UWM Holdings Corp (UWMC) 2021 Q2 法說會逐字稿

Good morning. My name is Zen, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Second Quarter 2021 Earnings Conference Call.

(Operator Instructions)

Matt Roslin, you may begin your conference.

I am Matt Roslin, EVP of Legal Affairs and Investor Relations. Thank you for joining us, and welcome to the Second Quarter 2021 Earnings Call for UWM Holdings Corporation. Before we start, I would like to remind everyone that the 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. Before introducing Mat, I want to inform everyone on the call that our CFO, Tim Forrester, cannot be with us today due to personal reasons.

Mat Ishbia, Chairman and CEO of UWM Holdings Corporation, United Wholesale Mortgage, will be delivering both the business and the financial updates on today's call.

Thanks, Matt. Appreciate it. And thank you, everyone, for joining the call today. It's great to be here, especially after another outstanding quarter here at UWM.

Before we start, I just want to thank our team members here at UWM, our partners throughout America doing great things, mortgage brokers, independents out there, proud to partner with all of them.

The second quarter was our best quarter in company history from a volume perspective. So we're very excited about the results. Not only do we post record numbers for production, but we almost doubled our prior quarterly production on purchase loans. And that's going to make a big difference as we talk about later on.

Purchase production is an important measure. And I'm going to explain the details of how we think about it later on in this call. On our last quarter call, as I will do every time, let you know to hold us accountable to our numbers and what we say.

We delivered above what we expected in many respects and excited for you guys to see the results and talk about what's going to happen in Q3 as well.

We delivered $59.2 billion in production, beating our guidance of $50 billion to $55 billion. At the time when most of our competitors guided to do less and did less volume, our production was up over 20% at UWM compared to the prior quarter, and resulted in an increase in overall mortgage market share by a significant amount at UWM.

Our gain margin was 81 basis points in line with guidance and is actually a lower numbers than historic year numbers. However, we posted a solid profit. We did over $138.7 million of net income.

When I back out the $219 million decline of fair market value of our MSR asset, our core earnings, as I like to call it, was approximately $358 million. That's the way I run the business. I mentally add back or subtract, if it's positive, the change on MSR, really more representative of what our business is, the $358 million.

We're very proud of it. At the same time, we think of how to run the business to make sure that we deliver great earnings from an operating perspective at all times. And obviously, the MSR asset, we do not control the change in fair values, including impact of certain market assumptions.

And to me, when assessing the health of our business, I like to move the changes up or down on a fluctuating asset that I can't control. We've already noted that on a sequential basis, our second quarter results represent a 20-plus percent increase in overall production. I think it was actually 21%.

More exciting to me, though, was the 97% increase in purchase production over the first quarter. On a year-over-year perspective, Q2 looks great as well. We had a 90% increase in overall production and a 288% increase in purchase production.

There's no mortgage company in America that has comps like us. We are the elite mortgage company in America, and we're proud to show it to you quarter in and quarter out. The second quarter was really interesting is it provided a glimpse into the future to our industry for a couple of reasons.

First off, the weighted average rate, 30-year interest rate, went to 2.99% from 2.80%. So just about a 19 basis point raise in rate. And you would have thought the whole industry shut down based on how a lot of people reacted.

That was only a small raise in rates. Wait till it goes from 2.99% to 4%, and you'll see the strength of our business across the board. The relative refi mix to kind and purchase increase and became more important for mortgage originators. But purchase mix is not the thing we focus on. We focus on purchase production because purchase mix looks really great if your refi volume went down.

UWM's refi volume actually stayed about flat, but we almost doubled our purchase business from $12 billion to $24 billion quarter-over-quarter. Some companies like to speak about purchase percentage or mix or really don't like to speak about it at all, but it's important to note that the purchase mix can solely change by doing less refinance. And that's really not the story we're trying to tell.

We're trying to talk about the strength of our business, which is purchase business. And when rates go from the 2.8%, 2.9% to 3.5% or 4%, that's really when the best mortgage companies will shine, and we believe we are that company.

Just like in 2018 or the first quarter of 2020, you can see how people perform when the tide is out in not such frothy business. So second quarter, 24.06 purchase production, our best purchase quarter of all time, our best overall quarter of all the time. And if you think about it, if you had no refi business, we'd almost do $100 billion of purchase business in a year, which, by far and away, would be the #1 mortgage company in America.

It's very important to understand this because our business-to-business model and history to prove that not only will we gain the purchase share, we retain it and maintain that business with our broker partners and our independent mortgage companies that we partner with. How are we growing in this market? Simple, speed and service.

Our cost structure allows us to be profitable with lower margins. But the reality is we're closing loans faster and more efficiently than anyone in America. Real estate agents love that. Our brokers love that, and that's how we continue to get more referrals and grow our business.

Time kills deals, as we talk about here in our company is never true on a purchase business. Once a broker closes up personal loan, they stay with us, they want to continue to send loans so. And guess what? The realtors want to as well.

We continue to close loans in 18 days, while the industry is over 47 days. We are substantially faster than the market. Our client service remains best-in-class with our proprietary technology and uncompromising team members proving our year-to-date net promoter at a plus 86.6%.

While Q2 was a glimpse into the future with rising rates, we've seen rates drop a little bit in Q3, which means a lot of the heavy refi shops, our competitors will be able to post decent numbers and better gain on sale margins in the third quarter.

The reality is Q2 was a glimpse into the future and what this will look like in 2022, 2023, 2024, and UWM is the lead mortgage company. Now I want to take a quick moment to talk about a quick update on the all-in initiative that we announced on March 4.

