While Chairman and CEO Mat Ishbia highlighted plenty of positives from the first quarter, United Wholesale Mortgage is guiding to fewer originations — and likely lower revenue as a result — even as it plans to continue promotions undercutting certain competitors on pricing.

Parent company UWM Holdings reported first quarter earnings of $453.3 million, including a $172 million increase in the fair value of its mortgage servicing rights.

This is compared with net income of $239.8 million in the fourth quarter (including a $139 million decline in the MSR valuation) and $860 million in the first quarter of 2021.

UWM services $303.4 billion in mortgage loans, down from $319.8 billion in the fourth quarter but above the $221 billion as of March 31, 2021.

“Our book is one of the best in the country, our [weighted average coupon] is at 3.04% up from 2.94%,” Ishbia said during its first quarter earnings call. “But our value in our MSR book is so strong because we originate so much business every quarter, even after selling some MSRs.”

The company sold $73 billion of MSRs during the quarter, which brought in liquidity of $872 million.

“That doesn’t impact our [profit and loss statement] much,” said Ishbia. “However, liquidity is important as you see our liquidity is in a great position across the board.”

UWM’s balance sheet had $901.2 million in cash and cash equivalents as of March 31, compared with $731.2 million at the end of December and $1.6 billion one year prior.

Assets shrunk to just under $11 billion on March 31 from $22.5 billion on Dec. 31, as the company was able to sell the loans it aggregated in advance of the conforming loan limits rising.

UWM originated $38.8 billion in the first quarter, including $19.1 billion in purchase mortgages. That is the most purchase production in a first quarter for the company. For the fourth quarter, it originated $55.2 billion, with less than half, $24.5 billion, being purchase. And one year ago, UWM did $49.1 billion, but only $12.1 billion was purchase.

NMN051022-UWM 1Q22

Gain on sale margins improved 19 basis points from the fourth quarter to 99 bps from 80 bps. But it was less than half of the 219 bps in the first quarter of 2021.

But UWM is guiding lower for the second quarter both for production, between $26 billion to $33 billion, and its GOS margin, in the area of 75 bps to 90 bps.

Asked about that market guidance, Ishbia noted that UWM controls its margins and was not being reactive to the market. He feels confident about that range. Furthermore, 75 bps to 85 bps was the bottom of where UWM would go in terms of pricing.

The promotions that UWM has done, including one right now in which the company promises to beat the loan pricing of 20 of its competitors, has no impact on the GOS guidance, Ishbia said.

“We feel really good about the value,” he added. “We feel really good about putting pressure on some competitors while helping our brokers continue to win.”

Staffing, a hot button topic in the industry right now and one that Ishbia recently interjected himself, was brought up several times during the question and answer period.

“Everyone else has been so dependent on refinance for so long, that their costs were bloated and so they had to reduce that; we did not do that,” Ishbia said. “We did not scale up the people…our technology didn’t require us to do so and therefore we don’t have to scale down the people to stay profitable.”

When asked about attrition, he said right now UWM is hiring, and while people always leave the company, that does not affect its costs.

However, Ishbia later was challenged directly on the call, being asked why he wasn’t taking out costs more aggressively.

In response, he pointed to the first quarter results and declared he, the shareholders and his staff feel very good about how he runs the company.

“Some people think very short sighted, ‘oh, can I save $5 million a month?'” Ishbia continued. “Well, if I keep my team members, I do a great job supporting them, build the culture that we built, you know what happens in July of 2024, rates go down a little bit. I make an extra $400 million that month.”

But if UWM cuts in the short-term to save $200 million over the two years until then, he doesn’t make that $400 million in July 2024, he said.

UWM outsources the servicing function and Ishbia said while the company discusses bringing it in-house, it is a balancing act.

“It could save us a couple million dollars, but at the same time, there’s a lot of other places that we invest our time and technology to grow,” he noted. “But there’s a lot of other things that are out there that we think will generate income, along with generating growth for our broker channel, helping our loan officers win.”

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