Yahoo Finance

Andrew Hubacker

Thank you, Matt.
Our momentum for the year continued in the third quarter as we reported positive GAAP net income and remain profitable operationally and on an adjusted EBITDA basis for the quarter and year to date despite the impact to MSR values of the decline in market interest rates. Total production volume of $100.8 billion year to date is an approximate 20% increase from the same period in 2023. Year to date, gain margin increased to 111 basis points from 92 basis points last year. We have continued to invest significantly in the people, processes, and technology which we think prepare us well for the next market cycle and these increases in volume and gain margins have allowed us to maintain operational profitability while making these investments.
As to our balance sheet and liquidity position, we ended the third quarter with total cash of over $600 million and only $300 million outstanding on our lines of credit. There were few additional MSR sales executed during the third quarter but most of our MSR and excess sales for the year were front loaded to the first half. Year to date, net cash proceeds from MSR sales approximated $2.6 billion and we ended Q3 with an MSR portfolio of approximately $212 billion. Total accessible liquidity approximated $2.5 billion at the end of the quarter including cash and available borrowing capacity. And our total equity, capital and leverage ratios continue to be at acceptable levels in the current environment. Overall, we believe that we remain well positioned with more than sufficient liquidity to capitalize on future market opportunities.
Okay. I will now turn things back over to our Chairman, President and CEO, Matt Ishbia for closing remarks.

Mat Ishbia

Thanks, Andrew. I'll close with a few points. The brokerage channel through this year has achieved its highest market share since 2009. And a part of that is attributed to the amazing loan officers in the industry and the service we provide. But it's also because we save the consumers thousands of dollars in many situations and make the process faster, easier and cheaper for consumers. Mortgage brokers are the best place for consumers and consumers are realizing that day over day.
One other major differentiator at UWM I want to mention is since 2016, none of my direct reports have left the company outside of the passing of our CFO, Tim Forrester. We have consistency in leadership continuity and we've grown and built this business together as a team. This is a big differentiator in all industries, but definitely in our mortgage industry as most of my competitors have major turnover at the higher end of the executive team. Another point is about the strength of our purchase business. 2024 is on track to be the lowest year of existing home sales since 1995 yet through three quarters, we've delivered nearly $75 billion of purchase production and we're on track to break the full year all time purchase production record. Think about that, it makes me really excited to see what we're capable of when the purchase market rebounds in 2025 and beyond with lower rates and more inventory.
I'll reiterate something I said in the last call, our focus is on making the broker channel number one, which means the broker channels share higher than 50% which is almost double where it is today. But regardless of what the market does, we'll succeed. If rates stay higher, we'll continue to grow share. And if rates go lower, we'll make a lot more money and continue to win. As I said, many times, we are built for the long term and we're really ready and able to embrace all cycles.
Before I talk about the guidance, I want to talk about the market in the third quarter. As I said before, I see 3.75 as a key level on the 10 year. If it glows below that, we have a massive, massive opportunity. In this quarter, it didn't quite get there. And now it's back up to 4.40, 4.50, wherever it is right now. But it is bordered with the 3.75 levels for a couple of weeks and that's why we were able to post such a big refi number in the quarter. Basically, we've got a two to three week window stress test and to see what our performance would look like on a longer term refi market and what our margin will look like and how much production we can do and how we'll maintain it.
So now you saw a little glimpse and that's why our third quarter was so great across the board from an origination perspective and again, on sale. Think about the stock for a moment. We feel really great about where we're at. We've increased the float. We've proven that we've consistently paid a dividend, which is now 6%, 7% based on what the stock price is. And I just laid out a pretty strong case for what the future of our business looks like not only because we understand the markets and where the 10 year probably will be with the Fed cuts and all the things that are going to happen. But just our business and how we're prepared for the refi boom. We've seen a little glimpse and we feel great about where we're at. It's a time to be part of the UWM team.
Turning to guidance, we expect our third quarter production to be between $34 billion and $41 billion and I continue to see the market and profitability strengthening and I feel really confident that our gain margin will basically remain between 85 basis points and 110 basis points and we will continue to do great things. I want to thank our team members, clients, shareholders and we're going to continue to win together here at UWM.
Now let's turn over to Q&A and we'll go from there.

