UWM Holdings Corp Q3 FY2021 Earnings Call

Good morning. My name is Chantal and I will be your conference operator today. I would like to welcome everyone to the UWM Holdings Corporation Third Quarter 2021 Earnings Conference Call. Thank you. Matt Roslin, you may begin your conference.

Good morning. I am Matt Roslin, EVP of Legal Affairs and Investor Relations. Thank you for joining us and welcome to the third quarter 2021 earnings call for UWM Holdings Corporation. Before we start, I'd like to remind everyone that the conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued this morning. Please also note that along with the earnings release we posted on our Investor website and filed the slide deck, there will be reference in our prepared remarks. I'd now turn the call over to Mat Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Thanks, Matt, and thank you everyone for joining the call today. It's great to be here after another outstanding quarter at UWM. I want to express my gratitude to everyone at UWM for their hard work. Our team and our broker clients are collaborating effectively, and we truly value our clients' loyalty as well as the continued efforts of our team members. We had another record-breaking quarter and are on track for our seventh consecutive year of origination growth. I don't think there's another lender in America that can claim we've grown every year since 2014 than UWM, alongside our second consecutive record-breaking quarter and our largest purchase quarter to date. Last quarter, I discussed the importance of purchase production as a key indicator of a lender’s health, specifically in a rising rate environment, focusing not just on the percentage but on the actual volume, which I will elaborate on shortly. Looking at the third quarter, we achieved $63 billion in production, surpassing our guidance of $57 billion to $62 billion, and marking a 6.4% increase from the previous quarter's $59.2 billion. Out of that, $26.5 billion was in purchase, another record and an increase of 10% compared to the prior quarter. We are proud to share this accomplishment, as we are the leading purchase mortgage company in America based on origination standards. Our gain margin on sale was 94 basis points, up from 81 in the second quarter and at the higher end of our guidance range of 75 to 100 basis points. This represents a 16% growth in our margin compared to the previous quarter. As I have mentioned before, UWM is not experiencing margin compression. As the top wholesale lender in the country, we control the margins, and other lenders will have to adjust to our strategies. We are completely wholesale, and while our margins remain in the mid-90s, other lenders will consistently be lower to remain competitive due to our exceptional service levels, technology, and speed of loan closing. We streamline the process, making it faster, easier, and more affordable for mortgage brokers, thereby succeeding in the wholesale channel. We are witnessing a cycle of margins transitioning from all-time highs to significant lows, and now there seems to be a normalization occurring sooner than anticipated. These margins are part of a deliberate strategy. Our retail mortgage margins are between 350 to 500 basis points, which means higher costs for consumers when they turn to retail lenders. By maintaining low wholesale margins, we are strategically developing the wholesale channel. Brokers provide consumers with lower-cost loans, applying pressure on retail lenders. We expect continued growth in this channel as loan officers shift from retail to the broker model, benefiting consumers, brokers, and UWM significantly. Our margins reflect a strategy that has been effective for years at UWM. As for net income, we recorded $329.9 million, a notable improvement from the previous quarter's $139 million. In the past quarter, I mentioned that as CEO, I focus on aspects I can control. I cannot influence interest rate fluctuations or the values of mortgage servicing rights, but we experienced a decline of $170.4 million in those fair values. When we adjust our net income by removing that impact and adding it back, we arrive at around $500 million in core earnings. This perspective differs from GAAP and highlights our successful and profitable direction for the business. Year-over-year, the quarter also looked impressive: up 16% in overall production and 119% in purchase production. More importantly, if we compare ourselves to our peers from the first to the third quarter, we note that the first and fourth quarters are typically slower in the mortgage business due to seasonal factors. While second and third quarters generally see activity rise, others experienced a downturn in those periods; however, UWM continued to grow. From the first quarter to the third quarter, we realized nearly 30% growth, while most major banks remained flat, and other top lenders declined between 10% and 25%. As rates have recently increased, we are aware that if rates continue to rise—with the tapering effects confirmed—we will determine who the strongest mortgage company in America truly is. We want to solidify our position not only as the largest but also as the best mortgage company in America. We're also adjusting our production guidance downward sequentially for the fourth quarter, yet we will still exceed first-quarter figures, which is a significant point to emphasize. I believe no one in America will conduct more business in the fourth quarter than UWM will in the first quarter of 2021. This leads us to have high expectations for 2022, as the combination of rising rates, empowered brokers within communities, and UWM’s cost-effectiveness and superior service and technology will be vital for mortgage brokers and UWM to achieve success together. We are keen to maintain market share growth in 2022, especially in purchase loans. Let's discuss purchase volumes—rather than purchase percentages—since the percentage often merely reflects a decrease in refinances. We have successfully delivered over $50 billion in purchase volume in the last two quarters, which showcases a lender’s health, particularly in terms of origination. History indicates that we thrive in a rising rate environment, where purchase volumes become pivotal. In 2018, when rates increased, we were among the few lenders that grew and remained profitable while others struggled with origination. Our continued success over the last seven years reinforces that whether rates rise or fall, UWM will prevail. With unrivaled speed, competitive rates, minimal costs, and exceptional service backed by local community-focused brokers, we present a formidable alliance. We frequently highlight our speed—having completed 15 consecutive quarters of fewer than 20 days from application to closing, while many other lenders lag at 40 to 60 days. This efficient speed and service create strong referrals for brokers, with borrowers often expressing gratitude for the promptness of our process, which benefits all involved, including consumers, brokers, loan officers, real estate agents, and the wholesale channel. Our client service continues to impress, evidenced by our year-to-date net promoter score of plus 87.1, which is outstanding within the industry. Now on to technology—historically, it has been a significant catalyst for our success, and it will remain so going forward. We've empowered mortgage brokers by providing access to technology previously exclusive to retail lenders. For instance, innovations like Brand 360 have furnished brokers with top-notch points of sale and CRM systems that position them to compete effectively against retail loan officers. In the third quarter, we escalated this innovation with groundbreaking technologies and processes that will transform UWM and benefit brokers. A major development was BOLT, alongside Appraisal Direct, which I will touch upon shortly. BOLT represents a monumental shift in the mortgage industry, and I believe it will stand unmatched for several years, if not more. It utilizes proprietary OCR and ADR technology to give broker clients certainty and answers regarding loans in just 15 to 20 minutes. Our underwriters already excel in speed without compromising quality, and BOLT elevates this further by streamlining document reviews and work processes. Considering the potential doubling of underwriting productivity in the next year, we foresee even greater advantages in a rising rate environment. BOLT is set to lead in 2022, 2023, and well beyond, offering a substantial edge over competitors. As for Appraisal Direct—though it’s technology, it represents a procedural transformation addressing a significant pain point within the mortgage industry. Our aim is to enhance the process by implementing improved technology that ensures efficient operations, compensating appraisers well while eliminating unnecessary fees, thus promoting a smooth experience for our brokers and their clients. We've introduced several other notable technologies such as The Source, showcasing our commitment to innovation and long-term industry improvement. We are enthusiastic about our advancements and will continue to elaborate on BOLT as it shapes the future of our operations in the coming years. Now, I will pass it over to our CFO, Tim Forrester, to provide more insights into our financials.

