UWM Holdings Corporation Class A

Number one on your telephone keypad. If you would like to withdraw your question, press star one. Thank you. Matt Roslin, you may begin your conference.

Good morning. I am Matt Roslin, EVP of legal affairs and investor relations. Thank you for joining us and welcome to the third quarter 2021 earnings call for UWM Holdings Corporation. Before we start, I'd like to remind everyone that the 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 this morning. Please also note that along with the earnings release, we posted on our investor website and filed a slide deck that will be referenced in our prepared remarks. I'll now turn the call over to Matt Eshbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Thanks, Matt. Appreciate it. And thank you, everyone, for joining the call today. You know, it's great to be here after, you know, another outstanding quarter here at UWM. You know, before we get into the details, I want to thank everyone at UWM for everything they do together here. You know, our team, our broker clients, growing their business, everyone's working hard together, and we appreciate our clients' loyalty along with our team members' continued efforts. We have another record-breaking quarter. You know, we're on our way to our seventh consecutive year of origination growth. I don't think there's another lender in America that can say that. Since 2014, every single year, we've grown here at UWM, along with our second consecutive record-breaking quarter, along with our biggest purchase quarter of all time. Last quarter, I explained why purchase production is such an important measure of lenders' health. especially in a rising rate environment, not the percentage, the actual volume, which we're going to go deeper into that in a minute. But let me go through third quarter first. First, we delivered another record quarter, $63 billion in production, beating our guidance at 57 to 62, and up 6.4% from the $59.2 billion prior quarter, which was a record as well. $26.5 billion of that was purchased, another record, and up 10% compared to the prior quarter. Both those quarters were records. Very, very proud of our purchase production. We're very proud to share it because we are the number one purchase mortgage company in America by standards of origination. Our gain margin, gain on sale, was 94 basis points, up from 81 in the second quarter. And the higher end of our range of 75 to 100 from the guy that we guided last quarter. That's a 16% growth on our margin compared to prior quarter. As I've said before, and others indicated in their earnings call, UWM is not a victim of margin compression. As the number one wholesale lender in the country, we control the margins, and other lenders have to react to us based on what we do. We are 100% wholesale, and while our margins are in the mid-90s, Other lenders will continuously be lower than ours to remain competitive because of our amazing service levels, technology, and speed to close loans. We make the process faster, easier, and cheaper for mortgage brokers, and thus, we are winning in this wholesale channel. We've seen a cycle where margins went from all-time highs to significant lows, and now we're seeing some normalizations sooner than most people expected. Realize that these margins are part of strategy. You plainly can see retail mortgage margins are 350 to 500. which is thousands and thousands of dollars more out of the consumer's pocket on most loans. So it's more expensive to go to a retail lender. But by keeping wholesale margins very low, it's long-term business development play to help the wholesale channel. Brokers offer consumers lower-cost loans and keep the pressure on retail lenders. We expect the channel to continue to grow because of this, as loan officers will continue to leave the retail channel and join the broker channel, which is good for consumers, It's good for brokers, and it's really good for UWM. Once again, it's all part of a strategy to help brokers compete and at the same time grow the channel, which is a winning play for UWM. Our margins are more than just the number you see. It's a part of a strategy that's been working very well for years here at UWM. Now, let's speak about net income. We delivered $329.9 million of net income, you know, which is a great number compared to the previous quarter of 139 million. Now, last quarter I talked about as a CEO, I view... Our core business, I focus on things that I can control. I can't control whether rates go up or rates go down and how the MSR values go. However, we had $170.4 million decline in fair values of MSR. So when I take that out and add that back into our $329 million, it puts us right around $500 million of core earnings. Once again, that's the way I look at it. That's different than GAAP. That's how I run this business, knowing that we're very successful and profitable going forward. The quarter also looks great year over year, up 16% in overall production and 119% in purchase production. More telling is when you look at our performance relative to our peers from Q1 of this year through Q3. You know, the first and fourth quarters are typically down in the mortgage business because of cyclical industry, and usually purchases are slower in the first and fourth quarter, as you can understand with winter and school being in session. But in good quarters, our second and third quarter, you expect everyone to go up. But everyone else went down in those quarters except for UWM. So taking a look at our numbers from first quarter to second quarter to third quarter is really an amazing thing to see us continue to grow and the rest of the market not. As you can see in earnings last three and four, we went up almost 30% from Q1 to Q3. And most big banks were flat, while the rest of the largest lenders were down between 10% and 25%. Once again, rates just ticked up. So it's because rates ticked up just a bit. You know, if rates continue to rise, we will see them, you know, and with the tapering set to begin, you know, all these things happen, we're going to see, you know, who really is the strongest mortgage company in America, and that's where we want to position ourselves as not only the biggest, but the best mortgage company in America, and we're proud of that. As you've seen, we're guiding our production down based on the sequentially for the fourth quarter, but it will still be larger than the first quarter, which is a really important thing to note. I don't think there's going to be anyone in America that will do more business in the fourth quarter like we will at UWM than the first quarter of 2021. So we will be the only one that will show the strength of our business here at UWM. That being said, we're extremely excited for 2022 because when you combine rising rates, the power of brokers embedded in their communities, and UWM's low cost and power of our speed, service, and technology, it's a recipe for mortgage brokers and UWM to win together. That will happen in 2022. We're going to finish our all-time best year in 2021, and we're excited to continue to gain a massive amount of market share in 2022, especially as it ties to purchase. Let's dive deeper into purchase, because when rates are low, there's plenty of refis to go around. But when rates rise, refis slow down or even disappear in some situations, and purchase production is essentially a lender's viability. On July 1st, the 30-year fixed rate was, you know, still in the high twos. Now, at Friday, I believe it was like 3.09, 3.10. It's rising. Now, it's still very low in the overall context. But watch what happens if rates go to 3.3, 3.5, 3.7. And with the Fed confirming their tapering, you know, that's what a lot of people are projecting. This plays into our strength as the number one purchase lender in America. We have a strong record of sustained growth over the last four years, and we're continuing to grow on the purchase side. Now, let's talk about the purchase volume, not the purchase percentage, because purchase percentage just means I did less refis is what a lot of people will tell you. We're actually talking about purchase volume, the pure number. We delivered over $50 billion in the last two quarters of purchase. And we're not shy about sharing those numbers because it's really showing the health of any mortgage company, not just UWM. Can you originate purchase business? History shows that we perform great in a rising rate environment. Purchase-oriented, again, in 2018, rates went up. We're one of the few lenders that grew and made money while the rest of the industry really struggled. On the origination side, not just, hey, we make money because the servicing book goes up. We make money on the origination side. My point earlier about how we're the only mortgage company that's grown every year since 2014, I think this will be the seventh consecutive year of growing mortgage originations, that's because in a rising rate or reducing rate environment, UWM is going to win. Unmatched speed, great rates and low cost, and outstanding service. Combine that with the local community focus of mortgage brokers, it's really a powerful combination. You guys know we talk about speed a lot. 15 consecutive quarters, less than 20 days application to close. Most lenders are 40, 45, 50. We've even seen it higher to 50 to 60 days for a long time over the last couple years. The speed and service are referral catalysts for brokers. We hear anecdotes every day from where borrowers or realtors alike appreciate how quickly we close loans and help them get in homes and get paid faster. This helps consumers. brokers, loan officers at the broker shops, real estate agents, and the overall wholesale channel. Our client service continues to be world-class with our year-to-date net promoter score of plus 87.1, which is off the charts for anyone that really follows net promoter scores. Now, let's talk a little bit about technology. Technology is a huge catalyst of our success, and it will continue going forward. Historically, We've leveled the playing field for mortgage brokers by providing tech that has previously only been available to loan officers at banks or mega retail lenders. Things like Blink Plus, U-Close, Brand 360, among others, have given brokers access to world-class point-of-sales, CRM, loan origination systems that help them not only compete but win when going head-to-head with retail loan officers. In the third quarter, we took it to a new level and unveiled multiple game-changing technologies and process technologies that will change the game for UWM and the brokers. The big one was called Bolts. Another one was called a Brazel Direct, which I'll talk about. But Bolt, I'm telling you right now, is a massive, massive change in the mortgage landscape. And it will be talked about for years and years to come. And I don't believe anyone will be able to match it for two, three, four, five years at the earliest, probably more between five and 10 years. It's that good a technology. Proprietary built using OCR, ADR, proprietary technology to help give broker clients certainly an answer on a loan within 15, 20 minutes. Our underwriters already lapped the competition in speed without sacrificing quality, and now Bolt takes it to a whole other level where we can review the documents, review the work faster and easier. So think about the process. It's a double down on the speed advantage, basically. The early signs indicate that, you know, we'll be able to maybe double underwriting productivity in the next year or two. So think about it. You know, our underwriters already underwrite more loans in our competition. You can see that in our cost per closings. But at the same time, You can also see that if we double that, we're going to exponentially expand it. That helps us win in the rising rate environment again. Huge thing. Bolt is going to be the future 2022, 2023, and beyond. And it's a huge, huge leg up on the competition. And I also want to talk for a second, like I said, about appraisal direct. It's really a technology, but really a process change. This has been the biggest pain point in the mortgage space for the last year, but even beyond that. And so what we're doing is trying to help. with great technology and putting the UWM process in place to make process better for appraisers paying appraisers top dollar we're not taking a fee on these things like a lot of other companies we don't take a fee we want to make it so the process is faster and easier it plays right into our brokers are better mindset helping the brokers win across the board and so it's a big thing bull appraisal jack We also have a thing called The Source. There's a lot of big technology we came out with in the third quarter, and that stuff took a year plus to build, a lot of this development. And so it's really big stuff, and we're very excited about what's happening. You'll hear much more about Bolt for years and years to come, as it's really a game-changing technology that no one will be able to match for years and years to come. Now I'm going to turn it over to our CFO, Tim Forrester, for more details about our financials.

