UWM Holdings Corporation (UWMC) Earnings Call Transcript

Appreciate everyone joining the call. We've got a lot of questions from everybody. So we will go through that process and answer. And also this time, I think some live questions will be handled to end. If you raise your hand, and they'll open it up for you to ask a live question if I don't cover it prior to that. With that being said, thank you for joining. Overall, we feel like third quarter was a great quarter for UWM. The mortgage market, obviously, as you guys all understand, it has a very tough backdrop for years now, 5-plus years, but we feel great about where we're at at UWM from a business perspective, operating and obviously, from a cash and capital perspective now as well. However, with all the great things going on, there's still a lot of headwinds in our industry and we feel really good that we're not only prepared to handle but prepared to grow into them and do very well. So overall, the quarter was very good across the board, $33.4 billion. I'm not going to go through and read all the stuff you guys saw the release, $33.4 billion of volume. Obviously very profitable this quarter, and we expect to continue to win. The big thing that I know people talk about is expenses, our expenses were down substantially. But those are really just tied to the investments we've made in AI and technology over the last couple of years whenever we thought our expenses were higher. And so we're trying to see the fruits of the labor or the benefits of that as we have gone through it. And so we feel really good about the business. The operating business is very, very strong. It always has been strong. And obviously, recently, the partnership with Oaktree has now substantiated our capital structure, along with our liquidity and we feel like we're in a really, really strong position to not only continue to win in this market, but be prepared for all markets, better or worse going forward, and we are ready for that. And so we feel good about it. And the one last comment is I think that the mortgage market is in the last 5 years, is showing a lot of work on a lot of different companies, a lot of different things. Everyone has got some issues, some hole. Our whole was solved with an opportunity with someone writing a check and with me and Oaktree partnering to do that, where a lot of other people's are operating [ holes ] where they don't have enough business. They don't have enough opportunity to get loans. They can't keep out production. They can't invest in AI. And so all of those things, we feel really good. I don't like to have any holes or any issues. But overall, we feel like if we're going to pick one potential issue, we were able to solve that and now will be forward stronger than ever. With that being said, there's so many questions. And so I'll try to answer a handful. And I think a lot [indiscernible] combine into the same question because I think a lot of you asked the same question maybe with different wording. So I'm going to try to read out the questions and go through this. And then once again, by the way, we added some people and done some different things. If there's a different -- next quarter, we might look at it a little different format. If you guys like something different, you don't like. Please share with Blake Kolo and our team on what we can do better. to make this format valuable to you guys next quarter and beyond. So we're looking at making some modification, but we feel good about this, and I'm looking forward to answering all these questions. So all right. Let's jump into it. First question I have here Mikel Goberman, Citizens, Jason Stewart, Jeff, Bunch of you asked the same question. So why did UWM sell a significant amount of MSRs. So first off, you're speaking of the fourth quarter, first of all, I don't really look at it as that significant amount. I think for the year of 2026 we end up selling like $135 million, $140 billion-ish. And I think in 2025, we sold $180 billion. So we actually sold less than our production will be this year. So not as significant. We just did a lot in the fourth quarter. But I do think it's a great opportunistic thing for UWM. I'm big on derisking, deleveraging. It creates cash. It helps us in a lot of different respects. And so we're always looking at that opportunity. And so -- and we'll look at it again more this quarter or next quarter or whenever the opportunity is there. And so I do look at it. But the thing about UWM is we do so many loans that we can refill it really quickly. So I don't even look at that is that big of a pool of loans to sell. I know it is in the big scheme of things. But for us, we originate a lot of loans and we'll be able to replenish that right back in and then still be opportunistic to derisk and deleverage the company at all times. So that's kind of how I look at it on the MSR side for the fourth quarter. All right. Second question, Ryan Nash, Goldman. How are you thinking about the trajectory of expense growth into the fourth quarter? And can you approach $2.1 billion of costs in 2027 versus $2.3 billion run rate in the third quarter? So my answer to that is, yes, we can, and I expect us to do that. We manage expenses and as I talked about before, it's very important that we utilize AI and utilize some of the investments we made in the past that are starting to show the benefits. And so the expenses being down, whatever it was $58 million $59 million quarter-over-quarter was obviously a great sign, and I expect that to continue as in maintaining this level. The only comment I'll make is some of those expenses can be variable. So if we double our business, which we still have the capacity of doing. So everyone else is cutting expenses and they can't actually do more loans. But because of our AI investment, because of our scale and our size, we actually can do double the loans and still have take advantage of that opportunity, whether it comes tomorrow, next year or in 3 years, we're ready for it. So we can handle that while still managing our expenses in a positive way. And so I expect the $2.1 billion is a good target. And if we do a lot more loans and our interest expense goes up and our variable costs go up substantially, then I think we'll all be happy because that means we made a lot more money and did a lot of good things. But expenses are in a good spot. And I actually believe they were in a good spot prior. However, the investments were just big. And one other comment I'll make on these investments in AI is everyone's got to do it. And so if I make a $35 million AI investment, we'll -- that needs to be done to survive and win and thrive in 2027, '29, '31, '32 and beyond. And we can do it and spread it over a lot of loans. And there are any other companies that can do it at that level. A couple of others are close to our size that can do that. But the truth is, most companies have to make the investment and it's going to hammer them because of the cost. And so we feel good about our expenses. We feel good about our investments, and we're going to continue going forward, and 2.1 is a good target. I think that's a fair estimate, whether we exactly hit it, plus or minus we'll see, but I think the trend seems right. One last comment on those, so sorry, servicing expense is a big part of it as well. Bringing servicing in-house will help and will continue this year, we kind of got a double hit. We had outsourced and in-sourced and so we kind of had double hit. So I think that we have opportunity to get lower. Thank you for the question. Bose George. Leverage -- what leverage levels are you targeting? So I guess what I'll say on leverage, I think being below 2 is an important metric for us. But I think we're 1.7, 1.8 right now. But I think below 2 is a good target. But we would like to -- we're focused on China around 1.5 or less. And so I think that's the focus. I think by the end of the year, actually, I think it will be like 1.2, 1.3, maybe even a little bit less depending on interest rates and market and all these things. But I expect this to be below 1.5 by the end of the year. And I think being in the 1.5 to 2 range is a strong spot, and below 1.5 is excellent, and I feel great about where we're at on that and focused on some of that ties to MSR stuff as I've already mentioned, about deleveraging and derisking