Good morning. My name is Xin, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corp. Corp. 2nd Quarter 2021 Earnings Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Star followed by the number 1 on your telephone keypad. Thank you. 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 Q2 2021 earnings call for UWM Holdings Corporation. Before we start, I would like to remind everyone 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 Matt, I want to inform everyone on the call that our CFO, Tim Forrester, cannot be with us today due to personal reasons.
Matt Eshbyer, Chairman and CEO of UWM Holdings Corporation and 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 They're proud to partner with all of them. The Q2 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. I'm going to explain the details of how we think about it later on in this call. On our last quarterly 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 $59,200,000,000 in production, Meeting our guidance of $50,000,000,000 to $55,000,000,000 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 over $138,700,000 in net income. When I back out the $219,000,000 decline of fair The fair value of our MSR asset, our core earnings as I like to call it was approximately $358,000,000 That's the way I run the business. I mentally add back or subtract if it's positive.
The change on MSR really is more representative of what our business is. The $358,000,000 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'd 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 base, our 2nd quarter results represent 20 plus percent increase in overall production.
I think it was actually 21%. More excited to me though was the 97% increase in purchase production over 1st 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 Pershing production. There's no mortgage company in America that has comps like this.
We are the elite mortgage company in America and we're proud to show it to you quarter in and quarter out. The Q2 was really interesting as 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 rates 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 those from 2.99% to 4% And you'll see the strength of our business across the board. The relative refi mix declined 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 $12,000,000,000 to $24,000,000,000 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 Consolently 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 Q1 2020, you can see how people perform when the tide is out and not such frothy business. So 2nd quarter, 24.06 purchase production, our best purchase quarter of all time, our best overall quarter of all time. And if you think about it, if If you had no refi business, we'd almost do $100,000,000,000 of purchase business in a year, which by far and away would be the number one mortgage company in America.
It's very important to understand this because our business to business model and history to prove that not only when 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 homes 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 we talk about here at our company is never true on a purchase business. Once a broker close a personal and they stay with us, they want to continue to send loans to us 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're substantially faster than the market. Our client service remains best in class With our proprietary technology uncompromising team members proving our year to date net promoter at a + 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 Q3. 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 will 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 was on the independent mortgage brokers and consumers. It's been 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%, $49,000,000,000 to $59,000,000,000 while one of our competitors who is public went down From $103,000,000,000 to $83,000,000,000 or in their partner network, Rocket Mortgage went from $41,000,000,000 down to 30,000,000,000 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 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 7th consecutive year being the number one 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 relation with our clients, exceptional service position, It will help us capture more market share in 2021 as we just did in the Q2, but beyond going forward in the future.
So we're very proud of where we're at. 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 welcome 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 the PIONEAK machine to get trained, to get coached, to learn how to grow their business.
As they grow, UWM will grow In the broker channel growth and that's a big part of our story and it's happening every single day. We continue to reinvest in our business, our people. We've built Some proprietary technology will save us over $8,000,000 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 1st 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 could 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 Q3, 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 Q3. 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 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 2,000,000 shares. And honestly, at these Prices, if the float issue wasn't a big deal, we couldn't 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 $485,000,000 comparable quarter of $831,000,000 last year.
Remember $219,000,000 of that reduction Related to change in our accounting for MSR, which placed reduction in fair value of MSR within revenue rather than expense. So it's really a $219,000,000 difference there to change. Our servicing income was higher due to our growing portfolio and interest income that followed our oil production volume increasing substantially over prior periods. On liquidity front, cash And cash equivalents remain over $1,000,000,000 which is significantly more than we operated in prior years. Mortgage loans At fair value from $7,900,000,000 at year end to $12,400,000,000 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 $2,000,000,000 plus of that production per month. Loans sold through private markets remain on the balance sheet a bit longer than we sell agencies, but the loans remain fully hedged and are readily marketable. So do not believe this increase of 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 $1,750,000,000 to $2,660,000,000 as the unpaid principal balance increased From $188,300,000,000 excuse me to $260,300,000,000 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 Uno has originated Over $290,000,000,000 It's a very young book from a seasoning perspective.
Credit quality is quite strong. Delinquency rates 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 $14.90 from $16.62.
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. With our cost originating in 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 Q2 as most of our competitors went down in volume And at the same time, some of you lost money, we succeeded in XL because of our cost origin and our proprietary technology. Now, Last quarter we set guidance and we not only said 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 It's 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 $57,000,000,000 to $62,000,000,000 from a production perspective and gain margin between 75 and 100 basis points.
We're excited about the Q3 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.
Your first question comes from the line of Steve Delaney of JMP Utilities LLC.