Thank you, Matt. The third quarter was successful for the company in a challenging environment. As Matt noted, our volume was a record, led by continued growth in purchase volume. The competitive environment still has margins in a lower range as compared to the record margins we saw in the third quarter of 2020. However, we experienced improved margin over the second quarter of this year as rates fluctuated and margins improved. The increased servicing portfolio delivered significantly greater revenue this quarter as our portfolio continues to grow. We also experienced improved overall interest income, which expanded more than interest expense as we self-funded more loans where we deployed available liquidity to fund mortgage loans. On the expense side, our staffing levels moderated a bit, leading to lower overall compensation expense, especially compared to prior levels that included some volume-driven incentives. We did incur more marketing expense in the quarter as the impact of the pandemic continued to lessen and we were able to spend more time supporting and training with our brokers. Our servicing costs increased, but trailed our revenue increases over comparable prior periods. This is an important feature both from an earnings view and also a cash flow perspective. As our servicing portfolio continues to grow, we continue to benefit from the cash flows as well as the contribution to our performance. The key is our revenue growth has outpaced our expense. The MSR portfolio is approximately $285 billion at September 30, with a weighted average interest rate of 2.95%, down from 2.97% at June 30. Our forbearance rate is roughly 83 basis points. So we are continuing to observe better asset quality than the industry overall. As it has historically, our delinquencies remain quite low. If rates continue to increase as expected with the announced tapering plan from the Fed... Our servicing book becomes further insulated for potential downward pressures on valuation loss. The WAC, or weighted average coupon, is already well below the market and further upward movement in rates make it that much more attractive. Now, we sold a modest amount of MSR in the third quarter and reestablished relationships with several potential investors on terms we support and believe are favorable to our relationships. While retention of MSR is our preference, we balance that position with tactical sales to ensure we have access to markets if we anticipate the need to sell more MSR and to maintain appropriate balance for origination. To remind everyone, the pickup and sale is excluded from core earnings. In the third quarter, we continue to deliver private label securitizations and work toward aggregating potential additional offerings for the fourth quarter, diversifying our means of disposition. While our collateral is primarily agency eligible, we continue to evaluate improved execution as well as alternative sources for putting our loans in the end investors' portfolios. Our unsecured debt continues to perform well, and we recently received ratings upgrades on issuances, aligning with the outstanding bonds with our issuer rating. We believe these outcomes are the result of continued operational performance as well as our credit discipline. Cost per loan. Again, cost per loan was solid in the quarter. We experienced cost per loan well inside our target of $1,500, which continued our performance from prior periods in maintaining discipline on spend while our operations continued to execute efficiently. As we continue to invest in technology and innovation, we seek to improve such cost performance. As a reminder, when we discuss cost per loan, ours is a fully loaded cost without exclusions, excluding allocations, or on an incremental basis. It is all in. As noted in the press release, the board again authorized a regular dividend to be paid to our public shareholders consistent with our track record over our entire history as a publicly traded company. We are comfortable with the amount and timing and believe it is appropriate to reward our stockholders. Also, as noted in the press release, we have acquired approximately 2.7 million shares through our approved stock buyback program for roughly $21 million to date. We will continue to evaluate opportunities for buying back more stock as authorized within the parameters of the board's approval as it represents an attractive return for us to do so. Those efforts will continue to be balanced with our desire to maintain or even establish more float for investors and maintain our profile and availability for future long-term investors. We continue to evaluate the propriety of additional debt issuances to align with our MSR growth, tempered with the balance of debt levels relative to equity and the overall size of the MSR asset. We believe we are operating prudently, but embrace potential additional debt as it allows us to grow our MSR portfolio and benefit from the positive cash flows mentioned earlier. Now, I will turn things back over to our chairman and CEO, Matt Ishvia, for some closing remarks.

