Good morning. My name is Regina and I will be your conference operator today. I would like to welcome everyone to the UWM Holdings Corporation Fourth Quarter 2023 and Full Year 2023 Earnings Conference Call. Thank you. Blake Kolo, you may begin your conference.

Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us and welcome to the fourth quarter and full year 2023 UWM Holdings Corporation’s earnings call. Before we start, I would like to remind everyone that this 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. I will now turn the call over to Mat Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Thanks, Blake, and thank you everyone for joining us today. Let’s jump right into a couple of thoughts. First off, 2023 was one of the best years in UWM’s history. It wasn’t the year that stood out from a financial perspective, but it will stand out from a dominance perspective. We separated from our competitors significantly in market share, growth, operational earnings, and strategic investments. It was our second year as the number one overall lender. It was our third consecutive year as the number one purchase lender and our ninth consecutive year as the number one wholesale lender. As I have said many times before, the best mortgage companies shine in high-rate markets, and that’s exactly what we have done consistently here at UWM. While there have been a lot of commentary about higher interest rates in the overall mortgage environment this year, UWM delivered our best purchase year of all time with almost $94 billion in purchase, about $20.7 billion of that being in the fourth quarter. We ended the year with over $108 billion of overall production and record market share across the board. In short, I am incredibly proud of our team’s performance throughout the year and believe this performance is also clear evidence of the strength of the broker channel. UWM and our broker partners have succeeded during times when many have failed, and now, we are uniquely positioned to take advantage of the lower rates and increased housing inventory and demand that I believe we will see over the next 6, 12, and 18 months. Before talking about the fourth quarter, I’d like to emphasize a few key messages. First and foremost, the broker channel is strong and continues to grow its overall share of the industry. Loan officers continue to join the broker channel, and real estate agents and consumers continue to see that brokers are the best choice for mortgages. Second, our investment in technology continues to give our brokers a competitive advantage on speed, price, and process, always making the process faster, easier, and cheaper. The gap between UWM and our competitors is only getting larger. It’s becoming that much harder to catch up given our relentless effort to continuously improve. Third, I have always stressed that UWM only competes for 2 out of 10 loans. The good news is the broker channel team is growing, and we are now competing for almost 2.5 out of 10 loans. Soon that will be 3 out of 10 loans, and maybe then 4 out of 10 loans. There is tremendous upside to the broker channel, and UWM is prepared to make the most of that opportunity in the future. Fourth, and the point I am most proud of, is unlike other mortgage companies, we have continued to invest in our people and grow our team. Since the beginning of 2023, we’ve grown our team by about 15%. We have never laid off a single team member in our 38-year history. The strength of our business gives us the ability to hire and invest in our people, and we look forward to even more growth in 2024. Our culture and our team is a differentiator, and people that have been to our office have been able to see that firsthand. Finally, we remain committed to sharing our success with our shareholders. For the 13th consecutive quarter, we will be paying a $0.10 per share dividend. As I said multiple times before, the dividend will be paid out in good times and tougher times, and its payout in a year like 2023 should give complete confidence to the industry and to the market that it will continue going forward. Both UWM and the broker channel are ready to dominate in 2024. There is no doubt in my mind that we are strategically positioned to seize the opportunity ahead. Let’s look closer at the fourth quarter. We closed $24.4 billion in production for the quarter at the higher end of the guidance, with $20.7 billion of that coming from just purchases. Gain margin was 92 basis points, also well within guidance. After adjusting for changes in the fair value of MSRs due to valuation inputs or assumptions, we generated pre-tax earnings of $39.2 million in the fourth quarter and $253.7 million for the year, both significant increases from 2022. In sum, we had a great quarter in a higher rate environment than the fourth quarter of 2022. I am confident 2024 will be a better year in this industry than 2023. Volume and margins should be higher, but even whether they are or not, UWM will be successful and dominate with technology and service. I am now going to turn the call over to our CFO, Andrew Hubacker.