Thanks. Good afternoon, everyone, and congratulations to management on either beating or meeting your May 11 guidance for the quarter, Very strong.
Matt, 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 one time Pipeline impact and how much of this may be ongoing in terms of constricting the volume of business you do with Freddie and
Yes. Thanks for the question. First off, so everyone knows Tim Forster 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 is always available. But to answer your question specifically, obviously, I know other companies have spoke about some changes and we kind of look at those changes and see that that happens For 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 costs originate. When you've got 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 consumer to get a mortgage. And so with that being said, we think a lot of the legacy, if that's the way, legacy mindset around wholesale or around brokers or around some of the pricing The 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 Q3?
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 are and that's why so 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 the other lenders have talked about that the GSPs might have imposed Recently, I think those are short term. And I think 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 too.
Well, definitely 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. Hey, look, just a quick follow-up and a comment. Thanks for including the Q3 dividend in the press release.
0.40 dollars a year, that's a nice spot percent 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 and also buying back shares. But On the one hand, I'm just 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 Q3, it looks like the Board is doing both, Paying the dividend and buying back shares. Is that fair, a fair assessment?
That's fair. And I don't as the Chairman of the Board, at this 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 $300,000,000 and we have 24 months to execute on.
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 the share price is at right now with the 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.
Thanks for the comments, Matt.
Thank you.
Next question comes from the line of Henry J. Coffey, Jr. Of Wedbush.
Good afternoon and thank you Thank
you for taking my call.
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 it's one of the more attractive aspects of the UWM fee shares. So If you'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 team, me and you.
Right. You get to vote more than I do, sir. Small item and we can get into this offline if it's but in March, your G and A expense was $16,800,000 and then in June, it was $42,100,000 Even though overall expenses were lower than we I was just wondering what that one item was all about.
Yes. I think we can go offline on it, but it was just a reversal in the Q1. So 4Q was aligned with it. Our expenses actually went down, as you saw. We just had a reversal in the Q1 of about $20,000,000 if I remember correctly, Which puts us around 36%, 37% 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 originating has gone down as
well. Yes. No, that was very obvious. It was all the other numbers moved in the other direction and I was just curious about that one, but thank you.
Yes. Q1 was a one time out of period for So the contingency in Q2, there was a $5,000,000 added, but when you net out, that line item is basically flat.
Cool. Thank you. On a more interesting topic, you made a comment in the press release in the second quarter, we began seeing the Term from the foundation we 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.
It came out March 17. So really, we didn't really get a full 2 quarter full Quarter of it because you don't really close loans until the middle to end April on it, but we did on average, I think in the Q2 about $2,000,000,000 A month of that product. So just under $6,000,000,000 I think it's $5,900,000 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 It's going to be a big purchase product as well, just like FHA and just like manufactured homes is 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 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'd have to copy it, The jumbo comes to UWM, their FHA due, their VA, of course, their conventional loans due. They have the consistency that when a realtor brings them a loan in a transaction, They know we 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 59 200,000,000 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 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 number one overall lender, but will 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 a 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 Playing in that going forward?
Yes. We're working with the GSEs on the product. We're going to continue to offer the product to 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 become more of the market.
So we figured we'd get into Make a 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 Q3 and more going forward as our commitment to equitable and affordable homes Throughout America.
The gain on sale margin competition, the primary and 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 We feel really comfortable with where margins are. We can play in a place that other places can't based 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 $350,000,000 in the quarter, grew our market share substantially, Grew 21%, gained $10,000,000,000 of volume and all of our main competitors went down.
And so I feel really good about where everything's at. We can make $300,000,000 $400,000,000 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 the huge numbers that you saw the last couple of quarters before this.
Well, thank you and congratulations on a solid quarter.
Thank you.
Next question comes from the line of Doug Harter of Credit Suisse. Your line is open.
Thanks. I'm hoping you could talk a
little bit about kind of
how sticky You think some of these market share gains will be following the all And kind of the need or desire to kind of keep some of the price match promotions or for Black moving forward, that you can run-in.
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, in 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 into the broker channel, we're going to help you continue to grow. We're going to give you trainings. 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 months 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 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 matching those things? Those things 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 We're substantial seeing I think we are in the Q1, we were $54,000,000,000 out of the number one spot and now we're $24,000,000,000 out of the number one So a $30,000,000,000 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 got it 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 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, base averaging in the Q1 along with 2nd, 3rd and 4th, 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, which is our low to mid-one hundred numbers, but it's not going to happen in the Q3, and I don't foresee it happening in the Q4.
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.
Thank you, Matt.
Thank you, Doug.
