UWM Holdings Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. UWM originates and services residential mortgages exclusively through the wholesale channel. The filing describes it as the largest U.S. wholesale mortgage lender, with approximately 33% channel market share for the first half of 2022.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Originations | $33.5bn | $63.0bn | $102.2bn | $171.3bn |
| Revenue, net | $684.2m | $690.3m | $2,070.2m | $2,364.8m |
| Net income, consolidated | $325.6m | $329.9m | $994.3m | $1,328.6m |
| Net income attributable to UWM Holdings Corp. | $11.7m | $25.2m | $42.0m | $81.5m |
| Adjusted EBITDA (non-GAAP) | $(1.4)m | $290.4m | $222.0m | $1,211.5m |
| Operating cash flow | Not presented by quarter | $10,812.8m | $(3,753.9)m |
Q3 loan production income fell 70.8% to $172.4m, primarily as originations contracted and gain margin declined to 52 basis points from 94 basis points. Nine-month gain margin was 83 basis points versus 125 basis points. Management attributed weaker production to higher interest rates and lower refinancing volume, as well as a pricing initiative intended to support wholesale-channel growth and market share. Servicing income rose 12.6% in Q3 and 29.5% for the nine months, supported by a larger average servicing portfolio.
Q3 MSR fair-value income was $236.8m, compared with a $170.5m loss a year earlier; the nine-month change was $434.9m of income versus a $448.8m loss. Higher rates increased MSR valuations, but these marks are assumption-sensitive and largely non-cash. UWM sold MSRs on approximately $101.3bn of loan UPB in the first nine months, receiving about $1.2bn. Consolidated Q3 net income was nearly flat year over year, but the parent-attributable portion declined; approximately 94% of Holdings LLC’s economics are held by SFS Corp. as non-controlling interest.
At September 30, cash and cash equivalents were $799.5m. Total assets were $11.89bn and total liabilities $8.50bn. Warehouse borrowings were $4.71bn, down from $15.95bn at year-end 2021, alongside a substantial reduction in mortgage loans held at fair value. Senior notes had $2.0bn principal outstanding (carrying amount $1.98bn); borrowings against investment securities were $114.9m. Operating cash flow benefited principally from the reduction in mortgage loans at fair value, while financing cash flow reflected $11.24bn of net warehouse repayments. These cash-flow movements are heavily affected by mortgage-loan funding and sale timing.
Total expenses were $353.8m in Q3, down 0.9%; nine-month expenses rose 4.7% to $1.07bn. Lower compensation and warehouse interest costs were partly offset by higher servicing, general and administrative, and marketing costs. The filing does not provide a formal earnings or full-year financial guidance range.
Liquidity, outlook, risks and notable items
- UWM reported compliance with warehouse, senior-note, MSR-facility, revolving-credit and agency requirements at quarter-end. The most restrictive agency thresholds included minimum net worth of $767.5m, liquidity of $99.5m and a 6% capital ratio.
- New financing capacity included an uncommitted MSR facility of up to $1.5bn and a $500m unsecured revolving facility from SFS Corp.; neither had a balance outstanding at September 30. UWM subsequently drew $500m from the MSR facility.
- Management said early adoption of higher conforming loan limits—raised to $715,000 effective September 7—would increase loans held and warehouse borrowings through the rest of 2022, with balances expected to normalize after loans are sold to the GSEs in early 2023.
- Key exposures include interest-rate and refinancing trends, MSR valuation assumptions and prepayments, warehouse funding availability and collateral margin calls, loan-sale execution, counterparty risk, agency/GSE rules, and representations-and-warranties repurchase obligations. The company had $20.5bn of commitments to originate loans at September 30. Loan repurchases under representations and warranties totaled $279.9m UPB in the first nine months; the related reserve was $70.4m.
- The board declared a $0.10-per-share Class A dividend and a $150.2m proportional distribution to SFS Corp., paid October 7. A subsequent dividend of $0.10 per share and another $150.2m SFS Corp. distribution were approved for payment January 10, 2023.
- One broker-fee class action was dismissed with prejudice in October 2022. A separate antitrust class action remained pending, as did UWM’s motion to dismiss counterclaims in litigation with former client America’s Moneyline. Management did not expect the described matters to have a material adverse effect, but outcomes remain uncertain.
Most important facts for investors to verify
- Whether originations and gain margins stabilize as mortgage rates, refinance demand and the company’s pricing strategy evolve.
- How much reported earnings depend on non-cash MSR valuation gains, and whether MSR assumptions and sensitivity disclosures remain appropriate.
- Whether warehouse capacity, collateral values and liquidity remain adequate as conforming-loan-limit timing increases balances; confirm the post-quarter $500m MSR-facility draw and subsequent loan sales.
- Whether servicing portfolio growth and MSR sales generate sustainable cash flows, and how repurchase claims and the $70.4m reserve develop.
- The cash and covenant impact of shareholder dividends and SFS Corp. distributions, and developments in the pending litigation and regulatory matters.