Thank you, Mat. Amidst the doom and gloom that many others have espoused during 2023, we were pleased with our operational performance during Q4 and for the entire year. Purchase business continued to lead the way as our total 2023 purchase originations were higher than both 2022 and 2021, even with the higher interest rate environment for all of 2023 and the significant decrease in industry-wide origination volumes. While our fourth quarter and full year GAAP results were negatively impacted by the significant Q4 market rate declines and resulting impact on the estimated fair value of our MSRs, our operational income before considering changes in the fair value of MSRs increased significantly in Q4 and for the full year. Adjusted EBITDA for 2023 was $478.3 million compared to $282.4 million in 2022. For Q4, adjusted EBITDA was $99.6 million compared to $60.4 million in Q4 of 2022. With respect to MSRs, unlike some of our competitors, we have not historically specifically hedged the MSR portfolio. Rather, we maintain our portfolio at levels such that we are confident that fair value impacts due to interest rate declines will over time be more than offset by an increase in origination income. We also hedge our MSR portfolio in what we believe to be the most efficient manner by regularly selling MSRs, which we continue to opportunistically do throughout the year. Notwithstanding the GAAP net loss for the fourth quarter and full year, our capital and leverage ratios remain within expected ranges in the current environment. Furthermore, our liquidity and access to liquidity, including cash and accessible borrowing capacity, approximated $2.2 billion as of the end of the year, which represents a significant increase from the end of each of the last 2 years despite what many would agree were challenging market conditions for mortgage originators in those years. We believe that our current financial strength positions us well for different market cycles. Okay, I will now turn things back over to our Chairman, President, and CEO, Mat Ishbia, for some closing remarks.

Thanks, Andrew. I’ll close with a few points before jumping into Q&A with all of you. We’ve been a public company for over 3 years now. In that time, we hope you see that we consistently deliver on what we say we are going to do. We made a lot of different comments over the years, and you can go back and listen in, and we’ve always hit those consistently. We believe that 2024 will be a better overall year for the housing and mortgage industry. Regardless of the market, we will remain the best mortgage lender in America, and that recipe will not change. We will continue to build the best technology and provide the best service to the broker channel, take incredible care of our 7,000+ team members by treating them like family, dominate the purchase business, and reward our shareholders with a consistent dividend. I’ll conclude by saying I have zero doubt that the broker channel is the fastest, easiest, and cheapest way for consumers to get a mortgage and undoubtedly, the best part of the business for the loan officer to work. We remain 100% committed to the success of this channel. We expect Q1 production to be between $22 billion and $28 billion. I’ve always said that in the toughest mortgage environment, the lowest you’d ever see our margin would be 75 to 100 basis points, and I’ve been guiding towards those numbers for a while now. As I see the purchase market stabilizing and the refinance market starting to come on, I believe that the margins will increase. So I’m going to take off our recent lows and move it to 80 to 105 basis points going forward. You can take that as the new calling bottom or officially coming off the bottom regarding our margins. I want to thank our amazing team members and our clients for a great year, and I look forward to growing in 2024 together. Now I’m going to turn it back over to the Q&A.

Our first question will come from Kyle Joseph with Jefferies. Please go ahead.

Hey, good morning Mat and Andrew. Thanks for taking my questions. Just want to get a sense for kind of activity quarter-to-date. Obviously, you guys have your guidance, but give us a sense for the cadence of originations kind of pre and post CPI print and how that – and potential implications for the more active spring season?

Yes. Thanks for the question, Kyle. I appreciate it. So overall, I think we are off to a great start this year. I think the interest rates, as we saw such a massive decline in the fourth quarter, which hit the MSRs, a lot of it has come back up. So you obviously kept some of that income back on the first quarter. But we have not seen a decline from a perspective of business. That’s why I guided actually higher on production and guided to higher margins in the fourth quarter. If you compare that to the first quarter of 2023, I think you’ll see it very favorable based on my guidance and hopefully, the execution of that. So I think this quarter will be a great quarter. As I said in the call, 2024 should be a great year. It’s kind of like everyone feels that rates will drop a little bit, and also inventory will open up a little bit. The purchase season usually starts in March and April. We feel like it didn’t even stop, and January and February were pretty good from a purchase perspective. So we’re feeling excited about what this year looks like.