Next question comes from the line of Ryan Nash of Goldman Sachs. Your line is open.
Thanks. Good evening, guys.
Hey, how are you?
Good. So, Matt, you just You 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 gridlock 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?
Thanks.
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. Home Point, 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 point plus margins on Affiliations, whatever they call them, and they kind of jumble them all together. They're not 116 basis points. Their wholesale margins are well, from our data, Well, south of 50, you're right around 50. So just to put it in 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 Home Point 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 You're making 0 on it.
Brokers won't place a purchase of certain lenders because they can't actually deliver. And so that's why I keep telling everyone when rates when rates went up 19 basis points and everybody went crazy. Margins compressed, everyone did less business, everyone struggled. Wait till they go up 100 basis That's what we're going to be doing, dollars 120,000,000,000 $150,000,000,000 maybe $200,000,000,000 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, continue to enhance that. I'm going to use that leverage whenever I see it fit and as the right decision for our business and our shareholders. And it was in the 2nd quarter As we had an all time record quarter and it will be again in the Q3 similar type concept where we will be 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 If you go back up, that's when UWM shines.
And that's why Q2 was just a glimpse, a glimpse into what 2022 or 'twenty three or 'twenty four is going to look like With everybody else, Ryan, and you're going to see that UWM is the strongest and most lead mortgage company, and we plan to prove it quarter in and quarter out.
Got it. Thanks for the color. 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, $16.62 down to $14.90 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.
Thanks.
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, wherever that number is, it's a huge, huge competitive advantage. And there's a lot of things we're working on right now to We 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 rolled out one of them I spoke to would say there's $8,000,000 Couple others that could save us $5,000,000 here, dollars 2,000,000 here. There's opportunity there. And all those inches add up to feet, which add up to miles, and that's how we win. And so we focus on every inch here, every day at UWM. There's a lot of things.
But We are not, confused on our competitive advantage, which is our 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 2, and it makes a big difference. And so Everyone can look good when there's a lot of volumes because their cost 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 Cost originating 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 it regardless fixed costs, they struggle a little bit more and you'll see that in the future. We don't know when, but you'll see it.
Thanks for all the color, Matt.
Thank you.
Next question comes from the line of Tommy McJoynt of KBW. Your line is open.
Hey, good afternoon guys. Thanks for taking our questions. 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 after more normalized levels.
Yes. Thanks for the question. So yes, 9,000 people, we got 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 number one overall mortgage company in America, whether it's next year, the year after or the year after that. And we might only have between 8,011,000 people because we can actually handle the volume where we're at right now, while at the same time with our technology Continue 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 account aggressively, but we feel 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. Thanks. 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 then just looking at the balance sheet, you can see the Loans held for sale obviously jumped pretty significantly over the quarter from $5,000,000,000 to $12,000,000,000 And then you also noted 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 time.
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 play, more jumbo, which is a couple of $1,000,000,000 a month, that generally just Longer to be sold.
And then at the same time, we also have the PLS market where we have some investment properties, 2nd homes that we can take out. We've done a couple of deals out in the market We're in the process 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, maybe 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 pennies times 60,000 loans a month or whatever the number is, 150,000 loans in a 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 finance team 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.
Next question comes from the line of Ryan Carr of Jefferies. The line is open.
Hi, good afternoon guys and thanks for taking my question. 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've 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 or maybe reinvesting in the business and kind of where your decision making is
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're 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 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 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 roadshow 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 love to be able to buy shares back. However, I have to be cognizant of the flow in honoring what I said I would do. So We're looking at creative ways to provide get more flood out in the market.
And at the same time, we'll continue to pay a dividend as we announced And looking at all different opportunities to reward our shareholders. But investing in the business is 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 kind of going You really have invested in growing the business and expanding it, especially given kind of the growth and very amazing, quite frankly, success that we've seen through And you also mentioned in the release kind of some of the savings that you're seeing from these investments going forward, the $8,000,000 for the balance of the year. But How do you really think this is going to play in from a cost savings perspective going forward, going into the environment that That we're in, especially margin wise.
I think it's going to be huge. And so the difference is the $8,000,000 is one thing, there's a Couple of million here, couple of million here. And 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.
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 $20,000,000,000 in a month, we could do $30,000,000,000 a month with our team potentially right now and not have To hire more people, that's a big difference, right? And maybe $30,000,000,000 is a little exaggerated. We'll call it maybe 25% above what we're doing.
So we'll call it $25,000,000,000 to 28,000,000,000 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 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 originate. And those are the 2 factors that really determine whether you have great technology or if it's just a sales pitch. And so we feel really 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's going and being able to make nice gain on sale margins, but we have the ability Of competing at the highest level with anyone to grow this business, not only being the biggest, but the best mortgage company in America.