A lot of people, a lot of the media, like to spin things and say negative things about all in initiative, questioning the decision process. I want to make sure everyone understands that UWM is very in tune with our clients. And it's been an overall huge win for not only for UWM because that wasn't the focus, the focus on the independent mortgage brokers and consumers. It's overwhelmingly positive, we are very in tune with what our clients' need.

And of course, media and our competitors love to spin the story, but the reality is this, black and white numbers. UWM grew 21%, $49 billion to $59 billion, while one of our competitors who is public went down from $103 billion to $83 billion, or in their partner network, Rocket Mortgage went from $41 billion down to $30 billion. It's not a discussion whether it was successful or not and other people can spin what they want.

It was an overwhelming success, not only because of UWM's growth and some of our competitors, non-growth, if you want to think of it that way. But the reality is this, the alignment of the broker channel, from a culture, training, licensing, our clients are all in with UWM, and they're all in for the broker channel just like UWM is.

And that day, March 4 was a changing factor for all of the independent mortgage brokers in America, and we're proud to have made that decision that was very positive for the whole channel and consumers across America.

This year will be our seventh consecutive year, being the #1 overall wholesaler in the country, and we're very excited about the growth and continuing to lead the broker channel as a partner with so many independent mortgage brokers throughout the country.

I'd like to summarize some of the production and look back on -- by saying that a solid foundation, strong and established relations with our clients, exceptional service position, able to help us capture more market share in 2021, as we just did in the second quarter, but beyond going forward in the future.

So we're very proud of where we're at. And at the same time, we have a lot of other good things going on. So now let's talk about some other highlights.

Return to work. So in June, we welcomed back a lot of our team members. By July 16, we had all of our team members back here in Pontiac, Michigan.

Our culture is more alive than ever. Our 200-acre plus campus. We're excited to have all 9,000. We have our clients coming in. We have hundreds of clients coming into our office every week flying to Pontiac, Michigan to get trained, to get coach to learn how to grow their business.

As they grow, UWM will grow in the broker channel of growth, and that's a big part of our story, and it's happening every single day. We continue to reinvest in our business and our people.

We've built some proprietary technology. It will save us over $8 million estimated this year on some proprietary things we've done with some docs, document generation and document storage areas that we've done.

We've evaluated the feasibility, and we're looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments. That's something that we've been working on, and we're excited that hopefully, in Q3, we can actually execute on that before anyone in the country because we are a leader in technology and innovation.

We remain committed to our 9,000 team members. We're creating the best environment for collaboration and learning and growth here at UWM. And in the third quarter, you're going to hear about some game-changing technology and innovation that we are rolling out. We're very excited. It's not things that other people have done. We're trying to be a leader, once again, as we have been for years, and we've got some big things that will be announced in the third quarter.

Now with all that stuff, I'm going to shift. And as Matt mentioned, Tim Forrester, our CFO, could not be available today for this call, but I will talk about our financials and go through some of the details about our financials before we wrap up and take questions.

First thing, I'd like to start about our buyback. As announced in the last quarter, we authorized -- we were authorized by the Board of Directors to buy back shares. The exact details are in our filings, but in the summary, we purchased just under 800,000 shares in Q2 and a lot more since.

If you add it all back, we purchased well more than 2 million shares. And honestly, at these prices, if the float issue wasn't a big deal, we could even buy more. And we have the authority to buy more, and we'll continue to look at it, but we are obviously very aware of our investors concerned about our float, and that's why we can't buy even more shares back at this time.

However, we do have the ability to do so, and we'll continue to do so when that opportunity is there. Q2 highlights. Net revenue, $485 million, comparable quarter of $831 million last year.

Remember, $219 million of that reduction was related to change in our accounting for MSRs, which placed reduction in fair value of MSR within revenue rather than expense.

So it's really a $290 million difference there to change. Our servicing income was higher due to our growing portfolio and interest income that followed our overall production volume increasing substantially over prior periods.

On liquidity front, cash and cash equivalents remain over $1 billion, which is significantly more than we operated in prior years. Mortgage loans at fair value from $7.9 billion at the year-end at $12.4 billion at June 30. This increase is due to the overall production, our entry into the PLS market to garner better execution in certain instances, then selling through agencies, as well as renewal of our Jumbo loan program, which has been a huge success, doing about $2 billion-plus of that production per month.

Loans sold through private markets remain on the balance sheet a bit longer than we sell to agencies, but the loans remain fully hedged and are readily marketable. So we don't believe this increase our risk profile in any way materially, and it added benefit increased our net interest income, which is something you can see in Q2 compared to prior quarters.

The fair value of our MSR increased from roughly $1.75 to $2.66 billion as the unpaid principal balance increased from $188.3 billion, excuse me, to $260.3 billion at June 30. The weighted average note rate on our mortgage service portfolio is 2.97% as evidenced by the fact that in the last 18 months, UWM has originated over $290 billion.

It's a very young book from a seasoning perspective. Credit quality is quite strong. Delinquency rates over -- over 60 days is 1.18%, down from 1.93%. In our prior call, we noted extinguish our MSR line credit and encumbers of MSRs as well as issue debt to further support our investment in the business.

The Board of Directors has approved and authorized a quarterly dividend of $0.10 per share of common A stock to shareholders of record, closing business, September 10, to be paid on October 6.

Our costs per loan improved from up to about $1,490 from one $1,662. This is such a key data point that people don't want to talk about, but that's 43 basis points. So when we talk about our gain on sale of 81, and our cost is around 43 basis points, we can win and be profitable in all markets. These are all-time low-margin basically, and we are very profitable across the board.

And with our cost to originate and our proprietary technology, we're going to continue to win with our costs, and we can continue to put pressure on all of our competition. As you saw in the second quarter, as most of our competitors went down in volume. And at the same time, some of them even lost money. We succeeded in mixed sell because of our cost to originate and our proprietary technology.