Thank you, Matt. The third quarter was successful for the company in a challenging environment. As Matt noted, our volume was a record, led by continued growth in purchase volume. The competitive environment still has margins in a lower range as compared to the record margins we saw in the third quarter of 2020. However, we experienced improved margins over the second quarter of this year, as rates fluctuated and margins improved. The increased servicing portfolio delivered significantly greater revenue this quarter as our portfolio continues to grow. We also experienced improved overall interest income, which expanded more than interest expense as we self-funded more loans where we deployed available liquidity to fund mortgage loans. On the expense side, our staffing levels moderated a bit, leading to lower overall compensation expense, especially compared to prior year levels that included some volume-driven incentives. We did incur more marketing expense in the quarter as the impact of the pandemic continued to lessen and we were able to spend more time supporting and training with our brokers. Our servicing costs increased, the trail of our revenue increases over comparable prior periods. This is an important feature both from an earnings view and also a cash flow perspective. As our servicing portfolio continues to grow, we continue to benefit from the cash flows as well as the contribution from our performance. The key is our revenue growth has outpaced our expense. The MSR portfolio is approximately $285 billion at September 30 with a weighted average interest rate of 2.95%, down from 2.97% at June 30. Our forbearance rate is roughly 83 basis points. So, we are continuing to observe better asset quality than the industry overall. As it has historically, our delinquencies remain quite low. If rates continue to increase as expected with the announced tapering plans from the Fed, our servicing book becomes further insulated from potential downward pressures on valuation loss. The WAC or weighted average coupon is already well below the market and further upward movement on rates makes it that much more attractive. Now, we saw a modest amount of MSR in the third quarter and re-established relationships with several potential investors on terms we support and believe are favorable to our relationships. While retention of MSR is our preference, we balance that position with tactical sales to ensure we have access to markets if we anticipate the need to sell more MSR and to maintain appropriate balance in our origination. To remind everyone, the pickup in sale is excluded from core earnings. In the third quarter, we continued to deliver private label securitizations and work toward aggregating potential additional offerings for the fourth quarter, diversifying our means of disposition. While our collateral is primarily agency eligible, we continue to evaluate improved execution as well as alternative sources for putting our loans into the end investors' portfolios. Our unsecured debt continues to perform well and we recently received ratings upgrades on issuances, aligning the outstanding bonds with our issuer rating. We believe these outcomes are the result of continued operational performance as well as our credit discipline. Cost per loan. Again, cost per loan was solid in the quarter. We experienced cost per loan well inside our target of 1,500, which continued our performance from prior periods while maintaining discipline on spend, as our operations continue to execute efficiently. As we continue to invest in technology and innovation, we seek to improve such cost performance. As a reminder, when we discuss cost per loan, ours is a fully loaded cost without exclusions, including all allocations on an incremental basis - it is all in. As noted in the press release, the Board again authorized a regular dividend to be paid to our public shareholders consistent with our track record over our entire history as a publicly traded company. We are comfortable with the amount and timing, and believe it is appropriate to reward our stockholders. Also, as noted in the press release, we have acquired approximately 2.7 million shares for our approved stock buyback program for roughly $21 million to date. We will continue to evaluate opportunities for buying back more stock as authorized within the parameters of the Board's approval as it represents an attractive return for us to do so. Those efforts will continue to be balanced with our desire to maintain or even establish more float for investors and maintain our profile and availability for future long-term investors. We continue to evaluate the propriety of additional debt issuances to align with our MSR growth, tempered with the balance of debt levels relative to equity and the overall size of the MSR asset. We believe we are operating prudently, but embrace potential additional debt as it allows us to grow our MSR portfolio and benefit from the positive cash flows mentioned earlier. Now, I will turn things back over to our Chairman and CEO, Mat Ishbia, for some closing remarks.

