Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- UWM Holdings Corp (UWMC, Financial) reported a significant increase in production, closing $33.6 billion in total production, up 22% from the first quarter of 2024.
- The company achieved a gain margin of 106 basis points, at the higher end of their guidance.
- UWM Holdings Corp (UWMC) generated a net income of over $76 million despite a $115 million decline in the fair value of MSRs.
- The broker channel continues to post share increases, achieving the highest channel market share since 2008.
- UWM Holdings Corp (UWMC) has made significant investments in technology, such as the Bolt underwriting system, which allows brokers to get initial approval in as little as 15 minutes.
Negative Points
- The overall market conditions have not improved significantly from 2023, with industry volume remaining about the same.
- Higher interest rates have persisted longer than anticipated, impacting the market.
- The fair value of MSRs declined by $115 million, which is tied to interest rates and out of the company's control.
- Despite the positive outlook, the company acknowledges that the market could turn back, affecting their performance.
- Operational expenses, including direct loan production costs, have increased significantly, impacting overall profitability.
Q & A Highlights
Q: In terms of rate expectations of the market, if the Fed cuts by a couple of hundred basis points but the yield curve steepens and the 10-year doesn't go down much, could we see a pickup in ARM production contributing to overall volume increases?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: It's hard to predict all possibilities, but if the Fed cuts rates significantly, it would impact the market. While ARMs could become more relevant, the 30-year fixed will likely remain the prevailing product. Even a 25 basis point cut by the Fed would spur consumer demand and awareness, leading to increased activity in the mortgage market.
Q: On the TRAC+ program, how much do borrowers save, and how does the structure work with title insurers?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: Consumers save thousands of dollars with TRAC+. It simplifies the closing process, making it faster, easier, and cheaper. The risk to UWM is minimal, and the program disrupts the title world by being better for consumers.
Q: Could you provide incremental color on adoption rates by broker partners for TRAC+ and PA+?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: Adoption rates have increased significantly in the last few months. These programs are built for scale, allowing brokers to handle increased volumes without hiring additional staff. While current market conditions don't require large-scale adoption, these tools remove bottlenecks and prepare brokers for future volume increases.
Q: Is there a 30-year mortgage rate where a refi rally would significantly increase?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: If the 10-year drops below 3.75, it could spur a refinance boom. While we're not there yet, a further drop in rates could lead to significantly higher business volumes, especially in the fourth quarter.
Q: Can you discuss the investments made this quarter and how expenses would look in a significantly higher volume environment?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: Our expenses will remain similar even with higher volumes. We've built technology and prepared our team for scale, allowing us to handle increased business without significant additional costs. Our focus has been on growth and preparation for future opportunities.
Q: Can you discuss a timeline or plan to extend TRAC+ beyond online refi transactions?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: TRAC+ is currently focused on online refinances to handle scale efficiently. While we can handle purchase business with TRAC, our primary focus is on being prepared for a potential market doubling in volume.
Q: How stable do you feel margins are if rates are lower, and what accounts for differences in margins between refi and purchase channels?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: Capacity is the key factor. If rates drop, margins could increase significantly as volumes rise. We are well-prepared to handle increased business, and our technology investments will help maintain efficiency.
Q: How do you see the demand for MSRs developing with lower rates?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: We don't foresee a slowdown in MSR demand as servicers need them to originate loans. Our focus is on origination rather than selling MSRs, and we feel well-prepared for future market conditions.
Q: What kind of improvements are you making with technology investments in terms of time to close, and how durable are these under higher volumes?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: Our technology investments have significantly improved speed to close. We are the fastest in the country, and our gap will widen as volumes increase. We have built technology to handle scale efficiently, ensuring we remain competitive.
Q: What gets you comfortable raising the low end of the gain on sale margin guide?
A: Matthew Ishbia, Chairman, President and Chief Executive Officer: If rates drop further, I could see moving the low end of the guide up. However, current market volatility makes it prudent to maintain the 85 to 110 basis points range for now. We feel good about our margins and will reassess based on market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
