UWM’s new No. 1 mortgage lender status driven by Game On

UWM Holdings celebrated surpassing Rocket Companies to become the No. 1 mortgage originator by total volume in the third quarter.

“Well, I didn’t know when, but I was confident this day would come because I continue to say brokers are the best place for consumers to get a loan and the wholesale channel is the best place for a loan officer to work,” said Chairman and CEO Mat Ishbia on the company’s earnings call. “At this point, I hope everyone realizes we consistently deliver on what we say.”

The company is the first 100% wholesale originator to be on top of the originator standings, he added.

UWM’s third quarter net income was $325.6 million, compared with $215.4 million for the second quarter and $329.9 million a year ago.

Its United Wholesale Mortgage business produced $33.5 billion during the third quarter, with $27.7 billion being purchase loans, the latter is a company record. This compares with Rocket’s total volume of $25.6 million.

In the second quarter, UWM did $29.9 billion, purchase mortgages making up $22.4 billion of that. However, in the third quarter of 2021, the company originated $63 billion, including $26.5 billion of purchase loans.

Much of United Wholesale Mortgage’s growth came from both the “All In” initiative announced in March 2021 and its current “Game On” promotion, which is likely to give the company a 40% and even possibly 50% share in the broker channel for the quarter when industry figures are totaled up, he said. It also separated UWM from its competitors.

The program added 17,000 brokers, about half coming directly from retail, Ishbia claimed.

He took the opportunity to address the channel’s competition issue that was raised on Thursday by Rocket Companies CEO Jay Farner, although Ishbia did not reference its rival directly.

“There were a lot of uncommitted wholesalers in the market and with Game On, some of them decided to exit because of their lack of efficiency and lack of commitment to the broker community,” Ishbia said. “The decisions we make continually force every wholesale lender…to level up their game, which is a massive positive for every broker and consumer in America.”

And Ishbia said it’s a good thing that other wholesalers are starting to up their game to compete.

“I love when UWM’s market share goes down in the wholesale channel because I know when that’s happening, the other wholesalers are doing great things, one, and two, the broker channel is a lot bigger than it is today,” he declared.

But those market share gains came with a core pre-tax loss of $43 million because of the Game On pricing strategy, said Warren Kornfeld, senior vice president at Moody’s, in a statement issued before the earnings call.

“However, time will tell as to how sticky the gain in market share is,” Kornfeld said.

Adjusted EBITDA was practically nothing, a report from BTIG analyst Eric Hagen pointed out. And that could have an impact going forward.

“We think it’s in a competitive position to maintain healthy volume despite a slowing market,” Hagen said. “The question is how long it can retain that scale and momentum against a volatile backdrop with low EBITDA.”

On the earnings call Ishbia stated that the wholesale business is always operating from a negative cash-flow position. And that’s why liquidity is important and UWM is strong in that perspective, he continued.

Even Kornfeld agreed with that, noting that it would “allow the company to continue to invest in further strengthening its franchise.”

During the third quarter, UWM enhanced its liquidity position. “In early August we entered into an unsecured line of credit with our principal shareholder [Ishbia] with available borrowing capacity of $500 million,” said Andrew Hubacker, interim principal financial officer. UWM also entered into a $1.5 billion facility secured by mortgage servicing rights.

“Neither of these facilities have been drawn upon as at the end of Q3, and we ended Q3 with approximately $2.9 billion in total available liquidity, including over $800 million of cash and self-warehouse and $2 billion of available borrowings that are secured and unsecured lines of credit,” Hubacker said.

Its profits were higher on a quarter-to-quarter basis and only slightly lower than for the third quarter 2021 even as its gain on sale margins were more than 40 basis points lower than those periods.

For the fourth quarter UWM expects production to be in the $19-$26 billion range, with a gain margin from 40 basis points to 70 basis points. This compares with Rocket’s prediction of closed loan volume between $17 billion and $22 billion; and gain on sale between 230 basis points and 260 basis points.

UWM’s guidance is in line with what Keefe, Bruyette & Woods analyst Bose George — and analysts’ consensus — previously expected for the fourth quarter, a flash note issued before the earnings call pointed out. That might have been a pleasant surprise itself.

“We think the market may have been expecting a downward revision given: 1) the recent move in mortgage rates; and 2) Rocket’s guide yesterday, which was meaningfully lower than consensus,” George said.