Thanks Tim, appreciate it. As you guys just heard, our third quarter was record-breaking across the board, and we're very excited about it. The big part I spoke about is purchase. Purchase volume is a leading indicator of a lender's health and the most critical proof point of whether we can make money in a rising rate environment or lower rate environment. Whether it's a $4 trillion industry or $1.5 trillion industry, it's a big difference. Refinances are easy; purchases are a lot harder; it takes more expertise, more detail and UWM shines and so do independent mortgage brokers - they make the process faster, easier and cheaper. The broker channel will grow share next year and beyond as purchases become a bigger percentage of the business and retail loan officers are going to convert over as I talked about earlier. As we look ahead, we expect to deliver between $52 billion and $60 billion in the fourth quarter of volume. That's going to be bigger than the first quarter. In the first quarter we did about $49 billion. There will be no other lender in America that can actually do more volume in the fourth quarter than they did in the first quarter - we're proud of that. I'm also guiding our margin to be between 85 and 105 basis points, which is a higher guidance than I gave 75 to 100 for the third quarter. We have seen the margin compression loosen across the board and I see that it will still be lower than the norms, but maybe not as low as we had expected or people have talked about for a while, and we see loosening up sooner. We're very excited about the fourth quarter but even more excited about 2022. UWM is laser-focused on showing all of you guys on this call that we are the elite and best mortgage company in America, just like our clients, brokers and consumers already know. We are going to one day be the number one overall mortgage company in America from a volume perspective, but we will never sacrifice loan quality and the process and the technology that we put in place to do it. So, we will not lower our FICOs. We will not do different things to become number one; we're going to stay as being the best and soon be the biggest and the best. We appreciate the partnership with all of you and we're looking forward to taking questions and I'm going to turn it back over to Matt Roslin.

Well, thank you Mat. Operator, at this time, we'll begin the Q&A session.

Your first question comes from Brock Vandervliet with UBS. Your line is open.

Mat, just circling back on your closing remarks there before the Q&A, you mentioned that margin compression was I think sooner. Could you just put some greater dialog and description around that characterization?

Yes, thanks Brock. Thanks for the question. We're seeing, and I think the last quarter I thought that maybe it would be a prolonged low margin compression, and I said from all-time highs to all-time lows and we're seeing that loosen sooner than we expected, maybe and a lot of diverse back. So, you saw our margins were strong relative to the second quarter, and at the same time I don't think they're going to get back to the normalized numbers that we've talked about in the fourth quarter to first quarter. However, the prolonged margin compression does not seem as likely from where I sit today as it did maybe 90 days ago.

And as a follow-up, it seems like for many investors who've got a bit of a pain trade going on right now with treasury rates headed down, not up. Could you talk about, as you look at that guidance you've given for the fourth quarter what would kind of put you towards the bottom and the top of those estimates? Can you kind of bookend it a little bit?

