Earnings Call Transcript - UWMC Q2 2021

Operator, Operator

Good morning. My name is Zen, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Second Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Matt Roslin, you may begin your conference.

Matt Roslin, EVP of Legal Affairs and Investor Relations

Thank you for joining us, and welcome to the Second Quarter 2021 earnings call for UWM Holdings Corporation. Before we start, I would 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. Before introducing Mat, I want to inform everyone on the call that our CFO, Tim Forrester, cannot be with us today due to personal reasons. Mat Ishbia, Chairman and CEO of UWM Holdings Corporation, United Wholesale Mortgage, will be delivering both the business and the financial updates on today's call.

Mat Ishbia, CEO

Thanks, Matt. Appreciate it. And thank you, everyone, for joining the call today. It's great to be here, especially after another outstanding quarter here at UWM. Before we start, I just want to thank our team members here at UWM, our partners throughout America doing great things, mortgage brokers, independents out there, proud to partner with all of them. The Second Quarter was our best quarter in company history from a volume perspective, so we're very excited about the results. Not only did we post record numbers for production, but we almost doubled our prior quarterly production on purchase loans, and that's going to make a big difference as we talk about later on. Purchase production is an important measure; I'm going to explain the details of how we think about it later on in this call. On our last quarter call, as I will do every time, I let you know to hold us accountable for our numbers and what we say. We delivered above what we expected in many respects and are excited for you to see the results and talk about what's going to happen in Q3 as well. We delivered $59.2 billion in production, beating our guidance of $50 billion to $55 billion. At the time when most of our competitors were guided to do less and did less volume, our production was up over 20% at UWM compared to the prior quarter and resulted in an increase in overall mortgage market share by a significant amount at UWM. Our gain margin was 81 basis points in line with guidance and is actually a lower number than historic year numbers. However, we posted a solid profit. We delivered $138.7 million in net income. When I back out the $219 million to kind of fair market value of our MSR asset, our core earnings, as I like to call it, was approximately $358 million. That's the way I run the business; I mentally add back or subtract if it's positive. The change on MSR is really more representative of what our business is. The $358 million we're very proud of, and at the same time, we think of how to run the business to make sure that we deliver great earnings from an operating perspective at all times. We've already noted that on a sequential basis, our second quarter results represent a 20% plus increase in overall production; I think it was actually 21%. More exciting to me, though, with the 97% increase in purchase production over the first quarter. From a year-over-year perspective, Q2 looks great as well. We had a 90% increase in overall production and a 288% increase in purchase production. There's no mortgage company in America that has performance like we do. UWM is the elite mortgage company in America, and we're proud to show it to you, quarter-in and quarter-out. The second quarter was really interesting as it provided a glimpse into the future of our industry for a couple of reasons. First off, the weighted average rate of a 30-year mortgage went to 2.99 from 2.80. So just about a 19 basis point rise in rates, and you'd have thought the whole industry shut down based on how a lot of people reacted. That was only a small rise in rates. Wait till it goes from 2.99 to 4%, and you'll see the strength of our business across the board. The relative refi mix declined, and purchases increased and became more important for mortgage originators. But purchase mix is not the thing we focus on; we focus on purchase production because purchase mix looks really great if your refi volume went down. UWM's refi volume actually stayed almost flat, but we almost doubled our purchase business from $12 billion to $24 billion quarter-over-quarter. Some companies like to speak about purchase percentage or mix or really don't like to speak about it at all, but it's important to note that purchase mix can solely change by doing less refi. And that's really not the story we're trying to tell. We're trying to talk about the strength of our business, which is purchase business. When rates go from 2.8, 2.9 to 3.5 or 4%, that's really when the best mortgage companies will shine, and we believe we are that company. Just like in 2018 or the first quarter of 2020, you can see how people perform when the tide is out in not such a frothy business. So second quarter, $24.06 billion purchase production. Our best purchase quarter of all time, our best overall quarter of all time. And if you think about it, if you had no refi business, we would almost do $100 billion of purchase business in a year, which by far in a way would be the number one mortgage company in America. It's