a little bit. Thank you for the question. Mikel Goberman, Citizens, how did UWM generate more than $10 billion of refinance volume? Well, we're the best in the country at that, right? We're the best origination machine in America. Our brokers have best origination machine in America. We dominate on the purchase side, but also on the refinance side, too. So a lot of people have this myth that you have to own all the servicing to do the refinances. Yes, only the servicing gives you a little better chance. But if you're the best at the country, what you do, brokers are great. We're great at it. We get a lot of business. I think the stat that someone showed me maybe a quarter ago or it was like we own 2% of the servicing, but we do 13% of the refinances, which means we're very efficient and we can handle things from a positive way of getting these loans done fast and helping brokers and helping consumers take advantage of a refinance, whether it's cash out or whatever it may be. And so we feel good about it. We also have some products that people don't have, TRAC+, which is starting to drive some revenue, but more importantly is cost savings to consumers. Actually, the FHFA director in the Vegas came out and are pacing trying to mandate that people start using some of these title things that we've been doing for years. And so we've already have built out this infrastructure, it's a revenue generator, it's a cost savings, and it's a competitive advantage for our brokers. And so that does help us on the refinance market as well, whether it's a government or a conventional loan. So we feel good about that. So refinanced volume is very strong. I focus on the purchase business because the refinanced volume is going to go 4x when the opportunity comes. But right now, I focus on being consistent with purchases. We're the best in the country at that. We will continue to focus on purchases. Thank you for the question. Let's see Jason Stewart, I guess, once you asked this question. So our technology and AI savings sustainable? Yes, absolutely, they're sustainable. The investments we made to help us save money. It's helping our people do more. It's helping us move things around in a positive way to help us cut costs. And it's not only sustainable, but I think it's the beginning of where we're going. And when I say that, that is cost savings is great. And of course, we're focused on it, and you can see those numbers, and you've seen the results, then be talking about it, you can see it. But let's put that aside. Also growth opportunity, how much is AI can help us do more loans, help our brokers win more business, help our brokers recruit more loan [ options ], how is AI going to transform the business. And those are some of the investments we made that you're going to be able to see the benefits of it. Some of them are coming out, and we're doing a lot of business. You've seen Mia, you've seen some stuff we've got the income calculated we've built. And we've got some cool things. ChatUWM has been really powerful. And so we have some really big AI initiatives that have really impacted the business, which also is helping with things with [indiscernible] and success track and training and growth. And so AI can definitely help you cut costs and expenses, and you're seeing some of that benefit, but you got to make a massive investment in it to do that. And then you also got to see -- can help you do more loans, help you grow your business, drive the top line revenue as well, and we feel really good about that and the things we've done in the past and we're continuing to do right now. Thank you for the question on that as well. Let's see Jeff Adelson, how are you responding to defend market share, in particular, [ ROCCAT ] announced 200 brokers representing $12 billion from your potential volume. From your perspective, it's holding market share pricing -- so first off, [ rocket ] means zero to me, they just make numbers up. None of that is true. But either way, they can say what they want to say, they if you remember back, they said, all in, it was a great thing for them. And obviously, we understand what's happened with that because brokers are winning. The nice part about this statement is the [ rocket's ] trying to do whoever they can to try to get involved and they're not getting any business. They're not growing any broker market share, and they're not going to -- because all the brokers work with UWM. But more importantly, because they're not helping to partner with brokers and do things the right way. So I'm going to talk about what [ Rocket ] does, but what I will say is I do like about what Rocket is doing is they realize along with everybody in this market realized the brokers are the place to win. The brokers do the purchase business, the brokers are the growing channel. The brokers are the winners right now. And so they're going to continue the time by I think talking above 5, 6 years, if you go back to their stuff, they're going to take over the market share do 25% of the broker channel, take 25% of the overall market. I mean I guess people can say what they want to say, UWM's market share is fantastic, we're strong, we're dominant and we're growing, and we're going to continue to grow. And if we lose market share, I hope that happens because that means the broker market has gotten so big and it's going to continue to grow. That's my focus. My focus is growing the broker channel, helping every loan officer do a little bit more loans. They're helping every real estate agent that works with brokers do more business, like help them all win, and that's how we're going to win. And the last note on that is I mean I just met with them personally. I think Rocket's fourth biggest client, 9th biggest client, like all these people are moving over to work with UWM. And so I think it's just kind of -- it's silliness to see those questions, not the question is fine, but silliness to see Rocket saying what they're saying about things in general because they're just trying to be in the broker channel, which is great because the broker channel is growing, and it will continue to grow, and we're going to continue to focus on it. Let me do one more and then let's just open up to live questions because I think I'm reading these questions and so many of them overlap. Let's do this one. This one is Mikhail Goberman and Jeff Adelson, a couple of people saying, could you give an update on how the build-out of the in-house servicing platform is coming along? So let me answer that question for you. We brought in 700,000 loans in-house UWM along with all the loans we do on a daily basis this year, which is amazing. And with that being said, our expenses still went down. Right? And so we expect a huge value and benefit of optimization of this. So 2025, we made the announcement 2026, we brought them all in. Most people can't bring 700,000 loans in, in 2 years, let on 1 year, and we did all that. And then 2026, 2027 is going to be optimization efficiencies. And so I think you'll see some of the cost savings there, but also the benefits for the brokers. The benefits through our partnership with Bill, but also just through the people wanting to stay here and refinance with UWM because the servicing platform is just better than everyone else in the country. And so we feel really good about our servicing platform and the in-house structure we've done, we've used AI and leverage AI in ways that you can't do if you had a servicing book for 20 years, right? Being able to -- we brought it in-house in the AI times, if that makes sense, and we're able to use AI to keep our costs. And so you'll see costs down, service levels up on the servicing book, and hopefully, retention continues to be up, and that's a win-win-win for our brokers and for our investors and for everyone around. So with that being said, let's see -- do we have some questions? We have no questions right now. I'm happy to take any live questions. If not, I can try to see if anything else in any of my papers to reach through. If not, we can end it early, too. Is there a question coming -- it looks like there's a question coming in. So raise your hand once again, if you have a question, we'll try to call on you, and then we'll open it up for you. So if you want to go ahead, Lee, and open it up. It's open. Bose George okay, go ahead, Bose.

