UWM Holdings Corporation Class A

everyone to the UWM Holdings Corporation fourth quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Matt Roslin, you may begin your conference.

Good morning. I'm Matt Roslin, EVP of Legal Affairs and Investor Relations. Thank you for joining us, and welcome to the fourth quarter 2020 earnings call for UWM Holdings Corporation. Before we start, I'd like to remind everyone this 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 yesterday. Now I'd like to introduce UWM Holdings Corporation and United Wholesale Mortgage President, CEO, and Chairman, Matt Ishbia.

thanks a lot matt thank you guys all for joining we appreciate it excited for our first earnings call and to have you guys all join um we're gonna definitely take some questions at the end looking forward to that um before we do that obviously i'll go into a little bit about the business and about the fourth quarter and the release that we uh put out yesterday but before i get started just uh thanks again for being here we're excited about the growth ahead 2021 is going to be a great year we're really big on you know focus on mortgage brokers and helping make the process faster, easier, cheaper. And that's helped us become the number two overall mortgage lender. And hopefully soon we'll become the number one overall mortgage lender with our strategies that we'll maybe discuss during the call today. Let's look back now briefly on the fourth quarter. It was an all-time record origination quarter for us. We did $54.7 billion, which is an all-time record at UWM. Our gain margin was 305 basis points, which is our second best of all time, and $1.37 billion of net income, which is almost $500 million beyond what some people expected for the quarter. It was a great quarter across the board. The full year 2020 was excellent with $182.5 billion in mortgages, $249 base point gain margin, and $3.38 billion in net earnings. So it was a fantastic year across the board, and we're excited about where we stand. And obviously, at the same time, Some people might look and say you made a lot more money in the fourth quarter than a lot of projected, but your overall volume was slightly less than people thought. The way we looked at it is there's opportunity to, as the leader in the market, as opportunity to gain margin and continue to make a lot of money and maybe do less volume in certain situations, we will always do what's best for shareholders and our business for the long term. And so we had an opportunity and capitalized on it and had a fantastic quarter by all accounts. Now, although it was a fantastic quarter by all accounts, We, you know, are past 2020. We're already on 2021. You know, we're in Q1, and we're making some big plays right now. We're more excited about the future. So our never-relaxed mentality at UWM, you know, 2020 wasn't, you know, you know, a high point. To us, it's a launching point from where we're going, you know, and that's the plan is we're going to continue to build our business. We're well positioned for the future, and we expect 2021 to grow significantly from an origination perspective, and we're excited about it. Now, how are we going to do that? Let me talk about a couple different things. You know, the big thing I want to make sure we discuss and understand is The singular focus on brokers, the fastest, easiest, cheapest way to get a mortgage is through an independent mortgage broker at findamortgagebroker.com. We believe that. We know that. And I actually will go through some of the data to support that with actual facts, which most of you guys understand, and most of the industry has already seen this now, as many people are realizing that the wholesale channel is the growth plan because it's best for consumers and it's best for loan officers. You know, As we go into this, we've been growing because of our singular focus, and we've grown every year. I don't think there's any other mortgage company in America that can say that they've done more volume 2014 to 15 to 16 to 17, 18, 19, 20, and now 21 will do more volume as well. We have not had one year dipping back down like all of our competitors. we also um have been profitable obviously every year including those tough years a lot of people struggled in 2017 18 and 19. um uwm has about 35 percent market share of the broker channel and uh we believe that will continue to grow and we'll talk about some of the pa the plans to do so now A couple things to discuss. Technology. So big investment in 2020. We rolled out, I'm going to talk about a couple things we rolled out that were huge, that made a big impact. But a huge investment in 2020. And the thing about the 2020 investment, those things will pay off in 2021, 22, 23, 24. The investments we made in 14, 15, 16, and 17 is why we continue to have the dominant position in the wholesale channel. We will accelerate our growth in 2021. We have over 1,000 technology team members here at UWM and growing. And we're excited about that opportunity to continue to double down on technology. Now that we have access to some liquidity and some opportunities, we will continue to double down on technology and take it to a whole other level with our homegrown built system, which we'll show some of the results in a minute. FindAMortgageBroker.com is another thing we're going to be spending a lot of time, all about educating consumers. The