UWM returns to profitability in second quarter

United Wholesale Mortgage's stock jumped as high as 11.5% after the lending giant said on Wednesday it returned to profitability in the second quarter of 2023 after two consecutive quarters of losses.

UWM Holdings Corp. reported a $228.8 million net income in the April-to-June period, which was up 6.2% year-over-year. Loan origination volume rose 6.6% year-over-year to $31.8 billion from the spring buying season, and the value of its mortgage servicing rights increased by $24.6 million, or 13% from last year.

The Pontiac-based lender's shares jumped as high as $6.97 following the financial disclosures, though the increase retreated in the afternoon.

It's a challenging time in the industry with lenders closing up shop, pulling out of certain business lines and shrinking their workforces. Average mortgage rates on a 30-year, fixed-rate mortgage surpassed 7% this week, according to the Mortgage Bankers Association on Wednesday, rising to 7.09%.

UWM CEO Mat Ishbia says the company is investing in its technology and is hiring, though its headcount remains around 6,000 people. Second-quarter net revenue totaled $587.5 million, up 4.1% year-over-year. Expenses rose 2.7% to $357.5 million. UWM's adjusted earnings before interest, taxes, depreciation and amortization were $125.4 million, up 32%.

"UWM can succeed in all these markets, while other companies are exiting the market, losing money, shrinking and laying people off," Ishbia said on an earnings call. "We are the exact opposite: We are profitable, we are hiring, we're investing in technology, we're planning to continue to grow. We know the refi boom — whether it's a long, sustained one or a mini rebuy boom — is going to come soon. The opportunities are usually in the first three, six months, maybe nine months to really make money from a volume and margin perspective. ... We're prepared for that now."

UWM's second-quarter origination volume surpassed the high end of the lender's forecast for the quarter, which was $23 billion to $30 billion. It also exceeded the $22.3 billion in closed loan origination volume of Detroit rival Rocket Mortgage, whose parent company reported net income of $139 million for the quarter last week.

"It was a positive quarter, but usually the second quarter is always best when you have the spring housing season," said Kevin Heal, Argus Research analyst. Because of high interest rates and short supply of homes for sale, "it will remain a tough slog getting through now. ... I really think it’s going to be on the overall economy how people are going to be able to have some home affordability, whether or not they are comfortable and have a job."

UWM met the middle of its gain-margin guidance at 0.88% compared to the projected 0.75% to 1%. That was down from 0.99% a year ago.

For the third quarter, the lender's guidance calls for volumes to range between $26 billion and $33 billion with a gain margin of 0.75% to 1%.

UWM exclusively originates loans through independent brokers who compare rates and products between lenders for homeowners and buyers.

That's in contrast to Detroit-based Rocket, which also originates loans directly with homebuyers and homeowners. In response to an analyst question about Rocket's strategy to use local loan officers in various parts of the country, Ishbia criticized the rival, saying several recent departures in its c-suite are "because their business strategy doesn't work."

"I'm familiar with that company. I don't think highly of them or any of the things that they do, and the reality is understanding what that company is about," Ishbia said. "The local loan officer strategy is a silly concept. It's just their way of saying we can't win in the broker market."

The Detroit News on Wednesday afternoon sent a request for comment to a Rocket representative concerning Ishbia's remarks.

Ishbia pointed to UWM's results among home purchases, which aren't as sensitive to interest rate changes. Totaling a record $28 billion, the value of mortgages originated for home purchases accounted for 88% of UWM's volume compared to refinances.

"We are on track for our biggest purchase year ever, even in this rate and inventory environment," Ishbia said. "We don't use those things as excuses. We use them to our advantage and continue to grow and dominate this mortgage business, and brokers are winning."

Ishbia expects to see a refi boom when rates hit around 5.5%. He says he doesn't know when that will be, but expects it will come in 2024. UWM's employment was around 8,000 people during the previous refi boom.

Ishbia pointed specifically to the PA+ product launched during the second quarter as a way UWM is supporting brokers to scale their services for when mortgage volume increases. PA+ assigns a dedicated UWM loan coordinator to work with a loan officer or processor and their borrower to help, scrub, order and send documents.

UWM's 60-plus delinquency rate was 0.99% at the end of June. The company's unpaid principal balance declined 4.3% to $294.9 billion from the second quarter of last year. Ishbia previously said UWM's target is $300 billion. The current rate of return, or weighted average coupon, was 3.84%, up from 3.19%.

UWM ended March with $2.8 billion of available liquidity, including $0.9 billion of cash and self-warehouse, and $1.9 billion of available borrowing capacity.

Following the 8-cent diluted earnings per share for the quarter, UWM will distribute a 10-cent dividend on Oct. 11 for shareholders as of the end of Sept. 20.

Twitter: @BreanaCNoble

bnoble@detroitnews.com