I had a question on MSR hedging. So you guys had hedge on this quarter.

I do not hear you, the question.

Can you hear me?

Can you unmute, Bose? All right. Well, I can't hear your question, Bose. I'm sorry. Well, yes, if we don't have any -- if we can't get a question through.

Matt, can you hear me?

Can you hear the question? Then why don't you someone read out say it aloud to me.

Sure. Matt, I was hoping you could give us an update on the timing of the fourth quarter MSR sales. How much of those are completed...

DougHarter or Bose George, who's going to speak? Doug, go ahead.

Great. Just update on the timing of when those sales are completed and how those sales compared to your current marks.

Update on the MSR sales, how they compare to current marks and when they'll be completed?

Yes. So the MSR sales and how we look at that is in the current marks, we look at a lot of different things from a perspective of when we sell MSRs or whether we're not going to sell MSRs. The current marks on our MSR book, we feel are pretty good and strong. Now does it mean that we're not going to -- sometimes we'll make a little money, sometimes we'll lose a little bit of money on some of these deals. And so we don't really focus on it too much as a concern. But what we do focus on is as our size, when we sell $40 billion of MSRs for an example, there's always going to be a liquidity discount there when we're doing such a big sale. So we are going to look strategically at maybe making smaller sales in 2027, which opens up more buyers and continues to help us be closer to those marks if that's the way you think about it in a positive way. Jeff Adelson.

Can you guys hear me okay? Just maybe wanted to ask about the plans for the servicing book. I know in the past, you've talked about getting that into the $400 billion range as you complete the in-house transition and hold more servicing, but just with the near-term sale, I know you talked about some smaller MSR sales next year, but just how do we think about the timeline to get into $400 billion from here and the strategic vision around the servicing book?