very important to understand this because our business model has historically proven that not only when we gain purchase share, we retain it and maintain that business with our broker partners and our independent mortgage companies that we partner with. How are we growing in this market? Simple; speed and service. Our cost structure allows us to be profitable with lower margins, but the reality is we're closing loans faster and more efficiently than anyone in America. Real estate agents love that; our brokers love that, and that's how we continue to get more referrals and grow our business. Time kills deals we talk about here, and our company is never true on purchase business. Once a broker closes our personal, and they stay with us, they want to continue to send loans to us, and guess what, the reloaders want to as well. We continue to close loans in 18 days while the industry average is over 47 days. We're substantially faster than the market. Our client service remains best-in-class, with our proprietary technology, and our uncompromising team members proving our year-to-date net promoter at a plus 86.6. While Q2 was a glimpse into the future with rising rates, we've seen rates drop a little bit in Q3, which means a lot of our heaviest refi shops, our competitors will be able to post decent numbers and better gain on sale margins in the third quarter. The reality is Q2 was a glimpse into the future and what this will look like in 2022, 2023, and 2024, and UWM is the lead mortgage company. Now, I want to take a quick moment to talk about a quick update on the all-in initiative that we announced on March 4th. A lot of people, a lot of the media, like to spin things and say negative things about the all-in initiative, questioning the decision process. I want to make sure everyone understands that UWM is very in tune with our clients, and it's been an overall huge win for not only UWM because that wasn't the focus. The focus is on independent mortgage brokers and consumers. It's been overwhelmingly positive. We are very in tune with what our clients need, and of course, media and our competitors love to spin the story, but the reality is this: black and white numbers. UWM grew 21%, from $49 billion to $59 billion. While one of our competitors, who are public, went down from $103 billion to $83 billion in their partner network, Rocket orders went from $41 billion down to $30 billion. It's not a discussion whether it was successful or not. And other people can spin what they want. It was an overwhelming success, not only because of UWM's growth and some of our competitors' non-growth, if you want to think of it that way. But the reality is this: the line within the broker channel from a culture, training, licensing. Our clients are all-in with UWM, and they're all in for the broker channel just like UWM is, and that day, March 4th, was a changing factor for all the independent mortgage brokers in America. And we're proud to have made that decision that was very positive for the whole channel and consumers across America. This year will be our 7th consecutive year being the number one overall wholesale underwriter in the country, and we're very excited about the growth and continuing to lead the broker channel as a partner with so many independent mortgage brokers throughout the country. I'd like to summarize some of the production and look back on it by saying that a solid foundation, strong and established wage with our clients exceptional service position us to help capture more market share in 2021, as we just did in the second quarter, but beyond going forward in the future. So we're very proud of where we're at. At the same time, we have a lot of other good things going on. So now, let's talk about some other highlights. Return to work. So in June, we welcomed back a lot of our team members. By July 16th, we had all of our team members back here in Pontiac, Michigan. Our culture is more alive than ever. At 200-acre plus campus, we're excited to have all 9,000 team members. We have our clients coming in. We have hundreds of clients coming into our office every week, flying to Pontiac, Michigan, to get trained, to get coached, to learn how to grow their business. As they grow, UWM will grow, and the broker channel will grow. And that's a big part of our story, and it's happening every single day. We continue to reinvest in our business and our people. We built some proprietary technology that will save us over $8 million this year due to some proprietary innovations we've done with document generation and document storage improvements we've made. We've evaluated the feasibility, and we're looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments. That's something that we've been working on, and we're excited that hopefully, in Q3, we can actually execute on that before anyone in the country because we are a leader in technology and innovation. We remain committed to our 9,000 team members, recruiting the best environment for collaboration, learning, and growth here at UWM. In the third quarter, you're going to hear about some game-changing technology, and innovation that we're rolling out. We're very excited. It's not things that other people have done. We're trying to be a leader once again. As we have been for