UWM Holdings Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless stated otherwise. UWM originates and services residential mortgages exclusively through the wholesale broker channel. Amounts below are in U.S. dollars; financial statement figures are generally in millions.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Loan originations | $27.6 billion | $22.3 billion | Up 23.7% |
| Revenue, net | $570.0 | $161.3 | Up $408.7 million |
| Loan production income | $299.0 | $205.4 | Up 45.5%; gain margin rose to 1.08% from 0.92% |
| Loan servicing income | $184.7 | $218.6 | Down 15.5%, primarily reflecting a smaller average servicing portfolio |
| Change in MSR fair value | $(15.6) | $(337.3) | Smaller fair-value decline year over year |
| Net income (loss) | $180.5 | $(138.6) | Improved by $319.1 million |
| Net income (loss) attributable to UWM Holdings Corp. | $8.7 | $(11.9) | Reflects the parent’s approximately 6% economic ownership |
| Class A basic and diluted EPS | $0.09 | $(0.13) | Diluted share count includes assumed conversion of Class D interests in 2024 |
| Adjusted EBITDA | $101.5 | $141.0 | Down 28%; non-GAAP measure |
| Net cash from (used in) operating activities | $(2,202.7) | $1,992.9 | Mainly driven by the increase in mortgage loans at fair value |
Balance sheet and funding: At March 31, 2024, cash and cash equivalents were $605.6 million, total assets $12.80 billion, and total liabilities $10.34 billion. Mortgage loans at fair value were $7.34 billion, up from $5.45 billion at year-end 2023; MSRs were $3.19 billion, down from $4.03 billion. Warehouse borrowings were $6.68 billion, compared with $4.90 billion at year-end. Senior notes, net of issuance costs, totaled $1.99 billion; secured lines of credit were $200 million, and borrowings against investment securities were $94.1 million. Cash increased by $108.2 million during the quarter, to $605.6 million, as investing and financing inflows more than offset operating cash use.
Material changes and operating drivers
- Higher originations and gain margin lifted loan production income. Primary loss narrowed to $314.1 million from $363.4 million, while origination fees increased to $87.6 million from $51.0 million.
- Serviced unpaid principal balance fell to $229.7 billion from $299.5 billion at December 31, 2023. UWM sold MSRs on loans with approximately $87.8 billion of UPB during the quarter, for approximately $1.2 billion in proceeds, and also sold excess servicing cash flows.
- The MSR fair-value change was a net decrease of $15.6 million: a $141.1 million increase from valuation inputs and assumptions was offset by cash-flow realization, decay, sale-related reserves and transaction costs. The prior-year quarter included a $337.3 million decrease.
- Total expenses increased to $385.7 million from $300.9 million. Salaries, commissions and benefits rose 27.5%, and direct loan production costs rose 90.7%, including costs related to the 1% down-payment assistance program and higher volume. Interest expense rose to $98.7 million from $63.3 million, principally due to higher warehouse balances and rates.
- UWM sold 89% of Q1 originations to Fannie Mae, Freddie Mac or Ginnie Mae pools, compared with 97% in the prior-year quarter. Servicing was retained on 91% of originations, compared with 98%.
Liquidity, outlook, risks and contingencies
- Management identifies loan sales and securitizations, warehouse facilities, servicing revenue, interest income, and MSR or excess-servicing sales as key funding sources. It notes that delays or failures in secondary-market loan sales could adversely affect liquidity. Warehouse funding is primarily short term, generally variable-rate, and secured by mortgage loans; collateral values and margin-call requirements are relevant risks.
- UWM reported compliance at quarter-end with warehouse, MSR-facility and senior-note covenants and applicable agency requirements. The most restrictive agency requirements included minimum net worth of $668.1 million, liquidity of $305.8 million and a 6% minimum capital ratio. Management provided no specific revenue, earnings or origination guidance in the supplied filing text.
- On March 20, 2024, UWM amended its Goldman Sachs GNMA MSR facility: the amendment removed the minimum utilization fee on undrawn amounts and extended maturity to March 20, 2027. The draw period ends March 20, 2026; $100 million was outstanding at quarter-end. The separate Citi MSR facility had $100 million outstanding and matures November 5, 2024.
- Interest-rate changes affect originations, funding costs, loan and derivative values, and MSR valuations. Management describes origination activity as a natural hedge to servicing exposure and cites regular MSR sales as part of its risk management. MSR valuation relies on significant assumptions, including prepayment speeds and discount rates; disclosed sensitivities show material potential valuation effects from adverse assumption changes.
- Commitments to extend credit to potential borrowers were approximately $36.6 billion at March 31, 2024. The representations-and-warranties reserve was $68.2 million; UWM repurchased $63.7 million of loan UPB during the quarter under these obligations.
- Legal matters include an antitrust class action in which a magistrate judge recommended dismissal and plaintiffs objected; a dispute with America’s Moneyline, with motions still pending; and a new April 2024 class action alleging improper steering and pricing. UWM denies the new allegations. The filing states ordinary-course proceedings are not currently expected to have a material adverse effect, but outcomes remain uncertain.
- Related-party transactions include leases and other payments to entities connected with the founder and CEO; net payments to related companies were approximately $5.2 million in Q1 2024. SFS Corp. holds approximately 94% of Holdings LLC’s economic interest, and distributions to it are a significant cash use.
Most important facts for investors to verify
- Whether the sharp year-over-year GAAP earnings improvement is sustainable: the comparison includes a much smaller MSR fair-value decline, while Adjusted EBITDA decreased.
- How the increase in mortgage loans and warehouse borrowings converts into loan-sale proceeds and operating cash flow, and whether liquidity remains adequate under stressed market conditions.
- The valuation and sale economics of MSRs, including the effect of prepayments, interest rates, servicing costs and continued portfolio sales.
- Upcoming financing needs and renewals, particularly the Citi MSR facility maturity in November 2024 and near-term warehouse agreement expirations.
- The implications of the new class action and other legal proceedings, as well as the adequacy of representations-and-warranties reserves.
- The filing gives inconsistent timing for distributions and dividends: the subsequent-events note describes a July 11, 2024 payment and lists a June 20, 2023 record date, while MD&A says the first-quarter dividend and $150.2 million SFS Corp. distribution were paid April 11, 2024. Confirm the correct dates and amounts.