

So, we're coaching our current loyalists, right, then we're helping convert retail loan officers, as I talked about enough already on this and I won't continue that but those guys are coming over and this is more of the pie of the Group, more opportunity. But, then the last piece which I think is very critical is real estate agents know it, they know how long it takes to close when they go through a large retailer or large bank and what they're doing is they're finding local brokers and brokers are closing on 15, 18, 28 getting that real estate agent paid on time.

Certainty, it's a big deal for real estate agent. If you were a real estate agent, who would you refer your clients to, someone that you knew had options, a broker and someone that you knew could get it done for you so that people are in the house, because nobody wants the mortgage they want the house and so brokers are able to deliver that.

So, real estate agents', the sentiment is shifting and they find a great broker and they say, wow, I can really close the thing to 18, 28, my borrower can offer a 20-day offer in 45-day offer that changes the game, especially in a great purchase market. And, so all those things have added up and we're doing a lot of things and those are just things publicly I can share, but there's a lot of a new show, a lot of details in order to make these things happen and that's why we had another record purchase quarter.

[Bose George, KBW]

And, just switching over to the MSR sale; just going forward, is that just going to need periodic to keep your market access or is there any level of MSR that you target versus originations or have been in some other way that you kind of look at that?

[Mat Ishbia, Chairman and CEO]

Sorry, Bose, you broke up at that last, I can see it over time?

[Bose George, KBW]

Yes, it's like whether the sales are just going to be periodic just to keep your sort of access in terms of selling MSR or you target sort of MSR versus originations? Is there some sort of broader approach to how much MSR you choose to hold?

[Mat Ishbia, Chairman and CEO]

Yes. So, we're - we look at things and we've always been opportunistic, right. And, so the services and sales we've done, when we make the sales there being sold for slightly higher than we have on our book value and so we look at that as an opportunistic way.

However, we're always protecting the broker channel and therefore what do we put non solicits on or different things to make sure that those loans aren't solicited and we always protect our clients. And, so it's opportunistic, we like the servicing assets because we're creating the best servicing book in the country.

As you guys saw the lowest delinquency rates, we've got a great cash flow and at the same time, we feel really good about the asset with WAC, the weighted average coupon being 2.95%. So, in the credit score, old process, we feel really good about it. But, if someone wants to come and offer us a bundle of cash or something that we have an asset and we can take advantage of that opportunity, and continue to invest that into our technology, into our broker channel, we'll do that as well.

So, I'd basically just call it opportunistic and continuing going forward that. We're getting lot of knocks on the door on it because we have such a great quality book and people know that.

[Tim Forrester, CFO]

And, those rather, net out of sales, you saw that the total book increased that as it has every quarter since COVID started.

[Bose George, KBW]

Yes. And, actually one follow-up just on the sale. So, the non-solicit, so you can essentially prevent them from recapturing your loans with those agreements?

[Mat Ishbia, Chairman and CEO]

That's correct, as you got to have - for three years - for 36 months is the standard. We do and so if you hold it for a year and 36 more months it's great, a lot of protection for our clients and at the same time a good cash flow for the new investor new servicer.

[Bose George, KBW]

Okay, great, thanks a lot.

[Tim Forrester, CFO]

With the key being protecting our clients.

[Operator]

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

[Douglas Harter, Credit Suisse]

Thanks. Mat, you've talked a lot about kind of technology like BOLT. Can you just give us a sense as to where you think the cost of originates can go over the next one, two years?

[Mat Ishbia, Chairman and CEO]

Yes. Thanks Doug. So, obviously, cost of originates is very, very low. It just depends on how you look at it. As Tim pointed out in our - in is remarks, ours is the fully loaded I will talk about numbers, and it's not, at times that comparing apples to oranges to bananas, it's not really the same. So, we feel really good about our - we have a fully loaded cost, you put all the numbers in there and so being south of 1500 is fantastic, and can we drive that even further? It's possible, absolutely, and how do we do that, but as you think about it we're not looking at in bits, we're looking at in dollars, to the cost dollars it doesn't cost dips to do things.

And, so we're looking at that and how do we continue to drive that number down and BOLT is a great catalyst for that along with a handful of other things that probably are too much in the details of the weeds to get into on this call or in general. But, we really focus on that number because when the time comes in, time goes out how we want to think of it tings change in and you have to know who you are and how much it costed actually manufacturer alone. And, we're very process-focused and technology focused here and that's what's given us a huge leg up.

[Douglas Harter, Credit Suisse]

And then just, as you think about the impact of home price appreciation and the higher loan limits that are said to be announced in the not too distant future, how does that impact your business?

[Mat Ishbia, Chairman and CEO]

Well, it impacts it positively, right. And so the higher the loan sizes, obviously the opportunity to continue to grow our volume and grow our business is there. And so, once again, that's I would talk about cost originate in dollars because lot of people will tell you, oh well our bids, our cost originate business went down that's because your average loan size went up, that's not really the thing your cost went down.