Yes, you know, it’s obviously going to depend on a couple of other factors, but the reality is where the market is right now, we feel comfortable with our guidance. At the same time, we obviously have a month and about 10 days under our belt understanding what we've done in October and where we're going to be. I think that the numbers 52 to 60, 85 to 105 seem in the right ranges. However, there are still the hardest parts predict Thanksgiving and Christmas, the slowdown, what rates do and how loans close, MSR values, a lot of different nuances that can impact it. So, I think it's good to have the full range and go as low as 85 and as high as 105 on the margin and as low as 50 to as high as 60 on the volume. I feel comfortable; we are less cyclical than the rest of the market, but the purchase market is, as I already said, the big thing to look at in first quarter, fourth quarter are usually the slower quarters for mortgage; second and third quarter are the better ones. We're going to beat our first quarter from a volume perspective and I don't think anyone else in the country will be able to say that after this quarter.

Your next question comes from the line of Steven DeLaney with JMP Securities. Your line is open.

Congrats to you and the team on another strong quarter. I was wondering - sure, I was wondering if you could comment sort of generally on the health financial condition of the broker industry and kind of just what you're hearing from your partners, the Group's coming off a couple of very strong refi years as we all know, so we're still sort of going into adjustment to the new reality. Just share with us what you're hearing from your partners and also give us maybe an update on your broker partner count and where you expect that might go over the next year?

Yes. So, thanks for the question. I appreciate it. So, we're seeing part of the strategy and part of understanding our business model is rates going up, rates going down, how do we react and how do we put ourselves in a position to win. The broker channel is growing. What we're seeing right now is when rates go up and they started to go up a couple of months ago and obviously have kind of been floundering in its low 3% range for a little while, but as they go up, the retail loan officers convert over to brokers and they actually are doing that right now. Usually, the first and fourth quarter are the best times for reps because in the second and third quarter when things are hot people aren't really moving companies as often. So, right now, we see a really good tailwind on that dynamic and so more loan officers during the broker channel are leaving the retail channel, which will then expand our pie. As I've mentioned earlier, whether it's a $4 trillion a year or $1.5 trillion a year, how is that going to impact UWM? It's not going to impact us like everybody else because a big part of that is the $1.5 trillion a year will be a lot bigger percentage broker than a $4 trillion a year because of the refinance, the service servicing and migration of retail. So, we feel really good about that. Our broker count is very strong. I don't have the exact number, but we are getting about 300 to 400 people loan officers into our office. I think it was 294, actually maybe 304 coming into our office to get trained. The broker panel, you feel the energy of more loan officers wanting to be part of the broker channel. So, I see a lot of upside across the board and our broker channel is as strong as it's been since pre-2008. We're excited to continue to grow and we're obviously the leader by a long shot in the wholesale space, and therefore we'll grow with the channel.

So, it sounds like you're saying you see the size of the wallet growing for the broker channel given the current broader environment in mortgages, and you would expect to - your share of that increasing broker size of the pie to grow as well.

Exactly.

Your next question comes from the line of Henry Coffey with Wedbush. Your line is open.

Good morning and thank you for taking my call again. Congrats on a great quarter. I think we've all learn about this channel. I did have one friend close three already, got his loan done in two weeks, so congrats on a great business.

Thank you Henry, I appreciate that.

So, getting really picky technical number one question, number one, you had a $170.5 million decline in the fair value of mortgages. How does that break down Tim between fair value marks and amortization?

I think it's a combination of, I don't think it's amortization decay, payoffs along with the write-downs on the fair value assets.

Yes, and it's difficult to determine.

Yes, and actually for the pickup in 2021, there's going to be a collection realization of cash flows. So there's the majority of it is a realization of cash flows or pay-offs, which I think it's $217 million and then there is the assumptions that the market assumption changes that happened that we have no control over, it's about $61 million that increased. That's the majority of changes. And then there are realized - we had some sales of the MSR that affected it as well. So when you look at $170 million, the majority of that is the collection, but really the collection is about a third of that 217 and two-thirds of that is the pay defaults.

And your thoughts on why speeds are sort of high still, are you actually seeing healthy levels of refinance from your internal servicing?

Yes, so Henry, no we're not, and the speeds are not high. Actually, the speeds are the lowest they've been in two years at UWM, and we're actually lower than the market right now. So, you actually seeing a big part of that is because our WAC or weighted average coupon is 2.95% and the market's right now in the 3% range. So therefore, a lot of our loans are not in the refinance in the money if you think of it that way, and we won't - we'll speed up loans always refinance of course; however, we're excited to see a slowdown in that in the fourth quarter and beyond.

