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spk03: Good morning, my name is Tamika and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation second quarter 2022 earnings conference 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If at any time you would like to respond Remove yourself from the queue. Please repress star one. Thank you.
spk05: Blake Colo, you may begin.
spk04: Good morning.
spk14: This is Blake Colo, Chief Business Officer and Head of Investor Relations. Thank you for joining us and welcome to the second 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, and thank you everyone for joining the call today.
spk18: Really appreciate it. Before we get started, I think it's most important that I first recognize the life of Tim Forrester, my CFO who recently passed. He was a great man, and to have loved these calls with all of you, it was a huge part of our growth and success at UWM, and he will be missed. I'd like to take a quick moment of silence in memory of Tim Forrester. As hard as this is to transition, let's get into the highlights of our second quarter with very strong results. First, we closed $29.9 billion of mortgage production for the quarter. 22.4 billion of this was purchase volume, 17% higher than our first quarter purchase volume. This is a dominant number, and we continue to demonstrate that we're the number one purchase lender in America. We dominate on purchase, and brokers do as well. We've been talking about this for years, and all the things we are great at tie into the winning in the purchase business. The best purchase lenders are the most well-run lenders, and no one is better in purchase than UWM. We continue to deliver world-class service levels. Our net promoter score is at plus 88 for the year, and our speed to close remains about three times faster than the rest of the industry. This level of service keeps our brokers always coming back to UWM and extremely sticky. In addition, I'm happy to announce that we delivered $215.4 million of net income for the quarter with a gain margin of 99 basis points, which was also our margin in Q1. As I said before, 75 to 90 base points will likely be the average for the full year, and now we strategically have a cushion for the second half of the year, which aligns into our announcement on game-on pricing that I will talk a little bit more about later. In addition, we delivered fully diluted earnings of $0.09 per share, and I'm happy to announce for the seventh consecutive quarter, we will be issuing our regular dividend, which is important to all of our shareholders, and I see no reason this won't continue for the foreseeable future. Andrew will provide more color on these numbers in a few minutes, but I want to discuss our strategy for the third quarter We remain laser focused on the growth of the broker channel Because it's the fastest easiest and most affordable way for consumer to get a loan and the best place for a loan officer work This is not my opinion. These are facts most recent humda data. That's home mortgage disclosure act its government data and shows the average borrower will save $9,400 over the life of the loan by going through the broker channel compared to the retail channel. It's even better for minority borrowers who save about $10,400 using a broker. Consumers are learning these facts every day, and this is why the broker channel continues to thrive. We're excited to continue to get this data out to more and more people because it's going to make an impact on not only our business, but consumers across America. Retail loan officers also know the broker channel is the best place for them to work, which is why UWM is committed to helping them make the successful transition from the retail channel to the wholesale channel. UWM has been waiting for the rising rate environment so we can prove what we've been saying all along. We continue to gain market share when others are retreating from business. We hosted about 5,000 of our clients here on our campus in May for UWM Live while other people are laying off. And we are being very aggressive in this environment, which is why our game on announcement Strategy in June is going to play off so well going forward game on is an aggressive pricing strategy used to attract brokers that are not using UWM to see why our process our Technology our service and our partnership are the best in the country Once a broker experienced our technology and service in our sense that we are a true partner they become loyal they know our goal is for them to do more business and they will do more business partner with UWM and GameOn also is the last nudge that we believe retail loan officers need to convert to being a loan officer at a broker shop or start their own broker shop. They have always known it's hard for them to compete on price and rates with brokers and with service and technology and support brokers have today. But now with GameOn, it's making them take an extra look at the broker channel and it's working even better than planned. We are tracking amazing activity on BeAMortgageBroker.com website where people can begin the process of becoming a mortgage broker or loan officer in the broker channel. This proof point provides a very early look. However, it's hard to dispute or ignore the fact that the website has had more traffic in the last two months since Game On Strategy than all of 2021 combined. So let me give you a little bit of that data. In 2021, about 226,000 people hit that website inquiring about being a mortgage broker. just in june and july alone since game on we've had over 329 000 people hit that website and over 515 000 for the year so just in the two months since game on we've had more people hit that website than all of 2021. in addition new loan officers are moving from retail to wholesale now this is a bit of a laggard on data because it takes three to six months maybe even seven months in certain states and areas for them to actually become a broker from leaving retail All of 2021, the data shows, 6,353 loan officers left retail to join broker. In the first seven months of this year, including July, 5,782 have already converted over. So we're on pace to do significantly more. And that is inclusive of the best month we've ever tracked, which was over 1,000 loan officers moved over from retail to to wholesale in the month of July. We're very excited about that data, and once again, that lag, so it's really not even, like the game on data is gonna push even further going forward with all the people hitting our website along with people moving their license over. Very excited about this opportunity. We are confident this strategy will work because we've done this before. The last time was in the first quarter of 2019, and we saw a significant amount of LOs turn to UWM. This is happening again, and this time our service and technology is even better than it was back then. I'll have more data on the 2019 success and the 2022 success at our next earnings call. And I'm excited to share because the early numbers are fantastic. With one of my last points, I think it's really important to mention that all the success, the brokerage only makes up 20% of the overall mortgage market. That's the last thing to move. Beaborgersbroker.com is the top of the funnel. The loan officers converting is the middle of the funnel and actually loans closing is the end of the funnel. Now, This means UWM, the second largest mortgage rate in America, and hopefully soon to be the largest, has been competing for only two out of every ten loans when most of our competitors are competing for all ten. As we mentioned before, we believe the broker channel will grow to 33% over the next five years. However, with strategic initiatives like Game On, we think that number could reach 40% or higher, meaning UWM would compete for four out of ten loans rather than just the two out of ten loans we're competing for right now. We've been waiting for the ideal market to execute on this strategy, and the time is now, and we're excited about this opportunity. The market, combined with our different strategies, is a catalyst we need to accomplish a next-level growth, and I'm excited for you guys all to see it. We will look back on the game-on strategy in a couple years, probably three to five years from now, and say that was a multi-billion-dollar decision, investment in our business, and the success will be shared with all of our shareholders going forward. I will now turn things over to our Principal Financial Officer, Andrew Hubacher, to go over some of the financial numbers.