Now last quarter, we set guidance. And we not only set it, we set a higher guidance, and we beat it across the board. We realized record-breaking numbers at UWM, and we're very proud of it.

The solid foundation we put in place is producing exceptional results. Our technology platform, our operations, our team members and what we're doing in the community. We're very, very proud of what we're doing. Liquidity is strong. The broker channel is strong and it's getting stronger.

And UWM is going to continue to get stronger as we continue to make a big impact on the broker channel and all the consumers they serve and the realtors for that matter as well.

One of the last points I wanted to leave you with is we were very, very profitable in one of the toughest market environments, trough margins, everyone else struggling, UWM, we won. And we're going to continue to win here at UWM.

We're looking ahead, and we're going to guide to $57 billion to $62 billion and -- from a production perspective and gain margin between 75 and 100 basis points. We're excited about the third quarter, and I'm excited to take questions. So I'm going to turn it back over to you guys and take any questions you have about UWM and our second quarter results or how we see the mortgage market playing out going forward.

(Operator Instructions) Your first question comes from the line of Steve Delaney of JMP Securities LLC.

Congratulations to management on either beating or meeting your May 11 guidance for the quarter. Very strong. Mat, I say that for one reason and that we heard a lot of -- we didn't get a lot of clarity, but we heard there was a lot going on at the GSEs in terms of, I guess, you could call it, pricing actions or capital markets changes.

It obviously had, maybe -- it had less impact on you than it had on others, it would appear. But could you share with us, just generally what was going on there? And what, I guess, we really need to know is how much of this was a onetime pipeline impact?

And how much of this may be ongoing in terms of constricting the volume of business you do with Freddie and Fannie?

Yes. Thanks for the question. First off, so everyone knows Tim Forrester will be available for any questions this week, next week. If there's any follow-up questions that I can't handle financially or you want to hear his perspective, he's available for you. So he's always available.

But to answer your question specifically, obviously, I know other companies have spoken about some changes. And we kind of looked at those changes and see that, that happens from Fannie Mae and Freddie Mac. I can't control what Fannie Mae and Freddie Mac do, and how that impacts our business.

And sometimes, there's things that happen and it's retroactive. There will also be some things that are retroactive in a positive way also sometimes. And so there's gives and takes in it in a positive way. What I think the most important thing that's happening on this so that you won't see these types of things from some of our competitors or really with us at all.

Obviously, we're prepared to be profitable really in all situations. I talked about our cost to originate. But even on a compressed gain on sale quarter like this one, the reality is this. The wholesale market is becoming more and more known as quality, strong lenders, opportunity for growth and the best way for a consumer to get a mortgage.

And so with that being said, we think a lot of the legacy if that's right way. Legacy mindset around wholesale or around brokers or around some of the pricing actions that some of these places take are going to be a thing of the past in the very near future.

Now does that mean it's going to happen in third quarter? And I don't know, but we do know that the markets are adjusting to that the best way to get a mortgage is through a wholesale lender through an independent mortgage broker and the quality and all the other aspects of a mortgage process, people -- and that's why some many people are trying to join in the wholesale channel because it's such a strong channel.

Everyone sees the mortgage brokers as the future of the industry. And so some of the legacy rules and some of the things that other lenders have talked about that the GSEs might have imposed recently. I think those are short term.

And I think at one day, we'll be talking on a quarter where it got reversed. And all of a sudden, we picked up some money in our positive way, and that will happen then to.

Well, definitely, it doesn't sound like they put you on defense. That's for sure. Whatever they did, and I guess we'll hear about all that over time, but just keep moving it forward.

I like that. Look, just a quick follow-up and comment. Thanks for including the third quarter dividend in the press release. $0.40 a year, that's a nice a 5% yield on where the stock is trading today, and I think it will keep some people interested. So look, it's not -- it's a little -- I'll let others talk maybe more about the buyback, but it's somewhat not completely unusual for a company to be paying a cash dividend, also buying back shares.

But on the one hand, I was a little concerned that maybe the Board would change its view on the dividend and to allocate more capital to shares. Do you think it's possible?

I guess, the Board will make a decision every quarter. But at least in this quarter, for the third quarter, it looks like the Board is doing both, paying the dividend and buying back shares. Is that a fair? A fair assessment?

That's fair and I don't -- as a chairman of the Board, at this point, I don't see a reason that we would not pay the dividend. The dividend is a way to repay our shareholders. And I plan on that going forward. Obviously, we have to vote on it and talk about it every single meeting.

But there's no inclination, there was no discussion or any concern about continuing it forward. The buyback was approved for $300 million, and we have 24 months to execute on it. We executed a good amount on it.

And once again, if the float was larger, I would be taking a lot more advantage of it because where the share price is at right now with a dividend, it's a ridiculously high yield as you're well aware of, and we're happy to reward our loyal shareholders that way, and we're going to continue to do so going forward.

Next question comes from the line of Henry J. Coffey Jr. of Wedbush.

And if we're collecting votes here, given how your stock is trading relative to book and given the float challenges, I think the dividend is a terrific way to return capital.

It seems to -- it's one of the more attractive aspects of the UWMC shares. So if we're taking votes, I vote in favor of the dividend. On a highly technical area...

I agree with you, Henry. And I'm a large shareholder too, so we're on the same page, me and you.

You get to vote more than I do, sir. A smaller item, and we can get into this off-line if it's -- but in March, your G&A expense was $16.8 million, and then in June, it was $42.1 million. Even though overall expenses were lower than we expected, I was just wondering what that 1 item was all about.

