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United Wholesale Mortgage Corp. CEO Mat Ishbia said Wednesday that last year will go down as one of the best in the company’s history after the company, the largest U.S. mortgage lender, reported First annual loss since going public in 2020.
The company said in a report released on Wednesday that a $634.4 million write-down on the fair value of UWM’s large mortgage servicing rights portfolio resulted in a net loss of $461 million in the fourth quarter and a net loss of $69.8 million in 2023. Fourth Quarter and 2023 Results.
“We continue to be operating profitably, a true measure of mortgage originator health, while our financial losses are driven by MSR (mortgage servicing rights) price reductions due to interest rate changes,” Ishbia said in the report. of.” statement.
Ishbia said on a conference call with investment analysts that he was pleased that 2023 was UWM’s best year ever for mortgage purchase volume, a year in which mortgage rates soared more than 7% to post-pandemic levels. High Point.
Matt Ishbia
“It’s not a standout year from a financial perspective, but it’s going to be a standout year from a dominance perspective,” Ishbia said, explaining why, in his view, 2023 is “the best year in UWM history.” One of the good years.”
“We are significantly different from our competitors in terms of market share, growth, operating earnings and strategic investments,” Ishbia said. “This is our second year as the No. 1 lender. This is our third consecutive year as the No. 1 procurement lender and our ninth consecutive year as the No. 1 wholesale lender.”
UWM, which surpassed rival Rocket Mortgage in 2022 to become the largest U.S. mortgage lender, last week reported larger net losses of $233 million in the fourth quarter and $493 million in 2023, also due to the Due to write-downs on the service rights portfolio.
UWM originates nearly 38% more loans than Rocket in value terms, and the Pontiac, Miss.-based wholesale lender’s purchase loan output alone exceeds Rocket’s 2023 purchase and refinance total of $78.7 billion Dollar.
Ishbia credits UWM’s partnered mortgage brokers and their connections with real estate agents and consumers for helping grow the home loan business.
“First and foremost, the broker pipeline is strong and continues to grow its overall share of the industry,” Ishbia said. “Loan officers continue to join the broker pipeline, and real estate agents and consumers continue to view brokers as the best choice for mortgage lending. Second, our investment technology continues to provide our brokers with competitive advantages in speed, price and process. “
UWM StockIt has traded as low as $4.16 and as high as $7.43 over the past 12 months, initially down 13% from Tuesday’s closing price of $6.71, bottoming at $5.82 within minutes of the New York Stock Exchange opening on Wednesday morning.
But as investors balanced fourth-quarter losses against the company’s future prospects, UWM’s shares rebounded quickly in heavy trading, ending the day down 5% at $6.37.
Ishbia noted that UWM will pay a dividend of 10 cents per share to shareholders on April 11, which will mark the 13th consecutive quarter that the company has paid dividends at this level.
“As I have said many times before, dividends will be paid in good times and bad,” Ishbia said. The dividend “will be paid in a year like 2023, which should give the market complete confidence.”
2020-2024 UWM loan disbursement (according to purpose)
Source: UWM’s annual report to investors.
UWM’s refinance amounts shrank 61% to $14.4 billion as rising mortgage rates took away much of the incentive to refinance.
But as home purchase mortgage originations increased 3% to a record $93.9 billion, UWM’s total mortgage loans fell 15% to $108.3 billion.
“Despite a higher interest rate environment and a significant decline in industry-wide purchasing volumes throughout 2023, the Procurement business continues to maintain its leadership position as our total purchasing volume in 2023 is higher than in 2022 and 2021,” Chief Financial Officer Andrew Hubacker told CFO Andrew Hubacker. Investment Analyst.
Loan output in the fourth quarter was US$24.4 billion, down 18% quarterly and down 3% annually. UWM executives expect loan production in the first quarter of 2024 to be between $22 billion and $28 billion.
Gross yield, the profit UWM realizes on the sale of loans it originates, averaged 92 basis points in 2023, up from 77 basis points in 2022. UWM expects total yields in the first quarter of 2024 to be between 80 and 105 basis points.
UWM services $300 billion in mortgage loans
Source: UWM’s annual report to investors.
In addition to originating mortgage loans, UWM also acts as a loan servicer, collecting payments from borrowers on behalf of investors. While 93% of the loans UWM originated in 2023 were sold to securities investors backed by Fannie Mae, Freddie Mac or Ginnie Mae, UWM retained the Mortgage servicing rights for most loans.
Last year, UWM’s loan servicing revenue was $818.7 million, up 3.4% from 2022, with an increase in average servicing fees more than making up for a small decrease in the size of UWM’s mortgage servicing rights (MSR) portfolio.
UWM may sell mortgage servicing rights to others when it needs cash or wishes to reduce its exposure to changes in the fair value of its MSR portfolio. As of December 31, 2023, UWM was collecting 905,129 mortgages with an outstanding balance of $299.5 billion, down 4% from a year ago.
In addition to earning fees by collecting monthly mortgage payments on behalf of investors in mortgage-backed securities, many lenders like to be in the loan servicing business because they can offer refinancing to the borrowers they serve if interest rates fall.
But the prospect of lower mortgage rates also makes borrowers more likely to refinance from UWM’s portfolio and ultimately choose another loan servicer. That’s part of the reason UWM was obliged to write down the fair value of its MSR portfolio by $634.4 million in the fourth quarter and by $854.1 million for the full year.
Ishbia dismissed the writedowns as “just words on paper and mean nothing” and said he expected some of them to be reversed this quarter due to the recent rebound in mortgage rates.
Rocket wrote down the fair value of its larger $509 billion MSR portfolio by $358 million in the fourth quarter.
“The fact is, we have bigger write-downs or write-downs than others because we are really the only one that actually makes loans at these rates,” Ishbia said.
Ishbia said that in the third and fourth quarters, when mortgage rates reached their peak in 2023, UWM continued to originate purchase loans at a brisk pace, “which is why we had larger write-downs in the fourth quarter than most.” need more.”
Profits and revenue shrink
Source: UWM’s annual report to investors.
UWM’s revenue and net income have declined steadily since the end of the lucrative pandemic-era refinancing boom in 2020 and 2021.
Revenue in 2023 will be $1.31 billion, down 45% from the previous year and 73% from the all-time high of $4.94 billion in 2020.
Due to a significant write-down on the fair value of UWM’s MSR portfolio, the company posted a net loss of $69.8 million in 2023, compared with a profit of $3.38 billion in 2020 at the height of the refinancing boom.
But mortgage lenders, who are also in the servicing business, like to use adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) as a performance metric.
UWM reported fourth-quarter 2023 adjusted EBITDA of $99.6 million, down 11% from the third quarter but up 65% from the year-earlier period as the company cut expenses by 3.5% to $1.39 billion in 2023 , but no layoffs.
In reporting third-quarter 2023 earnings, Ishbia said UWM hired 1,000 new employees in the third quarter. UWM had 6,700 employees at the end of the year, an increase of 700 employees, or 12%, from the same period last year.
“What I’m most proud of is that, unlike other mortgage (companies), we continue to invest in our employees and grow our team,” Ishbia said. “In our 38-year history, we have never laid off a team member.”
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