spk00: Thanks, Matt. We generated meaningful profitability in the second quarter of 2022 with origination volume and gain margin within or in excess of our previously provided quarterly guidance. And as Matt mentioned, $22.4 billion, or approximately 75% of our total Q2 loan production volume of $29.9 billion was from purchase transactions. This represents a 17% sequential quarterly increase in purchase volume, showing continued strength from our core competency and competitive differentiator Our servicing portfolio remains very strong, contributing positively to our second quarter operational performance and provided significant cash flow benefits. Despite sales of servicing on loans with a total UPV of approximately $73 billion in the past six months, our servicing portfolio remains above $300 billion as of June 30th. We believe that we have accumulated one of the best servicing portfolios in the industry with a very low WAC and better asset quality than the industry overall. which provides balance to our business model and a strategic source of liquidity. The fair value of our MSR portfolio was just over $3.7 billion as of June 30th. On the expense side, our staffing levels continued to decline through natural attrition and incentive-based compensation expense decreased consistent with the decline in loan production, while servicing costs increased with the increase in the servicing portfolio compared to the prior year. We finished the quarter with just under $1 billion in cash and our leverage metrics were at more typical levels for our current size and scale as compared to December 31st when we were aggregating loans due in part to the early rollout of the increased conforming loan size limits. We believe that the actions we have taken by monetizing a portion of our MSR portfolio and lines of credit we have put in place and expect to put in place by the end of Q3 will continue to provide more than sufficient capital resources to support the liquidity needs of our business, inclusive of our regular dividend. As noted in our earnings release, and as Matt just mentioned, the Board authorized a regular dividend to be paid to our shareholders for Q3. We continue to be comfortable with the amount and timing of the dividends and believe it is appropriate to continue to reward our stockholders. Okay, I'll turn things back over to our Chairman and CEO, Matt Ishbia, for some closing remarks.
spk18: Thanks, Andrew. Before I turn over to some questions, I want to summarize a few key points. We're committed to the broker channel. The broker channel has tremendous momentum right now. There's no question this channel continues to grow and is the best place for a consumer to get a loan and the best place for a loan officer to work. The early numbers are in on game on, growing the channel, and we are excited about the results. Our service is best in class, pretty much any industry. We are currently running at ENPS, or a net promoter score of plus 88. Game on pricing brings them in the door, and our elite client experience will keep them coming back for a very successful long-term investment in our business. Our $22 billion of purchase business is irrefutable. Brokers and UWM dominate the purchase market and will continue to do so with the support of tools and technology we provide. Lastly, everyone considers this a tough mortgage market. However, I continue to say UWM is able to deliver strong earnings, capture more market share in this type of environment. With that said, we are now deciding to take advantage of our pricing power by making an investment into our future growth. The investment we make today will have exponential benefits in 23, 24, and 25 and beyond. And we continue to capture more market share and not only position ourselves to win, but dominate the future. And we feel great about the decisions we've made. As I said before, we control the margins. We decided to lower the margins strategically to grow the broker channel and help us continue to grow our market share. With that said, we expect our production to be between $23 and $28 billion for the third quarter. And while we still believe the $75 to $90 is a good expectation for a full year 2022 gain on margin, we expect our third quarter gain margin to be between $30 and $60 range, as we have chosen to be more aggressive in growing our share in the broker channel going forward. I could not be more excited about the second half of this year because I know the decisions we are making today have a materially meaningful positive result in the long-term success and the growth of business. Now I'm going to pause and turn it over for some questions. Thank you guys for listening.
spk03: At this time, I would like to remind everyone, in order to ask a question, press star then one on your telephone keypad. If at any time you would like to remove yourself from the queue, please repress star one.
spk05: At this time, we will pause momentarily to assemble our roster. Your first question is from the line of Voice George with KBW.
spk15: Hey, everyone. Good morning. Actually, your guidance for the margin for the second quarter is quite broad, the 30-60. You know, what takes you to the, you know, what would get it to the high end versus the low end of that range?
spk17: Hey, thanks for the question.
spk18: Yeah, you know, there's a lot of things depending on the market right now. But the reality is I'm not really focused on the margins for this quarter as the focus. It's an investment for the long term, strategically building the broker channel, building, you know, our market share will follow. It will grow as well. But it's really an investment going forward. So whether it be 30 or 40 or 50 or 60, it's going to be in that range, like I said. And once again, the big thing is even with this big game on announcement and game on strategy, The 75 to 90 basis points for the year, as I've said before, will still hit in that range. As I told you, that would be the low of the market. And so we had a little extra cushion. We could be more aggressive here and really help catapult the growth of the broker channel, which is the long-term strategy of 23, 24, and 25 and the investment that we made.
spk15: Okay, great. Thanks. And then actually in terms of the timeline for the Game On program, is there sort of a finite timeline or how does that work?