Yes. I think we can go off-line on it, but it was just a reversal in the first quarter. So $42 million was in line with it. Our expenses actually went down, as you saw. We just had a reversal in the Q1 of about $20 million, if I remember correctly, which puts us around $36 million, $37 million on that same line item.

So it was basically apples-to-apples and our overall expenses have gone down, and that's why our cost to originate and our -- has gone down as well.

Yes. That was very obvious. That -- It was -- All the other numbers moved in the other direction, and I was just curious about that one.

Yes. Q1 was a onetime out-of-period reversal of the contingency. In Q2, that was a $5 million added. But when you net out, that line item is basically flat.

Cool. On a more interesting topic, you made a comment in the press release, in the second quarter, we began seeing the return from the foundation we've built. Particularly growth in purchase production and also renewed focus on jumbo, FHA or government lending and manufactured housing.

I was wondering if you could tell us a little bit about both -- about 2 of those legs, the jumbo business, which I'm assuming is more of a PLS securitization, and then the manufactured housing lending, which is an area that's been really quiet for some time.

Yes. So we're looking at ways to continue to help our clients serve their clients. And so the jumbo product has been a huge success. We rolled it out. I think I announced it came out March 17. So really we didn't really get full -- a full quarter of it because you don't really close loans until the middle to end of April.

But we did, on average I think, in the second quarter, about $2 billion a month of that product. So just under $6 billion. I think it's $5.9 billion off the top of my head -- in those 3 months and growing in July. And so we feel really good about that product.

The nice part about that product is it wasn't quite 50%, but it was almost 50% purchase. And so we talked about how it's going to be a big purchase product as well, just like FHA and just like manufactured homes, it's a much smaller product, but it's a nice way to take care of all consumers.

Equitable housing is a big focus of ours and how we continue to do good things throughout the country. And quite honestly, a lot of our brokers, they just want to use UWM. They want to have the consistency of our process and submit their loans to UWM. And so when there's -- they need to have the confidence that jumbo comes to UWM, the FHA do, the VA, of course, their conventional loans do. They have the consistency that when a realtor brings them a loan in a transaction, they know they can come in and out and close in 10, 12, 15, 20 days with UWM.

So we rounded out our products a little bit. We obviously had our all-time record quarter of $59.2 billion. And we're going to have our biggest year in company history by a lot as well. And so the growth at UWM is not slowing down. And once again, rates just ticked up a tad bit and everybody else fell off and we grew. Wait till rates tick up 0.5 point or 1 point, and you'll see the value of these products, along with our purchase focus and UWM will not only become the #1 overall lender, but we'll continue to show great market share gains and a lot of great returns to our investors.

Given the -- our housing group is very bullish on manufactured housing because of the role it plays in affordable housing and the ability to give someone a house with the yard and security, I know Fannie has been a lender somewhat, Freddie Mac hesitant. Can you tell us from your own perspective, what's going on with the GSEs and manufactured housing and what role United will be playing in that going forward?

Yes. We're working with the GSEs on the product. We're going to continue to offer the product and hopefully make affordable home -- affordable housing more available to more and more people.

And we think manufactured homes aren't going to become less of the market, they're only going to be more of the market. And so we figured we get into it, make good inroads in it, make sure our processes are tight. And we actually had a lot of success in the -- We just rolled it out in mid-April, so it's still very new from a perspective of our business. But you'll see more of it in the third quarter and more going forward as our commitment to equitable and affordable homes throughout America.

The gain on sale margin competition, the primary secondary spreads have actually improved, been reasonably stable in July. We don't quite know what to expect for August, but can you give us a sense of what the competitive environment looks like in August on the gain front?

Yes. So we're looking at our competition, and we're continuing to monitor everyone, but the reality is we feel that we guided in a really good place. We feel really comfortable with where margins are. We can play in a place that other places can't base on our cost to originate.

We feel really good about the guidance I've given you guys along with -- on both the volume and gain on sale numbers. And so I don't think it's becoming more competitive or less competitive. I think the market is what the market is, and we obviously are the leader which drive a lot of that volume and margin compression or increase. And so we're controlling it.

We feel really good about where we're at, and we're highly profitable. The way I look at it is, on our core earnings, we made over $350 million in the quarter, grew our market share substantially, grew 21%, gained $10 billion of volume and all of our main competitors went down. And so I feel really good about where everything is at.

We can make $300 million, $400 million in core earnings in a quarter, and I feel really good about where we're at. And then when the big opportunities come to make a little more margin, you'll see these huge numbers that you saw in the last couple of quarters before this.

Next question comes from the line of Doug Harter of Crédit Suisse.

I'm hoping you could talk a little bit about kind of how sticky you think some of these market share gains will be going the all-in and kind of the need or desire to kind of keep some of the price match or promotions, for lack of a better word, that you've been running?

Yes. So it's extremely sticky. The loyalty on the all-in is black and white. That's not even whether it's sticky or not. Those people are all in for the broker channel, which includes UWM and doesn't include 2 lenders, the which we pointed out that we're not doing the right things for wholesale brokers.

And so we made that stance. But the stickiness has been significant there with our clients. The growth has been significant with our clients. And quite honestly, just the alignment across the board where, hey, if you're all for the broker channel. We're going to help you continue to grow. We're going to give you training. We're going to help you build your business, help you with like all aspects of your business to grow and succeed, and that's what's working and those clients are growing faster than the rest of the clients in the country.

And so we had a very few amount that weren't in the all-in mentality, and that's perfectly fine. But the great, great majority of all independent mortgage companies are. And that's why we've grown, and we will continue to grow as their partner going forward. And so that's a big part of it.

And so how the stickiness -- the price match and talking about, those things, those things aren't really driving volume. Those things are more of a confidence and explanation for our clients to say, feel confident, UWM's price is great. Our products are great. Our service is the best. Our technology is the best. Our partnership is the best. Let's continue to work with UWM and we can help you grow your business.