years, and we've got some big things that will be announced in the third quarter. Now, with all that stuff, I'm going to shift, and as Matt mentioned, Tim Forrester, our CFO, could not be available today for this call, but I will talk about our financials and go through some of the details before we wrap up and take questions. First thing, I'd like to start with our buyback. As announced in the last quarter, we were authorized by the Board of Directors to buy back shares, as detailed in our filings, but in summary, we purchased just under 800,000 shares in Q2 and a lot more since. If you add it all back, we purchased well more than 2,000,000 shares, and honestly, at these prices, if the float issue wasn't a big deal, we could even buy more. We have the authority to buy more, and we'll continue to look at it, but we are very aware of our investors' concern about our float, and that's why we can't buy even more shares back at this time. However, we do have the ability to do so, and we'll continue to do so when that opportunity is there. Q2 highlights, net revenue of $485 million, compared to the $831 million from the previous year, but remember, $290 million of that reduction was really the change in our accounting for MSR, moving the reduction in fair value of MSR within revenue rather than expense. So it's really a $290 million difference there. Our servicing income was higher due to our growing portfolio of interest income that fueled our overall production volume, increasing substantially over prior periods. On the liquidity front, cash and cash equivalents remained over a billion dollars, which is significantly more than we operated with in prior years. Mortgage loans at fair value went from $7.9 billion at year-end to $12.4 billion on June 30. This increase is due to the overall production, our entry into the PLS market to garner better execution in certain instances than selling through agencies, as well as the renewal of our jumbo loan program, which has been a huge success, with about $2 billion-plus of that production per month. Loans sold through private markets remain on the balance sheet a bit longer than those sold through agencies, but the loans remain fully hedged and are readily marketable. So I believe this increase does not materially increase our risk profile, and an added benefit is increased net interest income, which can be seen in Q2 compared to prior quarters. The fair value of our MSR increased from roughly $1.75 billion to $2.66 billion as the unpaid principal balance increased from $188.3 billion to $260.3 billion on June 30. The weighted average note rate on our mortgage service portfolio is 2.97%, as evidenced by the fact that in the last 18 months, UWM has originated over $290 billion. It's a very young book from a seasonal perspective. Credit quality is quite strong, with delinquency rates over 60 days being at 1.18% down from 1.93%. In our prior call, we noted we extinguished our MSR line of credit encumbered by MSRs, as well as issued debt to further support our investment in the business. The Board of Directors has approved and authorized a quarterly dividend of $0.10 per share of common A stock to shareholders of record as of September 10th to be paid on October 6th. Our costs per loan improved from about $1,662 down to $1,490. This is such a key data point that people don't want to talk about. But that's 43 basis points. When we talk about our gain on sale of 81 and our cost around 43 basis points, we can win and be profitable in all markets. These are all-time low margins, basically, and we're very profitable across the board. With our cost originated from our proprietary technology, we're going to continue to win with our cost, and we can continue to put pressure on all of our competition. As you saw in the second quarter, most of our competitors went down in volume, and at the same time, some of them even lost money. We succeeded and excelled because of our cost structure stemming from our proprietary technology. Last quarter, we set guidance, and not only did we set it, but we also set higher guidance, and we beat it across the board. We realized record-breaking numbers at UWM, and we're very proud of it. The solid foundation we put in place is producing exceptional results. Our technology platform, our operations, our team members, and what we're doing in the community. We're very, very proud of what we're doing. Liquidity is strong. The broker channel is strong, and it's getting stronger, and UWM will continue to get stronger as we make a significant impact on the broker channel and all the consumers they serve, and the Realtors too. One of the last points I wanted to leave you with is we were very, very profitable in one of the toughest market environments. Even with compressed margins, when everyone else was struggling, UWM won, and we're going to continue to win here at UWM. We're looking ahead, and we're guiding to $57 to $62 billion from a production perspective, and the gain margin will be between 75 and 100 basis points. We're excited about the third quarter, and I'm excited to take questions. So I'm going to turn it back over to you guys and take any questions you have about UWM, our second-quarter results or how we see the mortgage market playing out going forward.