spk18: We're watching as it goes. The early reads has been so much better than even, you know, we thought it would be great and we knew we had a lot of strategy around it, but the data we're accumulating about each client, the information we are doing with the broker channel, seeing the retail loan officers and how they're acting towards brokers, seeing that conversion, it's been so magnificent that we're watching it a little longer. But the way I think about it, you know, Boast, is just, you know, there's a lot of different ways to grow a business. Long term, we're thinking about this as a big investment to be a multibillion-dollar investment, as in not investment, multibillion-dollar returns for our investors. I could look at acquiring a company, $500 million, $700 million, or maybe get a little market share pickup, maybe turn some loan officers from retail to wholesale, probably won't get much data out of it. Or I spend a couple hundred million dollars in the gain on sale. You guys can notice it there. But our market share grows. We move over 1,000 to 10,000 loan officers. You know, we get tons of data. There's no culture change with dealing with acquiring a company. So many benefits. And so this long-term, this is a no-brainer for us. How long it lasts, you know, I'm looking at it going forward this quarter. I'll give more guidance at the fourth quarter on that earnings call in November.
spk15: Okay, great. Thanks a lot.
spk03: Your next question is from the line of Kevin Barker with Piper Sandler.
spk06: Good morning. Thanks for taking my questions. Matt, I mean, you mentioned that this is a multi-billion dollar opportunity by making the investment now. And I mean, it's tough to see that right now. And obviously, it's going to take time to see how that plays out. But could you help us quantify how much investment you're willing to make now and then how big the multi-billion dollar opportunity could possibly be, whether it's market share growth in the broker channel or just general market share growth within the brokers overall and where those margins could potentially go to over time?
spk17: Yeah, no, it's a great question.
spk18: And I'll do a good job of quantifying some of this in November for you on the earnings call there so you can see it. But we've done this before. So January 2020, 19 did a similar approach. So I've done this. We've seen how this plays out from the data, the analysis, the growth of our market share and the growth of the wholesale channel. The problem was the wholesale channel growth didn't work as well back then because it turned into a refi boom. The market turned into 1920 COVID 21 major refi boom. And so the loan offshore shift didn't happen at the pace that we're seeing already. And so how do I quantify multibillion dollars? Well, you know, just as it says, like it's going to be, you know, we're going to spend hundreds of millions of dollars, and we're going to see billions of dollars in return. How do I see that? Like we saw what we made in 2020, making over $3 billion in profit. Do I see a year like that again in 24, 25? Absolutely. And I think this puts us in position for that next opportunity. The other thing is the big part that I think people need to realize is we're as strong as we are. We're dominating on the purchase side. I compete for two out of 10 loans right now. And so what do I have to do as a business leader to compete for four out of ten loans? And let's just say my market share doesn't grow because we do a poor job, which we're not going to do a poor job, but let's just say it stays at that 30% market share, whatever you saw in the first quarter, whatever it was. If we stay at that same market share, but we compete out of four out of ten, we just doubled our business, right? And I understand the market coming down, but the market does go back up too. And so understanding that we're positioning ourselves for long-term growth and long-term strategy here, and this is the perfect time to do it And we're going to continue to do it because it's much cheaper than acquiring someone. And unlike acquiring someone, I have much more comfort and guarantee in the results that I'm about to have.
spk06: So you're essentially consolidating the industry via pricing initiatives. How do you weigh that versus M&A, given your stock is trading at a higher valuation relative to peers, I guess, on price to book. Earnings are debatable. But how do you weigh acquisition versus organic growth, just given you have a pretty strong currency?
spk18: Yeah, no, it's a great, great question. I appreciate the thought. We're definitely looking at acquisitions. We look at that also. I'm not saying we wouldn't do that if the right opportunity was there. However, this was a way to make it happen sooner. have much more certainty in the results and organically control the results ourselves with the data and the information. And quite frankly, it's a lot cheaper, right? I understand your point about I could pick up someone with more float, I could pick up someone with a lower multiple, but quite honestly, I still think that this is a better strategy right now. However, I'm open-minded and I look at things and I think there's a lot of upside in what we're doing right now. And once again, I've tried to give a little bit of early read because I didn't do this until June 22nd, but the early read on BeAMortgageBroker.com and the loan officer conversions and our market share and creating stickiness with our clients, it's been phenomenal, and we're excited about it.
spk04: Thank you. Thank you, Matt. Thank you.
spk05: Your next question is from the line of Doug Carter with Curtis Lease.
spk09: Thanks. Matt, I know you've made your views around headcount and expenses clear to us, but just wondering at what point you can get data on sale margins back above expense levels or get volumes up enough to leverage the expense base?
spk18: Yeah, I think I'm leveraging it great right now. So I feel good about everything on the expense side. We're obviously profitable, but our business is in a great position. And I know, Doug, you probably get a chance to see what we're talking about here in our office and see how we do things here and appreciate you recognizing that. But we feel great about where we're at from the expense side. We're profitable. We're running a very efficient business. Strategically made a great decision here, which I think already is getting better results than I expected. You'll see those continue to shine for not only months to come, but years to come. And we feel really good about it. We're not hiring 500 people a month like I was doing a year ago, but our people are an investment. They're not as much of an expense like other people look at it. They're an investment in our future. They're part of our team. And we're doing great things together, and we're winning. And as I told you, we've been waiting for this time in the industry. Our rates went up. They went up fast. Everyone else who's kind of caught doing the refi game and the little merry-go-round with doing every refinance all day, that doesn't work for a long-term strategy. And you're seeing it right now. And that's why we'll continue to take market share. We'll continue to grow our channel. And we'll be positioned not only for a great year this year, but 23, 24, and 25. And I think you'll see the return in a very positive way.
spk04: Great. Thank you.
spk05: Your next question is from the line of Eric Hagan with BTIG.
spk12: Hey, thanks. Good morning. A sort of broader question about how you manage through a volatile rate and spread environment. Like, how do you take that volatility and effectively communicate changes in mortgage rates to your network of brokers? And how does the volatility, you think, sort of flow down or affect the way the broker is able to communicate at the borrower level, especially for purchase money loans? Thanks.