And it's not only resonated with them, it's been overwhelmingly positive where they understand it. And they're all in with us and we're helping them grow. And so our price is very sharp. Do I have to continue with price match and those things, those things are very, very nominal amounts because quite honestly, you saw our margin.

Our margins are pretty good. Our price is already really good. And so we're going to continue to be aggressive with growing the broker channel because it's best for consumers, it's best for the brokers and it's best for UWM. And our market share gains were substantial seeing -- I think we are -- in the first quarter, we were $54 billion out of the #1 spot, and now we're $24 billion out of the #1 spot. So a $30 billion closing of the gap in 1 quarter wasn't so bad. Imagine if rates went up to 3.5 or 4, you'll see a whole different game very soon.

And then just following up on kind of the margin outlook. I guess what type of environment do you need to see to kind of go from kind of the 2Q 81 basis points towards the upper end of the guidance range of 110 basis points.

Yes. I think we guided to 100. So 80 to 100. And so I think -- do I think it will be 81 again? No, that's why I think we guided 75 to 100 actually. But I think I don't see margins going down. However, I don't see them going up much either. And so the reality is this: Margins are going to be in the ranges that we gave for this quarter.

And I think I told you guys last quarter that I believe it's -- between 3 and 6 quarters, it could be at these all-time lows, but it's not going to stay down here very long. And when you see the overall year based averaging in the first quarter along with the second, third and fourth. It will be on the lower end of normalized, but not as low as you see right now.

And I don't think there's that far off until the opportunity comes back to where it gets back to more normalized or so low to mid-100 numbers. But it's not going to happen in the third quarter, and I don't foresee it happening in the fourth quarter. And so there's a lot of dynamics that go into how we price and how we think about it, and what we think will be the best way to deliver value to our shareholders, while at the same time, taking on market share and continue to grow and meet the vision and the goals of our company.

Next question comes from the line of Ryan Nash of Goldman Sachs.

So Mat, you just talked about the fact that you think pricing can stay at these levels for 3 to 6 quarters and you don't think it's going to ease, it sounds like, for the next 2, so that will put us at 4 quarters.

I guess, big picture, what do we need to see to sort of break this grid lock to eventually drive margins higher? And then when I look at your margin last quarter and expectations for this quarter, it is a little bit lower than some of the others in the peer group. So my question is, can you hold on to volumes as price eventually increases and achieve a margin in line with others, but also still drive the volumes?

Yes, Ryan. Thanks a lot. So first off, our margins are not lower than anyone in my peer group, so we're on the same page. Homepoint, as you know, was substantially lower than us. and not able to be profitable with those numbers. We would be, as you know. Rocket, who -- they mix and match their partner book. It's not really broker business. Their broker margins are actually well below ours.

However, they have 300 basis points plus margins on their affiliations, whatever they call them, and they kind of jumbo them all together. They're not 116 basis points. Their wholesale margins are well -- from our data, well south of 50 or right around 50. So just to put it an apples-to-apples comparison.

And so you'll see that across the board. We are the leader, the way that other lenders can get businesses, they have to be substantially better priced than us. And that's what's going to happen is since they couldn't be, we grew and they all shrunk. You're going to see that trend again.

And so unless they can be substantially lower and even Rocket who was substantially lower and Homepoint substantially lower, they still both declined. And so there's a combination of gain on sale along with business strategy. The business strategy around purchase and our focus on purchase is a big differentiator. Price sensitivity is not there as much on purchase.

And no matter what, even if your price was 75 basis points, and you were making 0 on it, brokers won't place a purchase to certain lenders because they can't actually deliver. And so that's why I keep telling everyone when rates went up 19 basis points and everybody went crazy, margin was compressed, everyone did less business, everyone struggled, wait till they go up 100 basis points.

That's what where we're going to be doing, $120 billion, $150 billion, maybe $200 billion depending on exactly where rates are and everyone else will be well below us. And so gain on sale margin, we feel great about where we're at. No one can originate a loan at our cost structure. And so we're going to use our proprietary technology to continue to enhance that. And I'm going to use that leverage whenever I see fit and as the right decision for our business and our shareholders.

And it was in the second quarter as we had an all-time record quarter. And it will be, again, in the third quarter, similar type concept where we will be successful. Other places will get a little bit better volume because rates got a little bit better for them. So they can feel good about it themselves for a quarter or so.

But the reality is when rates do go back up, that's when UWM shines, and that's why Q2 was just a glimpse. A glimpse into what 2022 or '23 or '24 is going to look like with everybody else, Ryan. And you're going to see the UWM is the strongest, the most elite mortgage company, and we plan to prove it quarter in, quarter out.

Got it. And then you guys had a nice quarter on the expense side. Can you maybe just talk about further opportunities to rationalize expenses? I think you talked about cost to originate going from, I think you said $1,662 down to $1,490. I'm curious where do you think that could go as you guys continue to leverage the investments you've made in the business and the technology that you've developed?

Yes. So thanks, Ryan. I think that's a real key part that a lot of people don't recognize is that cost to originate that 43 basis points, whatever that number is, it's a huge, huge competitive advantage. And there's a lot of things we're working on right now to actually drive that even further down.

Now does that mean it will show up in the next quarter or the next quarter after that? We're going to wait and see. But we're doing different technologies that we rolled out. One of them I spoke to would save us $8 million. A couple of others that could save us $5 million here, $2 million here.