Question and Answer Session

Operator

(Operator Instructions) Derek Sommers, Jefferies.

Derek Sommers

In the EBITDA bridge, is the line item gain on other interest rate derivatives related to hedging the MSR?

Andrew Hubacker

Yeah. Thanks for the question, Derek. No, it's not. We don't really hedge MSRs. We do a lot of everything. We sell our MSRs. We've gone through a lot of different things over the last couple of years that we talked about on how we believe MSRs obviously selling a lot of our higher wax stuff has turned out to be very positive and in a good way for our business. The interest rate derivative is something that we look at and we look at all the time. Sometimes we'll be positive, sometimes negative. We look at different ways of understanding the market, analyzing the market and addressing the market. And so I don't look at it as a hedge. We don't really hedge our MSRs, but there is obviously some opposite trends based on the MSRs. Sometimes we put out that interest rate derivative, but that's a decision we make with our risk committee, our CFO, myself on when we do that, when we don't do that and how we run the business.

Derek Sommers

And then in terms of gain on sale margins in the quarter, kind of what were the puts and takes dragging a higher quarter over quarter?

Andrew Hubacker

Yeah. Well, like I said, you got a little glimpse of whatever the three weeks where the 10 year was close to where we talked about where refis became a thing. And when refis become a thing, as I've been saying, for years, our margins will go up and our volume will go up. And so we kind of got a little glimpse of that where we've probably been more in our range that I guided towards the last quarter and this quarter based on where the 10 year was and then it dropped down.
We took advantage of it, our brokers took advantage of it. We all did very well. And so the gain on sale margin got propped up because of that along with the volume. So I think it's a great glimpse into the future. We all believe that the tenure will be down below 4, blow below 3.75 over the next 6, 12, 18 months potentially or longer. And you can kind of see that our volume and our gain on sale will go up just as we've been saying for years.

Operator

Bose George, KBW.

Bose George

I just wanted to follow up on the gain on sale. Can you just talk about trends you're seeing in the fourth quarter now with this -- with the backup in rates and seasonality as well?

Mat Ishbia

Yeah. To fish the question, obviously, once again, I -- that guided to the way I guided, based on understanding where the market is right now versus where it was in August and early September, right? So obviously that August and early September rates give us an opportunity to make a little bit more on margin. Also we have a lot of other ancillary products that we talked about. I mentioned PA plus and TRAC+ and some of these things that are adding margin onto the bottom line or top line. However, you want to think about that as well.
But we see where the market is right now and I think I guided to the right area, 85 basis points to 110 basis points. And as you've seen over the last couple of years, I've kind of moved it up different levels and look at it and when the 10 year drops a little more and rates move and we obviously the Fed probably dropped rates today, so we'll see how that moves and then the markets rallying a little this morning. We adjust and so I try to give you as much knowledge and information and accuracy on the gain on sale margin area every time I speak to you guys.
And that's kind of where I see it right this second. It can change quickly. It can go to 10 years, it'll go to 475, then, it'll go to 3.75. The margin will move. And the nice part for you guys to understand what I said at the very beginning was we're prepared to handle the volume where other places are not. And so we've been building our business to be prepared for doubling our company literally can we double our company and that's very realistic. That's what I said about the stock. Like we're in a great, great position, we're making money, we're doing great stock pays a dividend, 6 7% whatever it is right now, based on how low the price is and we're like completely in control of the business ready to double potentially, right?
That might be an extreme, but it might not be to be honest. So it's a huge opportunity to do $40 billion, $50 billion, $60 billion quarters when rates drop. And in the meantime, we'll plug away and dominate in the purchase market like we have been.

Bose George

And then actually just one on the ancillary products. Can you just talk, you mentioned TRAC, and TRAC+, how's the traction on those products going?

Mat Ishbia

It's going well, those products are going well, just like anything you got to get adoption of our clients, you got to make sure you execute at the highest level and then you got to continue to build it. So it's going as planned, we wanted to make sure those products were out ready to roll prior to the boom and they are and then how do we ratchet that up and grow? It's not going to be a huge gain on sale difference. But it is just another way to help consumers save money, help brokers differentiate themselves and make it so that people want to work with UWM. And so it's a win, win, win.

Operator

Eric Hagen, BTIG.