And in the third quarter, you're going to see a little bit of that prepayment that I mentioned, the payment forth, that's really a lag through the quarter. So when we're looking at prepayment speeds now and we look at some of the reports that come out in the industry and really kind of this week, speeds have really declined, especially for us at a very attractive level. So, what we're reporting for the third quarter is reflective of what actually gets paid in July, August and September and not affecting the books then, which is an event that really comes from some interest rate movement from June and earlier in the year even July. Some of our portfolio that we may not have had the fortunate circumstance to be able to pull back through a broker, those things lag you. Mat mentioned the 60 days it takes for others to execute a refinance or a loan. Now if it would have gone through us, it probably would have been done in 10 to 14 days, but that's a little bit of a lag you'll see. In the third quarter, that's reflective of the July, August, and September as well.

Now, speeds appear to be getting better; you're right, that's going to be extremely helpful. I think Mat, you're probably sick and tired of answering this question, but I'm going to ask it anyway. So 2019 was a growth year, 2020 was a growth year, some people depending, I know you talk to 2021 is going to be 'an up year' that's what Inside Mortgage Finance is saying that a lot of people think their numbers are pretty aggressive, others are saying that it's going to be kind of a flat year and then everybody has a pretty negative view on 2022 down 20, down 30, I mean who knows what the final numbers are going to be. How - what is the - what are the elements that drive in that kind of market, what are the elements that drive how you UWM approaches things? How do you build we know how you build share, how do you build volume, how do you have to staff or re-staff for that kind of market? What does technology do to help you manage through that cycle? I mean it's - there's going to be some headwinds out there, how does in absolute dollar terms, how does UWM manage through those headwinds?

Yes. No. Thanks for the question Henry, happy to answer it and go through it with you and anyone that wants to talk about it. So, couple of things, the '19 and '20 years and '21, one thing I'll mention on whether it's Inside Mortgage Finance or a lot of people's numbers there is a lot of double counting in there with correspondents; they're actually not originating the loan. There is no origination being done. It's being done by a company who sells it to them. So, I think sometimes it's double counting going around which makes the numbers look really big or they're really not that big even this year, the year we're in right now. It's actually how many actually were closed; you can't close a loan twice. So, if one lender closes it and sells it to Wells Fargo or PennyMac or another correspondent, both companies are counting it, and you guys look at that as origination, but it can only be originated once. So, there's a lot of double counting, which makes the industry look bigger than it really is right now, and that's one part that kind of address your 2019-20 and even this year '21 across the board. Now, 2021 will be an all-time record year at UWM. We've already exceeded what we did last year and we still got two months left to go and so we're seeing an all-time record here at UWM by a long shot. Now, to think about next year and how do we handle headwinds, there's a couple of things. Let's talk first technology; we differentiating with technology while 1200 technology people here are building stuff from start to finish. I talked about BOLT, BOLT is a big play because it makes - it gives the brokers certainty, it gives the brokers the ability to give answers to realtors and consumers quicker, and at the same time it helps control costs to originate because our team will be able to do even more loans per day per person and so people don't understand the gravity of that technology, but you'll see that next year at this time and for sure in '23. And so going into a tougher year just think of it that way, I think that BOLT is a huge part of it, so technology is one thing. The other big one is, I kind of talked about the last question, which was about loan officers converting; as the market shrinks and those easy refinances are not in your pipeline, you start to look around and say why are other loan officers offering consumers better deals, because consumers get better deals through a broker. So those loan officers are starting to transfer over to broker shops whether they start their own or they call us and we help place them at a local mortgage broker in their area, and therefore they get better rates, they get better technology, and they're able to give better services to their clients; it's a win-win-win. But they don't really leave when they got 31 loans in the pipeline because rates are 2%, because it's hard to transfer and leave when you're not independent and that's what brokers are, retail loan officers are not. So, we're seeing that transfer. And then the third piece is purchase. I talked about it a lot in my prepared remarks, which was it's not a purchase percentage game; it's a purchase volume game, and we did over $50 billion in the last two quarters of just purchase volume. And so the real thing is there is going to be less business in 2022 than there was in 2021, we all know that, but that does not mean UWM is going to necessarily do less business. Now, what I look at is when we do less business, when we would do more; how is the market going to shake up? There’s a lot of variables. But here's what I do know and you can mark this down and you can hold me accountable next year. Our market share will go up drastically; we will do more business in the broker channel overall, the broker channel will do more business, but UWM will do more business as a market share percentage than other companies next year. And that's because everyone else who's living on this servicing book, churn, and burn, the refi - those guys - their day comes to an end eventually when your WAC or weighted average coupon is lower than the rates in the market. There's only so much refinancing left out there in those situations. Now, I could be wrong and rates go to 2%, everyone's had a heck of a year again, but if rates go to 3.5%, you're going to really see where people are and that's where we're going to shine and so we're excited. Converting retail loan officers, the technology differentiator, which helps on cost to originate and making the process faster and easier, and in the purchase market, those all things are going to be huge parts of 2022 and beyond.