best way to get a mortgage is through an independent mortgage broker. findamortgagebroker.com is how you find that loan officer in your area. We actually have a Super Bowl commercial that will be out Sunday, and it's already got some rave reviews. We're excited about it, about educating consumers. And once we educate consumers, what will happen inevitably will be that the mortgage broker channel will grow, which means UWM is the number two overall mortgage company in America, and we're only playing in 20% of the market, the broker space, where all of our competitors play in 100% of the space. And so as that broker channel grows, and it will, We grow, too. And so we'll go through some of those things. Also, closing even faster. So, you know, everyone says that their technology is great. How do you prove it? We believe it's faster. How do you make things faster and easier for consumers? The faster is very simply measured by app, the CTC, and that closing process. UWM was 18 days. The market is actually 56 days in Q4. And actually in December, UWM was at 16 days, so lower. And the market actually looks like it got a little slower to 58 days. So the whole point is 18 days to 56 days, we're three times faster than the industry. Time kills deals. We make sure that we focus on speed, efficiency, and that's all based on our proprietary technology that we built at UWM. You know, and... Beyond the technology is also the operational excellence, which we focus on process. We're very big on process and technology. And so those things really drive success. And the time to close is a big differentiator. It saves you money on cost. It saves money for the consumer. It makes it so you can deliver a faster, easier, cheaper mortgage and a better product altogether. Once again, singular focus enables us to do that because we're not trying to do everything for everybody. We're dominating one channel. We have a single campus here in Pontiac, Michigan, where we have all of our team members. Obviously, with COVID, a lot of people are working from home, but we will have all of our team members back here once it is safe for everyone to do so. This helps drive our lower costs for UWM, our cost region, which I'm sure Tim will speak to. My CFO has given us a differentiation. Of course, we can win in this market when we're doing these massive volumes, but we also will win in a rising rate environment, just like we did in 2018. From 16 to 18, rates went up, and our compound annual growth rate was 28% when most people were going down, and that's all tied to our cost to originate. Some people will say, you know, isn't the middleman in wholesale, how is it cheaper in wholesale than retail? And this is the thing that people just don't understand. There's, oh, there's a middleman. Why can't I just go direct to a retail lender? It is always, and I hate to say the word always, so it is almost always more expensive to go direct to a retail lender. And that's because you're getting wholesale versus retail rates. And you say, well, how is that possible? Well, you can ask them if you want. And you can ask those other lenders that are in both channels, why do they offer lower rates? to their consumers in wholesale. But I can just give you the data, which in the fourth quarter at UWM, the average interest rate at UWM was 2.74 versus the industry average was 2.89. That's 15 basis points, which on a $350,000 loan is $28 per month. So that's a substantial difference for a consumer, $28 per month. Now, for the year, it was the same thing. Our average interest rate for the whole year 2020 was 3.08. The market was 3.23. So we are lower. We offer lower rates. It's not because we have no margin, as you guys see. It's because we have a more efficient process at UWM. Brokers are the better option because they don't have as much overhead. And therefore, we can deliver a better product to the end consumer. Credit quality is a huge, huge focus at UWM. We are going to be the biggest mortgage company in America, but we will never sacrifice being the best. Best is much more important than biggest. And we are the number two overall, but we are the best mortgage company, in our opinion, based on a lot of facts. One of them is credit quality. Our average FICO in 2020 was 757, which is number one or number two out of the top 25 lenders in America. Also, you say, you know, we don't do non-QM loans. We don't do riskier loans. We focus on doing the right loans, faster, easier, cheaper. That ties into also, like, how do I, you know, hey, FICO's one way. How do I prove that? Let's look at our delinquency rates and our forbearance rate. The industry delinquency rate is 4.7%. Ours is below 2% here at UWM. The industry forbearance rate was 5.46%. Ours is below 2% at UWM. So we're better, we're twice as good as the industry average on those things. You know, We will always focus on quality. We have chosen, and even did it in the fourth quarter, less volume, less market share for quality, and that's what we're going to always focus on because we're trying to win long term. We've been in business 35 years. We're going to be in business the next 35 plus. We're not sacrificing quality for production. This is not who we are. That's not how we got here. Let's talk about 2020 as a foundational year. Obviously, liquidity is a big deal. $133 million at the end of 2019 to the day we closed on this through