Got it. And then just one follow-up there. You mentioned the refinance channel is opening up a little bit with rate movements in December. But just based on the forward curve right now, how do you expect the mix of originations in 2024 to compare to 2023? Are there any sort of implications there in terms of margins? Are you guys kind of agnostic to channel?

Well, yes, I mean, usually, when rates go down, margins go up, and that’s because there’s more action, more volume. A lot of our competitors have taken capacity out of the industry. Therefore, they’re not able to handle the volume. So when you get out of volume when refinances come and rates drop, they slow it down by adding margin. I think margins usually go up in a refinance environment, and I think we’ve seen that in the past as well. So I do think the purchase/refi mix, I think you saw last year, we were 85% to 88% in that range of purchase, and having record numbers. That will change where it’ll be more refinances in 2024, it may go down to 70% purchase or 80% or 50%, I don’t know. That depends on when rates drop and how much they drop. But we’re still going to continue to focus on doing a lot of purchase business because that’s what the best mortgage companies do, and that’s what we’ve been able to do even in this higher rate environment.

Got it. Thanks for taking my questions. I can hop back in the queue.

Thank you.

Your next question comes from the line of Bose George with KBW. Please go ahead.

Hey, good morning. Mat, from your commentary on the broker share, it sounds like the broker share now is up to around 25% of the market. Is that right? And where do you see that going in the next couple of years?

Yes. So thanks for the question, Bose. I appreciate it. No, I don’t think it’s at 25%. I think it’s almost there. I think one of the last means I saw was 22.84%. I’ve always been saying 2 out of 10 loans, and now it’s like getting closer to 2.5. I haven’t seen the fourth quarter numbers, but I expect it to be right around that 23% number. So it’s definitely going up. My point was really is we’re competing for 2 or 2.5 loans out of 10. We’re still in a dominant position as the broker channel continues to grow and get to 3 out of 10 or 4 out of 10 loans that we can compete for, UWM is going to grow as well. We feel like we have the upside of the market from a rate perspective, but the upside of the broker channel as well that none of our competitors really have, at least in other public competitors.

Okay. Great. Thanks. I wanted to ask also about the Ginnie Mae percentage. That trended up a little more. Are they doing more on the purchase side? Is there a streamlined refinance, and is it a mix of everything or just any commentary that would be great?

Yes. No, it’s mostly purchase. The great majority of our business in the fourth quarter was still purchased, and so streamlined refinances aren’t really relevant, although they will become very relevant when rates drop a little bit. Right now, they aren’t relevant. There are different rules and requirements around FHA streamlines and VA rules, which you have to show enough savings to the consumer. I don’t think the market has dictated that yet. When rates get down to the low 6s or high 5s, I think you’ll see a frenzy of activity. So, I wouldn’t say it’s tied to that; I think it’s still majority purchase, but that will start to come soon.

Okay, great. Thank you.

Your next question comes from the line of Steve Delaney with Citizens JMP. Please go ahead.

Thanks, good morning, Mat. You’re not rebuilt around refinances. We’ve been hung up here around 7% and haven’t seen a refinance market for what, 3 to 4 years. How low does it – do you think a 30-year rate has to go to really spur any kind of a material refinance event in the industry?