And just one last question. In the broker channel, are there whole new subchannels opening up or is it more just you win one person at a time and people a day, whatever the pace is instead of one at a time sort of thing or are there new subchannels opening up that you can explore?

Well, hopefully by the next call, I'll be able to share with you. First off, it's usually you're talking to one person, however, we're talking to a person who is leaving and I won't mention the company or the names that people are obviously leaving and he runs a large branch of 18 loan officers; the whole branch is coming over to the broker channel, he's starting his own and all 18 of those will come with him, right. So those examples are not - I'm talking to one or not but our team is talking to one but it's 18 coming with him. And same thing, is one loan officer that's just leaving and wants to get placed; this is the catalyst. Once they join our broker shop, they call their friends that used to be at the retail shop and obviously I won't name names, and then they all start migrating over. You're going to see a lot of it, and I'm going to get more colorful data for you guys to see it, and I'd love to get you to talk to certain loan officers and see that, but this is not just a trend. This is what's going to be going forward, as I've said before, it's better for a loan officer to work at an independent mortgage broker shop and it's better for consumers to go to independent mortgage brokers; that channel is going to grow and we will grow with it.

Your next question comes from the line of Bose George. Your line is open.

Good morning. I just wanted to go back to the purchase market information. I mean your share looks like it went up pretty meaningfully. Just can you talk about strategies for doing that? Are you attracting brokers who do more purchase? Are you helping your brokers do more? Yes, just any color on the impressive growth in this quarter?

Well, thank you for the question and the comment. I appreciate both. So, it’s a combination of a lot of things. One is how do we help our current loyalists, our current brokers that do lots of loans with us, every single one, how do we help them get in with real estate shops? How do we help them get in with more purchase business? And so, their strategies - we actually did a webinar a couple of days ago and I told them, one of the best loan officers, they're actually two great loan officers in the country and talked about purchase strategies, how do you build your business with the real. So, we're coaching our current loyalists right, then we're helping convert retail loan officers, as I talked about enough already on this and I won't continue that, but those guys are coming over, and this is a bigger piece of the pie. More opportunity. But the last piece, which I think is very critical, is real estate agents know it; they know how long it takes to close when they go through a large retailer or large bank and what they're doing is they're finding local brokers and brokers are closing on 15, 18, 28, getting that real estate agent paid on time. Certainty is a big deal for real estate agents. If you were a real estate agent, who would you refer your clients to? Someone that you knew had options, a broker and someone that you knew could get it done for you so that people are in the house because nobody wants the mortgage; they want the house. Brokers are able to deliver that. Real estate agents' sentiment is shifting and they find a great broker and they say, wow, I can really close this thing in 18, 28 days; my borrower can offer a 20-day offer in a 45-day offer; that changes the game, especially in a great purchase market. All those things have added up and we're doing a lot of things and those are just things publicly I can share, but there's a lot of new show, a lot of details in order to make these things happen and that's why we had another record purchase quarter.

And just switching over to the MSR sale; just going forward, is that just going to be periodic to keep your market access or is there any level of MSR that you target versus originations or have been in some other way that you kind of look at that?

Yes. So, we're looking at things and we've always been opportunistic, right. And so the services and sales we've done, when we make the sales they’re being sold for slightly higher than we have on our book value, and so we look at that as an opportunistic way. However, we're always protecting the broker channel. Therefore what do we put non-solicits on or different things to make sure that those loans aren't solicited, and we always protect our clients. So, it's opportunistic; we like the servicing assets because we're creating the best servicing book in the country. As you guys saw the lowest delinquency rates, we've got a great cash flow, and at the same time, we feel really good about the asset with WAC, the weighted average coupon being 2.95%. So, in the credit score, old process, we feel really good about it. But if someone wants to come and offer us a bundle of cash or something that we have an asset, and we can take advantage of that opportunity and continue to invest that into our technology and into our broker channel, we’ll do that as well. So, I'd basically just call it opportunistic and continue going forward that. We're getting a lot of knocks on the door on it because we have such a great quality book and people know that.

And those rather, net out of sales you saw that the total book increased that as it has every quarter since COVID started.

Yes. And actually one follow-up just on the sale. So, the non-solicit, so you can essentially prevent them from recapturing your loans with those agreements?

That's correct; you’ve got to have - for 36 months is the standard. We do, and so if you hold it for a year and 36 more months it's great; a lot of protection for our clients and at the same time a good cash flow for the new investor new servicer.

Okay, great, thanks a lot.

With the key being protecting our clients.

Your next question comes from the line of Doug Harter with Credit Suisse. Your line is open.

Thanks. Mat, you've talked a lot about technology like BOLT. Can you just give us a sense as to where you think the cost of originates can go over the next one to two years?

