United Wholesale Mortgage Sees Erosion of Profit Margins Firming Up

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The nation’s largest wholesale mortgage lender released its fourth quarter and full 2021 results, revealing it generated a record $226.5 billion in mortgages last year, up from 24% from 2020. But net income was down 54% to $1.57 billion.

The nation’s largest wholesale mortgage lender, United Wholesale Mortgage, said its decision to roll out higher conforming loan limits last fall ahead of an official government announcement slashing already thin profit margins.

Ultimately, however, the move was a boon for UWM’s customers, which ultimately paid off for the company as well, according to fourth quarter and full 2021 results released Tuesday.

UWM created a record $226.5 billion in mortgages last year, up 24% from 2020. But net income fell 54% to $1.57 billion, the margin of total gain having gone from 2.49% in 2020 to 1.14% in 2021.

It’s a story most mortgage lenders know well, as rising interest rates force the industry to shift from refinancing existing loans to funding more laborious and less profitable purchase loans.

As a wholesale lender that funds loans arranged by mortgage brokers, UWM argued it is better positioned to adapt, thanks to brokers’ relationships with real estate agents and homebuyers in their local market. UWM is also investing in technology, which it says gives mortgage brokers an edge in winning business from homebuyers.

UWM mortgage originations by type

Source: Data from UWM regulatory filings compiled by Inman.

The numbers appear to support UWM’s case that it is adjusting to the new lending environment. In the fourth quarter, purchase loans accounted for 44% of UWM’s $55.2 billion in loan production, up from 22% a year ago.

But even though total loan production for the quarter also rose slightly from a year ago, fourth-quarter profits fell 82% from 2020 to $239.8 million. With purchase loans representing a larger share of UWM’s business, total profit margin fell to 0.80% from 3.05% in the same quarter a year ago.

Another factor was UWM’s September 30 decision to treat mortgages with balances up to $625,000 as conforming loans eligible for purchase by Fannie Mae and Freddie Mac – more than $75,000 above the 2021 conforming loan limit of $548,250 in most markets.

The conforming loan limit is adjusted each year if house prices increase. On November 30, the federal regulator of Fannie and Freddie announced a record 18% increase in the conforming loan limit – to $647,200 in most of the country and nearly $1 million in housing markets in high price.

But UWM and other lenders that jumped on the official announcement had to keep higher balance loans above the 2021 conforming loan limit on their books until the increase takes effect Jan. 1.

Tim Forrest

“We sold about $5.8 billion more in loans in the first week of January than we started, and about $9.5 billion more for the month,” the chief financial officer said. of UWM, Tim Forrester, on a call with investment analysts.

The hedging costs of holding the loans “have further squeezed margins in an already competitive environment,” Forrester said. But at the end of the day, “the economy made sense for us to hold the loans. It just shows up in different line items. »

In a statement accompanying UWM’s earnings release, CEO Mat Ishbia said the Pontiac, Michigan-based lender had the ability to keep the loans on its books thanks to its decision to go public during a merger in September 2020 with a special purpose acquisition company (SPAC).

Mat Ichbia

Mat Ichbia

“Our decision to temporarily increase our assets and use our cash in the fourth quarter is a great example of the benefits of being a public company and having a lot more cash, equity and liquidity than we don’t. ‘ve had for most of our history,” Ishbia said in a statement. “Being able to opportunistically deploy higher compliant loan limits early on was a strategic move that provided borrowers and brokers with a financing option they wouldn’t otherwise have had. This is another example of the partnership and value that UWM offers independent mortgage brokers.

UWM said it expects to originate between $33 billion and $42 billion in loans during the first quarter of 2022, with an expected profit margin of between 0.75 and 0.85%.

“With some of the lowest margins we’ve seen in a quarter, we still remained very, very profitable,” Ishbia told investment analysts. While Ishbia said he believes “margin numbers are near the bottom,” the business “will be very profitable at these numbers and will remain so even if lower.”

Shares of UWM, which over the past 12 months have traded for as low as $3.93 and as high as $12.45, gained 6.45% on Tuesday, closing at $4.62.

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