UWM Holdings Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. UWM originates and services residential mortgage loans exclusively through the wholesale channel. It reported as the largest U.S. wholesale mortgage lender and said it had approximately 35% of that channel in Q1 2022, based on the latest cited industry data.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Loan origination volume | $29.9bn | $59.2bn | $68.7bn | $108.3bn |
| Net revenue | $564.2m | $484.7m | $1,386.0m | $1,674.5m |
| Net income | $215.4m | $138.7m | $668.7m | $998.7m |
| Net income attributable to UWM Holdings Corp. | $8.4m | $8.3m | $30.3m | $56.2m |
| Adjusted EBITDA (non-GAAP) | $95.0m | $209.7m | $223.4m | $921.1m |
| Class A basic / diluted EPS | $0.09 / $0.09 | $0.08 / $0.07 | $0.33 / $0.32 | $0.55 / $0.39 |
Q2 revenue and net income rose year over year, while six-month revenue, net income, and Adjusted EBITDA declined. The Q2 revenue increase included a $245.3m year-over-year swing in MSR fair-value changes, from a $219.1m decline to a $26.2m increase. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results or operating cash flow.
Revenue, costs, and operating trends
- Q2 loan production income fell 38.1% to $296.5m as originations halved; six-month production income fell 56.2% to $680.4m. Management cited rising interest rates and greater competition. Q2 gain margin improved to 99 basis points from 81 basis points; the six-month margin was 99 basis points versus 143 basis points.
- Servicing income increased 23.6% in Q2 to $179.5m and 40.5% for the six months to $378.1m, principally due to a larger average servicing portfolio. Serviced loan UPB was $308.1bn at quarter-end, down from $319.8bn at year-end 2021.
- Q2 expenses were $348.0m, up 1.0%; six-month expenses were $712.5m, up 7.7%. Lower salaries and interest expense partly offset higher servicing costs, direct production costs, and marketing spending. Servicing costs more than doubled for the six-month period.
- MSR fair value was $3.74bn at June 30, up from $3.31bn at year-end. During the first half, UWM sold MSRs on approximately $72.7bn of UPB for approximately $871.7m in proceeds and recorded $38.0m of related estimated protection obligations and transaction costs.
Cash flow, debt, and liquidity
- Cash and cash equivalents were $958.7m at June 30, versus $731.1m at December 31, 2021. Total assets were $11.02bn, down from $22.53bn, primarily alongside much lower mortgage loans held at fair value.
- First-half operating cash flow was $11.36bn, compared with cash used of $4.35bn a year earlier. This large swing was principally working-capital driven: mortgage loans at fair value declined by $12.14bn in the cash-flow reconciliation. It should not be read as recurring earnings or free cash flow.
- Investing activities provided $802.6m, largely reflecting MSR sale proceeds. Financing activities used $11.94bn, mainly reflecting a net $11.46bn reduction in warehouse borrowings. Warehouse lines outstanding were $4.50bn at quarter-end, compared with $15.95bn at year-end.
- Senior notes had $2.00bn face value and $1.98bn carrying value, with maturities in 2025, 2027, and 2029 and stated coupons of 5.50%–5.75%. Borrowings against retained investment securities were $118.8m. UWM reported compliance with warehouse, note, and regulatory net-worth and liquidity covenants at June 30.
- UWM stated the most restrictive agency and regulatory requirements included minimum net worth of $772.7m, liquidity of $100.1m, and a 6% minimum capital ratio; it was in compliance. Warehouse facilities are primarily short-term and largely uncommitted: the filing says $401.0m of line amounts were committed.
Outlook, risks, and notable items
- The filing provides no specific earnings, origination, or margin guidance. Management described a challenging market shaped by rising rates and competition, which reduced production volume; servicing income and MSR valuations benefited in part from higher rates.
- Key exposures include mortgage-market and interest-rate volatility, MSR valuation assumptions, reliance on secondary-market loan sales and warehouse funding, potential collateral margin calls, counterparty and refinancing risk, and changes to agency requirements. MSR valuations are particularly assumption-sensitive; the filing illustrates substantial potential value declines under adverse changes in discount rates, prepayment speeds, or servicing costs.
- At June 30, UWM had agreed to extend approximately $25.3bn of credit to prospective borrowers, an off-balance-sheet commitment. First-half loan repurchases related to representations and warranties totaled $188.6m UPB; the reserve was $70.1m at quarter-end.
- Subsequent to quarter-end, UWM agreed to sell MSRs on approximately $28.5bn UPB for approximately $359m. The board declared a $0.10-per-share dividend and approved a $150.2m distribution to SFS Corp., both payable October 10, 2022.
- On August 8, 2022, UWM entered into a $500m unsecured revolving facility with SFS Corp., its controlling related party, initially maturing August 8, 2023. Availability is subject to covenants and the agreement restricts certain debt, distributions, affiliate transactions, and other actions.
- SFS Corp. held approximately 94.2% of Holdings LLC’s economic units; UWM Holdings reported only approximately 5.8% economic ownership, while SFS Corp. controlled approximately 79% of combined voting power. Related-party arrangements include leases and other services.
- The filing describes ordinary-course legal and regulatory matters, including broker class-action and antitrust claims; management said resolution was not then expected to materially adversely affect financial position, performance, or cash flows. The antitrust magistrate recommended dismissal without prejudice, subject to the plaintiff’s opportunity to amend. A former-employee overtime case was settled for an immaterial amount.
Important facts for investors to verify
- Whether origination volumes and gain margins stabilize as rates, competition, and housing demand evolve.
- How much reported earnings and cash flow depend on MSR valuation changes, MSR sales, and mortgage-loan inventory movements.
- Current committed versus uncommitted warehouse capacity, upcoming facility renewals, and sensitivity to margin calls or loan-sale delays.
- The terms, usage, related-party implications, and covenant headroom of the new $500m revolving facility.
- Developments in broker litigation, loan repurchase claims, MSR-sale protection obligations, and the $25.3bn of borrower commitments.
- The effects of the controlling shareholder’s ownership, related-party transactions, distributions, and the difference between consolidated net income and the much smaller amount attributable to UWM Holdings Corp.