Yes. Thanks Doug. So, obviously, cost of originates is very, very low. It just depends on how you look at it. As Tim pointed out in our remarks, ours is the fully loaded cost; now, I’ll talk about numbers, and it's not – at times that comparing apples to oranges to bananas, it's not really the same. So, we feel really good about our - we have a fully loaded cost, you put all the numbers in there and so being south of 1500 is fantastic, and can we drive that even further? It's possible, absolutely, and how do we do that? But as you think about it, we're not looking at bits, we're looking at dollars; to the cost dollars, it doesn't cost dips to do things. And so, we're looking at that and how do we continue to drive that number down and BOLT is a great catalyst for that along with a handful of other things that probably are too much in the details or the weeds to get into on this call or in general. But we're really focused on that number because when the time comes and time goes out how we want to think of it, things change in and you have to know who you are and how much it costs to actually manufacture a loan. We're very process-focused and technology-focused here and that's what's given us a huge leg up.

And then just, as you think about the impact of home price appreciation and the higher loan limits that are said to be announced in the not too distant future, how does that impact your business?

Well, it impacts it positively, right. And so the higher the loan sizes, obviously the opportunity to continue to grow our volume and grow our business is there. And so, once again, that's I would talk about cost of originates in dollars because a lot of people will tell you, oh well our bids, our cost originated business went down; that's because your average loan size went up. That's not really the thing; your cost went down. And so, we're tracking dollars per closing and making sure. Now, we pre-hunted; we know that I think it's November 30 is when FHFA will announce the firm numbers of what the new loan sizes are; we actually came out with the numbers at 625. So, we're already seeing a little bit of a pickup from that. We think that number will come in higher than that, maybe closer to 640, 645 even for the new loan size, which is a massive improvement from the 548 that it was this year in the conforming loan limits. That opportunity is good; you'll probably see a little spike in our Q4 assets because we hold those loans and sell those loans on January 1, 2, and 3 because there's an opportunity. It’s a great way to do a lot of business and help the broker channel continue to advance. So, the loan size thing will be a positive move for UWM and for brokers and for consumers across America.

Your next question comes from the line of Ryan Nash with Goldman Sachs. Your line is open.

Mat, can I maybe ask a question on capital allocation. So, I'm just trying to think through the tradeoff between buying back stock, paying a dividend, and then also selling MSRs given margins are still running below what you would consider normalized levels; obviously clearly in certain respect to preserve liquidity? And related to that, Tim you mentioned willingness to maybe take on some additional MSR debt. Can you maybe just talk about where you're going to take leverage deal for the company in order to provide some balance sheet flexibility? And I have a follow-up, thanks.

Yes, I think the balance of the three, as I mentioned earlier, is buying back shares. There's a potential for flow, but specific to the debt we realized that the debt here - the assets that most people look to, and again it's an unencumbered asset, the MSR; the asset that most people look to are loosely associated with the unsecured debt issuances, the MSR. The MSRs continued to grow fairly substantially in the last three months, even with the modest sale that we're-as Matt mentioned and we talked about was really a test of the market reestablishing some relationships. As we continue to grow that asset, it has value and we think it's supportive on a direct asset linkage to the debt, but also from a leverage standpoint. We’re going to continue to stay within our leverage comfort zone, not getting outside of 0.75 of non-funding debt; could we get up to 1? Sure, we can get up to that side, but we're going to continue to be very prudent with how we issue debt and how we look at it relative to our equity but also relative to the size of the asset. There is some interest in that, and we may explore that opportunity similar to other opportunities to balance outflows as well as the attractiveness of the stock right now at its current price. I mean in that regard, we went from $660 million of book value or equity value at January 1, 2020 to closing the quarter at $3 billion. So, notwithstanding the dividend, notwithstanding the buybacks, the equity has been going up pretty materially and our non-funding debt to equity is in a very healthy range.

And maybe a big picture and specific question for you. I mean it seems like your desired outcome for the all-in initiative is working as you're seeing really, really strong production here, and you alluded to the fact that pricing is loosening a bit. So, can you maybe just talk about what's driving that? Are you guys actually increasing price? And then, second I think a couple of quarters ago, you said that you thought that this would have lasted longer than 18 months, now you're saying you don't think it's going to be as prolonged. What is it that you're looking to see along the way in terms of broker migration to the channel that will allow you to change your pricing strategy a bit? And then just lastly, can you just remind that once you achieve the desired outcomes, where would you expect margins to rapidly level off for the company? Thanks for taking all my questions.