Yes, absolutely. And I would say anyone that comes to visit you and sees the momentum that you build on the technology, they I agree. Final question for me. Just given where rates are at this point, how they come back in, it's curious to see to hear what kind of You saw throughout the Q2 and did you see a time like 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 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 major, major levels right now. And so seeing $24,000,000,000 of purchase in UWM in the quarter, I think if I even said to you guys in the Q1 was that maybe we get to $15,000,000,000 1 quarter this year.
And so seeing 24,000,000,000 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 don't broker to get the loans closed fast and efficiently. They don't want to go to those other lenders. And so the reality is inventory in quotations as 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 It does have constraints. However, it does not constrain you from being successful in the purchase business because so many houses are 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. They're getting an offer from a Board of Directors that says, hey, 15 days, No contingencies or 15 days appraisal only contingency and they take that offer. We close it in form 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.
All right. Thanks, Matt, and thank you, Matt Raslan as well. Congrats on the quarter.
Thanks, Ryan. Appreciate it.
Next question is coming from the line of Michael Kaye of Wells Fargo. Your line is open.
Some pickup in competition in the wholesale industry. You would that would seem to enhance the value proposition of the broker channel with lower mortgage rates offer to consumers. So I've been somewhat surprised when I look at mortgage industry employment data, when we saw mortgage broker employment growth still 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. Confidence in any of the data that you have on the motor. I don't know who that is, but I don't know if you want to mute that line.
Is that you, Mike?
Yes. Sorry. It's my kid. Sorry about that.
It's okay. Hopefully, they're having fun. But my perspective is the data on the labor report, 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 a how it pulled. 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 leaving retail. I 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 like Sure. As I'm sitting here, I know it's happening.
And the problem is, I don't know what the data ties 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, I think the guarantee rates of loan depots, the Fairway Independence, 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 a 0.25.3eight higher in rate, while I 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, 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 the second quarter and early Q3. So people, They pause on that, but the reality is the more differentiation between retail pricing and wholesale pricing that there is, the more likely that these loan officers migrate Retail to wholesale and that will only grow our channel.
And so the brokers being 1 out of 3 mortgages are 33% by 2025, that's going to happen. We are making that We are working with them and that loan officers transitioning is a big part of that.
That makes a lot of sense. 2nd 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 to the end of August.
How often do you see broker clients actually utilizing this broker match? I mean, is this more of 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?
Thanks. Yes. Thanks for the question. And so I 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 sales to answer your question.
It's I'll 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 Our sales people have the confidence to go out and call them. So it's really not been much of a drag on it.
It's been more of a positive, and that's why I've continued to and extended A couple of times. 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.
Thank you, Matt. Take care. Thank you.
Thank you for the questions.
Next Question comes from the line of Samir Kaluja of Deutsche Bank. Your line is open.
Hi, thanks for taking my question. You talked about investments in technology and in Q2 you launched a 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 one example because we have a couple of different things out there. But the example you're speaking of It's a way to it does not affect anything.
It's basically taught our it's an internal system that we are 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 1,000,000 of dollars and it will continue. Like these savings are not just a one time 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 $8,000,000 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.
Got it. Thank you.
Thank
you. I think we have
time for one more question, operator.
Yes, we only have time for one final question. Your final question comes from the line of James Faucette of Morgan Stanley. Your line is open.
Thank you very much. And 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
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 like to set up their own operations. Thanks a lot.
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 3 or 4 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% of 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-eight 100 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 a marketing side. But the reality is this, there's 3 ways we can help brokers grow. 1 is consumers, educating consumers because the reality is you guys can me want to. All you got to do is write an article on this, but it's faster, it's easier and it's 100%. It's cheaper.
So it's I won't say 100%, I'll say 99%, whatever you want me to say, so I'm Actually 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. Backed up with data, right? The second thing is realtors, they're educated and they're learning really quick.
They know you can talk Go call a realtor and find out who they want or they won't refer loans to certain places and you know who those places are because of course, 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 officers 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 in retail and wholesale pricing. We fixed that. And the second reason was they're so busy because they have so many loans in their pipeline.
Well, rates going up, we'll 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, we're going to turn it back to the operator. But before I do, just want to say thank you all for questions.
Tim Forster will be available if you talk anything else. I think I answered everything that anyone needed, but we're here for you guys. And Matt Rodson, my Investor Relations EVP is always available as well. But we appreciate the support, And we're glad to share another record breaking quarter here at UWM and excited to talk to you again after the Q3 and share our results again. Thank you for the time.