UWM Holdings reported higher origination volume and gain on sale margins in the third quarter than it previously guided to, benefitting from the dip in rates during the period.
For the first week of July, the 30-year fixed was at 6.95%, according to Freddie Mac; by the end of September,
Those lower rates helped UWM remain dominant, Chairman and CEO Mat Ishbia said on the third quarter earnings call.
"Now the refi boom has not fully materialized, but we have seen a preview of it, and we're able to capitalize on it instantly, while others were caught flat-footed," Ishbia said. "Preparation is the key to winning; the best teams in sports and in business find a way to win in the present while preparing for the future, and that's what we have done here."
Ishbia owns the Phoenix Suns and Phoenix Mercury and was a member of the Michigan State national college championship basketball team.
United Wholesale Mortgage originated $39.5 billion, including $26.2 billion of purchase mortgages and $13.3 billion of refinance. That was its biggest quarter in three years, Ishbia noted.
This compared with $33.6 billion
But, purchase volume of $26.2 billion was down from the second quarter's $27.2 billion.
During its second quarter call, it guided to origination volume in the $31 billion to $38 billion range, and gain margins from 85 basis points to 110 basis points.
For the most recent period, UWM recorded a total gain margin of 118 basis points. This is up from the 106 basis points for the quarter ended June 30 and 97 basis points for the third quarter of 2023.
But a servicing mark ended up reducing earnings. The company reported net income of $31.9 million, inclusive of a $446.1 million decline in the fair value of its mortgage servicing rights. But that was offset by a gain of $226.9 million gain on other interest rate derivatives.
That level of profitability given the MSR hit "is really unheard of and speaks to the strength of our business," Ishbia said.
This compared with net income of $76.3 million for the second quarter and $301.0 million in last year's third quarter.
For the fourth quarter, UWM is guiding to even higher volume, with the upper end at $41 billion; the lower end is $34 billion. For gain margin it expects between 85 basis points to 110 basis points.
That guidance, Ishbia said in response to an analysts' question, is based on where the market and the 10-year Treasury yield is now, versus where they were in August and early September.
The rate environment at that time allowed UWM to make a little bit more on margin, he added.
Later today, the Federal Open Market Committee is expected to announce a 25 basis point cut in short-term rates, so he will be looking for the impact of that on the 10-year. Both mortgage rates and the 10-year yield increased following the FOMC's September meeting and cut of 50 basis points. The day after Donald Trump's victory in the Presidential elections,
"It can change quickly," Ishbia said. The 10-year yield can go up to 4.75% and it can go back down to 3.75%. In either case the margins will move as will mortgage rates.
"We're prepared to handle the volume where other places are not," he continued.
Even with the higher rates and the normal purchase market slowdown in the fourth quarter, Ishbia added he feels comfortable with the production guidance range. Look for a "dominant 2025" for UWM "on purchases, and hopefully, on refis as well."
