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UWM Delivers Reduced Production, Improved Margins In 2023

United Wholesale Mortgage (UWM) ended 2023 as the top U.S. mortgage company, with more than $108 billion in home loans produced in the period, a record purchase volume and increased margins. It was not enough to make its parent company UWM Holdings Corp. financially profitable, which the company attributed to mortgage servicing rights (MSR) markdowns. 

The Pontiac, Michigan-based lender announced a non-GAAP adjusted net loss of $57.1 million in 2023, compared to a profit of $719.4 million in the previous year. The GAAP net loss in 2023 was $69.7 million, inclusive of a $854.1 million decline in fair value of MSRs, per documents filed with the Securities and Exchange Commission (SEC) on Wednesday. 

In the last quarter of the year, the adjusted net loss was $361 million, compared to a gain of $234.7 million in the previous quarter. The GAAP net loss was $460.9 million, including a $634.4 million decline in fair value of MSRs. 

“We continue to be operationally profitable, the true measure of a mortgage originator’s health, while our financial loss was driven by the MSR markdown which is a result of interest rate movements,” UWM chairman and CEO Mat Ishbia said in a statement. 

Ishbia told analysts that after adjusting for changes in the fair value of MSRs, UWM generated earnings of $39.2 million in the fourth quarter and $253.7 million for the year.

In a surging mortgage rate environment, UWM originated $108.3 billion in mortgages in 2023, lower than the $127.3 billion reported in 2022. It exceeded the company’s primary rival Rocket Mortgage, which generated $78.7 billion in closed loan volume last year, down from $133.1 billion in the previous year. 

In the last three months of the year, UWM originated $24.4 billion in home loans, compared to $29.7 billion in Q3 2023 and $25.1 billion in Q4 2022. 

Most of UWM’s volume was purchase loans, representing $93.8 billion in 2023, including $20.6 billion in the last quarter. The year’s volume is higher than the $90.8 billion produced in 2022.

The company said it grew its workforce by 15% in 2023 to more than 7,000 employees. In addition, according to Ishbia, “the broker channel keeps growing” and is now “competing for almost two and a half out of 10 loans,” compared to two out of 10 loans previously.

The company’s total gain-on-sale margins increased to 92 basis points in 2023, compared to 77 bps in 2022. Margins were close to the 99 bps level before the launch of the Game On pricing initiative in June 2022.

UWM’s servicing portfolio ended the fourth quarter of 2023 at $299.4 billion in unpaid principal balance (UPB), compared to $312.4 billion in the same quarter of 2022. The portfolio increased compared to the third quarter of 2023, when it was at $281.4 billion.

Chief financial officcer Andrew Hubacker told analysts that unlike some of the UWM’s competitors, the lender has “not historically specifically hedged the MSR portfolio.”

“Rather, we maintain our portfolio at levels such that we are confident that fair value impacts due to interest rate declines will overtime be more than offset by an increase in origination income,” Hubacker said.

The executives said that UWM will continue to sell MSRs opportunistically. It expects to maintain the portfolio at about $250 to $350 billion in UPB.

UWM ended the year with $2.2 billion of available liquidity, including $497.5 million in cash. 

The company anticipates first-quarter 2024 production to be between $22 billion and $28 billion. Meanwhile, the gain margin is expected to be between 80 bps and 105 bps.

“I’m confident in 2024 we will have a better year in this industry than 2023, and volume and margin should be higher,” Ishbia said.

Ishbia expects the purchase market to stabilize and refis to increase this year. It will eventually reduce the 85% purchase share in total volume produced in 2023. But the company will still be focused on purchase loans, Ishbia said.

“Generally speaking, when rates get 5.75% to 6.25%, you’re going to see a lot of refi activity because there’s been a couple of years now where people have been doing loans at 6.5%, 7%, and 7.5%,” Ishbia said. “So, we think purchase will open up, inventory will open up. … It’s going to be a very, very positive environment; whether that happens tomorrow, in three months, six months or nine months, it’s going to happen.”

UWM shares were trading at $6.43 on Wednesday morning, down 5.81% from the previous closing.

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