Thanks, Tim. Appreciate it. As you guys just heard, you know, our third quarter was record-breaking across the board. We're very, very excited about it. You know, the big part I spoke about is purchase. Purchase volume is a leading indicator of a lender's health. And the most critical proof point of whether we can, you know, make money in a rising rate environment or lower rate environment, you know, whether it's a $4 trillion industry or $1.5 trillion industry, it's a big difference. Revives are easy. Purchases are a lot harder. It takes more expertise, more detail, and UWM shines. And so do independent mortgage brokers. They make the process faster, easier, and cheaper. You know, the broker channel will grow its share. next year and beyond as purchase becomes a bigger percentage of business and retail loan officers are going to convert over as I talked about earlier as we look ahead we expect to deliver between 52 and 60 billion dollars in the fourth quarter of volume that's going to be bigger than the first quarter first quarter we did about 49 billion dollars there'll be no other lender in America that you can do more volume in the fourth quarter than they did in the first quarter we're proud of that I'm also guiding our margin to be between 85 and 105 basis points, which is a higher guidance than I gave 75 to 100 for the third quarter. We've seen the margin compression loosen across the board, and I see that it could still be lower than the norms, but maybe not as low as we had expected or people had talked about for a while, and we see it loosening up sooner. We're very excited about the fourth quarter, but even more excited about 2022. UWM is laser-focused on showing all of you guys on this call that we are the elite and best mortgage company in America, just like our clients, brokers, and consumers already know this. We are going to one day be the number one overall mortgage company in America from a volume perspective, but we will never sacrifice the loan quality and the process and the technology that we put in place to do it. So we will not lower our FICOs. We will not do different things to become number one. We are going to stay as being the best, and soon we'll be the biggest and the best. We appreciate the partnership with all of you, and we're looking forward to taking questions. I'm going to turn it back over to Matt Rossler.

Thank you, Matt. Operator, at this time we'll begin the Q&A session.

At this time, I'd like to remind everyone, in order to ask a question, press star then number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brock VanderGilt with UBS. Your line is open.

Hey, good morning, guys. Matt, just circling back on your closer there before the Q&A, see margin compression loosening sooner. Could you just put some greater dialogue and description around that characterization?