Yes. Thanks for the question. So I think it’s got to make sense for consumers. It depends on where they did their last loans. Usually, it ties to, can you save the consumer half a point in rate? Borrowers that in October of this past year were doing loans at 7.75%, and then rates dropped to 6.75%. Different borrowers will have different times when they’ll refinance. Generally speaking, when rates get to 5.75% to 6.25%, you’re going to see a lot of refinance activity because it’s been a couple of years now when people have been doing loans at 6.5%, 7%, or 7.5%. So I know where the loans are being originated; they are being done at 6.5%, 7%, or 7.5%. When rates get to 6.25%, we're looking at 5.99%, and I think that will create enough of a benefit for a consumer to refinance. Beyond that, as the number one purchase lender, you’re going to see when rates get to 5.99%, the purchases will start to pick up even more. We think purchase will open up, inventory will open up, and declines in rates will lead to refinancing. It’s going to be a very, very positive environment. Whether it happens tomorrow or in 3 months, 6 months, or 9 months, it’s going to happen; we just don’t know when, and that will dictate margin increases, which is why I guided off the bottom.

Yes, that’s great color about – I hadn’t thought about the purchase activity in addition because a lot of people are going to qualify now that may not have. So when this shift comes, will UWM continue to work back to borrowers through your brokers? You seem to be resolute on that, that you work with the broker to get to the customer as opposed to creating your call center like so many have tried to do over the years to capture the borrower? Thanks.

Yes. 100%, we’re going to go through our brokers. It’s the right thing to do. It’s inappropriate what some of my competitors do and how they attack the broker's business. It’s just wrong, and they run poor companies, sorry to tell you that. To attack your client who sends you a loan and refinance that client is just the wrong thing to do. Rocket and some of these other companies have done that for years, and they’re doing the wrong thing to brokers. That's why brokers know that. We will never – and you can mark my words, never do that. We always give them back to the broker. We’ll help the brokers. We’ll show them how to refinance. We’ll do trainings. We’ll coach them. We’ll show them which clients to contact and how to sell it. We do all the things to support brokers because it’s the broker’s client, not ours, and that’s the right way to run a business. That’s why we’ve been so dominant in the broker channel and in this industry for years.

Thanks for the comments, Mat.

Thank you.

Your next question comes from the line of Doug Harter with UBS. Please go ahead.

Thanks. Mat, I’m hoping as you're seeing gain margins come off the lows, how to think about what are the different types of environments that would cause you to be low, middle, or high end of your new range?

Yes. The 75 to 100 basis points, I think I said probably I don’t know how many quarters I guided towards it, but probably five, six, seven quarters is my guess, I don’t remember exactly. The reality is, in the toughest mortgage market, UWM will be kind of the bellwether for what happens in the margins and how the business goes. We’ve said 75 to 100 is going to be where it’s going to be. As the market starts to get better, I’m basically calling bottom. It’s not going to get worse than it was. We’re going to move it to 80 to 105. Whether it stays like that for a couple of quarters or maybe I go to 85 to 110, it’s on the way. It’s on the way up. We’re off the 75 to 100 margin range. I expect that to continue moving up whether it’s next quarter, the quarter after, or sometime in the near future.

Appreciate that, Mat. And then as you’re thinking about the landscape with the realtor lawsuits and changes going on, how do you think that impacts the broker and what challenges or opportunities does that create?

Usually, real estate agents and brokers are really tied at the hip. Mortgage brokers and real estate agents do a lot of the same things. They’re great for consumers and are on the ground talking to people. When impacts happen to comp or potentially happen, they haven’t happened in the – or I don’t know if they will for years, to be honest with you. When impacts happen, that creates opportunities for the best real estate agents and best brokers to grow and succeed in the marketplace. Just like years ago, all comp changed in the mortgage market, brokers were supposedly going to lose comp, and all that happens, but brokers actually thrived because of it. I look at these things as opportunities. Real estate professionals are resilient, just like mortgage brokers are resilient. I’m not really concerned about their impact on the business. Brokers and real estate agents will help each other grow and succeed. We’ll see how it all shakes out. It’s too early to read on what will happen. But I think that usually people that are very involved in the business, very in the weeds like UWM and brokers usually capitalize on change more than get hurt by it.

