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United Wholesale Mortgage shares are trading at a three-year high after the largest U.S. mortgage lender reported healthy second-quarter profits, paid down debt and said it will continue to decline as mortgage rates continue to fall. , the company is optimally positioned to capitalize and grow.
UWM reported second-quarter net income of $76.3 million after a $115 million write-down on the fair value of its mortgage servicing rights.
Mortgage originations rose 6% from a year earlier to $33.6 billion, the highest level since the first quarter of 2022. The yield was 1.06%, which also improved from 0.88% in the same period last year.
UWM said it expects third-quarter revenue of $31 billion to $38 billion and profit margins of 0.85% to 1.10%, consistent with recent quarters.
While the outlook for loans is improving, UWM has also boosted its profits by more than $2 billion this year by selling off most of its loan servicing business. UWM’s mortgage servicing rights (MSR) portfolio shrank 23% in the first quarter and another 17% in the second quarter, to $189.5 billion.
This helped UWM end the quarter with approximately $2.7 billion in available liquidity, including $680.2 million in cash.
Matt Ishbia
“We have a strategy in place this year,” Chief Executive Mat Ishbia said on a conference call with investment analysts. “Our strategy was to reduce risk, sell MSR in the first three to six months of the year and prepare for scale, technology and operations… It performed in line with our expectations.”
Since hitting a 52-week low of $4.49 on Oct. 4 when mortgage rates were near their post-pandemic peak, UWM shares have been rising as investors become increasingly bullish on the prospect of mortgages picking up as rates fall. .
UWM shares hit a new 52-week high of $8.85 on Monday after two surprisingly weak jobs reports last week sent mortgage rates into disarray. That’s the highest valuation the Pontiac, Miss.-based wholesale bank’s stock has reached in more than three years.
BTIG analyst Eric Hagen said in a note to clients: “Following the earnings call and positive second-quarter results, we raised our price target to $10 from $8 as the stock remains one we position for lower interest rates. preferred method.
The 30-year fixed-rate conforming mortgage rate was 6.4% on Monday, down 87 basis points from the 2024 high of 7.27% recorded on April 25 and has been since May 2023, according to rate lock data tracked by Optimal Blue. Never dropped. A basis point is one hundredth of a percentage point.
UWM shares initially fell 8% to $8.07 at the open Tuesday morning after the earnings release, but surged to $8.66 in afternoon trading before closing at $8.50.
Shares of UWM competitor Rocket Mortgage also hit a new 52-week high on Tuesday, reaching $18.66, up 160% from $7.17 on October 25.
Rocket reported last week that its second-quarter net profit increased 28% from the same period a year earlier, to $178 million, and its mortgage originations increased 10% during the same period, to $24.7 billion. Rocket said the artificial intelligence tools it is developing will help it quickly scale its business when mortgages rebound.
UWM has also been investing in technology to help the mortgage brokers it works with take advantage of any boom, Ishbia said.
“In the second quarter, we announced products and technologies that can increase the speed and capacity of broker pipelines that were virtually non-existent in 2020 and 2021,” Ishbia said. “We’re very excited to see these things come to fruition.”
UWM’s consumer-facing Mortgage Matchup website, a searchable database that helps consumers find local mortgage brokers, is the official mortgage partner of the NBA and WNBA, and Ishbia said, “We are seeing more and more People visit this site days every year.
UWM’s newly updated TRAC+ program offers pricing incentives to mortgage brokers who agree to have UWM handle not only the title review, but also closing and payments for clients refinancing existing loans.
Ishbia calls TRAC+ “a huge game changer” because mortgage brokers “no longer have to go out and work with a third-party title company or anyone outside, which saves consumers thousands of dollars.”
UWM also continues to “invest heavily” in its automated document identification and processing system, BOLT, which Ishbia said allows mortgage brokers to obtain initial approval in as little as 15 minutes and enables UWM’s underwriters to “leverage technology to do more every day. Business” puts pressure on many underwriting processes. “
UWM refinancing increased 69% year-on-year in second quarter
Source: UWM earnings reports.
Purchase loans reached $27.2 billion, accounting for 81% of UWM’s mortgage originations in the second quarter of 2024. This is more than double the 40% share of purchase loan business in the second quarter of 2021.
While purchase sources fell 3% from the same period last year, refinancing grew 69% to $6.5 billion.
UWM originates more purchase mortgages than any competitor, but Ishbia said if mortgage rates continue to fall as the economy cools, refinancing will be the biggest immediate opportunity.
“I always say the mini refinance boom or the full refinance boom … is when you make all the money,” Ishbia said. “If the market improves, we will still be as dominant in the buying market as we have been over the past few years.”
UWM’s service portfolio shrinks by 40%
Source: UWM earnings reports.
While lenders typically sell the mortgages they originate to investors, many lenders like to retain the right to “service” these loans, collecting monthly payments from borrowers on behalf of investors.
Loan servicing not only generates fee revenue to balance out fluctuations in loan origination volume, but also gives lenders an edge over the competition when borrowers are ready to refinance or buy their next home.
To boost profits, UWM has cut its loan servicing portfolio by 41% since the end of 2021, when it was collecting more than 1 million mortgages with $319.8 billion in outstanding balances.
As a result, loan servicing revenue fell 30% to $143.9 million in the second quarter compared with the fourth quarter of 2023, when the business line generated $206.5 million in revenue.
Andrew Hubac
UWM Chief Financial Officer Andrew Hubacker said that as of the end of the second quarter, UWM had net proceeds of nearly $2.4 billion from the sale of mortgage servicing rights.
He said the sales proceeds have been used to pay down debt, increase production and invest in UWM’s business, while “also maintaining a stable dividend for our shareholders.”
(Ishbia and his family — including brother Justin and father Jeff, both of whom sit on UWM’s board of directors — collect $150 million in dividends each quarter, wall street journal Noted in November.
Asked whether UWM would continue to sell service rights, Ishbia wouldn’t rule out the possibility – if the price is right.
“I’m not saying we won’t sell MSRs anymore because people keep calling us trying to buy them,” Ishbia said. “However, that is not my focus now. My focus is the origin, scale and dominance of this industry. That is what we are focused on now.
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