spk17: Yeah, thanks for the question.
spk18: Yeah, I mean, obviously, it's been a very volatile market. You know, I got a first-class capital markets team. We feel good about being able to handle all this volatility, where some of our competitors maybe struggle a little bit more with it. For the brokers, obviously, it's hard to handle volatility, but the volatility plays in the broker's strength a little bit, and here's why. You know, when you call someone and they quote 5.5%, you call someone else, they quote 5%, you're like, what's going on? Right? It's such a difference in rate. So what it makes you is shop a little more. When you shop a little more, guess what? you're going to find that the brokers are always going to be cheaper. And so it actually plays in the broker's favor a little bit where not everyone has the same rates because the market's been so volatile, timing has changed, and so brokers are going to win. Now, purchase market, there's a macro environment. You could argue that that slows down purchase throughout the country, but we're still the elite purchase lender. We did over $22 billion this quarter, and we're still focused on purchase business. And so brokers understand the volatility and us communicating with it. We have 600, 700 AEs that are calling and communicating, and we have different videos. and live shows that go out to brokers to educate them so they can educate consumers about stuff. And that's part of the partnership. Being a partner with UWM, you have access to leverage our information, our training, our knowledge to communicate in a positive way in their markets throughout America, and it's helping brokers win. And we feel really great about it right now, and we'll continue to use that edge to help our brokers continue to win.
spk12: That was really helpful. Thanks. And I think you guys mentioned some new funding lines that you're exploring, if I heard you correctly. Can you offer some color on what those funding lines are? It sounds like that will be the funding source to support the growth that you're aiming for by trimming your margins. Can you also share how it potentially changes your appetite to sell MSRs going forward?
spk18: Yeah, so, you know, we have access to liquidity is obviously important. You know, we talk about our actual liquidity and a lot of our earnings, and Andrew and his team have done a great job of putting together, and even Tim before Tim unfortunately had passed, put together ways so that we have access to more liquidity, whether it's partnerships with SFS, whether it's MSR capital lines. One thing people don't recognize and I don't get any credit for around here is that our MSR lines are not encumbered at all. All my other companies that we're competing with are leveraged up on their MSRs. We have not one penny leveraged on our MSRs. And so we're accessing a line on that. And we have access. And once again, even without all that stuff, our cash flow is significant and it's really not a factor. But cash is king. And we're going to continue to make sure we have access to liquidity. We have plenty of liquidity on our balance sheet. And at the same time, we use our liquidity in prudent ways to provide returns for our partners.
spk04: Got it. Appreciate you guys. Thanks.
spk03: Your next question is from the line of James Fusetti with Morgan Stanley.
spk19: Yeah, thanks a lot. Just a couple of quick follow-up questions for me. What's your sense of remaining excess capacity in the overall mortgage market? And I guess your strategy is pretty clear how you want to take advantage of the current situation. But as you think about how this plays out and the duration of how long you want to be aggressive on gain-on-sale margins, et cetera, how should we be thinking about those things?
spk18: Yeah, so obviously it's a good point. The market's definitely interesting, and we're seeing a lot of our competitors laying people off, struggling, losing money, but beyond that, just losing volume and market share at substantial amounts. Part of that is because their business model is tied to refi. Part of that is because their retail branching models. Part of it is because their retail market and what they're doing and their margins have to be so big to compete and that their cost to originate is too high to actually be profitable. That's one of the big benefits that we have right now on the technology side, and we talk about it a lot, is that our operations and our cost to origin is lower than most. So we can be more aggressive in a game-on strategy like we're talking about, put pressure on other players, give the brokers a massive competitive advantage, recruit retailers, all while making a nominal investment in our big scheme of things while continuing to pay a dividend because we have so much cash and profitability going forward. And so we feel really good. It's kind of like threading a needle here. But the overall market is definitely seeing some contraction and, you know, not discrediting. What companies that don't do mortgage for a living is this is not their only thing. Of course, it's a contracting market if you don't have a differentiation and a strategy to win long term and short term, to be clear. And so that's happening in some of those. And so those people are consolidating, laying people off. And we just feel like we're really in a great position. You know, I couldn't. have predicted this position a year ago because I didn't think rates would go up this fast. And so this has really put us in kind of, what do they call it, the catbird seat. I don't really know what that means, but it sounds cool. We're in the catbird seat where we feel good. And these other places, although they're reducing staff, it's going to happen again. I've been here 19 years. This is not my first time through this rotation and these cycles. In 23, 24, 25, sometime rates are going to drop. And those places that are not going to be able to handle the new volume. They're not investing in technology. They're laying off people. How are they going to sustain it? And that's when we're going to make $3, $4 billion plus in one of those years coming up. And that's what's going to happen. This is the cycles. And so we feel really good about where we're at and the position we're in going forward.
spk19: Makes sense. And then from a, you mentioned the technology investment you've been making. How are you feeling about like where you're at on the investment requirements? Is there areas where you need to increase investment or is it more likely to sustain investment or do you ever reach a point or when do you reach a point when you can start to bring that down a bit?
spk18: Yeah, so that's a great question. And so we feel really good about our technology investment. Our Bolt technology has been picking up, and I think I announced it. It's almost been a year, but it's not quite a year. But it's been fantastic, and that makes it so our clients have a better, easier experience. It makes it so my underwriters can do more volume per underwriter, so that will lower our costs as well. And so our investments are continuing in technology. I think any time in business you stop investing in technology – you will lose because it's not like there's going to be less technology in five years or 10 years than there is today. So we're constantly investing in technology, coming up with new things, helping our brokers grow new business, whether we come out with boosts. And I got new things coming in next month. And we're always thinking of what's the next thing to continue to dominate. Because although most people look at our company and say, gosh, those guys are really successful, the number one wholesale lender, number one purchase lender, number two overall lender, they're really successful. There's so much upside in where we're going. and so much opportunity that we're just getting started. So I'm not slowing down on the technology investment. We're not slowing down on the new initiatives. We're going to continue to grow and dominate and continue to win our market share and help brokers continue to win.