Operator, Operator

At this time, I would like to remind everyone in order to ask a question. Your first question comes from the line of Steve Delaney of JMP Securities, LLC.

Steve Delaney, Analyst

Thanks. Good afternoon, everyone, and congratulations to management on achieving or exceeding your May 11th guidance for the quarter. That is impressive. Matt, I mention this because we noticed that there were a lot of changes happening with the GSEs regarding pricing actions or capital market adjustments. It seems that these changes affected you less than they did others, but could you provide some general insights into what was occurring? What we really need to understand is how much of this impact was a one-time effect on your pipeline and how much could be a recurring issue that might limit your business volume with Freddie and Fannie. Thank you.

Mat Ishbia, CEO

Thanks for the question. First off, so everyone knows, Tim Forrester will be available for any questions this week or next week if there are any follow-up questions that I can't handle financially or you want to hear his perspective. He's available for you. So he is always available. But to answer your question specifically, obviously, I know other companies have spoken about some changes, and we look at those changes and see that that happens from Fannie Mae. I can't control what Fannie Mae and Freddie Mac do and how that impacts our business, and sometimes there are things that happen, and it's retroactive. There can also be some things that are retroactive in a positive way as well. So there's give and take in it. What I think is the most important thing that's happening is that you won't see these types of things from some of our competitors or with us at all. Obviously, we're prepared to be profitable in all situations. I talked about our cost to originate, but even on a compressed gain on sale, in a quarter like this one, the reality is this: the wholesale market is becoming more and more recognized as strong quality lenders. It's an opportunity for growth and the best way for a consumer to get a mortgage. And so with that being said, we think a lot of the legacy, if that's the right word, the mindset around wholesale or around brokers or around some of the pricing actions that some of these places take are going to be a thing of the past in the very near future. Now, does that mean it's going to happen in the third-quarter report? I don't know, but we do know that the markets are adjusting to the notion that the best way to get a mortgage is through a wholesale lender, through an independent mortgage broker, and consumers are starting to see that. That's why so many people are trying to join in the wholesale channel because it's such a strong channel. Everyone sees mortgage brokers as the future of the industry. Some of the legacy rules and some of the things other lenders have talked about that the GSEs might have imposed recently, I think those are short-term, and I think one day we'll be talking on a quarter where they got reversed, and all of a sudden, we picked up some money in a positive way, and that will happen then too.

Steve Delaney, Analyst

It certainly doesn't seem to put you on the defensive. Whatever actions were taken, we'll learn more about them over time, but it's great to see progress. I also appreciate the inclusion of the third quarter dividend in the press release, set at $0.40 per share annually. That offers a nice 5% yield based on the current stock price, which should help maintain interest. It's not uncommon for a company to pay a cash dividend while also repurchasing shares. However, I had some concerns that the Board might reconsider the dividend and divert more funds towards share buybacks. Do you think that's a possibility? The Board makes decisions every quarter, but it appears that for the third quarter, they are managing to do both: pay the dividend and buy back shares. Would you say that's a fair evaluation?

Mat Ishbia, CEO

That's fair, and as the Chairman of the Board, I don't see any reason we wouldn't pay the dividend. The dividend is a method to reward our shareholders, and I intend to continue that. Of course, we have to vote and discuss it in every meeting, but there’s no inclination to change our approach. The buyback was authorized for $300 million, and we have 24 months to carry it out. We’ve already executed a substantial portion of it. If the float were larger, I would take more advantage of the current share price. The dividend offers a very high yield, as you know. We're pleased to continue rewarding our loyal shareholders in this manner.

Steve Delaney, Analyst

Thanks for the comments, Matt.

Henry J. Coffey Jr, Analyst

Good afternoon, and thank you for taking my call and for collecting votes here. Given how your stock is trading relative to the book, and given the float challenges, I think the dividend is a terrific way to return capital. It seems it's one of the more attractive aspects of the stock. So if you're taking votes, I vote in favor of the dividend. On a highly technical area.

Mat Ishbia, CEO

I agree with you, Henry, and I'm a large shareholder too, so we're on the same team, you and me.

Henry J. Coffey Jr, Analyst

I believe you have more voting power than I do. On a different note, in March, your G&A expense was $16.8 million, and then it increased to $42.1 million by June. Even though the overall expenses were lower than we anticipated, I was curious about the reason behind that significant change.

Mat Ishbia, CEO

Yes. I think we can go offline on it, but it was just a reversal in the first quarter. So $42 million was aligned with it. Are expenses actually went down as you saw? We just had a reversal on the first quarter of about $20 million, if I remember correctly, which puts us around $36-$37 million on that same line item. So it was basically apples to apples, and our overall expenses have gone down, and that's why our cost to originate has gone down as well.