Yeah. Thanks, Brock. Thanks for the question. You know, we're seeing, you know, I think last quarter I thought that maybe it would be a prolonged lows. You know, I said it would have been all-time highs, all-time lows, and we're seeing that loosen sooner than before, than we expected maybe in a lot of different respects. And so you saw our margins were strong, you know, relative to the second quarter. And at the same time, I don't think they're going to get back to the normalized numbers that we've talked about in the fourth quarter or the first quarter. However, the prolonged margin compression, you know, does not seem as likely from where I sit today as it did maybe 90 days ago.

Got it. And as a follow-up, seems like for many investors, they've got a bit of a pain trade going on right now with Treasury rates headed down, not up. Could you talk about, as you look at that guidance you've given for the fourth quarter, what would kind of put you toward the bottom and the top of those guides? Could you kind of bookend it a little bit?

Yeah, you know, it's obviously going to depend on a couple of different factors, but the reality is where the market is right now, we feel comfortable with our guidance. And at the same time, we obviously have a month and about 10 days under our belt understanding what we've done in October and where we're going to be. And so I think that the numbers, you know, 52 to 60, 85 to 105 seem in the right ranges. However, there is still, you know, the hardest part to predict is, Thanksgiving, Christmas, the slowdown, what rates do, how loans close, MSR values, a lot of different nuances that can make it. So I think it's good to have the full range and go as low as 85, as high as 105 on the margin, as low as 52, and as high as 60 on the volume. I feel comfortable. We are less cyclical than the rest of the market, but The purchase market is, you know, like I said, the big thing to look at is first quarter and fourth quarter are usually the slower quarters of the mortgage. Second and third quarter are the better ones. We're going to beat our first quarter from a volume perspective, and I don't think anyone else in the country will be able to say that after this quarter.

Great. Thanks for the question.

Thanks, Brock.

Your next question comes from the line of Stephen Delaney with JMP Securities. Your line is open.

thanks hey good morning matt congrats to you and the team on another strong quarter i was wondering sure i was wondering if you could comment sort of generally on the the health you know financial condition of the of the broker industry um and kind of just what you're hearing from your your partners you know the group's coming off a couple of very strong refi years as we all know so it's we're still sort of going into adjustment to the new reality and just share with us what you're hearing from your partners and also give us maybe an update on your broker partner count and where you expect that might go over the next year. Thanks.

Yeah, so thanks for the question. Appreciate it. So we're seeing part of this strategy and part of understanding our business model is rates going up, rates going down. How do we react and how do we put ourselves in a position to win? The broker channel is growing. What we're seeing right now is when rates go up, and they started to go up a couple months ago, and obviously they've kind of been floundering in this low 3% range for a little while. But as they go up, the retail loan officers convert over to brokers, and they actually are doing that right now. Usually the first and fourth quarter are the best times for that because in the second and third quarter when things are hot, people aren't really moving companies as often. So right now we see a really good – you know, tailwind on that dynamic. And so more loan officers join the broker channel, leaving the retail channel, which will then expand our pie. As I've mentioned earlier, whether it's a $4 trillion year or $1.5 trillion year, how is that going to impact UWM? It's not going to impact us like everybody else, because a big part of that is the $1.5 trillion year will be a lot bigger percentage broker than a $4 trillion year, because of the refis, the service refis, and the migration of retail LOs. So We feel really good about that. Our broker count is very strong. I don't have the exact number, but we are getting about 300 to 400 people, loan officers, into our office. I think it was 294 last week or maybe 304 coming into our office to get trained. The broker count, it's just you feel the energy of more loan officers wanting to be part of the broker channel. So I see a lot of upside across the board, and our broker channel is very strong. It's as strong as it's been since pre-2008. And we're excited to see it continue to grow. And we're obviously the leader by a long shot in the wholesale space. Therefore, we'll grow with the channel.

So it sounds like you're saying you see the size of the wallet growing for the broker channel given the current broader environment and mortgages. And you would expect your share of that increasing broker size of the pie to grow as well.

Exactly.

Okay. Thanks for the comments. Thank you.

Your next question comes from the line of Henry Coffey with Wedbush. Your line is open.

Yes, good morning, and thank you for taking my call. Again, congrats on a great quarter. I think we've all begun to really learn about this channel. I did have one friend close through you all, and he got his loan done in two weeks. So congrats on a great business. Thank you, Henry. Appreciate that. So getting really picky and technical on number one, question number one, you had $170.5 million valid decline in the fair value of mortgages. How did that break down, Tim, between fair value marks and amortization?

I think it's a combination of, I don't think it's amortization, decay, payoffs, along with a write-down of the fair value asset.

Yeah, and actually for 2021, there's going to be a collection, the realization of cash flows. So the majority of it is realization of cash flows or payoffs, which I think is $217 million. And then there's the assumptions that the market assumption changes that happen that we have no control over. It's about $61 million that increased. And so that's the majority of changes. And then there's realized we had some sales of the MSR that affected it as well. So when you look at the 170, a majority of that's the collection, but really the collection is about a third of that 217, and two-thirds of that is the paid defaults.

And your thoughts on why speeds are sort of high still? Are you actually seeing healthy levels of refinance? from your internal servicing?

Yeah, so, Henry, no, we're not, and the speeds are not high, actually. The speeds are at the lowest they've been in two years at UWM, and we're actually lower than the market right now. So you're actually seeing a big part of that is because our WAC, our weighted average coupon, is 2.95 in the markets right now in the 3% range. So, therefore, a lot of our loans are not in the refinance, in the money, if you think of it that way. And so we won't, you know, loans always refinance, of course. However, we're excited to see a slowdown in that in the fourth quarter and beyond.

