Hello, LOs!
The day after United Wholesale Mortgage announced it had made $1.33 billion in profits on $54 billion in originations during the fourth quarter, its stock fell.
Why did that happen? And what does it say about the wholesale mortgage lender's ultimate goal to usurp Rocket Mortgage as the biggest residential mortgage lender in America?
Over the next few days, I gathered the company's available financials, listened to the earnings call, pored over analyst notes and interviewed President and CEO Mat Ishbia to explore how exactly UWM plans to dethrone the Detroit lender. And how big of a longshot it is.
Here are some highlights from my latest HW+ feature (if you're not already a subscriber, enter promo code "lendinglife25" to get 25% off):
✍️ Let's not understate the challenge here: According to Inside Mortgage Finance, Rocket originated about $323 million in mortgages during 2020. UWM managed about $183 million last year. Rocket is nearly twice as big! And their marketing budget alone is roughly the GDP of a small country. So why does Ishbia sound so confident that he will ultimately prevail? The answer is quite simple (that is, if you assume Rocket can't adapt to a changing market): UWM is future-proofed to win big in a purchase market, whereas Rocket's direct-to-consumer prowess isn't as effective, according to Ishbia. That would lead to big market share gains for UWM. A lot to unpack there, and we'll return to that point.
✍️ UWM is returning with two products that it left behind as COVID-19 came into focus: FHA and jumbo loans. Those products alone will account for about $16 billion in purchase revenue by the third quarter of 2021, Ishbia said.
✍️ Rocket is showing increased interest in the wholesale channel (you saw the Super Bowl, right?), which Ishbia sees as proof that the overall broker force will grow. Ishbia said Rocket's access to purchase business rests with its Rocket Pro TPO brand, and there are growth constraints. About one-third of brokers won't work with Rocket because they compete with brokers on the other side, he said. More brokers will join the channel from top non-bank lenders when refi business dries up, and beyond that, UWM will steal market share from wholesalers that aren't as tech forward, he said.
✍️ Ishbia laid out a scenario in 2024 in which the market is cut in half. By then the broker channel is 33% of the total market, and UWM is 50% of the wholesale channel, he said. In that scenario, $1.5 trillion in mortgages are originated (this thought exercise doesn't count correspondent), which gives UWM $250 billion in originations. All the while, Rocket loses market share because it's refi-heavy. "We are less cyclical than our biggest competitor, who's almost 93% refinance," he said.
✍️ So why did UWM's stock tick down after it announced a great quarter? According to Jack Micenko, an analyst at Susquehanna, it was all about those gain-on-sale margin projections in the first quarter and beyond. "The company guided to a GOS margin in a range of 200-235 bps, down from 306 bps reported in 4Q20," he said. "Across the industry, GOS margins are elevated, but many assume (including us) that they are not sustainable."
There's much, much more in the story. So give it a read!
James Kleimann
Managing Editor, HousingWire
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