There's opportunity there. And all those inches add up to feet, which add up the miles, and that's how we win. So we focus on every inch here every day at UWM, and there's a lot of things. But we are not confused on our competitive advantage, which are technology. Our technology is elite. It is the best in the country, not only for our clients but internally as well. And that drives our cost to originate, which is elite too. And it makes a big difference.

And so everyone can look good when there's a lot of volume because their cost to originate isn't going to choke them out a little bit. But when rates are as low as rates go up a little bit and your cost to originate is not that great. You have bloated infrastructure, you have different locations throughout America and all these different places that you have to pay for regardless of fixed cost they struggle a little bit more. And you'll see that in the future. We don't know when, but you'll see it.

Next question comes from the line of Tommy McJoynt of KBW.

Yes. So we've seen that you guys have continued to add to the team member headcount now up to about 9,000. So is that a signal that you expect to continue to be able to grow the dollar amount of your production even when the market moderates a bit up to more normalized levels?

Yes. Thanks for the question. So yes, 9,000 people, we have a lot of families that depend on us. And we're proud to have that many great team members joining our company. The reality is we think that we are not in any position of concern around team members, and we are continuing to hire pretty aggressively.

Now at the size of 9,000, you always have some people that -- attrition that happens, right? And so we're not -- I don't think we're going to go from 9,000 to 11,000 people this year. So I feel really good about -- I believe, and I think I've stated this before, that we will become the #1 overall mortgage company in America, whether it's next year, the year after or the year after that.

And we might only have between 8,000 and 11,000 people because we can actually handle the volume where we're at right now, while at the same time, with our technology, continuing to make things better and more efficient. We don't need to add headcount to do more volume. And so we're able to do more business as we stand today. And so we're not going to be growing the team member count aggressively, but we are in a really good spot.

And so I don't think our expenses, which is tied to team members, which is about 65% to 70% of our costs, are going to be going up much from where we see them today.

Great. And then just on a different topic. Yes, we saw the interest income increase and you partly attributed that to longer hold period times. And just looking at the balance sheet, you can see the loans held for sale obviously jumped pretty significantly over the quarter from $5 billion to $12 billion. And then you also noted that post quarter end, you temporarily increased some warehouse funding facilities.

Just want to see if those are all kind of interrelated and sort of what the reasoning is for the longer hold period of times.

Yes. Thanks for the question. And so there's opportunity out there. Obviously, the interest income is tied to that, so that makes sense. You got that right. But the opportunity for us, we've always been so efficient with selling our loans to Fannie Mae, Freddie Mac, even Ginnie Mae very efficiently. We didn't have any programs that could not go to them. So we didn't have jumbo back then, prior to this.

And so -- and then also the PLS market was not something that we were accessing. Now all those things are in place, more jumbo, which is a couple of billion dollars a month. That generally just takes longer to be sold. And then at the same time, we also have the PLS market where we have some investment property second homes that we can take out. We've done a couple of deals out in the market. We're in the process of right now.

So we actually have to aggregate and hold those loans, although they can go direct to the GSEs. We can aggregate and hold them and actually have an arbitrage where we can pick up profitability. And so there's a lot of different spots in our business. That's one of them that you're speaking of, not only interest income went up, but then a little arbitrage on some gain on sale.

There's a lot of response where we can pick up margin pick up what people think are pennies. But penny's times 60,000 loans a month or whatever the number is, 150,000 loans in the quarter, it really adds up.

And so those are opportunities for us. And so we look at that and we have a great capital markets and financing that are looking at all these inches we can pick up. And one of them was on the interest income that you saw and the arbitrage maybe on some gain on sale on some of these private label securities.

(Operator Instructions)

Next question comes from the line of Ryan Carr of Jefferies.

Ryan here. First is on -- in terms of capital return, you've had a lot of progress with respect to expanding the purchase volume and really being able to expand the momentum that you had following the all-in initiative. I'm just curious where you're thinking about it from a priority standpoint going forward between the dividend, buybacks and then maybe reinvesting in the business and kind of where your decision making is in that respect?

Yes. Thanks for the question, Ryan. So first off, we're always reinvesting in the business. That's the main focus is growing the business to make sure it's a strong, stable business that has great returns for our investors.

Then on the return of capital, the dividend, we're very proud of, and we've been planning on continuing that as we -- as I mentioned earlier, because I think it's the right way to reward our loyal shareholders.

And we're going to continue -- and based on how low the stock price is right now, it's an amazing yield for anyone who's buying our stock. And so that's a great opportunity as well. And now on the buyback, once again, I don't have all the levers I can because of the lack of float right now. And I think that's actually some of the drag on our stock price. And so I have to figure out how to get more float out there, not less.

And so therefore, I'm looking at all different ways, and I'm being very creative to figure out ways to provide more float because that's something I told people during our road show that we -- that I as the majority owner, obviously, would help provide more float to the market. And so I'm working on that. And so it's kind of going a little counterintuitive because I love to buy back a lot of shares at prices below $10 like they are below $8 maybe even where it's at right now.

And I'd love to be able to buy shares back. However, I have to be cognizant of the float and honor and what I said I would do. So we're looking at creative ways to provide -- get more float out in the market. And at the same time, we'll continue to pay out dividend as we announced and looking at all different opportunities to reward our shareholders. But investing in the business what we've always done, and we're going to continue to invest in technology because it creates a major differentiation and moat around our business as we continue to grow in scale.

Got it. That makes a lot of sense. And then kind of going off on value, you really heavily invested in growing the business and expanding it, especially given the kind of the growth and very amazing, quite frankly, success that we've seen here this point. And you also mentioned in the release kind of some of the savings that you're seeing from these investments going forward, the $8 million for the balance of the year. But how do you really think that it's going to play in from a cost savings perspective going forward, going into the environment that we're in, especially margin-wise?