And in the third quarter, you're going to see a little bit of that prepayment that I mentioned, the paid in full. That's really a lag through the quarter. So when we're looking at prepayment speeds now and we look at some of the reports that come out in the industry and really have come out this week, speeds have really declined, especially for us. into a very attractive level. So what we're reporting for the third quarter is reflective of what actually gets paid in July, August, and September, and that affecting the books then, which is an event that really comes from some interest rate movement really from June and earlier in the year, or even July. Some of our portfolio that we may not have had the fortunate circumstance to be able to pull back through a broker, those things lag. Matt mentioned The 60 days it takes for others to execute a refi or a loan, if it would have gone through us, it probably would have been done in 10 to 14 days. But that's a little bit of the lag you'll see in the third quarter. That's reflective of the July, August, and September as well.

And now speeds appear to be getting better. You're right. That's going to be extremely helpful. I think, Matt, you're probably sick and tired of answering this question because But I'm going to ask it anyways. So 2019 was a growth year. 2020 was a growth year. Some people, depending on who you talk to, 2021 is going to be, quote, an up year. That's what Inside Mortgage Finance is saying, though a lot of people think their numbers are pretty aggressive. Others are saying that it's going to be kind of a flattish year. And then everybody has a pretty negative view on 2020. 22, you know, down 20, down 30. I mean, who knows what the final numbers are going to be? How, what, what are the, what are the elements that drive in that kind of market? What are the elements that drive how UWMC approaches things? So you, how do you build, we know how you build share. How do you build volume? How do you, how do you have to, you know, staff or restaff for that kind of market? You know, what does technology do to help you kind of manage through that cycle? I mean, you know, there's going to be some headwinds out there. How does, in absolute dollar terms, how does UWMC, you know, manage through those headwinds?

Yeah, no, thanks for the question, Henry. Happy to answer it and go through it with you and anyone that wants to talk about it. So a couple of things, the 19 and 20 years and 21, one thing I'll mention on whether it's inside mortgage finance or a lot of people's numbers is there's a lot of double counting in there with correspondence. They're actually not originating the loan. There's no origination being done. It's being done by a company who sells it to them. So I think sometimes there's double counting going on, which makes the numbers – look really big when they're really not that big, even in this year, the year we're in right now. It's actually how many actually were closed. You can't close a loan twice. So if one lender closes it and sells it to Wells Fargo or PennyMac or another correspondent, both companies are counting it. And you guys all look at that as origination. But you can only originate at one. So there's a lot of double counting, which makes the industry look like it's bigger than it really is right now. And that's one part that kind of addresses your 2019, 20, and even this year, 21. um across the board now 2021 will be an all-time record here at uwm um we've already exceeded what we did last year and we still got uh two months left to go and so it's gonna be an all-time record here at uwm uh by a long shot now to think about next year how do you handle the headwind you know there's a couple things let's talk first technology you know we've differentiated with technology about 1200 technology people here building stuff from start to finish i talked about bolt Bolt is a big play because it gives the brokers certainty. It gives the brokers the ability to give answers to realtors and consumers quicker. And at the same time, it helps control cost to originate because our team will be able to do even more loans per day per person. People don't understand the whole gravity of that technology, but you'll see that next year at this time and for sure in 23. And so going into a tougher year, if you think of it that way, I think that both is a huge part of it. So technology is one thing. The other big one is I kind of talked about it in the last question was about loan officers converting. As the market shrinks and those easy refinances are not in your pipeline, you start to look around and say, why are other loan officers offering consumers better deals? Because consumers get better deals through a broker. And so those loan officers are starting to transfer over to broker shops, whether they start their own or they call us and we help place them at a local mortgage broker in their area. And then, therefore, they get better rates, they get better technology, and they're able to get better service to their clients. It's a win-win-win. But they don't really leave when they've got 31 loans in their pipeline because rates are at 2%, because it's hard to transfer and leave when you're not an independent. And that's what brokers are and retail loan officers are not. So we're seeing that transfer. And then the third piece is purchase. I talked about it a lot in my prepared remarks, which was, It's not a purchase percentage game. It's a purchase volume game. And we did over $50 billion in the last two quarters of just purchase volume. And so the real thing is there's going to be less business in 2022 than there was in 2021. We all know that. But that does not mean UWM is going to necessarily do less business. Now, what I look at it is, will we do less business? Will we do more? How's the market going to shake out? There's a lot of variables. But here's what I do know, and you can mark this down and you can hold me accountable next year. Our market share will go up drastically. We will do more business in broker channel overall. The broker channel will do more business, but UWM will do more business as a market share percentage than other companies next year. And that's because everyone else who's living on this servicing book churn and burn their refis, Those guys, their day comes to an end eventually. When you're whacked, the way the average coupon is lower than the rates in the market, there's only so much refinancing left out there in those situations. Now, I could be wrong. Our rates go to 2%, and everyone has a heck of a year again. But if rates go to 3.5%, you're going to really see who people are, and that's where we're going to shine. And so we're excited. Converting retail LOs, the technology differentiator, which helps on-cost originate and making the process faster and easier, and then the purchase market, those all things are going to be a huge part of 2022 and beyond.

Just one last question. In the broker channel, are there whole new subchannels opening up, or is it more just you win one person at a time and people a day, whatever the pace is? Is it a one-at-a-time sort of thing, or are there new sort of subchannels opening up that you can explore? Sure.