spk04: Thanks.
spk05: Your next question is from the line of Steve Delaney with JMP Securities.
spk08: Good morning, Matt, and God bless Tim. Sorry to lose him. Can you hear me?
spk18: Yeah, thank you. Tim was a wonderful man. I know he liked talking with you, and he'll be missed by all of us.
spk08: For sure. Just a question. How in the world did you beat your own guidance on gain on sale in the second quarter, 99% versus your 75% to 90%? What was the key factor in achieving that result?
spk18: Yeah, you know, once again, I control the margins. So we set them every single day. And when there's, you know, opportunity like game on where we can lower margins strategically, we do that. And then there's an opportunity when you can pick up and sometimes that's product mix and different things. But, you know, the market, and I'm not saying it in an obnoxious or arrogant way, the market has to react to us. We are the biggest player in the game in wholesale and in retail, even though we're smaller than one other player out there in the overall market, everyone has to react to UWM. And so You know, I'm sure you've heard other places say the margins have normalized and they feel good until we decided not let them be normalized at UWM. And so we control that. We feel good about it. So we were able to, I always tell you, and you've heard me talk about it, Steve, you know, 75 to 90 is kind of the low end of a year in wholesale. I could even make an argument that I would take out the game on quarter or game on half of the year because it's just a long-term investment. But even with that, we'll still be in that 75 to 90 range. for the year, and we were able to have 99 in the first quarter and second quarter, as you probably saw.
spk08: Yep, and so game on primarily a third quarter, but you made it clear that you might extend a little bit just depending on the success. If we look out to 2023, you think 75 to 90 is where we should be modeling when we look out sort of post-game on?
spk18: Yeah, so I would actually say 75 to 90 is what I would always tell you in the wholesale channel, at least now, obviously, as technology and world's lever, that that's on the low end, 75 to 90. I don't see it going below 75. So if you're modeling that, that would assume a very competitive year again. Now, I'll put the one caveat. If I continue game on further in, that could adjust it slightly. But 75 to 90 is the low end year in wholesale is how I look at it right now. And it obviously can evolve. And so could it be higher than that? Yes. But 75 to 90 feels like a good number to be on the low end side. Our lowest in history, I think, was in the low 80s. And that was, I don't know what year it was, but I would say 2018-ish. But that's those type of years. So if the market softens or is a tougher market, yes, if it's a little bit more sunshine out there, there could be more upside in that. But we're very profitable at 75 to 90, as we've demonstrated already.
spk08: That's great color, and congrats on a really good quarter and a tough market. Thanks.
spk04: Thank you.
spk05: Your next question is from the line of Kevin Barkow of Piper Sandler.
spk06: Thank you. I just wanted to follow up on the guide for the third quarter on originations. It would imply a slight decline at the top end, and you seem very excited about the progress you've made on Game On. I mean, the guidance seems pretty low given how excited you are with the progress that you've made so far. Do you feel like you have the capability to exceed the $23 to $28 billion that you laid out there, just given how well Game On has been going?
spk18: Yeah, so when I'm saying how well Game On is going, I mostly focus on LO conversion because, you know, me getting more market share feels good and I can high-five you guys and you'd be proud of me. But the real strategy is long-term growth of the channel, right? And so, like, when I'm talking about, like, that's why I mentioned the BeAMortgageBroker.com, the top of the funnel. of the hits, like seeing that many people hit it, seeing the loan officers, see the action in the loan officers converting to wholesale, talking to my brokers and hearing how many people are calling them from the retail channel. It's been unbelievable because we basically just separated retail from wholesale by a significant amount. You notice I pointed out the HMDA data early in my call, $9,400 cheaper in 2021 for a consumer to go through a mortgage broker than to retail. And Game On only accelerates that, makes it even bigger. 2020 is $8,000. 2021 is $9,400. It's growing because brokers have a better all-round model. And because of what we've done, we've given them the ability to compete and have low costs and give amazing product and price to the consumers. And so to answer your question and thinking through all those things and how we think about it going forward, I feel like we're in a great position to Do I think $23 to $28 billion? Yeah, I think that's the right range. Could we beat it? Yes. Could we miss it? Yes. But I try to give guidance that I think we're going to hit. And that's what we've tried to do before. Obviously, we exceed guidance sometimes. But I think in the last quarter, we were right in the middle of it. And so the market also got to realize there's inventory shortages out there in the market. And also the markets, a lot of people are guiding even further down percentage-wise. We think we're going to be, you know, hopefully get close to what we did in the second quarter. But $23 to $28 is what I guided towards. I feel confident in those numbers. Is there upside? Yes. Is there downside? Yes. But the focus for me is not about the third quarter volume, although that will be important. The most important thing is the loan officer conversions. And that's a little bit of a laggard because it takes a while with NMLS and each state takes a while. But over the next three, six, seven, eight months, man, I'm excited about that. And that conversion, along with the market share growth of UWM and the stickiness of those clients, will tell the tale of the success of Game On. And I'll be happy to share more of that data in the November call and then also in the February call as well, because I think that the numbers will be very, very positively received by you guys, but most importantly, my shareholders.
spk06: Okay, great. And then with the pricing issues, are you also seeing further expense synergies or at least a decline in operating expenses? over the next couple of quarters and maybe go into the 23 to generate more operating leverage as this plays out.
