UWM Holdings missed estimates on total volume for the third quarter, but it did outperform on gain-on-sale margins, a Keefe, Bruyette & Woods flash note said.
For the fourth quarter, the guidance of production to be between $19 billion to $26 billion range was below the pre-earnings consensus of $30.1 billion and at the upper end of KBW's $25.9 billion.
UWM also guided to a margin of between 75 basis points to 100 basis points for the current period, similar to what it had said for the third quarter.
"The operating numbers were largely in line, and we are not expecting much of [a] reaction from shares despite the weak fourth guide given the seasonality associated with the quarter and the positive GOS trend in third quarter," wrote KBW analyst Bose George in the note that came out before the earnings call.
"The guide suggests production income will be between $171 million and $234 million, the midpoint of which, $203 million, is below our current estimate of $233 million," he added.
But BTIG, in its report, argued that UWM has an opportunity for margin expansion as mortgage rates drop on a sustained level,
"Lenders could potentially enjoy a window of bargaining power while capacity catches up to demand, although right now we think odds are low that mortgage rates can rally meaningfully while mortgage-backed security spreads in the secondary market are somewhat biased to remain near historical wides," wrote Eric Hagen, an analyst at BTIG.
For the third quarter, UWM had just under $301 million of net income, compared with $228.8 billion in the second quarter and $325.6 billion for the third quarter of 2022. The current quarter's net income includes a positive fair value mark for its mortgage servicing rights of $92.9 million.
"Regardless of the direction of the MSR mark, we are operationally profitable, which almost no mortgage company in the country can say," Mat Ishbia, chairman and CEO, noted on UWM's earnings call.
United Wholesale Mortgage's originations of $29.7 billion in the third quarter; KBW had expected $31.2 billion for this period, which would have been similar to the second quarter's $31.8 billion. That total, however, was in line with UWM's previous guidance.
Plus, UWM maintains its space on top of the mortgage originations table, topping Detroit-area rival Rocket Cos., which produced $22.2 billion for the period.
For the third quarter last year, UWM did $33.5 billion.
The miss versus analyst expectations was on the purchase side, where the company originated $25.9 billion of these loans, versus $28 billion in the second quarter. That was an 8% decline in an area where George had expected a 2% increase. Purchase volume in the third quarter of 2022 was $27.7 billion.
Refinance volume of $3.83 billion was flat compared with the second quarter's $3.11 billion; George had expected a 28% decline. A year ago, UWM produced $5.77 billion of refis.
Ishbia reiterated a previous message about UWM hiring — it added over 1,000 people in the third quarter — in part to be prepared for the next refinance wave.
"It might take six months, 12 months or 18 months to get there but…when the market turns UWM will be the most prepared mortgage company whether there's a big refi boom [or] a mini refi boom, we will make the most of the opportunity," he said.
Meanwhile, UWM continued to sell mortgage servicing rights, generating $1.7 billion in net proceeds, Andrew Hubacker, chief financial officer, said.
"We have continued to opportunistically sell MSRs as market conditions warrant to fund our operational capital liquidity needs," Hubacker continued.
It is a decision the company makes on a monthly basis. Right now the portfolio is $281.4 billion, and it is looking to keep it in a range between $250 billion and $350 billion, with a goal of around $300 billion. But Ishbia added that those aren't hard limits and it could go below or above them.
On June 30, the portfolio was $294.9 billion, while on Sept. 30, 2022, UWM had $306 billion of servicing rights.
"We've seen a really great market, we get multiple bids anytime we've put something out," Ishbia said. "We get people usually bidding up on it and it's really tough because we'd like to partner with people and be consistent with them but a lot of people are looking for that product."