I think it's going to be huge. And so the difference is -- the $8 million is just one thing. There's a couple of million here, a couple million there. I know that sounds small, but that actually does add up. But the big stuff is on the efficiency gains. And so we have some technology that we're building proprietary in-house that's going to help our team members, let's just call it, we'll say conservatively 5% to 10% increase.

Well, 5% to 10% increase of our team members, which means you don't have to hire as much to continue to grow. So we could really do -- instead of $20 billion in a month. We could do $30 billion a month with our team potentially right now and not have to hire more people. That's a big difference, right?

And maybe $30 billion is a little exaggeration, we'll call it, maybe 25% above what we're doing. So we'll call it $25 billion to $28 billion comfortably right now at UWM.

And so that gives us a huge, huge upside because of our technology and people don't recognize it because everyone says they've got great technology. Well, the way you know someone's got great technology is how long does it take them to close loans.

We're at 18 days. Everyone else is at 47, 50, whatever they're at. And then what our costs to originate. And those are the 2 factors that really determine whether you have great technology or just a sales pitch. And so we feel really good about our technology and where we're going with it and how it's going to help drive our costs. So that we can play in this -- when we're at 43 basis points, it's going to be really hard for someone to compete with us if we want to really put pressure on people.

Now we're not planning on doing that. We feel good about where the market is going, and being able to make a nice gain on sale margins, but we have the ability of competing at the highest level with anyone to grow this business and not only being the biggest, but the best mortgage company in America.

Yes, absolutely. And I would say in any one that comes to visit sees the momentum that you built in the technology, they would agree. Final question for me. Just given where rates are at, at this point, how do they come back in? It's curious to see here what kind of trends you saw throughout the second quarter and did you see a pickup in volume and demand at least on the consumer side through the brokers through the last half of the month? And kind of what do you think at this point in the quarter, at least just demand-wise as rates have kind of come where they're at?

We're seeing huge demand. So I know a lot of people who would like to say the inventory is tight. And yes, inventory is tight, but there's people buying houses out there. And it's at a major, major levels right now. And so seeing $24 billion of purchase at UWM in the quarter. And I think if I even said to you guys in the first quarter was that maybe we get to $15 billion 1 quarter this year. And so seeing $24 billion massive demand.

And the key is other people aren't seeing it because people are going to the brokers because the brokers are local. The realtors get the brokers get the loans closed fast and efficiently. They don't want to go to the other lenders. And so the reality is inventory in quotations is like that's the reason why. That's not the reason why we had a pretty good purchase quarter. And when inventory continues to grow. Now can we do more?

Yes. But people are -- we could probably do more, but people are buying homes every single day. And the inventory out there does have constraints, however, it does not constrain you from being successful in the purchase business because so many houses up for sale. And if you can close fast, which is a big differentiator for us because people that are selling houses, they're getting cash offers. But if they get an offer from a mortgage broker of ours that says, "Hey, 15 days, no contingencies or 15 days appraisal-only contingency", and they take that offer.

We close it in for them 12, 14, 15 days. We're doing that a lot, which is giving our brokers a way to get out there and get more business. And that's why our purchase business grew and our overall business grew in the second quarter.

Next question is coming from the line of Michael Kaye of Wells Fargo.

Some pickup in competition in the wholesale industry. You that would seem to enhance the value proposition of the broker channel with lower mortgage rates offered to consumers. So I've been somewhat surprised when I look at mortgage industry employment data, when we saw mortgage broker employment growth actually stole out over the last couple of months.

I wanted to hear your views on why you think broker employment has slowed. And do you have confidence that the broker market is poised to continue growing?

Yes. Thanks, Michael. Appreciate the question. So I have 0 confidence in any of the data that you have on the other. I don't know who that is. But I don't know if you want to mute that line -- that you might...

Yes. Sorry, it's my kids. Sorry about that.

Hope they're having fun. But my perspective is -- The data on the labor reports, that means 0 to me. It doesn't even cross my mind as a relevant data point because I don't know where they're pulling it from how it hold. I have data here, which is, hey, 70 loan officers started their own broker shop last month. Almost 200 loan officers, we helped find a broker shop leading retail.

I've talked to, I'll say, 3 of the top 20 loan officers in America that are at retail shops, and they all have the intention of starting their own mortgage broker shop in the next 6 to 9 months, calling me personally and reaching out and visiting our campus.

I have no question that the broker channel is growing. It's not even a thought. It's just -- it's like a sure as I'm sitting here, I know it's happening. And the problem is I don't know what the data types for the employment stuff. I can't really speak to that. But the reality is brokers are growing. And when rates go up, that actually -- and you talked about the pricing competition, Michael, which is a very astute thought because one of the strategies around us having lower gain on sale margins is the retail lenders that have branch models that are -- I won't say dinosaur models, but they kind of are dinosaur models.

The caliber retails, the I think the guarantee rates of loan depots, the fairway, independents, all nice companies do a good job. But the reality is those loan officers offering consumers higher rates, right, isn't going to last long. Those loan officers and those companies don't have the infrastructure to actually lower margins down low enough. So the loan officers are saying "Hey, listen, I can't be working at this retail shop offering my consumer 0.25 point 3/8 higher in rate while it could be offering a better rate or making more commission as an independent mortgage broker, I want to move."

The only reason they don't move is because their pipelines are so full. And so when rates go down, it's like, no, man I got 38 loans in my pipeline. I'm not walking away from this right now. It's messy to move. And so what we saw in the second quarter is a lot of people reaching out. Rates got a little better at the end of second quarter and in early third quarter. So people, they pause on that. But the reality is the more differentiation between the retail pricing and wholesale pricing that there is, the more likely that these loan officers migrate from retail to wholesale, and that will only grow our channel.