Appreciate those insights. Thanks Mat.

Thank you.

Your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.

Yes. Hi. Good morning. This is actually Jeff Adelson on for James Faucette. Good morning. Just wanted to circle back on some of the pricing initiatives you guys have talked about. I know about a month ago, you launched this Refi 100 initiative. Just curious what the uptake on that has been like with your brokers and volumes? How meaningful that has been to your volume so far this quarter? And just your appetite for additional pricing initiatives going forward?

Yes. First off, talking about pricing initiatives and different things we have done over the years, I think it’s good because a lot of you have been following us for years and have seen what we said with Game On, which we launched 15 months ago, and what we would do with that as a pricing initiative and how that has worked. If you look at the fourth quarter of 2022 versus the fourth quarter of 2023, we had Game On in the fourth quarter of 2022, which means half the margins, and it was a lower interest rate environment. In this year’s fourth quarter of 2023, we had much bigger margins, higher interest rate environment, and we still did more business. I think it speaks to these initiatives that create stickiness. What we know is for facts—UWM is the best mortgage company in America. We are, without a question, the best wholesale lender in the country. Our goal is to get loan officers to leave the retail channel and join the broker channel, which is happening all the time. I talk to them all the time. It’s happening right now. We want brokers in the broker channel to try UWM. When they use UWM, they become sticky because we are the best. We help them grow their business, train them, and market. It’s about getting them in. Pricing incentives and initiatives are always focused on the long term. I am never focused on the short-term impact. I focus on long-term outcomes. If you go back and read what I said maybe in June or July 2022 about what success looks like for Game On, it’s broker channel growth and loan officers converting, which is happening, and does UWM gain market share and retain market share when we go back to normalized margins. The data shows that we have done that and then some. I look at these things as all positive, as they help brokers differentiate and grow. Our whole game is helping brokers win. Helping more consumers because, by the way, brokers are better for consumers. They save consumers thousands of dollars. We’re very excited to educate consumers, real estate agents, and help loan officers succeed. Sometimes pricing issues on a refinance help, sometimes pricing on purchases, sometimes free appraisals. Sometimes we do none of that stuff. But I am always open to things that help brokers win and succeed. That’s what we have been doing, and that’s why we are winning.

Okay. Great. Thanks for that color. Just on the MSR, I don’t think I have heard anything so far. But it seems like from the disclosures, you didn’t do any MSR sales this quarter, is that right? And why was that? What’s your appetite looking like going forward there?

Yes, we did one excess trade in the fourth quarter. We have done some trades already this year. As Andrew said, hedging MSRs resulted in a larger MSR markdown, I believe over $600 million in the fourth quarter, which is obviously just paper moving; it means nothing. You will see some of that come back this quarter. Don’t give us credit for that; it doesn’t matter. But the truth is we have a bigger write-down or write-up than others because we originated loans at these rates. If you look at our book, we have a higher rate of our book because we actually did loans in the third quarter and fourth quarter when everyone else didn’t. Those loans took a bigger write-down, which is why we had a bigger write-off than most in the fourth quarter. Coincidentally, you’ll see our write-up in the first quarter due to rates going back up since January 1, but we can’t control that. That’s irrelevant. We are selling MSRs and will continue to sell them when we see opportunities.

Okay. Great. Thanks for taking my question, Mat.

Thank you.

Your next question comes from the line of Mark DeVries with Deutsche Bank. Please go ahead.

Yes. Thanks. Just had a follow-up question on the origination guidance for the first quarter. It’s a pretty wide range just given we are almost two-thirds of the way through the quarter. Can you give us a better sense as to why that is? What scenario brings you to the low end of that range and what scenario brings you to the high end?