spk17: Are you saying, am I seeing a decline?
spk18: I'm sorry, you broke up at the beginning of that.
spk06: I'm sorry. Are you seeing expenses also come down as you implement operating efficiencies within the overall business?
spk18: Yes, yes, we do see that. I mean, the efficiencies of both is a big one I will talk about, and we're rolling out some more stuff soon. How do we create efficiencies by technology? Investments in technology will help us win. And as we can do things such as, you know, make it so that our people can do more. And at the same time, you have technology to help us with loan quality. So we have less buyback risk. We have less service related issues. All of these things tie into it with technology. And so, yes, I am seeing costs and expenses go down. And you'll see that as well in the numbers in the third quarter, but it's not focused on letting people go. It's focused on how do we make people more efficient and handle the volume and make sure the service and loan quality, all those things are the highest levels.
spk06: Is there any way you can quantify how much the operating expense is going to decline here in third or fourth quarter?
spk18: You know, there's a lot. I can't quantify it right now for numbers. You'll see it in the third quarter, but this is what I'll say is we focus on making sure that we're not bloated. And so where everyone else has to do things by laying people off, that's not how we have to do things. We have to focus on how do I do that by making us more efficient. So with the volume numbers that we were just talking about, am I staffed appropriately to handle volume? We have to be overstaffed by design, which is why I'm not laying people off. Also, I'm prepared for the 23, 24, and 25 time when no one else will be. And at the same time, we have the upside to grow, right? Because we're not sitting here saying we're just going to keep retracting, retracting, retreating, and retreating like a lot of our competitors. we're saying, I'm going to add thousands of loan officers to the wholesale channel. Well, I might have to grow in the fourth quarter. I might have to do more volume in the third or fourth quarter than I did in the second quarter, which is mind-boggling in this market, but I have to be prepared for that because loan officers are coming over in droves from the retail channel. We've got to be ready for that. And on top of that, one last thing, not only are loan officers coming over, the one piece that I maybe have not reiterated enough is the loan officers in the broker channel right now, John Smith in the broker channel, he is winning a loan against the retail loan officer at guaranteed rate or at movement. Those are good companies. I'm not saying anyone negatively. He's winning those loans. And so the loan officers in my channel are actually getting a bigger percentage of market share right now, not even counting the loan officers, not even counting UWM's market share. And so it's just winning all around. And so I've got to be prepared for that, and I am prepared for it.
spk04: Okay. Thank you for taking my follow-up questions.
spk05: Your next question is from the line of Jay McCandless with Wedbush.
spk07: Hey, good morning. Thanks for taking my questions. Matt, I think you made a great point that it may be cheaper to cut margins right now and grow the business that way than it is to do an acquisition. But at the same time, your warehouse borrowings are going up. You've got an aggressive Fed that wants to keep hiking rates. At some point, it seems like you're going to have to slow it down a little bit. I mean, can you maybe talk about what you're thinking from that perspective and, and when, when is, when is enough enough, I guess.
spk17: Hey, you know, I'm not following what you're asking.
spk07: You're saying slow it down a little bit and slow down the ability to, I mean, your cost, your cost of funding is going up. The size of your warehouse borrowings are going up. I understand that you're generating more mortgages, but, but your cost, Maybe your personnel costs aren't moving up, but your funding cost is moving up pretty quickly. I understand the strategy. I understand where you're trying to go with this. But is it going to get too expensive at some point? Is it too punitive to keep this amount of borrowing up in order to drive this kind of market share?
spk18: Yeah. So a couple of things. No, it's not too punitive. But our borrowing costs and warehouse costs are not going up. They're actually going down. You know, remember, they match the note rate. So the interest rate's at 5.5. There's still interest. If you look at my financials, they're interest income versus interest credit or interest cost. So, you know, we're actually – we have a gain there. So I think maybe you're – I'm misinterpreting what you're asking or you're misunderstanding what's going on. But we feel really good about that. And so no, it's not punitive because, once again, I'm not playing the third quarter game. I'm not playing the fourth quarter game. I'm playing the 23, 24, 25 games. And we feel really good about it. Of course, first half of the year was very profitable. We're paying a dividend. I mean, for my shareholders, they got to be ecstatic. You know, we're paying a, I think, I don't know what the stock is anymore, but it, you know, let's call it a 10% dividend, which is fantastic. Our company's profitable. We're gaining market share. We have strategy to win in 23, 24, 25. Anyone who really understands our business sees there's a multi-billion dollar profitable year in 23, 24, 25. What did we make? 3 billion or 2 billion or 4 billion, whatever the number is. And based on the multiples my stock price is, everyone feels really good. There's great growth potential across the board. So, no, I'm not worried about it at all. I think that, you know, maybe I misunderstood what you're saying because our warehouse costs and those things are going down as a spread. But at the same time, compared to the note rate, we're making money because it's all relative to the note rate on the loan.
spk04: Okay, great. Thanks for taking my question. Thank you.
spk05: Your next question is from the line of Kyle Joseph with Jefferies.
spk10: Hey, good morning. Thanks for taking my questions. Just going back to your long-term targets of 33% or roughly a third for the broker channel, how much do you see an initiative like Game On accelerating that? Obviously, it's subject to market conditions. And then Second part of that question, you also talked about potentially even going to 40%. What's the balance of broker conversion versus increased productivity in that 40%?
spk17: Yeah, great question. I'm sorry, did you have one thing?
