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United Wholesale Mortgage, the largest U.S. mortgage lender, has increased its balance sheet by more than $1 billion this year by selling servicing rights and excess servicing cash flows on nearly $90 billion of loans.
UWM disclosed in a note at the end of its financial report that it sold $70 billion in mortgages backed by Fannie Mae, Freddie Mac and Ginnie Mae for $941.2 million Loan servicing rights. Annual report to investors.
In addition to outright sales of nearly a quarter of its mortgage servicing rights (MSR) portfolio, UWM said it sold excess servicing cash flow from an additional $19.4 billion of loans for $150.9 million.
The two services deals were made in the period after Dec. 31, 2023, and raised a total of $1.09 billion, the company said.
“We suspect these sales are going to only a handful of buyers with sufficient scale to finance and offer bulk products, including select servicers and REITs (real estate investment trusts)…whose market share ranks,” said BTIG analyst Eric Hagen. Top 15.” in a note to customers on Monday.
In addition to being the nation’s largest provider of home loans, UWM also acts as a loan servicer, collecting payments from borrowers on behalf of the investors who purchase their loans. Although 93% of the loans UWM originated last year were sold to investors, UWM retains the mortgage servicing rights for the majority of the loans it originates, earning $818.7 million in fees as a loan servicer in 2023.
Being in the mortgage servicing business can present accounting challenges because changes in interest rates can affect the fair value of mortgage servicing rights. When mortgage rates fall, this can reduce the fair value of the MSR because borrowers are more likely to refinance and ultimately choose another loan servicer.
UWM said it continued to be “operatingly profitable” when it reported a fourth-quarter net loss of $461 million on February 28. The net loss was caused by a $634.4 million write-down on the fair value of UWM’s MSR investment portfolio.
UWM’s MSR portfolio to peak in 2021
Source: UWM’s annual report to investors.
UWM sold $112.9 billion of MSRs in 2022 and $99.2 billion of MSRs in 2023, with the MSR portfolio’s unpaid principal balance totaling $299.5 billion as of 2023, down from a 2021 peak of $319.8 billion down 6%.
MSR sales have reached at least $70 billion in 2024, and UWM’s MSR portfolio is now closer to $230 billion, not $300 billion. BTIG estimates UWM will sell another $60 billion in MSR this year, but by originating $120 billion in mortgage loans and retaining servicing rights for much of the business, the MSR portfolio will reach $265 billion by the end of 2024.
BTIG speculates that most of the MSRs sold by UWM this year are tied to higher-rate loans originated in the past 12 to 18 months. While these loan types require MSR price reductions, borrowers who obtain these loans would also be good refinancing candidates for UWM to “recapture” on the originator side if interest rates decline.
“Unlike some of our competitors, we have not historically hedged our MSR portfolio specifically,” UWM Chief Financial Officer Andrew Hubacker said on a conference call with investment analysts on Feb. 28. “Instead, we have maintained the portfolio at a certain level. , so that we are confident that the fair value impact from falling interest rates will be offset by increases in raw revenue over time.”
Hagen said BTIG analysts “remain bullish on the sale because it avoids the possibility of further (price cuts) due to falling interest rates, and we believe it is an effective form of hedging if UWM’s recapture opportunities look limited.” ”.
UWM StockIt has traded as low as $4.16 and as high as $7.43 in the past 12 months, with Monday’s closing price of $6.81, up 17% from the 2024 low of $5.82 hit on February 28 after the company reported fourth-quarter earnings.
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