speaker
Operator

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.

speaker
Tamika

Blake Colo, you may begin.

speaker
Blake Colo

Good morning.

speaker
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.

speaker
Blake Colo

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.

speaker
Tim Forrester

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.

speaker
Blake Colo

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.

speaker
Operator

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.

speaker
Tamika

At this time, we will pause momentarily to assemble our roster. Your first question is from the line of Voice George with KBW.

speaker
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?

speaker
Matt

Hey, thanks for the question.

speaker
Blake Colo

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.

speaker
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?

speaker
Blake Colo

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.

speaker
spk15

Okay, great. Thanks a lot.

speaker
Operator

Your next question is from the line of Kevin Barker with Piper Sandler.

speaker
Kevin Barker

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?

speaker
Matt

Yeah, no, it's a great question.

speaker
Blake Colo

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.

speaker
Kevin Barker

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?

speaker
Blake Colo

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.

speaker
Blake Colo

Thank you. Thank you, Matt. Thank you.

speaker
Tamika

Your next question is from the line of Doug Carter with Curtis Lease.

speaker
Doug Carter

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?

speaker
Blake Colo

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.

speaker
Blake Colo

Great. Thank you.

speaker
Tamika

Your next question is from the line of Eric Hagan with BTIG.

speaker
Eric Hagan

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.

speaker
Matt

Yeah, thanks for the question.

speaker
Blake Colo

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.

speaker
Eric Hagan

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?