United Wholesale Mortgage (UWM) is now the biggest mortgage lender in America, thanks in large part to a cut-rate pricing strategy that has put extreme pressure on competitors.
UWM originated $33.5 billion in the third quarter, toppling its arch rival Rocket Mortgage‘s $25.6 billion in production. Purchase loans accounted for 82.7% of UWM’s mix in the third quarter.
“Most recently, we told you our ‘Game On’ strategy would separate us even further from our competitors,” CEO Mat Ishbia told analysts during its earnings call. “Since the start of Game On, we’ve had thousands of loan officers try us for the first time, experiencing our technology, our services and quickly realizing that partnering with UWM can help them win in any market.”
Through the ‘Game On’ pricing initiative, UWM slashed prices across all loans by 50 to 100 basis points starting in June, wreaking havoc on competitors who already were struggling with declining margins. Heavily affected lenders include lenders Homepoint and loanDepot. Following the Game On pricing strategy, pure-play wholesale lender Homepoint reported a $44 million loss and loanDepot exited the wholesale channel after reporting a $224 million loss in the second quarter.
More than 17,000 loan officers joined the mortgage broker channel this year, and about half of them came directly from the retail channel, Ishbia said.
UWM reported a profit of $325.6 million in the third quarter, up 51% from $215.4 million registered in the second quarter of 2022. Compared to the third quarter of 2021, when refis were abundant, profits declined by 1.29%.
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“We averaged about $24 billion in purchase (mortgages) for the last six quarters. We are winning in the purchase market,” Ishbia said.
Ishbia forecast that UWM will control 50% of the wholesale market share, and remained upbeat about growing the channel, even with competitors exiting in part due to margin compression.
“Game On is much more of a strategic play to help the channel grow. If UWM’s market share goes from 40 or 50% down to 25% but [if] the mortgage broker channels 40%, we’re doing more business overall.”
However, the strategy has come at a cost.
The lender’s gain-on-sale margins dropped to 52 bps points from the previous quarter’s 99 bps. UWM had $799.5 million in cash and cash equivalents in the second quarter, compared to $958.7 million in the prior quarter and $950.9 million one year ago.
Ishbia reiterated its Game On pricing is an investment and did not say how long UWM would continue with its pricing initiative.
“I don’t even count the Game On margins as dropping margins. I consider it as an investment long term.”
While the business is focused on loan originations, UWM said its profit in the third quarter was bolstered by a $236.8 million increase in the fair value of mortgage servicing rights. UWM had $306 billion in the unpaid principal balance of MSRs as of September 30, compared to $308.1 billion 12 months ago.
“To improve liquidity position in Q3 in August, we entered into an unsecured line of credit with our principal shareholder with available borrowing capacity of $500 million,” Andrew Hubacker, the company’s principal financial officer, told analysts. “In late September, we entered into a line of credit secured by certain of our MSRs with available borrowing capacity of 1.5 billion.”
Looking ahead, executives forecast fourth quarter production to be in the $19-$26 billion range, with a gain-on-sale margins between 40 to 70 bps. UWM expects gain-on-sale margins to post around 75 to 100 bps in 2022.
“We went up significantly when everyone else went down, so you’re looking at relative to our current number,” Ishbia said, adding the seasonality factor and “softening of the market” will depress purchase volume in the final quarter of 2022.
