United Wholesale Mortgage (UWM), the nation’s largest wholesale lender, posted a drop in origination volume and profits in the second quarter compared to the first three months of 2022, even after maintaining its gain-on-sale margins and increasing the fair value of mortgage servicing rights (MSRs).
But the Pontiac, Michigan-based lender improved its performance compared to the same period of 2021, as the company has adopted a more aggressive pricing strategy to win in a purchase market. The result? UWM reported stronger profits than the market leader Rocket Mortgage in the second quarter and cut its rival’s lead in origination volume.
UWM on Tuesday reported $215.4 million in profits from April to June, down 52.5% from $453.3 million registered in the first quarter of 2022. Compared to the second quarter of 2021, however, profits increased 55.3%.
First quarter earnings were buoyed by a $26.2 million increase in the fair value of MSRs. UWM had $308.1 billion in the unpaid principal balance of MSRs as of June 30, 2022, compared to $260.5 billion exactly a year earlier.
Mat Ishbia, chairman and CEO of UWM, said the company benefited from the larger momentum of the broker channel, which drove the results. “Not only were we able to deliver strong profitability, we also continued our streak of delivering significant purchase volume.”
According to its earnings report, UWM originated $29.8 billion in mortgage loans in the second quarter of 2022, a 23% decrease compared to the previous quarter and a 49.5% decline year-over-year. (Rocket originated $34.5 billion in the second quarter and posted profits of just $60 million, down from $1 billion a quarter earlier.)
Purchase loans grew from 40.7% of the total origination volume in the second quarter of 2021 to 75% in the second quarter of 2022 to $22.4 billion, the lender said. Gain-on-sale margins remained at 0.99% in the second quarter, compared to the first quarter of 2022, and increased from 0.81% one year ago.
UWM forecasts loan production between $23 billion and $28 billion for the third quarter, the same forecast that Rocket is projecting. Meanwhile, gain-on-sale margins at UWM in Q3 are expected to be between 0.30% and 0.60%, much lower than the level in the second quarter.
UWM has been open about its strategy of engaging in a price war with its competitors. In June, the company dropped rates by 50 to 100 basis points across all loan types, following a two-month price-match trial in 30-, 45-, or 60-lock pricing by 1 basis point to a maximum of 40 basis points.
To support its strategy, UWM had $958.6 billion in cash and cash equivalents in the second quarter, compared to $901 million in the prior quarter and $1 billion one year ago.