Eric Hagen

Well, just looking at the adjusted EBITDA, would you say that that's a good reflection of your cash earnings? Are there any considerations which might kind of affect the the cash earnings relative to that number? And is the cash flow that's generated from selling MSR is also reflected in the adjusted EBITDA figure?

Mat Ishbia

Yeah, I really don't look at it that way, Eric. Andrew, if you want to comment on it just in general. But I don't -- that's not -- it's not a reflection of the cash flow based on MSRs and how you keep MSRs with whether it's with the different capitalization of it, it doesn't really tie to cash flow but Andrew you want to. No.

Andrew Hubacker

I think that's right. Capitalization of MSRs is not excluded from that, but the scales of MSRs, I think a combination of capitalization and sales of MSRs gets you closer to more of a cash cash flow metric.

Eric Hagen

Maybe one more on the margins. I mean does the guidance around the margin going forward incorporate these latest rate moves over the last couple weeks? And do you think there's any room for margin expansion at these higher rates or is that not really something that investors should focus on?

Mat Ishbia

Well, as you saw, there's definitely room for market margin expansion when the market moves a little bit, right? So as soon as the market moves, we take advantage of that and have that opportunity. I guided to 85 basis points to 110 basis points last quarter and we put up 118 basis points. Well, over the guidance based on where I guided this time, if the market would have stayed where it was, I'd be guiding to a higher margin. If that's answering your question, the market has not only backed up, it backed up quite a bit to where the tenure is 435, 444, 150 whatever it is right? This second, I don't know, but based on that 85 basis points to 110 basis points is the right guidance and we feel really confident in that.

Operator

Jeff Adelson, Morgan Stanley.

Jeffrey Adelson

You had a really nice quarter for five this quarter. I guess just with the strength and applications we saw at the end of last quarter and sort of the we've seen, thus far this quarter down, the refi index from NBA showing us down about 50% since the quarter end for refi. Just curious like how much of this 34% to 41% is just the kind of follow through of closing the rate lock you saw at the end of last quarter and does the midpoint of the guy kind of embed where the 10 year and mortgage rates are sitting today. Maybe just sort of talk through what you're seeing in the rate lock volume so far this quarter versus last quarter.

Mat Ishbia

Yeah. So I don't really look at the rate lock volume as an indicator of how we do our business. I look at imports. I look at registrations, I look at submissions, I look at our flow of our business, our approval condition pipeline. So there's a lot of other aspects and details I look at which is obviously different to other people that run their business. But the other thing about our business is we're different. A lot of people will get a lot of rate locks from September and close them in November and December. That's not UWM. UWM closes them in 10, 12, 14 days.
So you've got that $39.5 billion pop based on locks from September to be clear, and obviously, so now with that being said, purchase market usually slows down in the fourth quarter. The market has slowed down as you pointed out. But do we feel confident we can still do 34 to 41, yes, we do. October was a 23 business day month, November and December, obviously shorter months with the holidays and a lot of things and a lot of times brokers and all people in the world take some time off between the December 15 and beyond. And so we're cognizant of that. I feel very confident that we'll hit between 34 and 41 and between 85 basis points and 110 basis points. And I think the best part about this quarter was I was able to show as we've been talking for years that we are prepared and ready to dominate on the refined market, just like we have on the purchase market.
And as soon as that market comes to our direction, we will capitalize on it and capitalize on it very quickly. And so if the tenure dropped to 3.75 in 25 minutes or an hour, you'd see a different fourth quarter than I just told you as in a higher margin and higher volume. But if it goes to 4.50 where it's basically been at or went to last a couple of days after the election, then you'll see what I kind of posted. So I feel good about where we're at. We'll hit 34 to 41 and be prepared for a dominant 2025 on purchases and hopefully on revise as well.

Jeffrey Adelson

And just any update on sort of the update you're seeing on the new, Cash-Out 90 product. I know it's only been three weeks but just curious if there's any sort of early reads you're seeing there.

Mat Ishbia

Yeah, it's been a great program, obviously exclusive with us and something that's differentiating our clients, the issue, obviously, since we rolled it out, rates have done nothing but go up, right? So there's a balance of how much of that we saw and expect to see versus what it will be when I keep saying the tenure. But when rates, you don't understand how tenure and rates tie together when rates are a little lower. So it's been great. It's definitely a differentiator, but it's not as high volume as you'd expect in a refined market. It will be extremely high volume, I believe.