And, so, we're tracking dollars per closing and making sure it, and so we're monitoring that. Now, we obviously kind of pre-hunted, we know that I think it's November 30 is when FHFA will announce the firm numbers of what the new loan sizes are we actually came out with the numbers at 625. So, we're already seeing a little bit of a pickup from that. We think that number will come in higher than that, maybe closer to 640, 645 even for the new loan size, which is a massive improvement from the 548 that it was this year and the conforming loan limits.

And so, that opportunity is good actually, you'll probably see a little spike in our Q4 assets because we hold those loans and sell those loans on January 1, 2, 3 because there is an opportunity, but it's a great way to do a lot of business and help the broker channel continue to advance. So, the loan size thing will be a positive move for UWM and for brokers and for consumers across America.

[Operator]

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

[Ryan Nash, Goldman Sachs]

Mat, can I maybe ask a question on capital allocation. So, I'm just trying to think through the tradeoff between buying back stock, paying a dividend and then also selling MSRs given margins are still running below what you would consider normalized levels obviously clearly in certain respect to preserve liquidity? And, related to that, Tim you mentioned willingness to maybe take on some additional MSR debt. Can you maybe just talk about where you going to take leverage deal for the company in order to provide some balance sheet flexibility? And, I have a follow up, thanks.

[Tim Forrester, CFO]

Yes, I think the balance of the three, as I mentioned earlier is buying back shares, is there's a potential for flow but specific to the debt we realized that the debt here - the assets that most people look to and again it's an unencumbered asset, the MSR; the asset that most people look to are loosely associated with the unsecured debt issuances, the MSR. The MSRs continued to grow fairly substantially in the last three months, even with the modest sale that we're - as Matt mentioned and we talked about was really a test of the market reestablishing some relationships.

As we continue to grow that asset, it has value and we think it's supportive on a direct asset linkage to the debt, but also from a leverage standpoint. So, we're going to continue to stay within our leverage comfort zone of not getting outside of 0.75 of non-funding debt, could we get up to 1, sure, we can get up to that side, but we're going to continue to be very prudent with how we issue debt and how we look at it relative to our equity but also relative to the size of the asset.

So, there is some interest in that and we may explore that opportunity similar to the other opportunities to balance outflows as well as the attractiveness of the stock right now at its current price.

I mean in that regard, we went from $660 million of book value or equity value at January 1, 2020 to closing the quarter at $3 billion. So, notwithstanding the dividend, notwithstanding the buybacks, the equity has been going up pretty materially and our non-funding debt to equity is in a very healthy range.

[Ryan Nash, Goldman Sachs]

And, maybe a big picture and specific question for you. I mean it seems like your desired outcome for the all-in initiative is working as you're seeing really, really strong production here and you alluded to the fact that pricing is loosening a bit, so can you maybe just talk about what's driving and are you guys actually increasing price?

And then, second I think a couple of quarters ago, you said that you thought that this would have lasted longer than 18 months, now you're saying you don't think it's going to be as prolonged like - what is it that you're looking to see along the way in terms of broker migration to the channel that will allow you to change your pricing strategy a bit?

And, then just lastly, can you just remind that once you achieve the desired outcomes, where would you expect margins to rapidly level off for the company? Thanks for taking all my questions.

[Mat Ishbia, Chairman and CEO]

Thanks Ryan and so appreciate it. A couple of things, so I think the big thing that I kind of tried to mention it earlier in my remarks was understanding what margins, we'll be doing and how we look at them and how obviously we control, we're not a victim of the margins we make. We set the margins others people will react to those numbers.

Wholesale mortgage brokers having better rates than retail is not only a UWM strategy, it's a business development strategy, it's growing our pie, it's growing the channel putting immense pressure on these retail channels, which is helping drive loan officers to our channel. The way we think about it is, you know, people ask me all the time, Ryan; hey, you're going to grow the broker channel Mat, what's the strategy and how you going to do that, want to do more TV ads, all these things.

And, so here's how I think about it, so you understand our strategy around it. It's very simple, I can do a lot of TV ads and I can do a lot of Google thing searches and all different things to drive business; every time I convert a consumer, Ryan Nash could become a - to do alone with the broker that's one loan, most consumers do a loan every four years that means that's one loan every four years I got by spending money on a TV commercial, okay.

Well, same thing - so you focus on consumer and that's what you get. You focus on real estate as I kind of alluded to earlier and you get a nice pickup because I have a real estate agent you not just call two loans per month, while over four years a real estate agent we convert to seminar refer to a broker ABC mortgage broker that's two loans a month or 96 loans in a four-year period, that's 96 times more valuable that compared to real estate agent to understand that a broker and they actually understand that brokers are better because they understand how closing loans fast and is also only 1 million to 2 million real estate agents versus 300 plus million consumers.