the SPAC or D-SPAC, $1.4 billion on balance sheet here at UWM. We more than doubled the size of our campus. We're prepared for more growth. We've hired thousands and thousands of people. We are over 8,000 people as we stand here today at UWM. Once again, all here in Pontiac, Michigan. Once again, working from home, a lot of these people, however, all here for one campus environment, which is a big part of our culture. Of course, I welcome any of you guys to come out. If you're ever out in the metro Detroit area, I'd love to show you around because you'll see the culture, the dynamic environment is a big part of the secret sauce which drives UWM to success in the business side. Obviously, the success is obviously seen there with six consecutive years. This was our sixth consecutive year in 2020, being the number one wholesale lender and about 35% market share. Neither of those things have ever been broached. Part of that is based on our partnership with our clients and our service. Our net promoter score was plus 85 for the year, plus 87.5 for the fourth quarter, so it got better. And, you know, our clients love working with us for many reasons, our service, our technology, but also we don't compete with them. They understand that. They understand the big difference is that we are not their competition. We are their partner, and that drives a lot of loyalty. And you've seen that not only in our margins, but you've seen that in our consistent growth and dominant market share position. You know, we made some significant investments in technology in 2020, allowing our brokers to compete and beat the retail channel. So the game here is mortgage brokers have lower costs. Mortgage brokers have better rates. But how do they compete with the mega retail lenders? We have to give them the technology to enable them to compete. We help them from a marketing perspective. We help them from a technology loan origination system. And so some of these things made massive moves in 2020. Blink Plus, was a great digital mortgage app, and it's turned into a loan organization system for our clients. We build all of our technology so it's not only to be used with UWM. These brokers can use this technology and work with our competition. Our key is to let them be competitive and win, and if they win, they're going to be partnering with UWM because we are the best at what we do in the mortgage market. Now, we also built an in-touch app is what it's called, in-touch. It's The first of its kind in wholesale so mortgage brokers can upload their conditions. They can lock loans all from their app that we created proprietary built-in house here at UWM. We don't believe there's another one out there in the market and definitely not one at the level that ours is. And that's continuously making things, once again, faster, easier, cheaper. Everything we do is how do we make it faster, easier, cheaper for the brokers so they can pass that faster, easier, cheaper on to consumers. findamortgagebroker.com massive investments I already talked about that you'll see the Super Bowl commercial we're going to be driving millions of consumers there in 2021 and that will drive people to the mortgage broker and as we educate consumers we're all going to succeed and we spend a lot of time on that EaseDocs 2.0 which is a a thing we rolled out. Once again, all these things were rolled out in the last six months. And so we haven't even seen the benefit of a lot of these things. Easebox 2.0, we have over 99% adoption on a technology that's not even outsourced technology. We use it, and they have to use it if they want to. And 99%, that means it's great. People love using it. And so we built a great technology platform there. We have our pro rankings where we're not only focused on We came up with a proprietary algorithm to focus on who is the best loan officer in your area, who makes it faster, easier. And, of course, brokers are cheaper, so they all make it cheaper. And we built that from scratch here at UWM. And then we have other technologies that we've enhanced, such as U-Track, which is basically, you know, the broker can give the borrower, the selling agent, and the buying agent, all of them, a link. to track what's going on, like a FedEx delivery, what's going on with the loan. We make it so that purchases and refinances go smoothly through the process with UTrack. And so all these things are big technology, and we got bigger things in 2021 coming. We're very excited about it. Now, let's talk a little about capital and liquidity. As you guys know, I'm the largest shareholder, and so we are completely aligned with what we're trying to do together, which is add value to shareholders and continue to build this business for our team members, our clients, and all consumers throughout America. The board did approve a dividend of $0.10 quarterly dividend to be paid on April 6th for all shareholders on record as of March 10th. We expect this to be a regular quarterly dividend. And so you guys know how we're thinking about this. Our balance sheet is a fortress, and our current liquidity position is very strong. And we have access to the capital markets as well. The way we think about this going forward is we're producing a lot of cash. We're going to maybe be more profitable than some expected and be very successful in 2021. And if we have excess cash that I and the board deem is too