Going public puts UWM on a level playing field with rivals, CEO says

By going public through a merger with Gores Holdings IV, United Wholesale Mortgage hopes to get onto a level playing field with its competition, President and CEO Mat Ishbia said.

"Our company for so many years has been growing at this rapid pace," he said during an investor call on the deal. "However, now we believe that the extra resources, the opportunity to basically put us on a level playing field with a lot of our competition will take us to a whole nother level."

That competition includes Rocket Cos., its local rival. UWM is headquartered in Pontiac, Mich., a suburb of Detroit, where Rocket is located. Rocketlaunched an IPO in early August.

In going public, UWM sees an opportunity to grow, given that it sources loans from mortgage brokers, who themselves tend to be purchase transaction oriented and less vulnerable to cyclical trends, Ishbia said.

UWM's announcement also comes on the heels of Rocket announcing a rebrand of Quicken Loans Mortgage Services to Rocket Pro TPO, which will offer expanded tools and an expanded referral network for mortgage brokers, banks and others in the field.

UWM's merger with Gores Holdings IV, a special-purpose acquisition company, values the mortgage lender at $16.1 billion. The deal is expected to close in the fourth quarter. Afterwards, the company will operate under the UWM name and the ticker symbol will be UWMC.

Rocket Cos. went public on Aug. 6, in a deal priced to raise $1.8 billion. But Dan Gilbert still owns or controls 79% of the company's equity. More recently, loanDepot reportedly took steps toward another attempt at an initial public offering, which may put its valuation at between $12 billion and $15 billion. This follows a failed attempt that was pulled just hours before pricing in 2015.

Regarding UWM's rivalry with Rocket, Ishbia said on the call that "what Dan Gilbert has built over there is fantastic, those guys are winners and have been very successful and for a long time.

"We have a lot of similarities. We're both large originators, both very successful, both headquartered in the Detroit-area and both doing great things in the community.

"We both believe in the wholesale channel," he said, noting that the primary driver of growth since 2016 at Rocket, whose brand was Quicken Loans, was in wholesale.

He added Rocket does a fantastic job in marketing their company, whereas UWM doesn't have a big public brand.

"We think going public will actually help our brand,” he said. “From our perspective, we don't want to be out front. The brokers are out front. But if we can tell the story about the brokers and people start to realize there's a large company out there called UWM and they help support brokers and I can get a cheaper, faster, easier mortgage because of it, that's going to be great," Ishbia said.

While Rocket does a great job in retaining their existing servicing clients, Ishbia added, at UWM, its perspective is on helping the mortgage brokers grow. "We want them to retain their clients, even if [the loan] doesn't come back to UWM."

As part of UWM's merger, Gores Holdings IV will contribute approximately $425 million in cash held in trust account for the merger with UVM. Additional investors have committed to participate in a $500 million private placement to help capitalize the company.

Gores Holdings IV is led by Alec Gores, chairman and CEO of The Gores Group. The grouping includes large unnamed institutional investors.

This is Gores' fourth transaction with its publicly traded SPACs, but the first involving a financial company; the others are with Hostess, Verra Mobility and PAE. A fifth deal with Luminar Technologies has not yet closed.

Upon completion of the transaction, the current owners of UWM, primarily Ishbia, will retain approximately a 94% stake in the combined company.

UWM expects to end the year with $200 billion in total originations. Last year it produced $108 billion, up from $42 billion in 2018 and $30 billion in 2017. The company projects $4.6 billion in revenue this year, up from $1.3 billion for 2019.

Wholesale is a lower-cost channel to originate; UWM's stats showed that in 2019, it cost $8,872 to originate a retail loan, versus $8,402 for wholesale. The company said that over that period, at UWM it cost $7,282 per loan and that currently it is even lower, at $6,625.

UWM's adjusted net income through the 12 months ended Aug. 20 is $1.3 billion, compared with $318 million for all of 2019. For the full year 2020, it is estimating to earn approximately $2.9 billion of pretax income and $2.1 billion of adjusted net income.

Gain-on-sale margin is projected to be 209 basis points for this year, but with rates possibly rising next year, the company sees this falling to 188 bps next year and 160 bps in 2022. UWM predicts $210 billion in volume in 2021 and $240 billion in 2022.

On the servicing side, UWM ended 2019 with a $70 billion portfolio. It expects this year will end at $208 billion. By Dec. 31, 2021, the servicing rights portfolio is projected to reach $355 billion and the following year $501 billion.