Then, there's a third bucket, 450,000 loan officers. On average, a loan officer might do six loans a month, six loans a month turns out to be, what does that 96 loans a year or 288 loans, if I do my math, right 288 loans every - yes, 272, so it's a big number, so 290 loans a year versus one loan a year and there's only 400,000, so our focus is convert loan officers to brokers, it gives us 290 loans over - roughly 290 loans over a four-year period rather than one loan over a four-year period with the consumer and at the realizations of the middle.

And so, our focus is business development, growing the channel. We can bring - every loan officer brings over almost 300 loans over the next four years into our pie, then we're focusing there and that's why keeping margins low has been a huge catalyst for brokers and for UWM and will continue to be, and so sometimes people look at our margins and think, oh why don't you just raise the margins since you control them, because I'm growing the channel and as the channel grows UWM grows and all my shareholders people that are listening to this call are going to benefit along with consumers along with brokers, along with my team members here.

[Operator]

Your next question comes from the line of Sandy Beatty with Morgan Stanley. Your line is open.

[Unidentified Analyst]

This is actually Blake and I'm speaking on behalf of James Faucette. Thanks for taking my questions. So, in terms of the competitive advantage of your platform, you mentioned that speed to close is a big factor. Are there any theories as to why there is such a big gap relative to the competition and how long do you can sustain before competitors catch up?

[Mat Ishbia, Chairman and CEO]

Yes, thanks for the question. Appreciate it. It's not even a theory, it's just the facts are in the technology, right. So, 1200 people building proprietary technology and none out there using 88 vendors, cobbling it all together to try to do loans. We've invested in our technology for years and years, I think it's B billions, B with - billions with a B ahead of our consumer competition on the technology, and so people can market, so I've got great technology, my technology is great, well here's the difference.

It's how do you know your technology is great, it's just a feel unless you actually can prove it, and so the proof is in the pudding which is origination, cost origination, cost - on our cost and then speed to close. Look at those two numbers, you'll find the who's got the best technology, who doesn't and also we have no channel conflict, remember.

I'm building technology for one line of business, the best wholesale mortgage lender in America, period. I'm not trying to build a three great wholesale and then direct to consumer and I got - I got the correspondent channel then I got to figure out the retail branching model, we're building it with singular focus and dominance in mind. And, that's what we're doing and that's why we're able to be faster than everybody else, that's why our technology is better.

And once again, it's not me saying it, you actually look at the proof which is, how much of the cost to originate a loan, that's a technology number. And then, how much, now fast would it take you to close the loan, technology number. If those two data points are final, who built their own technology, who is winning and who is just kind of keeping up while the times are good in the market.

[Unidentified Analyst]

Thanks for that. And, can you talk a little bit about how you balance, headcount growth against - and on technology? Is there an ideal spot here and is that impacted by the lower by mortgage originations volumes?

[Mat Ishbia, Chairman and CEO]

Yes, so we track all the things tied to team members, technology, but the reality is we got to look at making sure that operations team is always able to handle the volume that our sales team can bring in and that's why we had a lead client service and we hope our brokers grow. Everytime, we make a broker look like a superstar, to Jenny Smith in Minnesota and Jenny Smith refers clients to that broker along with the real estate agent will refer more clients.

So, we want to make sure our brokers look like superstars all the time, given that wow client experience, and we continue to do that. And, so with team members and technology and headcount, the way we look at it is making sure that we are always able to handle the volume at the same time handle growth too.

We don't think the volumes are going to shrink in the broker channel as much they're going to shrink in a direct-to-consumer channel, which is all refi or on the retail branching where a lot of loans are going to migrate over, and so we feel like we're in a really good position with our team member count right now, and at the same time the ability to win and do more with our team members, which ties to both, as I mentioned earlier.

Thanks for all the questions everybody. We appreciate it. I'm going to turn it over to the operator.

[Operator]

That will wrap up the Q&A portion. I would like to turn the call back over to Mat Ishbia for closing remarks.

[Mat Ishbia, Chairman and CEO]

Great, well thank you guys all. I will leave with this. We appreciate the questions, we're happy to - Matt Roslin, our EVP of Investor Relations is always happy to connect with anybody. We feel really good about what happened in the third quarter and we're very excited about the fourth quarter and even more excited about 2022. We've have said that we're a purchase dominant lender and we're going to continue to do that, as the broker channel grows and we continue to dominate on purchase.

We're excited about the future and excited about putting into position that UWM's in, which I think is as strong as we've been in a long, long time, and we're excited for you guys just yet for hopefully quarters in quarters to come. Thank you for the time and we'll look forward to talk to you next quarter.

[Operator]

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