Henry J. Coffey Jr, Analyst

That was very clear. All the other numbers changed in the opposite direction, and I was just curious about that one, but thank you.

Matt Roslin, EVP of Legal Affairs and Investor Relations

Q1 was a one-time out-of-period reversal over contingency. In Q2, there was a $5 million added, but when you net out, that line item is basically flat.

Henry J. Coffey Jr, Analyst

Thank you. Regarding a more interesting topic, you mentioned in the second quarter press release that we are starting to see the benefits of the foundation we've established, particularly in the growth of purchase products, as well as a renewed focus on Jumbo, FHA, or government lending, and manufactured housing. Could you provide some insights on the Jumbo business, which I assume involves more PLS securitization, and the manufactured housing lending, which has been relatively quiet for quite a while?

Mat Ishbia, CEO

We're exploring ways to support our clients in serving their own customers. The Jumbo product has been extremely successful since its launch on March 17th. Although we didn't capture a full quarter of data since loan closings typically occur in mid to late April, we've averaged about $2 billion a month from this product during the second quarter, totaling nearly $6 billion over three months and continuing to grow in July. We have confidence in this product’s performance, with nearly half of the sales being for purchases. We anticipate it will become a significant offering, similar to FHA loans. Although manufactured housing is a smaller segment, it serves a variety of consumers. We are committed to promoting equitable housing and ensuring we make positive impacts nationwide. Many of our brokers prefer to work with UWM for the consistent processes we offer, allowing them to swiftly close loans in 10 to 20 days. We have also set an all-time record quarter with $59.2 billion, and we are on track for the most successful year in our history. UWM’s growth is not slowing, and despite a slight increase in rates that affected competitors, we have seen an upward trend. As rates rise further, the advantages of our products will become more evident, and UWM is poised not just to be the leading lender overall but also to continue gaining market share and delivering strong returns to our investors.

Henry J. Coffey Jr, Analyst

Given that housing groups are quite optimistic about manufactured housing due to its significance in affordable housing and its ability to provide individuals with a house, a yard, and security, I understand that Fannie has been involved as a lender, while Freddie Mac has not. From your perspective, can you share what's happening with the government-sponsored enterprises and manufactured housing, and what role UWM will play in that moving forward?

Mat Ishbia, CEO

Yes. We're working with the GSCs on the product. We're going to continue to offer the products and hopefully make affordable housing more accessible to more and more people. We think manufactured homes aren't going to become less of the market; they're going to become more of the market. We figured we'd get into it, make good inroads in it, and make sure our processes are tight. We actually had a lot of success since we just rolled it out in mid-April. So it's still very new from our perspective. But you'll see more of it in the third quarter and more going forward as our commitment to equitable and affordable homes throughout America.

Henry J. Coffey Jr, Analyst

The gain on sale margin competition, the primary, secondary spreads have actually improved and are reasonably stable in July. We don't quite know what to expect for August, but can you give us a sense of what the competitive environment looks like in August on the gain front?

Mat Ishbia, CEO

Yes. We're looking at our competition, and we're continuing to monitor everyone. The reality is we feel that we are guided in a really good place. We feel really comfortable with where margins are. We can play in a place that other places can't based on our cost to originate. We feel good about the guidance I've given you guys on both the volume and gain on sale numbers. So, I don't think it's becoming more competitive or less competitive. I think the market is what the market is, and we obviously are the leader, which drives a lot of that volume and margin compression or increase. We feel really good about where everything is at, and we're highly profitable. The way I look at it is on our core earnings, we made over $350 million in the quarter, grew our market share substantially, grew 21%, gained $10 billion of volume while all of our main competitors went down. I feel really good about where we're at. We can make $300-$400 million in core earnings in a quarter, and I feel really good about where we're at. And when the big opportunities come to make a little more margin, you'll see these huge numbers that you saw the last couple of quarters before this.

Henry J. Coffey Jr, Analyst

Well, thank you, and congratulations on a solid quarter.

Mat Ishbia, CEO

Thank you.