Well, you know, hopefully by the next call I'll be able to share with you. First off, it's usually you're talking to one person. However, we're talking to a person who's leaving, and I won't mention the company or the names of the people obviously leaving, and he runs a large branch of 18 loan officers. The whole branch is coming over to the broker channel. He's starting his own broker shop, and all 18 LOs come with him. So those examples are not – I'm talking to one or I'm not, but our team's talking to one, but it's 18 come with them. And same thing if it's just a onesie loan officer that's just leaving and wants to get placed. It's just a catalyst because once they join a broker shop, they call their friends that used to be at the retail shop, and I won't say I won't name names, and then they all start migrating over. And so you're going to see a lot of it, and I'm going to get more colorful data for you guys to see it, and I'd love to get you to talk to certain loan officers and see this, but this is not just a trend. This is what's going to be going forward because, as I've said before, it's better for a loan officer to work at an independent mortgage broker shop, and it's better for consumers to go to independent mortgage brokers. That channel is going to grow, and we're going to grow with it. Thank you. Thank you.

Your next question comes from the line of Bose George. Your line is open.

Hey, everyone. Good morning. I just wanted to go back to the purchase market information. I mean, your share looks like it went up pretty meaningfully. Can you talk about strategies for doing that? Are you attracting brokers who do more purchase? You're helping your brokers do more? Just any color on the impressive growth you did this quarter.

Well, thank you for the question and the comment. Appreciate it, Bose. You know, so it's a combination of a lot of things. One is how do we help our current loyalists, our current brokers that do lots of loans with us every single month, how do we help them get in with real estate shops? How do we help them get in with more purchase business? And so there's strategies. I actually just did a webinar a couple days ago and the last week about this. And I pulled in one of the best loan officers, there are actually two great loan officers in the country, and talked about purchase strategies, how you build your business with the real estate. So we're coaching our current loyalists, right? Then we're helping convert retail loan officers, and I've talked about enough already on this, so I won't continue that. But those guys are coming over, and that's just more pie to the group, more opportunity. But then the last piece, which I think is very critical, is real estate agents know it. They know. They know how long it takes to close when they go to a large retail or large bank. And what they're doing is they're finding local brokers, and brokers are closing them in 15, 18, 20 days, getting that real estate agent paid on time. Certainty is a big deal for real estate agents. If you were a real estate agent, who would you refer your clients to? Someone that you knew had options, a broker, and someone that you knew could get it done for you so that people are in the house because nobody wants a mortgage. They want the house. And so brokers are able to deliver that. So real estate agents, the sentiment is shifting, and they find a great broker, and they're like, wow, I can really close this thing in 18, 20 days. My borrower can offer real estate. a 20-day offer rather than a 45-day offer, that changes the game, especially in a great purchase market. And so all those things have added up, and we're doing a lot of things. And those are just things publicly I can share, but there's a lot of minutia, a lot of details in order to make these things happen. That's why we had another record purchase quarter.

Okay, great. That's helpful. Thanks. And actually, just switching over to the MSR sale. you know, just going forward, is that, you know, just going to be periodic to keep you market access or is there, you know, any level of MSR that you target versus originations or, you know, some other way that you kind of look at that?

Sorry, you broke up on that last second. Say it one more time.

Whether the sales are just going to be periodic just to keep your access in terms of selling MSR, or do you target MSR versus originations? Is there some sort of broader approach to how much MSR you choose to hold?

Yeah, so we look at things, and we've always been opportunistic, right? And so the servicing sales we've done, when we make the sales, they're being sold for slightly higher than we have on our book value. And so we look at that in an opportunistic way. However, we're always protecting the broker channel. And therefore, whether we put non-solicits on or different things to make sure that those loans aren't solicited, and we always protect our clients. And so it's opportunistic. We like the servicing asset because we're creating the best servicing book in the country. As you guys saw, the lowest delinquency rate. It's got great cash flow. And at the same time... We feel really good about the asset with a whack, the weighted average coupon being 2.95, and the credit score, the whole process. So we feel really good about it. But if someone wants to come and offer us a bundle of cash for something that we have an asset, and we can take advantage of that opportunity and continue to invest that into our technology, into our broker channel, we'll do that as well. So I'd basically just call it opportunistic and continuing going forward with that. We're getting a lot of knocks on the door because we have such a great quality book, and people know that.

And those, Matt Roslin, you know, net of the sale, you saw that the total book increased as it has every quarter since COVID started.

Yep, yep, yep. And actually, one follow-up just on the sale. So the non-solicited, so you can essentially prevent them from recapturing your loans with those agreements?

That's correct. That's exactly how it works. For three years, for 36 months... is the standard we do. And so if you hold it for a year and 36 more months, it creates a lot of protection for our clients and at the same time, a good cash flow for the new investor, new servicer.

Okay, great. Thanks a lot.

With the key being protecting our clients.

Yep, yep, yep, absolutely. Thanks.

Your next question comes from the line of Doug Harder with Credit Suisse. Your line is open.

Thanks. Matt, you've talked a lot about, you know, kind of technology like Bolt. You know, can you just give us a sense as to where you think the cost to originate can go over the next one, two years?