And so the brokers being 1 out of 3 mortgages or 33% by 2025, that's going to happen. We are making that happen. We are working with them, and the loan officers transitioning is a big part of that.

That makes a lot of sense. Second question, you touched on this a little bit, but I wanted to get more perspective on that price matching promotion that you have. I believe it was originally slated to expire in June. It's been extended multiple times. I think the latest is for the end of August. How often do you see broker clients actually utilizing this broker math? Is this more of like a marketing tool to help your account execs rather than an actual negative from a gain on sale margin perspective? And lastly, do you plan to extend it once again?

Yes. Thanks for the question. And so I have not decided if I'm going to extend it once again, so I have not made that decision yet. It is not a big drag on the gain on sale, to answer your question. I would call it negligible because the reality is our price is very good. Our brokers are very confident. Our brokers feel good about using UWM. Our sales people have the confidence to go out and call them. And so it's really not been much of a drag on it. It has been more of a positive and that's why we have continued and extended it a couple of times. And so we'll continue to look at it and see if it has the value to continue it, or if there's something else we look at doing to continue to help our mortgage brokers grow their business. If they're growing, UWM is growing.

And if we're growing, then our shareholders will be happy as we continue to build our business.

Next question comes from the line of Sameer Kalucha of Deutsche Bank.

You talked about investments in technology. And in Q2, you launched the proprietary document management software. I was wondering if you could provide more color on that. And second, what is the impact of that? Does it change the closing period in any way? And how does it make the process more efficient?

Yes. Thanks for the question, Sameer. Appreciate it. So the one I spoke about on the call earlier today is just 1 example. We have a couple of different things out there. But the example you're speaking of is a way to -- it does not affect anything. It's basically taught our -- it's an internal system that we were paying a vendor.

And we basically built it proprietary, made it better for our team members, made our people more efficient. Made it more agile, if you think of it that way for our clients because there's only a little use for our clients, but a little bit for them, but mostly internal and it saved us multiple millions of dollars and it will continue. Like these savings are not just a onetime savings. It's a monthly savings because we are paying a monthly fee. And as we continue to grow, those savings actually will be bigger, I think, the $8 million is a low estimate.

I'm just trying to be conservative. But you know that the technology work we put in place does make an impact not only on the bottom line, but on our efficiencies too.

I think we have time for 1 more question, operator.

Yes, we only have time for 1 final question. Your final question comes from the line of James Faucette of Morgan Stanley.

I'm glad to be able to wrap up here. I wanted to go back to your brokers and those relationships. And I'm wondering a couple of things is that, first, any idea or sense of your share with brokers in the U.S., kind of where you're at and potential to add incremental ones?

And then secondly, as you think about kind of growing the share of the broker channel itself. I think that the argument around kind of the better pricing and even better service, in some cases, may resonate. But I'm wondering if there are other things that you could or should be doing to support growth of brokers, whether it be direct advertising or investment or some of these other areas beyond the support that you mentioned, even as new brokers look to set up their own operations.

Yes. Thanks for the question. So on the -- our market share with brokers, I think the numbers will come out soon, but I think we're going to be well north of 30% in Q2. If you think about it, the top competitors of ours all went down, and we went up substantially. And so I'd be very surprised if we weren't well into the 30s and growing. And we will be at 50% at that in the coming years because brokers choose us. They prefer to work with UWM as long as we're in the ballpark on price, while at the same time, delivering our technology, our service along with being great partners.

Now on the partnership side, how can we help them continue to grow. We obviously have helped build a website called FindAMortgageBroker.com. We also have a phone number of 1-800-brokers where people call in, get calls every day where they call in and we find them a local broker in their area where consumers can actually -- we can warm transfer them to a broker, that's the right person in that community to help that consumer.

And so we are doing more and more things, and we are going to continue to do more and more things on the marketing side. But the reality is this? There's 3 ways we can help consumers -- brokers grow. One is consumers, educating consumers because the reality is you guys can help me on you if you all get to right on articles, but it's faster, it's easier, and it's 100%, it's cheaper. So it's -- obviously, it's not 100% but 99%, whatever you want me to say so I'm factually correct.

But it's going to be cheaper for the consumer. It's a better deal for the consumer to go through a broker than to go through any of these large retail lenders. That's not an opinion, that's facts backed up with data, right?

The second thing is realtors, they're educated and they're learning really quick. They know -- and you can go call a realtor and find out who they want to -- they won't refer loans in certain places, and you know who those places are because -- when honestly, they can't close purchases. And that's why people -- a lot of people that are doing a lot of business right now are refi only and just refinancing their servicing book.

That's not how we've done our business. And then the last piece is loan officers. I talked a little bit about earlier, loan offers leaving and migrating from these retail lenders, that's going to happen, right?

Because it's best for the LO, it's best for the consumer, why wouldn't it happen? It's only not happening because there wasn't a big difference between retail and wholesale pricing. We fixed that. And the second reason was they're so busy because they have so many loans in the pipeline. Well, rates going up, will fix that. So when rates tick up, you'll see a major migration over. And so all these things will help move the channel in a positive way for independent brokers and a rising tide will lift all boats and all the brokers will continue to grow and thrive, and we're proud to be part of that with them.

And so I think that's all the questions. I don't know if we're going to turn it back to the operator. But before I do, just want to say thank you all for your questions. Tim Forrester will be available if you want to talk anything else. I think I answered everything that anyone needed, but we're here for you guys. And Matt Roslin, my Investor Relations, EVP, is always available as well.

But we appreciate the support and glad to share another record-breaking quarter here at UWM. Excited to talk to you again after the third quarter and share our results again. Thank you for the time.

This concludes today's conference call. You may now disconnect.