UWM Holdings Corp annual report, FY2023

UWM Holdings Corp. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter earnings report; the supplied filing text does not provide a clear standalone Q4 financial result.

Business context

UWM is a U.S. residential mortgage originator and servicer operating exclusively through the wholesale channel, partnering with independent mortgage brokers. It focuses mainly on conforming and government-backed loans and retains servicing rights on most loans it sells. In 2023, 93% of originations were sold to Fannie Mae or Freddie Mac, or transferred to Ginnie Mae pools.

Financial and operating performance

Metric	2023	2022
Loan originations	$108.3 billion	$127.3 billion
Total revenue, net	$1.31 billion	$2.37 billion
Net income (loss), consolidated	$(69.8) million	$931.9 million
Net income (loss) attributable to UWM Holdings Corp.	$(13.2) million	$41.7 million
Adjusted EBITDA, non-GAAP	$478.3 million	$282.4 million
Net cash from operating activities	$165.2 million	$8.27 billion
Cash and cash equivalents at year-end	$497.5 million	$704.9 million

Loan production income increased 1.9% to $1.00 billion; gain margin rose to 92 basis points from 77 basis points. Management attributed the improvement primarily to pricing initiatives, partly offset by lower production.
Loan servicing income rose 3.4% to $818.7 million. Servicing costs fell 20.6% to $131.8 million.
The change in MSR fair value was a loss of $854.1 million, versus a gain of $284.1 million in 2022. The 2023 reduction included $330.0 million from valuation inputs and assumptions, mainly market interest rates, and $484.8 million from cash-flow realization, decay and other items.
Total revenue fell approximately 44.7%, while consolidated net income swung to a loss. Adjusted EBITDA increased, but it is a non-GAAP measure and excludes certain items, including MSR valuation changes.
Net interest income, defined as interest income less interest expense on funding facilities, increased 41% to $198.5 million. Total interest expense was $320.3 million.
Year-end total assets were $11.87 billion and total liabilities were $9.40 billion. Mortgage loans at fair value were $5.45 billion and MSRs were $4.03 billion.

Debt, liquidity and capital

Year-end warehouse borrowings were $4.90 billion, compared with $6.44 billion a year earlier; only $750 million of warehouse facility amounts were committed, and most facilities were uncommitted.
Senior notes had $2.0 billion aggregate principal outstanding: $800 million due 2025 at 5.50%, $500 million due 2027 at 5.75%, and $700 million due 2029 at 5.50%. The balance-sheet carrying value was $1.99 billion.
Other year-end borrowings included $750 million under MSR facilities, $93.8 million against investment securities, and no amounts under the $500 million revolving facility with SFS Corp. The MSR facility borrowings are reported within secured lines of credit.
UWM reported compliance with its financing covenants and agency minimum requirements at year-end. The most restrictive agency requirements included minimum net worth of $853.1 million, liquidity of $352.4 million and a capital ratio of 6%.
Investing cash inflows included $1.84 billion of net proceeds from sales of MSRs. In 2023, the company also received approximately $588.6 million from selling excess servicing cash flows. Financing activities used $2.20 billion of cash, including $600.8 million of distributions to SFS Corp.
The company declared a $0.10-per-share Class A dividend for the fourth quarter of 2023 and approved a proportional $150.2 million distribution to SFS Corp.; both were paid in January 2024. A further $0.10-per-share dividend and $150.2 million proportional distribution were declared after year-end.

Changes, outlook and notable matters

Originations declined 14.9% year over year. Purchase volume increased to $93.9 billion from $90.8 billion, while refinance volume fell to $14.4 billion from $36.5 billion. Higher mortgage rates were cited as a key factor.
The servicing portfolio was $299.5 billion at year-end, down from $312.5 billion. Loans at least 60 days delinquent were 1.15% of the portfolio, versus 0.85% a year earlier; 0.18% of serviced loans were in forbearance.
UWM sold MSRs on loans with approximately $99.2 billion of unpaid principal balance in 2023. Subsequent to year-end, it reported sales of excess servicing cash flows for approximately $150.9 million and MSRs for approximately $941.2 million in gross proceeds.
The filing provides no formal numerical earnings or origination guidance. Management describes a strategy centered on wholesale-channel growth, broker relationships, technology, purchase lending and operational efficiency. Its reported average application-to-clear-to-close time was 17 business days in 2023.
Key risks include sensitivity to interest rates and housing activity; dependence on short-term, largely uncommitted warehouse funding and secondary-market buyers; MSR valuation volatility; servicing advances; and regulatory, counterparty, broker-conduct and cybersecurity risks. Senior notes mature beginning in 2025.
A sub-servicer, Mr. Cooper, reported unauthorized system access between October 30 and November 1, 2023, with files containing personal information of virtually all borrowers in its systems, including borrowers whose loans UWM originated or serviced. The filing does not quantify any resulting UWM loss.
In the Okavage antitrust case, a magistrate judge recommended dismissal of the supplemental complaint in February 2024; plaintiffs filed objections, so the matter remained pending as of the filing. UWM also reported litigation with former client America’s Moneyline, including a pending motion to dismiss an amended counterclaim. The company stated that resolution of its legal matters was not then expected to have a material adverse effect.
The company recorded a $62.9 million reserve for representations-and-warranties obligations. It repurchased $259.0 million of loan unpaid principal balance under those obligations during 2023; actual obligations could exceed the reserve.
Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. MSR valuation was identified as a critical audit matter because of significant, less-observable assumptions.

Important facts for investors to verify

Whether mortgage origination volumes and gain margins can hold up if rates remain elevated or competition intensifies.
How sensitive reported earnings, tangible liquidity and borrowing capacity are to further MSR valuation changes and collateral margin calls.
The renewal and availability terms of warehouse facilities, most of which are uncommitted, and the company’s capacity to refinance or repay the $800 million 2025 notes.
Developments in the Mr. Cooper cybersecurity incident, including notifications, potential liabilities and effects on servicing operations.
Outcomes and potential costs of the Okavage and America’s Moneyline litigation, plus changes in the $62.9 million repurchase and indemnification reserve.
Cash requirements for distributions to SFS Corp., the tax receivable agreement, dividends and related-party leases; SFS Corp. held approximately 94% of Holdings LLC’s economic units at year-end.
How to interpret consolidated results alongside UWM Holdings Corp.’s approximately 5.87% ownership of Holdings LLC and the substantial non-controlling interest.