Operator, Operator

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

Doug Harter, Analyst

Thanks. Mat, hoping you could talk a little bit about how sticky you think some of these market share gains will be following the all-in need or desire to keep some of the price matches in the field you've been running.

Mat Ishbia, CEO

Yes, it's very consistent. The loyalty among those fully committed to the broker channel is clear. Our clients in this segment, including UWM, are entirely focused on this approach, while we have noted that some lenders are not adequately serving wholesale brokers. The stickiness and growth among our clients have been significant. We emphasize that if you're committed to the broker channel, we will support your growth through training and assistance in all areas of your business. Clients who are fully engaged with us are experiencing faster growth compared to others nationally. While there are a few clients not fully on board with this approach, the vast majority of independent mortgage companies are committed, which fuels our growth as their partner. As for the price matching and similar initiatives, they don't strongly influence our volume but serve to build confidence in UWM's competitive pricing, outstanding products, and exceptional service and technology. Our clients are growing with us, recognizing that our prices are very competitive. The need for continued price matching is minimal since our margins remain solid. We will pursue aggressive growth in the broker channel, which benefits consumers, brokers, and UWM alike. Our market share improvements have been significant; in the first quarter, we were $54 billion away from the top position, and now we're only $24 billion from it. Closing a $30 billion gap in just one quarter is impressive. If rates rise to 3.5 or 4, the dynamics will change significantly.

Doug Harter, Analyst

And then, just following up on the margin outlook, I guess, what type of environment do you need to see to go from the Q2 81 basis points towards the upper end of the guidance range of 110 basis points?

Mat Ishbia, CEO

Yes, I think we guided to 100, so 80 to 100, and so do I think it will be 81 again? No, that's why I think we guided to 75 to 100, actually, but I don't see margins going down. However, I don't see them going up much either. The reality is this: margins are going to be in the range that we gave for this quarter. I think I told you guys last quarter, and I believe it's between 3 quarters and 6 quarters. It could be at these all-time lows. But it's not going to stay down here very long. When you see the overall year, base averaging in the first quarter, along with second, third, and fourth, it will be on the lower end normalized, but not as low as you see right now. I don't think there's that far off until the opportunity comes back to where it gets back to more normalized margins, which would be low to mid-100 numbers. But it won't happen in the third quarter, and I don't foresee it happening in the fourth quarter. There are a lot of dynamics that go into how we price, and what we believe the best way to deliver value to our shareholders, while also taking on market share and continue to grow and meet the vision and goals of our company.

Doug Harter, Analyst

Thank you, Mat.

Mat Ishbia, CEO

Thank you. Doug.

Operator, Operator

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

Ryan Nash, Analyst

Thanks. Good evening, guys.

Mat Ishbia, CEO

Hey, how are you?

Ryan Nash, Analyst

Good. Mat, you just talked about the fact that you think pricing can stay at these levels for 3 to 6 quarters, and you don't think it's going to ease. It sounds like for the next two, so that will put us at four quarters, I guess. Big picture, what do we need to see to break this gridlock to eventually drive margins higher? When I look at your margin, last quarter and expectations for this quarter, it is a little bit lower than some of the others in the peer group. My question is, can you hold on to volumes as price eventually increases and achieve a margin in line with others, but also still drive the volumes? Thanks.