Yes. Actually, I think I closed the range down. I usually give a $7 billion range. I think I gave a $6 billion one. I actually gave a smaller range this time. The truth is I’m trying to be consistent, it’s usually a $6 billion or $7 billion range. Obviously, I have a good feeling of where we are going to be, and that’s why I guided to that range. I think we will be in range, like I’m always in the range of my guidance from margins and volume perspective. You’ve got to realize that compared to last year’s first quarter and even the fourth quarter, I am basically guiding that we are going to do more business in a higher rate environment in the tough mortgage industry. January, February, and March are usually the slowest months, specifically for purchases. People aren’t moving because schools are in session; it’s cold in the northern part of the country. There are a lot of reasons that purchases slowed down. I think $22 billion to $28 billion is a good guidance. I think 80 to 105 is a good guidance. As I’ve done every single quarter, we hit guidance consistently, and I plan on doing that for the first quarter as well.

Okay. That’s helpful. Thanks.

Your next question will come from Eric Hagen with BTIG. Please go ahead.

Hi. Thanks. Good morning. I hope you guys are well. A couple of more follow-ups on the MSR. Are you still targeting an MSR portfolio around, call it, $300 billion of UPB? And can you remind us, does your MSR fair value mark include an estimate for recapture? Thank you.

Yes. Good question. Obviously, in the weeds, you know the game. No, we do not put an estimate for recapture in there. All of my competitors do that to beef up their numbers, which is a false way of doing it, but you understand the business well enough to ask the question. Regarding targeting an MSR portfolio around $300 billion, there is not an exact range. If you have an MSR book, you can originate, which is at least half of your origination book, if not a little bit more. Can we do more than $150 billion? Yes. I wouldn’t want to go much higher than $350 billion or $400 billion on the book, but I probably won’t go below $200 billion. So, $250 billion to $350 billion is the right range. If you want me to tighten up, I would probably say $275 billion to $325 billion, but $300 billion plus or minus is right.

Love it. Great. Thank you very much for that. We know that there is a lot of competition between broker and retail, a lot of migration, loans going back and forth between the channels sometimes. But how aggressive or how much market share do you feel like you could take out of the correspondent channel this year?

The correspondent channel is not really a channel. I know some of our competitors like to say that they originate loans in the correspondent channel. If you don’t underwrite or originate the loan, you didn’t do the loan, right? You can’t count the loan twice. I don’t look at any volume in the correspondent channel. I know some places report correspondent volume, but there is really double counting happening. I look at retail and wholesale as the only real competition because correspondent is some retail lenders doing the loans and then selling it to a company like Chase or Wells. Those companies report that as their volume, and so do retail guys; it’s double counting. I don’t really see correspondent as an opportunity; I think it’s people reporting numbers incorrectly. A lot of banks are getting out of the market due to different capital rules and other items. Banks will tell you that capital is harder to originate but, the truth is, it’s really hard to compete; all we do is mortgages. We live, eat, sleep mortgages. Banks do a lot of things, and it’s hard to be great at 28 things. We are not only great; we are the best at one thing in the mortgage world. Therefore, we are focusing on helping brokers grow their businesses and building relationships with real estate agents. We are teaching brokers how to scale and when refinances come. I’m doing things like we built PA+ and other offerings to help brokers handle scale. You’ll see more of what we are doing in the second and third quarter related to technology and initiatives to help brokers manage scale. Furthermore, we want to convert loan officers over from retail to wholesale. You will see in the media that some top loan officers in retail have converted to brokers. When they’re all retail, I have no chance of getting their business. When they become wholesale, I have a chance. When they come over, they typically bring a significant percentage of their business with them. We are starting to see that transition. So I don’t look at correspondent as one of those; my focus shifts to brokers and retail and how can we help brokers succeed.

Great stuff. Thank you so much.

Eric, thanks for the question. Is that all the questions? I think Moderator all the questions, so we are good. Thank you guys for the time. I appreciate all of you for jumping on the call. Hopefully, it is valuable, and we will talk to you after the first quarter for the next quarterly call. Have a great day.

This concludes today’s conference call and you may now disconnect.