spk18: Okay, 33% was what I've kind of targeted for a while. How do we get to 33% by 2025, 26? I think I've said that since my road show when we went public, and that's still the focus. I think Game On accelerates that. This market accelerates it. If you remember from my roadshow and when we were in public, I talked about when rates go up is when loan officers, like people say, what keeps you up at night, Matt? Well, when rates go down, that's the only thing that will slow our growth of the broker channel and slow the success of what we're about to build right here in this channel. So a big part of it is the LO conversion, as you referenced, but also it's a good point on the brokers, our current brokers doing more. We have partners, the partnership we do and the things we do to help our current brokers win and grow is what I live for that's what we do all day and it's something I can't talk about this because people don't really understand it or feel the love and passion we have for the current broker channel but hundreds of loan officers out here every week to get training success track getting better finding ways to improve finding ways to talk to real estate agents and grow their business the broker channel has so much growth it's like It's like a 6'11", 15-year-old that's athletic and jump out of the gym. You know he's going to be an NBA star. He's got all this upside. That's the broker channel. We have all the upside. We feel good about it. So I'm going to help them grow. We're going to help convert loan options into retail because they say, hey, listen, I want to grow. I want to be in the broker channel. I know they've got things going on over there. UWM's got their back. And so we feel excellent about that opportunity. So what percentage is which? It's hard to say what's going to make up the 33% or the 40%. Targets I think a lot of it's going to be LO loan officers conversions That's really what I can move the needle on but every day that I'm here every minute that I'm here We're focused on helping our current brokers grow and succeed and excel and while that next realtor and while that consumer and get a better Google review That's what we do. That's what UWM does That's where that NPS net promoters where I talked about earlier has such a big thing because if we do an amazing job then it makes the broker look like they did an amazing job which they did and And when they do that, they get more referrals. And that's how this thing is going to grow. And so 33% by 25, 26, I stand by that number. I feel confident in that number. And how do we get more loan officers over so I can get it over to maybe to 40%? I mean, we're competing for two out of 10 loans right now. And we're the number two overall mortgage company. Imagine when I compete for three out of 10 or four out of 10 loans, we will be the dominant force in the wholesale channel and the overall mortgage market. And so will the brokers.
spk11: Very helpful. Thanks for answering my question.
spk05: Your next question is from the line of Mark from DeVries.
spk02: Yeah, hi. How sticky in your experience have share gains been from pricing initiatives like Game On as opposed to maybe just layering on some more of the services that you provide to help your brokers kind of stand up and grow their businesses?
spk18: Great question. So that's what we have to focus on is what the stickiness factor is, right, and how that continues going forward. And so that will tie to the market share growth and figuring out how our net promoter score is, how our technology is, how we make it so that the brokers realize that UWM is the best partner for them for the long term. And so that's a big part of this strategy, right? And we've done it before. If you look back in 2018, look at my market share. I don't know the exact number, but I'll call it 15%-ish. And then look at my 2019 number, which I think is more like 30%. I'm not suggesting we're doubling market share this time because we're so big it's hard to move the needle at this size. However, will it go up? Yes. And it stayed sticky. So the way we think about it is we have a great grocery store. People are coming into our grocery store because we have a special and an opportunity. And they see, wow, this is the best store around. I love the service. I love everything about it. I'm going to keep coming here. And that's what we have to do with UWM with our technology, with my account executives, with my operations team, with my partnership, with our training, with our initiatives to help brokers grow, with them watching our videos. We track everything to make sure that they're getting the advantage and the benefit of this. And, you know, as we talk about, how are we going to continue to grow our markets here? One is new LOs converting from retail to wholesale. There's 400,000 or 500,000 in retail right now. Let's convert them. Two is let's grow my current LOs value, like help them get more real stages, more consumers, help them get more business, help them succeed and grow. And then the third piece is the LOs that are right now doing business, how do I get a bigger percentage of their market share and let them stick with UWM, their wallet share? And so all three of those things are the plays we're playing, and we focus on each of them every single day. And so I think that's really the key. The stickiness is the right question that you asked, because that's really what we're focusing on to make sure that they become not just you know, third quarter clients of UWM, but lifelong clients at UWM. And I think that with the technology and service and opportunities we offer, that's what's going to happen.
spk02: Okay. That's helpful. And then what is the competitive response been to game on? Are you seeing competitors try to match on price, you know, to limit their share gains or are they struggling to do that? Cause it's just, their cost to produce is too high.
spk18: Yeah, they're all trying to, but you hit it right. The cost of produce is just too high. It's at some point that, you know, I'm talking and they're like reacting to me, right? You know, I'm making this decision and they all have to react to what UWM did. It's not like I called everyone and said, guess what? On June 22nd, we're going to do this. Be prepared. We did it on June 22nd. Our costs originate because of our technology is lower than everybody else in the wholesale channel and the retail channel, to be clear. And so it's kind of, you know, put them on, you know, on their heels a little bit. And so they all lowered the rates which helps all brokers once again, right, all part of the strategy. But none of them can get to the levels that we're at right now because, quite honestly, their cost originates just too high. Their technology has not been, you know, developed at the same pace as ours and at the level that ours is. And quite honestly, they just don't have the cash reserves, the strategy, and they're reacting rather than being proactive. And, you know, and then the same thing, shareholder support. You know, our shareholders understand we get it. Not only am I paying a dividend, which is out of this world 10%, But so they're getting a 10% dividend. They have a company that they know is going to be worth more from a market share perspective, market cap perspective over the next two to three years. And so everyone's supportive of this. I got 100% support from the board, my brokers. Everyone loves what we're doing, and so we feel good. I don't know that our competitors can have that on a reactive basis compared to my proactive way.
spk04: Got it. Makes sense. Thanks.
spk05: Your next question is from the line of Courtney Bauman with Barclays.
