UWM Holdings Corporation Class A

Good morning. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the UWM Holdings Corporation first quarter 2022 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 once again. Thank you. Blake Colo, you may begin your conference.

Good morning. This is Blake Colo, Chief Business Officer and Head of Investor Relations. Thank you for joining us and welcome to the first quarter 2022 UWM Holdings Corporation's earnings call. Before we start, I would like to remind everyone that 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 this morning. I will now turn the call over to Matt Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage. Thanks, Blake. I appreciate it, and thank you all for joining the call today.

Before we start, I really want to thank everyone at UWM for their continued commitment to providing the best in-class service to our clients, the brokers, and to congratulate our brokers for adapting and winning in this current market. On every earnings call I've said how important a strong purchase business is to the health of any mortgage lender and why UWM is positioned to thrive when rates rise. A purchase heavy market magnifies the winning combination of broker expertise and UWM speed technology and service. We are now in that market where you can easily identify the winners from the rest. This environment will propel the broker channel to the next level. It's simple. The broker channel is the best place for loan officers to work and the brokers are the best place for consumers to get a loan. These two facts drive our strategy at UWM and why we are going to have success in this market and really in any market environment. The purchase market though is where we are today and that is the key. As our first quarter results demonstrate, we have a lot to be excited about. 2022 feels a lot like 2018. The last year when rates went up substantially and lenders had to figure out how to operate in a new environment. We were very profitable back then. And while most lenders weren't, you'll see the same story play out this year. And Q1 was the beginning of that story. We closed $38.8 billion in production for the quarter. That is almost what we did in the whole year of 2018, which shows our massive scale and growth we've achieved in the last four years. More importantly than that volume number is our production is only down 21% when comparing the first quarter of 2021 to the first quarter of 2022. I invite you to compare our year over year first quarter Q1 to first quarter 2021 to 2022 comparison with any lender in the country as proof of the strength of our business. This trend will continue in 2022. But beyond that, the $19.1 billion production of purchase volume, which is the largest first quarter in our 36-year history here at UWM, this is a big number by anyone's standard, and we think we'll do even more in the second quarter of 2022. We are confident that UWM will continue to be the number one purchase lender in America and eventually the number one overall lender in America. We delivered $453.3 million of net income for the quarter with a gain margin of 99 basis points. That $453.3 million represents $0.22 per share, which shows very strong earnings across the board. In addition, only $170 million of that $453 million is a fair value adjustment to our MSR portfolio. So our business is very strong with our MSRs and without the MSR value write-up. Now let's talk about a couple other focuses. Scale, optionality, broker channel. First on scale, our technology is superior. What we've provided for mortgage brokers so they can win in this market is better than what retail lenders have. This is helping brokers win. Now, one of our big technologies, Bolt, is a great example. It's the best underwriting platform in America. We've seen a 50% adoption increase just from the fourth quarter to the first quarter. That's big, but it's going to continue to grow. You'll see the Bolt story play out more in Q2, Q3, and Q4. Because it not only drives productivity higher for underwriters, lowers overall costs, but it also makes our quality better across the board. More to come on Bolt coming soon. Also, you know, optionality. Talk about MSR values. Our MSR book is one of the best in the country. Our WAC is at 3.04 up from 2.94, but our values... And our MSR book is so strong because we originate so much business every quarter, even after selling some MSRs, which I'll reference in a little bit. The reality is this. Our MSR book is strong, and when rates are low, we'll originate a lot of business and have a high gain margin. When rates go up, we'll still originate a lot of business on the purchase side, but our MSR values will go up as well. We're very proud of where we're at. We're 36 years in business, and we're going to win regardless of the market. Lastly, I want to mention one other thing about loan officers. The broker channel continues to grow. This has been what we've been saying for years and it's really happening right now. LOs are leaving retail to join broker. That is going to help UWM. Consumers are realizing it. Realtors are realizing that they should go to mortgage brokers and brokers are winning. 35,000 loan officers unique loan officers submitted loans to UWM in 2021 and we think we'll have more unique loan officers submitting to us in 2022 it's a very strong fact about the growth of the broker channel and UWM now Tim Forrester our CFO is unable to be here today so I'm going to give a little bit of color from his perspective and some of the things we've talked about to highlight a little bit about our business from the financial before I take some questions so quickly As Tim would like to point out and we'd like to talk about from our finance team, 56% year-over-year growth from a purchase perspective. That is massive and a huge part of our success. If you notice, income grew. A lot of that is tied to the business, but also our interest expense went down because we're using self-funding, using our cash to help us make more cash. That's important for our success. On the expense side, it's very important that we continue to manage our expenses. We have complete control of this, and we feel great about where we're at. you know our expenses looked higher year over year however in reality they were lower a couple things to note there's a 20 million dollar or so reversal from q1 of 2021 which actually reduced our numbers last year when they were actually higher Also, there's a change in presentation of about $13 million this year that affects that number. And then also, don't forget, our servicing book is about 50%, so there's about $26.7 million higher in servicing costs. You take that out, and our actual costs are down. We are managing our costs. We feel great about our costs, which are a big part of our significant profits. Also, our assets. A comment from the first quarter versus the fourth quarter. If you recognized in October of 2021... The new conformity loan limits went out. So our assets look bloated about $22 billion at the end of last year. A lot of people may comment on it. It normalized back down to around $10 billion because we held a lot of loans in the PLS market also with Fannie and Freddie loans to pick up profitability, which we will see in the fourth quarter. But now those assets have been normalized and you'll see our $10 billion roughly number out there. Also, one other thing on MSR sales, I mentioned it earlier. We sold some MSRs, about $73 billion, and brought in liquidity of $872 million as of April 1st. That doesn't impact our P&L much. However, liquidity is important. And as you see, our liquidity is in a great position across the board. Liquidity being strong is important, which is why we're, once again, continuing to pay out a dividend. We've done it six quarters consecutive. We will continue to pay out dividend. Our board feels strong about it. We want to reward our shareholders, and our dividend is very strong, and it will continue to be. We feel great about that. That dividend is out, once again, for the first quarter. And as you saw in the earnings release, it shows the dates along with when we will pay it out. Now, really quickly, before I turn it over to questions, I want to highlight a couple things. Our scale enables us to win in any market. The balance sheet is strong. Our MSR portfolio is a key asset, is the best MSR book in the business, and our business model allows us to stay on the offensive. The loan officer migration to the wholesale channel is gaining steam, just as I've said before, and it will continue to go going forward. Please watch how we continue to sustain production going forward, and we continue to win. And like I said, the dividend is demonstrating our commitment to return cash to our shareholders. For second quarter 2022, I see our production going between $26 and $33 billion, and our gain on sale margins around 75 to 90 basis points. It will be another fantastic quarter in Q2. We look forward to seeing many of you here at UWM's headquarters for our UWM Live, where about 5,000 of our clients will be out here at UWM talking about growth, working on how to build their business, and we're going to be here excited. Tony Robbins is going to be here. I'm going to speak about some things. Looking forward to it. Now, let's turn it back over to the moderator for some questions. And happy to answer any questions about UWM, the business, or the marketplace in general.