Mat Ishbia, CEO

Yeah, Ryan. Thanks a lot. So first off, our margins are not lower than anyone in my peer group. So we're on the same page. Home Point, as you know, was substantially lower than us and not able to be profitable at those numbers. Rocket, who mixes and matches their partner book, it's not really broker business, and their broker margins are actually well below ours. However, they have 300 basis points plus margins on their affiliations, whatever they call them. They kind of jumbo them all together. Their wholesale margins are well below 50 based on our data. Just to put it in an apples-to-apples comparison; you will see across the board, we are the leader. The way that other lenders can get business, they have to be substantially lower-priced than us, and that's what's going to happen. Since they couldn't, we grew, and they all shrunk. You'll see that trend again. Unless they can be substantial and lower-priced. Even Rocket, who was substantially lower and Home Point substantially lower, they saw both decline. And so there's a combination of gain on sale, along with business strategy. The business strategy around the purchase and our focus on purchase is a big differentiator. Price sensitivity is not there as much on purchase. No matter what, even if your price was 75 basis points, you were making zero on it. Brokers won't place a purchase with certain lenders because they can't actually deliver. That's why I keep telling everyone; when rates went up 19 basis points, everybody went crazy. Margins compressed; everyone did less business, and everyone struggled. Wait till they go up 100 basis points. That's when we're going to be doing $120-$150 billion, maybe $200 billion, depending on exactly where rates are, and everyone else will be well below us. When it comes to gain on sale margin, we feel great about where we're at. No one can originate a loan at our cost structure. We're going to use our proprietary technology to continue to enhance that. I'm going to use that leverage whenever I see fit as the right decision for our business and our shareholders. It was in the second quarter as we had an all-time record quarter, and it will be again in the third quarter, similar type concept where we will be successful. Other places will get a little bit better volume because rates got a little bit better for them, so they can feel good about it. They will see some sales for a quarter or so. But the reality is when rates do go back up, that's when UWM shines, and that's why Q2 was just a glimpse into what 2022 or '23 or '24 is going to look like. Everyone else will be behind us, and you're going to see that UWM is the strongest and most elite mortgage company, and we plan to prove it quarter-in, quarter-out.

Ryan Nash, Analyst

Got it. Thanks for the color. You guys had a nice quarter on the expense side. Can you maybe just talk about further opportunities to rationalize expenses? I think you talked about cost to originate going from $1,662 down to $1,490. I'm curious. Where do you think that could go as you guys continue to leverage the investments you've made in the business and the technology that you've developed? Thanks.

Mat Ishbia, CEO

Yeah. Thanks, Ryan. I think that's a real key part that a lot of people don't recognize is that cost to originate that 43 basis points, whatever that number is. It's a huge, huge competitive advantage. There are a lot of things we're working on right now to actually drive that even further down. Now, does that mean it will show up in the next quarter or the next quarter after that? We're going to wait and see, but we are doing different technologies that we rolled out. One of them I spoke to save us $8 million. A couple of others that could save $5 million a year, $2 million a year. There are opportunities there. All those inches add up to feet, which add up to miles, and that's how we win. We focus on every inch here, every day at UWM. There is a lot we're doing, but we are not confused about our competitive advantage, which is our technology. Our technology is elite. It is the best in the country, not only for our clients but internally as well. That drives our cost to originate. And that is elite too. It makes a big difference. Everyone can look good when there's a lot of volumes because their cost to originate isn't going to choke them out a little bit. But as rates go up a little bit and your cost to originate is not that great, you have bloated infrastructure, different locations throughout America, and all these different places that you have to pay for regardless of fixed costs. They struggle a little bit more, and you will see it in the future. We don't know when, but you will see it.

Ryan Nash, Analyst

Thanks for all the calls, Mat.

Mat Ishbia, CEO

Thank you.

Operator, Operator

The next question comes from the line of Thommy McJoynt of KBW. Your line is open.

Thomas McJoynt, Analyst

Hey, good afternoon, guys. Thanks for taking our questions. Yes. As we've seen, you guys have continued to add to the team member headcount, now up to about 9,000. Is that a signal that you expect to continue to be able to grow the dollar amount of your production, even when the market moderates a bit after more normalized levels?

Mat Ishbia, CEO

Thank you for the question. We currently have 9,000 people, and we recognize that many families depend on us, which makes us proud to have such a strong team. We believe there are no concerns regarding our team members, and we are continuing to hire aggressively. With 9,000 employees, we naturally experience some attrition. Therefore, I don't anticipate increasing our workforce from 9,000 to 11,000 this year. I am confident that we will become the leading mortgage company in America, whether that's next year or in a few years. Our staff size may range between 8,000 and 11,000, as we can manage our current volume effectively without needing to increase headcount. Our technology enables us to improve efficiency and handle more business as we are today. While we don't plan on aggressively expanding our team, we feel we are in a strong position. I also don't expect significant increases in our expenses related to team members, which comprise about 65% to 70% of our costs.