spk13: Hey, everyone. Thanks so much for the question. Really quick, too, for me. First, you know, total nonfunding debt to equity leverage looks pretty light, which is great, you know, especially in this environment. But, you know, with your bonds trading where they are, how are you guys thinking about the possibility for any sort of opportunistic repurchases and how they fit into capital allocation priorities as a whole?
spk18: Yeah, thanks for the question. Yeah, our nonfunding debts were a great ratio, great position. You know, in general, what I would say is, you know, Andrew's doing a great job going through how do we use cash the right way. It's definitely something we look at. We obviously have an authority on the buybacks. We have to worry about the float, as we've talked about before. We go through all these different things. How do we focus on it? But we're opportunistic on everything, opportunistic on acquisitions, opportunistic on debt buyback, opportunistic on game on. We're sitting here trying to win long term, and we look at all aspects of the business. And so we're excited about where we stand financially. We have cash. We have opportunity. We have the business structure, the purchase volume. All the things are in our favor. And so I'll just say the short answer is opportunistically, but the long answer is I can go through this for a long thing, all the different things we're thinking about from a cash perspective, all the things we're thinking about how to prepare ourselves to win long term. And so right now we're opportunistic, but there's nothing on the agenda as of today.
spk13: All right. That's super helpful. Thank you. And just one more, if you don't mind, um, I know you guys don't specifically hedge MSR risk, but you know, um, this, you know, the buoyancy and rates, is there any changes to how you're thinking about that moving forward, you know, into 2023?
spk17: Yeah, absolutely.
spk18: Um, so, I mean, that's, it's like, it's like you sit in my risk committee with me, we analyze this and develop it and talk about it all the time. When's the time do we hedge? What percentage of it do we add? How do we analyze it? What's our whack versus the market. I can go through the details. It's a long, boring conversation, but we spend a lot of time on it. And so we look at it. We make an analysis, what's best for the business. Right now we feel comfortable with where we're at, but it's discussed and talked with not only with my principal financial officer, Andrew, but capital markets leaders and a lot of different people in that, meaning from chief risk officer. And so all different things. We look at all aspects of it all the time.
spk13: All right, awesome.
spk05: That's very helpful. Thanks, guys. Our final question comes from the line of Michael Kay with Wells Fargo.
spk16: Hey, good morning. One of the pushbacks I get when I talk to industry executives about the growth of the broker channel is that a lot of these retail loan officer defections are really not the higher quality loan officers, either from the bank or even the non-bank retail shops, meaning it's really these lower tier retail loan officers from much smaller retail mortgage shops who are converting. Any sort of comments on that?
spk18: Yeah, that's what I would say if I was in their seat too, right? You know, I could show you multiple people that were the top 100 Scotsman guy that have all, if you want to call it defected, I call it proactively won and went to the broker channel over the last year. And so it happens all the time. Of course, some of the top, top guys, have they moved? No. Well, when you pay $20 million, $5 million retention bonuses to keep them and then raise your margins to try to make up for it, it's, it's, The game is over, is my perspective, Michael. It's over. We're just waiting for everyone else to see it. They are all converting over. I won't say all. They are converting over. We see the number. Are they high-quality loan officers? Are they low-quality? They're loan officers that are producing. And once again, the end game is what percentage of the loans are going through the broker channel. Right now it's a 2 out of 10. We'll become 2.5 out of 10. We'll become 3 out of 10, 3.5, eventually 4 out of 10 loans. How that progression happens, And you'll see it in the numbers, right? I'm just trying to give the early read because I live this all day, every day. And via MortgageBroker.com funnel and looking at all the aspects of that and then seeing the loan officers convert. Like, you know, they can say what they want to say about it, whatever they want to say. But last year, 6,300 converted. This year, almost 6,000 already. And so we're going to have more loan officers convert. I think more is better than less. And the facts cannot be argued that the broker channel is growing. It's just not. It can't be argued. And I also, I know you spent a lot of time in this space, Michael. You know, go talk to them. I mean, I can connect you to a bunch of loan officers that just left. You can talk to loan officers that were thinking about leaving and stayed. You can get all that information. But I'm trying to give everyone the high-level view, but I'm in the weeds of it every day.
spk16: Okay, that's great. Any update on Boost? Is that fully rolled out yet? You know, what's the take-up rate with clients thus far?
spk18: Yeah, Boost is going well. It's still early, right? We just rolled out. Brokers are trying it. There's three parts of Boost. All aspects are being tried. But just like the way I always explain things with my brokers, it takes time for all these things to evolve. People get comfortable buying leads. A lot of loan officers in the brokerage aren't used to buying leads. And so how do they buy leads? Do they have to call the borrower multiple times? There's big companies that are set up to call all the time. And so we've done some things to transfer leads to them. But we feel really good about them having the opportunity in Boost and getting them to be competitive if they want to buy leads. They want connections to real estate agents. And so it's going really well so far. It's still early, but we feel good about that. And I'll be able to continue to get more updates, just like Bolt. I'll give you constant updates on how Bolt's going. That's almost a year. It's a year anniversary. Same thing with Appraisal Direct. And some of these things I rolled out last year, the source, one year later, it's like, wow, how do we ever survive without it? I'm hoping that boost will be in that same category over the next one, two, three plus years.
spk16: Thanks so much.
spk17: Great. Well, thank you. I appreciate it. Is there any more questions?
spk03: There are no further questions.
spk17: Great. Well, thank you all for taking the time to listen to the call.
spk18: We appreciate the support. You know, Blake is available. Andrew is available. I'm available. Of course, Matt, Roslyn, too. We're all available to talk. But if you need any questions, follow up. Blake, Kolo, Andrew, myself, we're all available to talk to you. Thanks a lot. We appreciate the support. Have a fantastic day.
spk03: This concludes today's call. Thank you for joining. You may now disconnect your line.
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