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Last year will go down as one of the best years in United Wholesale Mortgage’s history, CEO Mat Ishbia said Wednesday after the nation’s biggest mortgage lender posted its first annual loss since going public in 2020.
A $634.4 million write-down of the fair value of UWM’s massive mortgage servicing rights portfolio helped drive a $461 million fourth-quarter net loss and a $69.8 million 2023 net loss, the company said Wednesday in releasing Q4 and 2023 results.
“We continue to be operationally profitable, the true measure of a mortgage originator’s health, while our financial loss was driven by the MSR [mortgage servicing rights] markdown which is a result of interest rate movements,” Ishbia said in a statement.
On a call with investment analysts, Ishbia said he was pleased that 2023 was UWM’s best year ever for purchase mortgage volume, in a year when mortgage rates soared past 7 percent to post-pandemic highs.
Mat Ishbia
“It wasn’t a year that will stand out from a financial perspective, but it will stand out from a dominance perspective,” Ishbia said, explaining why, in his view, 2023 was “one of the best years in UWM’s history.”
“We separated from our competitors significantly on market share, growth, operational earnings and strategic investments,” Ishbia said. “It was our second year as the number one overall lender. It was our third consecutive year as the number one purchase lender and our ninth consecutive year as a number one wholesale lender.”
Rival Rocket Mortgage, which UWM surpassed in 2022 to become the nation’s biggest mortgage lender, last week posted even bigger Q4 and 2023 net losses of $233 million and $493 million that were also driven by write-downs of its mortgage servicing rights portfolio.
UWM originated close to 38 percent more loans by dollar volume than Rocket, with the Pontiac, Michigan-based wholesale lender’s purchase loan production alone exceeding Rocket’s total 2023 purchase and refinance volume of $78.7 billion.
Ishbia credited the mortgage brokers that UWM partners with and their connections to real estate agents and consumers for helping grow the purchase loan business.
“First and foremost, the broker channel is strong and continues to grow its overall share of the industry,” Ishbia said. “Loan officers continue to join the broker channel, and real estate agents and consumers continue to see that brokers are the best choice for mortgage. Second is our investment technology continues to give our brokers a competitive advantage on speed, price and process.”
Shares in UWM, which have traded for as little as $4.16 and as much as $7.43 in the last 12 months, initially dropped 13 percent from Tuesday’s closing price of $6.71, bottoming out at $5.82 within minutes of the New York Stock Exchange’s Wednesday morning opening.
But UWM’s shares quickly rebounded in heavy trading as investors balanced the Q4 loss against the company’s future prospects, closing down 5 percent for the day at $6.37.
Ishbia pointed out that UWM will pay shareholders a dividend of 10 cents per share on Apr. 11, which will mark the 13th consecutive quarter it’s been paid at that level.
“As I said multiple times before, the dividend would be paid out in good times and in tougher times,” Ishbia said. That the dividend “is paying out in a year like 2023 should give complete confidence to the market.”
UWM loan originations by purpose, 2020-2024
Source: UWM annual reports to investors.
With rising mortgage rates taking away much of the incentive to refinance, UWM’s refinancing volume shrank by 61 percent to $14.4 billion.
But with purchase mortgage originations growing by 3 percent, to a record $93.9 billion, UWM’s total mortgage production was down by a more modest 15 percent, to $108.3 billion.
“The purchase business continued to lead the way as our total 2023 purchase originations were higher than both 2022 and 2021, even with a higher interest rate environment for all 2023 and the significant decrease in industry-wide origination volumes,” Chief Financial Officer Andrew Hubacker told investment analysts.
At $24.4 billion, Q4 loan production was down 18 percent from the previous quarter and 3 percent from a year ago. UWM executives expect Q1 2024 loan production to be in the $22 billion to $28 billion range.
Total gain margin — the profit that UWM realizes when it sells the loans it originates, averaged 92 basis points in 2023, up from 77 basis points in 2022. UWM expects the total gain margin will be between 80 and 105 basis points in Q1 2024.
UWM servicing $300 billion in mortgages
Source: UWM annual reports to investors.
In addition to originating mortgages, UWM also acts as a loan servicer, collecting payments from borrowers on behalf of investors. While 93 percent of the loans UWM originated in 2023 were sold to investors in securities backed by Fannie Mae, Freddie Mac or Ginnie Mae, UWM retains the mortgage servicing rights on most of the loans it originates.
Last year UWM generated $818.7 million in loan servicing income, up 3.4 percent from 2022, as higher average servicing fees more than made up for a slight decline in the size of UWM’s mortgage servicing rights (MSR) portfolio.
When it needs cash or wants less exposure to changes in the fair value of its MSR portfolio, UWM can sell mortgage servicing rights to others. As of Dec. 31, 2023, UWM was collecting payments on 905,129 mortgages with outstanding balances of $299.5 billion, down 4 percent from a year ago.
In addition to earning fees from investors in mortgage-backed securities by collecting monthly mortgage payments on their behalf, many lenders like being in the loan servicing business because they can offer refinancing to borrowers they service if rates come down.
But the prospect of falling mortgage rates also makes borrowers more likely to refinance out of UWM’s portfolio and end up with another loan servicer. That’s part of the reason UWM was obligated 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 write-downs as “just paper moving, it means nothing” and said he expects that some of the write-downs will be reversed this quarter due to the recent rebound in mortgage rates.
Rocket wrote down the fair value of its even larger $509 billion MSR portfolio by $358 million in the fourth quarter.
“The truth is we have bigger write-downs or writeups than other people because we’re actually the only one actually originating loans at these rates,” Ishbia said.
UWM kept originating purchase loans at a brisk pace during the third and fourth quarters when mortgage rates were hitting their 2023 peaks, Ishbia said, “which is why we had bigger write-downs than most people in the fourth quarter.”
Shrinking profits and revenue
Source: UWM annual reports to investors.
UWM has seen a steady decline in revenue and net earnings since the end of the profitable pandemic-era refinancing boom of 2020 and 2021.
At $1.31 billion, 2023 revenue was down 45 percent from the year before, and 73 percent from an all-time high of $4.94 billion in 2020.
Thanks to the massive write-downs in the fair value of UWM’s MSR portfolio, the company posted a $69.8 million 2023 net loss, compared to a $3.38 billion profit in 2020 at the height of the refinancing boom.
But mortgage lenders that are also in the servicing business like to point to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) as a performance metric.
UWM reported $99.6 million in adjusted EBITDA for 4Q 2023, down 11 percent from Q3 but up 65 percent from a year ago, as the company slashed expenses by 3.5 percent in 2023, to $1.39 billion, without laying off employees.
In reporting Q3 2023 earnings, Ishbia said UWM hired 1,000 new employees during the third quarter. UWM ended the year with 6,700 employees, an increase of 12 percent or 700 employees from a year ago.
“The point I’m most proud of is, unlike other mortgage [companies], we have continued to invest in our people and grow our team,” Ishbia said. “We’ve never laid off a single team member in our 38-year history.”
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