Thomas McJoynt, Analyst

Great, thanks. And then just on a different topic. Yes, you saw the interest income increase, and you partly attributed that to longer hold period times. Looking at the balance sheet, you can see the loans held for sale obviously jumped pretty significantly over the quarter from $5 billion to $12 billion. Then, you also noted that post-quarter end, you temporarily increased some warehouse funding facilities. I just want to see if those are all interrelated and what the reasoning is for the longer hold period times.

Mat Ishbia, CEO

Yes. Thanks for the question. And so there's opportunity out there. Obviously, the interest income is tied to that. So that makes sense. You got that right. But the opportunity for us, we've always been efficient with selling our loans to Fannie Mae, Freddie Mac, even Ginnie Mae very efficiently. We didn't have any programs that could not go to them. So we didn't have jumbo back then prior to this. And then also the PLS market was not something we were accessing. Now, all those things are in play. More jumbo, which is a couple of billion dollars a month, takes longer to be sold. At the same time, we also have the PLS market where we have some investment properties, second homes that we can take out. We've done a couple of deals out in the market, and we're in the process. We have to aggregate to hold those loans, although they can go directly to the GSCs; we can aggregate and hold them and have an arbitrage where we can pick profitability. There are a lot of different spots in our business. That's one of them that you're speaking of. Not only interest income went up by a little arbitrage on some gain on the sale. There's a lot of response where we can pick up margin, pick up what people would think are pennies. But pennies times 60,000 loans a month or whatever the number is, 150,000 loans in the quarter, it really adds up. We look at that, and we have a great capital market and financing that are looking at all of these inches we can pick up, and one of them was on the interest income that you saw and the arbitrage maybe on some gain on sale on some of these private-label securities.

Thomas McJoynt, Analyst

Great, thank you.

Matt Roslin, EVP of Legal Affairs and Investor Relations

We have time for one more question, operator.

Operator, Operator

Yes, we only have time for one final question. Your final question comes from the line of James Faucette of Morgan Stanley. Your line is open.

James Faucette, Analyst

Thank you very much. I'm glad to be able to wrap up here. I wanted to go back to your brokers and those relationships. I'm wondering a couple of things. Is there first, any idea or sense of your share with brokers in the U.S. where you're at and the potential to add incremental ones? Secondly, as you think about kind of growing the share of the broker channel itself, I think that the argument around, kind of the better pricing and even better service, in some cases, may resonate. But I'm wondering if there are other things that you could or should be doing to support the growth of brokers, whether it be direct advertising, investment, or some of these other areas beyond the support you mentioned, even as new brokers look to set up their own operations. Thanks a lot.

Mat Ishbia, CEO

Yes, thanks for the question. On our market share, because I believe the numbers will come out soon, but I think we're going to be well north of 30% in Q2. If you think about it, the three or four top competitors of ours all went down, and we went up substantially. I'd be very surprised if we weren't well into the '30s and growing, and we will be at 50% of that in the coming years because brokers choose us. They prefer to work with UWM as long as we're in the ballpark on price while at the same time delivering service, technology, and being great partners. Now on the partnership side, how can we help them continue to grow? We obviously helped build a website called findmorebrokers.com. We also have a phone number of 800-brokers where consumers call in daily, and we find them a local broker in their area. We can warm transfer them to a broker that's the right person in that community to help that consumer. We're doing more and more things, and we're going to continue doing more and more on the marketing side. The reality is there are three ways we can help brokers grow. One is consumers; educating consumers is essential because reality is the best choice is working with a local broker. The second thing is realtors; they're educated and warming up to the idea that brokers are a great option. The last piece is loan officers; they will transition to the broker channel. All of these will help grow the independent broker sector, and we'll do everything we can to support that. I think that's all the questions. I don't know if we're going to turn it back to the operator, but before I do, I just want to say thank you all for your questions. Tim Forrester will be available if you want to talk about anything else. I believe I've addressed everything anyone needed, but we're here for you, and Matt Roslin, my Investor Relations EVP, is always available as well. We appreciate the support, and we're pleased to share another record-breaking quarter here at UWM. We look forward to speaking with you again after the third quarter and sharing our results. Thank you for your time.

Operator, Operator

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