Yeah. Thanks, Doug. So obviously the cost to originate is very, very low. You know, it just depends on how you look at it. As Tim pointed out in his remarks, Ours is a fully loaded. A lot of people talk about numbers, and it's a lot of times comparing apples to oranges to bananas. It's not really the same. So we feel really good about ours. We have a fully loaded cost. We put all the numbers in there. And so being south of $1,500 is fantastic. And can we drop that even further? It's possible. Absolutely. And how do we do that? But as you think about it, we're not looking at it in bits. We're looking at it in dollars because it costs dollars. It doesn't cost bits to do things. And so we're looking at that. How do we continue to drive that number down? And Bolt is a great catalyst for that, along with a handful of other things that probably are too much in the details or the weeds to get into on this call or in general. But We really focus on that number because, you know, when the tide comes in, you know, the tide goes out, however you want to think of it, things change, and you have to know who you are and how much it costs to actually manufacture a loan. And we're very process-focused and technology-focused here, and that's what's given us a huge leg up.

Great. And then just as you think about the impact of home price appreciation and the higher loan limits that are set to be announced this in the not too distant future? How does that impact your business?

Well, it impacts it positively, right? And so the higher the loan size is, obviously the opportunity to continue to grow our volume and grow our business is there. And so, you know, once again, that's why we talk about cost-originating in dollars because a lot of people will tell you, oh, well, our cost-originating bips went down. That's just because your average loan size went up. That's not really saying your cost went down. And so we're tracking dollars per closing and making sure, you know, and so we're monitoring that. Now, we obviously – kind of preempted, we know that I think it's November 30th is when FHFA will announce the firm numbers of what the new loan sizes are. We actually came out with the numbers at 625. So we're already seeing a little bit of a pickup from that. We think the number will come in higher than that, maybe closer to 640, 645 even for the new loan size, which is a massive improvement from the 548 that it was this year on the conforming loan limits. And so that opportunity is good. Actually, you'll probably see a little spike on our Q4 numbers. assets because we'll hold those loans and sell those all January 1st, 2nd, 3rd because there's an opportunity. But it's a great way to do a lot of business and help the broker channel continue to advance. So the loan size thing will be a positive move for UWM and for brokers and for consumers across America.

Thank you, Matt.

Thank you.

Your next question comes from the line of Ryan Nash with Goldman Sachs. Your line is open.

Hey, good morning, everyone. Good morning. Matt, can I maybe ask a question on capital allocation? So I'm just trying to think through the trade-off between buying back stock, paying a dividend, and then also selling MSRs, you know, given margins are still running. below, you know, what you would consider normalized levels, you know, so you're obviously doing it in certain respect to preserve liquidity. And related to that, Tim, you mentioned a willingness to maybe take on some additional MSR debt. Can you maybe just talk about where you're willing to take leverage to for the company in order to provide some balance sheet flexibility? And I have a follow-up.

Yeah, I think the balance of the three is, you know, that I mentioned earlier is buying back shares, their potential for flow. But specific to the debt, we've realized that the asset that most people look to, and again, it's an unencumbered asset, the MSR. The asset that most people look to or loosely associate with the unsecured debt issuance is the MSR. The MSR has continued to grow fairly substantially in the last three months, even with the modest sale that we mentioned and we talked about was really a test of the market, reestablishing some relationships. As we continue to grow that asset, it has value. And we think it's supportive on a direct asset linkage to the debt, but also from a leverage standpoint. We're going to continue to stay within our leverage comfort zone of not getting outside of 0.75 of non-funding debt. Could we get up to one? Sure, we can get up to that size. But we're going to continue to be very prudent with how we issue debt and how we look at it relative to our equity, but also relative to the size of the asset. So there is some interest in that, and we may explore that opportunity later. similar to the other opportunities to balance out float, as well as the attractiveness of the stock right now at its current price.

I mean, in that regard, we went from $660 million of book value or equity value at January 1st, 2020, to closing the quarter at $3 billion. So notwithstanding the dividend, notwithstanding the buybacks, the equity has been going up pretty maturely, and our non-funding debt to equity is in a very healthy range.

Got it. And, you know, Matt, maybe a big picture and specific question for you. I mean, you know, it seems like, you know, your desired outcome for the Olin Initiative is, you know, working as you're seeing really, really strong production here. And, you know, you alluded to the fact that pricing is loosening a bit. So can you maybe just talk about, you know, what's driving it? Are you guys actually increasing price? And then, I think a couple of quarters ago you said that you thought that this wouldn't last longer than 18 months. Now you're saying you don't think it's going to be as prolonged. What is it you're looking to see along the way in terms of broker migration to the channel that will allow you to change your pricing strategy a bit? And then just lastly, can you just remind us, once you achieve your desired outcomes, where would you expect margins to inevitably level off for the company? Thanks for taking all my questions.