much, We will be delivering that back, and whether we have to change the dividend in the future, as in raise it or a special dividend, those things are definitely on the table, or even buying back shares. But we are very excited about the fact that we think that there's going to be excess cash in the business, and we will not let it sit here and go to waste. We will either use it to grow the business or deliver it back to the shareholders. Now, regulatory environment, it is changing a little bit with a new administration. That's all positive for UWM. The reality is, unlike most large companies, more regulation helps UWM because the regulation is focused on helping consumers, and that consumer's best chance is because they have access to mortgage brokers. So it helps brokers and consumers, and since we're tied to the little guys, the brokers and the consumers, we grow as well. Richard Cordray, the CFPB director previous in the Obama administration before Donald Trump was the president, did a lot of things to help consumers. The new CFPB director, Rohit Chopra, used to work for him. And so we believe there will be a little bit more of the Richard Cordray way, which is focus on consumers, make sure that people are focusing on doing right by consumers and focusing on them. And if that happens, that will help mortgage brokers, and thus it will help UWM. That's happened before, and we expect that to happen again with any change. If no change has happened, then we're in the same environment we're in right now, which is obviously working fine for us. Now, a couple other things before I turn it over to my CFO, Tim Forrester. You know, we can't control rates, as everyone understands that. You know, we understand the market very well. What we can control is how we do our wholesale business. We focus on dominating the wholesale channel. The market is only 20%. Brokers are only 20%. Now, it used to be over 50% pre-crisis, and it went down to 14%, and now it's grown back up to 20%. And it will hover in that area until rates start to tick up, and it will continue to grow steadily. in 2022, 23, 24, 25. We expect it to be 33% by 2025, 2026, which is one-third of all mortgages going through the mortgage brokers. Now, that will be a big deal for us because obviously that means our pie will grow. Think about it this way. This past year was about a $3 trillion mortgage year. I know some people report higher numbers, but let's just call it $3 trillion because I believe a lot of people count correspondence and they double count the loan. So you have to look at a HMDA data. If you look at a company like some great competitor like Wells Fargo, they do a lot of correspondent loans, which means that maybe I sold them the loan, so I'm counting it and they're counting it, double counting. So we look at direct originations. Who actually underwrote the loan? The loan can only be underwritten once. So we look at it more like a $3 trillion type year. And we imagine, what does 2024 look like of a $1.5 trillion year? The market cuts in half. Well, here's what happens. The brokerage channel grows to 33%, not only because the brokers grow, but also purchase business. And so 33% or $500 billion. Our share will be 50%. We believe that we have a clear path to 50% from the 35% we're at right now. So we'd be doing $250 billion even in that small of a mortgage market. Even if you don't believe we can get to 50% and say we go to 40%, still $200 billion. We are less cyclical than our biggest competitor, who's almost 92%, 93% refinance. We are not as cyclical as those types of lenders. Once again, we might not look as good at this time, but we're doing pretty good. The focus is on how do we win long-term consistently for our shareholders and our partners and our clients. Purchase refi, back to that a little bit so we can just hit this before I turn it over to Tim, which is, you know, we did over $12 billion of purchase in the fourth quarter, and that was our biggest purchase quarter ever. We actually did a little bit less purchase in 2020 than we did in 2019. And a big why behind that, so you understand the belief system here, is, once again, I talked about quality. When COVID hit, we pulled out of a lot of products, specifically FHA and Jumbo, and basically said, we're not going to focus on these products. Those delinquencies are higher. There's uncertainty in the market. And I'm OK doing less business because I'm going to make sure we steer this ship safely for the long term. So one of the consequences, we did less purchase business in those two buckets, which made our purchase business look not as exciting as it has been. But we turned back on the FHA on our conquest program in December. And we also will plan on turning on jumbo product in the third month of this quarter, so in March, which we will drive by the third quarter of 2021, $14, $15, $16-plus billion. We expect to have big, big purchase numbers going forward. So once we have all the products, we are a purchase lender. We did 71% purchase in 2018. We've done this before. Our biggest competitor and many of our top competitors have not done it before. And so we're excited about that opportunity. With that being said, I'm going to give a little guidance here shortly and then, of course, take questions. I'm going to turn it over to my CFO, Tim Forrester, to talk a little bit more about some of the financial details.