UWM reports financial loss in Q4 but expects margins to rise in Q1

The financials are all red for the top U.S. mortgage lenders for the fourth quarter of 2022. United Wholesale Mortgage (UWM) reported on Wednesday morning an unprofitable quarter, the day after Rocket Companies disclosed its most significant quarterly loss in company history to the market.  

UWM, the top U.S. wholesale lender, maintained flat gain-on-sale margins relatively in the fourth quarter of 2022, despite competitive pricing initiatives. But falling volumes and declines in fair value of mortgage servicing rights (MSRs) strongly impacted the company’s earnings. 

The Pontiac, Michigan-based lender announced a non-GAAP adjusted net loss of $53.3 in the fourth quarter, compared to an adjusted net income of $254.3 million in the previous quarter. The company’s GAAP net loss in Q4 was $62.5 million.

Non-GAAP adjusted net income came in at $719.4 million in 2022, compared to $1.2 billion in 2021. On Tuesday night, competitor Rocket Companies reported a $197 million non-GAAP adjusted net loss in the fourth quarter and a $137 million loss overall in 2022. 

Mat Ishbia, UWM’s chairman and CEO, said in a statement the company became the overall mortgage origination leader in 2022 while originating loans exclusively through the wholesale channel. 

“In 2023, we will continue to invest in technology to serve the broker channel and products that put brokers in a position to win,” Ishbia said. “As we have done in other purchase-centric markets, we’ll grow market share and emerge stronger to better capitalize on the next boom.”

UWM originated $25.1 billion in mortgage loans in the fourth quarter of 2022, compared to $33.4 billion in the previous quarter and $55.2 billion during the fourth quarter of 2021. Rocket originated $19 billion in the fourth quarter of 2022. 

In 2022, UWM’s production touched $127.3 billion, compared to $226.5 billion in the prior year. Purchase loans grew from 38.5% of the total share in 2021 to 71% in 2022. 

UWM’s total gain-on-sale margins went from 52 basis points in the third quarter to 51 basis points in the fourth quarter. In January, the company announced that it would give 125 basis points to brokers as a discount for any loans, with up to 40 basis points per loan. It could be risky, according to mortgage compliance experts. 

Fourth-quarter earnings were impacted by a $150.8 million decline in the fair value of MSRs. UWM had $312.5 billion in the unpaid principal balance of MSRs as of December 31, 2022, compared to $319.8 billion one year earlier.

UWM ended the fourth quarter with $886.2 billion in cash and self-warehouse. 

The company projects first-quarter production between the $16 billion to $23 billion range. Gain-on-sale margin is estimated to be between 75 and 100 basis points, which suggests its pricing incentives will be trimmed back.