Thanks Ryan. So I appreciate it. A couple of things; the big thing that I tried to mention earlier in my remarks was understanding what margins we’ll be doing and how we look at them and how obviously we control; we're not a victim of the margins we make. We set the margins others will react to those numbers. Wholesale mortgage brokers having better rates than retail is not only a UWM strategy, it's a business development strategy. It's growing our pie, it's growing the channel putting immense pressure on these retail channels, which is helping drive loan officers to our channel. The way we think about it is, you know, people ask me all the time, Ryan; hey, you're going to grow the broker channel Mat, what's the strategy and how you going to do that? Well, I can do a lot of TV ads and I can do a lot of Google thing searches and a lot of different things to drive business. Every time I convert a consumer, Ryan Nash could become - to do alone with the broker that's one loan; most consumers do a loan every four years; that means that's one loan every four years I got by spending money on a TV commercial, okay? Well, same thing - so you focus on consumer and that's what you get. You focus on real estate, as I kind of alluded to earlier, and you get a nice pickup because I have a real estate agent; not just call two loans per month; while over four years, a real estate agent we convert a seminar refer to a broker ABC mortgage broker that's two loans a month or 96 loans in a four-year period; that's 96 times more valuable that compared to real estate agent to understand that broker can actually close loans faster and easier. If you’re a real estate agent who would you refer your clients to? Someone that you knew had options, a broker, someone that you knew could get it done for you so that people are in the house because nobody wants the mortgage, they want the house. Brokers are able to deliver that. All those things are going to be a huge part of 2022 and beyond.

Your next question comes from the line of Sandy Beatty with Morgan Stanley. Your line is open.

This is actually Blake and I'm speaking on behalf of James Faucette. Thanks for taking my questions. So, in terms of the competitive advantage of your platform, you mentioned that speed to close is a big factor. Are there any theories as to why there is such a big gap relative to the competition and how long do you can sustain before competitors catch up?

Yes, thanks for the question. Appreciate it. It's not even a theory, it's just the facts are in the technology, right. So, 1200 people building proprietary technology and none out there using 88 vendors, cobbling it all together to try to do loans. We've invested in our technology for years and years; I think billions, with a B, ahead of our consumer competition on the technology. So people can market and say, well I’ve got great technology; my technology is great. Here’s the difference: it's how do you know your technology is great? It's just a feel unless you actually can prove it, and so the proof is in the pudding which is origination, cost origination, and cost - on our cost and then speed to close. Look at those two numbers, you'll find who's got the best technology, who doesn't, and also we have no channel conflict. Remember, I'm building technology for one line of business, the best wholesale mortgage lender in America, period. I'm not trying to build a three-way wholesale and then direct to consumer and I've got the correspondent channel, then I got to figure out the retail branching model. We’re building it with singular focus and dominance in mind. That’s what we're doing and that's why we're able to be faster than everybody else. That’s why our technology is better. Once again, it's not me saying it. If you actually look at the proof, which is how much of the cost to originate a loan, that's a technology number. And then how much, now fast would it take you to close the loan; technology number. If those two data points are final, who built their own technology, who is winning, and who is just kind of keeping up while the times are good in the market.

Thanks for that. And can you talk a little bit about how you balance headcount growth against technology? Is there an ideal spot here and is that impacted by the lower by mortgage origination volumes?

Yes, so we track all the things tied to team members, technology, but the reality is we got to look at making sure that our operations team is always able to handle the volume that our sales team can bring in, and that's why we had a lead client service; we hope our brokers grow. Everytime we make a broker look like a superstar, to Jenny Smith in Minnesota, and Jenny Smith refers clients to that broker along with the real estate agent referring more clients. So we want to make sure our brokers look like superstars all the time, given that wow client experience, and we continue to do that. With team members and technology and headcount, the way we look at it is making sure that we are always able to handle the volume and at the same time handle growth too. We don't think the volumes are going to shrink in the broker channel as much as they're going to shrink in the direct-to-consumer channel, which is all refinance or on the retail branching where a lot of loans are going to migrate over. We feel like we're in a really good position with our team member count right now, and at the same time the ability to win and do more with our team members, which ties to both, as I mentioned earlier. Thanks for all the questions everybody. We appreciate it. I'm going to turn it over to the operator.

That will wrap up the Q&A portion. I would like to turn the call back over to Mat Ishbia for closing remarks.

Great, well thank you guys all. I will leave with this. We appreciate the questions; we're happy to - Matt Roslin our EVP of Investor Relations is always happy to connect with anybody. We feel really good about what happened in the third quarter and we're very excited about the fourth quarter and even more excited about 2022. We've said that we're a purchase dominant lender and we're going to continue to do that, as the broker channel grows and we continue to dominate on purchase. We're excited about the future and excited about putting into position that UWM's in, which I think is as strong as we've been in a long, long time, and we're excited for you guys just yet for hopefully quarters and quarters to come. Thank you for the time and we'll look forward to talking to you next quarter.

This concludes today's conference call. You may now disconnect.