Thanks, Ryan. So, appreciate it. A couple of things. So, I think the big thing that, and I kind of tried to mention it earlier in my remarks, was, you know, understanding what, you know, margins we'll be doing and how we look at them and how, you know, obviously we control. We're not a victim of the margins. We set the margins and other people will react to those numbers. Wholesale mortgage brokers having better rates than retail is not only a UWM strategy, but It's a business development strategy. It's growing our pie. It's growing the channels, putting immense pressure on these retail channels, which is helping drive loan officers to our channel. The way we think about it is, you know, people ask me all the time, Ryan, you know, hey, you're going to grow the broker channel, Matt. What's the strategy? How are you going to do that? You know, why don't you do more TV ads, all these things. And so here's how I think about it so you understand our strategy around it. It's very simple. You know, I can do a lot of TV ads and I can do a lot of Google searches, and all the different things to drive business. Every time I convert a consumer, Ryan Nash, to do a loan with a broker, that's one loan. Most consumers do a loan every four years. That means that's one loan every four years I got by spending money on a TV commercial, okay? Same thing is, so you focus on consumer and that's what you get. You focus on a real estate agent, which I kind of alluded to earlier, and you get a nice pickup because on average, a real estate agent, let's just call it, they do two loans per month. Well, over four years, a real estate agent that we convert to say, I want to refer to a broker, ABC Mortgage Broker, That's two loans a month or 96 loans in a four-year period. That's 96 times more value to convert a real estate agent to understand that a broker – and they actually understand that brokers are better because they understand how closing loans pass. And there's also only a million to two million real estate agents versus 300-plus million consumers. Then there's a third bucket, 450,000 loan officers. On average, a loan officer might do six loans a month. Six loans a month turns out to be, what is that, you know, 96 loans a year or 288 loans. Am I doing my math right? 288 loans every or 272 a year. Yeah, so 272. So it's a big number. So 290 loans a year versus one loan a year, and there's only 400,000. So our focus is convert loan officers to brokers. It gives us 290 loans over – or roughly 290 loans over a four-year period. rather than one loan over a four-year period with a consumer, and then real estate agents are the middle. And so our focus is business development, growing the channel. If we can bring every loan officer brings over almost 300 loans over the next four years into our pie, then we're focusing there. And that's why keeping margins low has been a huge catalyst. for brokers and for UWM and will continue to be. And so sometimes people look at our margins and think, oh, well, why don't you just raise the margins since you control them? Because I'm growing the channel, and as the channel grows, UWM grows, and all my shareholders, people that are listening to this call, are going to benefit along with consumers, along with brokers, along with my team members here.

Thanks for the call. Thank you.

Again, if you'd like to ask a question, press star, the number one on your telephone keypad. Your next question comes from the line of Sandy Leidy with Morgan Stanley. Your line is open.

Hi, this is actually Blake Netter speaking on behalf of James Fawcett. Thanks for taking my questions. So in terms of the competitive advantage of your platform, you mentioned that speed to close is a big factor.

um are there any theories as to why there's such a big gap relative to relative to the competition and how long you can sustain that before competitors catch up yeah thanks for the question appreciate it you know the the it's not even a theory it's just the facts are the technology right so 1200 people building proprietary technology i'm not out there using 88 vendors you know, cobbling it all together to try to do loans. We've invested in our technology for years and years. I think it's billions, billions with a B, ahead of our competition on the technology. And so people can, you know, market and tell you, I've got great technology. My technology is great. Well, here's the difference. How do you know your technology is great? It's just a spiel unless you actually can prove it. And so the proof is in the pudding, which is origination, cost origination, cost on our cost, and then speed to close. Look at those two numbers. You'll find out who's got the best technology and who doesn't. And also, we have no channel conflict. Remember, I'm building technology for $1. line of business, the best wholesale mortgage lender in America, period. I'm not trying to build it to be a great wholesale lender and then direct the consumer, and I've got to figure out the correspondence channel, and I've got to figure out the retail branching model. We're building it with singular focus and dominance in mind, and that's what we're doing, and that's why we're able to be faster than everybody else. That's why our technology is better, and once again, it's not me saying it. You can actually look at the proof, which is How much does it cost to originate a loan? That's a technology number. And how fast does it take you to close a loan? Technology number. Get those two data points. You'll find out who built their own technology, who's winning, and who's just kind of keeping up while the times are good in the market.

Thanks for that. Can you talk a little bit about how you balance headcount growth against spend on technology? Is there an ideal split here, and is that impacted by the level of headline mortgage originations volumes?

So we track all the things tied to team members, technology. But the reality is we've got to look at making sure that our operations team is always able to handle the volume that our sales team can bring in. And that's why we have the elite client service, and we help our brokers grow. Because every time we make a broker look like a superstar to Jenny Smith in Minnesota, Jenny Smith prefers clients. to that broker along with the real estate agent will refer more clients. So we want to make sure our brokers look like superstars all the time, give them that wow client experience, And we continue to do that. And so with team members and technology and headcounts, the way we look at it is making sure that we are always able to handle the volume, at the same time handle growth too. We don't think the volumes are going to shrink in the broker channel as much as they're going to shrink in the direct-to-consumer channel, which is all refi, or in a lot of the retail branching where a lot of loans are going to migrate over. And so we feel like we're in a really good position with our team member count right now, and at the same time the ability to win and do more with our team members, which ties to both, as I mentioned earlier.

Great, thank you.

Thanks for all the questions, everybody. We appreciate it. I'm going to turn it over to the operator.

That will wrap up the Q&A portion. I would like to turn the call back over to Matt Ishbia for closing remarks.

Great. Well, thank you, guys. So I'll just leave with this. We appreciate the questions. We're happy to, you know, Matt Roslin, our EVP of Investor Relations, always happy to connect with anybody. We feel really good about what happened in the third quarter, and we're very excited about the fourth quarter and even more excited about 2022. We've said that we're a purchase-dominant lender, and we're going to continue to do that as the broker channel grows and we continue to dominate on purchase. We're excited about the future and excited about putting the position that UWM is in, which I think is as strong as we've been in a long, long time, and we're excited for you guys to see that for hopefully quarters and quarters to come. Thank you for the time, and we'll look forward to talking to you next quarter.

This concludes today's conference call. You may now disconnect.