UWM's Q1 loss due to servicing mark masks strong activity

Like several of its independent mortgage banker peers who previously reported, UWM Holdings needed to take a servicing adjustment to earnings, which pushed the company into the red for the first quarter.

Even with the GAAP loss, UWM Chairman and CEO Mat Ishbia said during the earnings call the company was profitable in all the measurements it looked at.

For the period, UWM lost $247 million, inclusive of a $388.6 million mortgage servicing valuation write-down. This compared with net income of $40.6 million in the fourth quarter and $180.5 million for the first quarter of 2024.

Investors reacted to the news by driving UWM's stock price as of noon Wednesday to $4.28 per share, down 49 cents from its previous close.

Earlier, Pennymac and Mr. Cooper both reported they had to take MSR write-downs as well, of $98.7 million and $82 million respectively. But on a GAAP basis, both companies remained profitable.

UWM's gain on sale was at the lower end of prior guidance, at 94 basis points. That missed Keefe Bruyette & Woods' expectations of 110 basis points but "the lower margin quarter-to-quarter was in line with what we have seen in the broker channel from other large broker originators in [the first quarter]," Bose George said in a flash note put out prior to the earnings call.

Total revenue of $613.6 million compared with $720.6 million the prior quarter and with $585.5 million the previous year.

In terms of volume, the company had its best first quarter since 2022, with production of $32.4 billion, up 17% compared with one year ago, when it did $27.6 billion. But it was lower than the fourth quarter's $38.7 billion. This was also below KBW's $32.9 billion estimate for the period.

The company's volume has exceeded $20 billion for eight consecutive quarters, executives said during the call.

Purchase originations were lower from both comparative periods, at $21.7 billion, versus $21.9 billion in the fourth quarter and $22.1 billion for the first quarter of 2024.

But refinance production of $10.6 billion, while lower than the fourth quarter's $16.8 billion, was an improvement over one year ago, when it did $5.5 billion.

The industry-wide broker share of volume at 28% is the most since 2008, Ishbia pointed out, showing UWM made the right decision going exclusively wholesale.

UWM's servicing strategy

Ishbia discussed UWM's decision to bring the servicing function in-house using ICE Mortgage Technology, as something it had been contemplating for many years.

"By leveraging the latest technology and AI, our plan is to be the most efficient servicer in America," said Ishbia. "We are getting control of this part of the process."

During the Q&A Ishbia added that UWM expects to start boarding loans at the beginning of 2026 and handle the portfolio entirely by the end of next year.

He also anticipated better service levels for borrowers and even improved recapture rates through its mortgage brokers by having the function done in house.

But it does not mean UWM will change its strategy regarding MSR package sales.

"We were not selling MSRs because we were subservicing and we're not going to hold them because we're servicing ourselves," Ishbia said. "We're going to be opportunistic, like we always have."

While having its own platform does make UWM lean towards retaining, any decision to sell is dependent on the opportunities and the pricing in the market for packages, he continued.

UWM's approach to M&A, tech

When asked about any possible mergers or acquisitions, Ishbia said while he looks at everything, UWM is "a build versus buy type of company."

This point of view applies to both production and technology.

Ishbia used the call to tease some things the company will be rolling out in the coming weeks and months that he called "game changers."

Ishbia guided to second quarter volume of $38 billion to $45 billion; if anything, he expects the company to break the $40 billion threshold in the current quarter. Gain-on-sale guidance remained in the 90 basis point to 115 basis point range.

"While the macro environment may remain choppy, we will continue investing and winning," Ishbia said. "I can promise you there is no other mortgage lender better equipped and prepared to help brokers [and] borrowers, regardless of what the market does."