Operator

Terry Ma, Barclays.

Terry Ma

So you've mentioned for a while about investing in and preparing for lower rates ahead and you pointed toward the two to three weeks stress test this quarter. Maybe just talk about what ending you're in with respect to those investments and then maybe longer term, how much more upside we I share you can actually get?

Mat Ishbia

Yeah. So I mean, our investments have been wonderful. We feel great about where we're at. We're prepared. We don't need to go hire a bunch of people to double this business. Like I say, I say double, it's probably not, I don't want to exaggerate it. So, but significantly grow very quickly. So we can handle a lot more volume right now with our technology enhancements, with our hiring, with our training, with our coaching. We are prepared and ready to go today, right? And tomorrow. And so that's my job as the CEO as I said at the very beginning is one to dominate the purchase market. Show profitability continue to pay the dividend and reward my shareholders and then be prepared and be the most prepared company in America, which we are, we're prepared on technology, we're prepared on efficiencies, we're prepared on operations.
And when that happens, we will significantly grow. And I think that will be 2025. And I think you'll see the results in our volume growing and our marginally growing next year. With that being said, I don't control interest. So I don't spend too much time focused on them because when they come, I'll be prepared when they stay where they're at, we'll dominate and purchase. And that's why it's great to be part of the broker channel, what we do and support our brokers and build and our business is profitable and exactly how it is today, but we can scale quickly with our team and our staffing that we are at right now. So we feel great. We're prepared as good as we've ever been and we're now just watching the market and continue to dominate our day to day basis until that happens.

Terry Ma

And I think you mentioned in your prepared remarks that you were able to increase the float. Can you maybe just talk about that and then your plans for increasing the float in the future?

Mat Ishbia

Well, it's been a common theme for my investors is how do we get more float out there? What can you do to do it? And we've done different creative ways to get more float out there to the market. And we will continue to look at that right now. I'm not looking at that more this year. However, we will always look at ways float matters. And so if that's something that's holding our stock price down, which I've been told for years, it is, we'll continue to do our best to get more float out there in the hands of our investor base.
So they can continue to invest in our company and go from there and take advantage of the high dividend we pay and all the other things. So, we'll continue to look at that. I'm always opportunistic in that and looking at ways to help. But at the same time, there's certain things I won't do to expand it. But right now, that's what we focus on the fourth quarter or the third quarter, excuse me. And hopefully you've seen some of those results in the float is materially different than it was, you know, six months ago.

Operator

(Operator Instructions) Brad Capuzzi, Piper Sandler.

Brad Capuzzi

Can you just give us an update on the dynamics playing out within the broker channel? Some of your peers have been talking up opportunities within the broker channel recently. Obviously, UWM is a stronghold on the channel and it's continued to grow market share. But I was wondering if you expect pricing to be rational and if you're seeing any increased competition.

Mat Ishbia

Yeah. No, it's, it's always fun and cute when my competitors like to talk about wholesale and what they can do. They've been saying that for years you should go back to their going public and their earnings calls and all their cute little things they say. But the truth is we dominate the wholesale channel because we care about the brokers and only the brokers, we invest in the brokers and only the brokers, we want the brokers to win and only the brokers to win. And when they win, UWM wins because we're a team and so zero concern about that. I control the margins.
They don't, they will follow our lead and enjoy that. And at the same time, we'll continue to grow and build our business. And so we feel great about where we're at. I don't really pay attention to what they're saying. But the truth, they have to say something on the earnings call to make themselves feel good and make you guys want to invest in them. But right now, we dominate the channel and that's not because we're the best. It's because we care the most we care about brokers. We will help the brokers win. We have helped the brokers win and brokers know that. And so all I care about is helping the brokers win our channel. Our focus is to help the brokers grow, help them succeed and dominate and when they succeed and dominate, UWM does as well. And it's been a pretty good way for success over the last couple of years.

Brad Capuzzi

And then just the last question for me in terms of MSR, as you mentioned a few sales this quarter with the beginning of the year being more front loaded, what is your expectations going forward with MSR sales?

Mat Ishbia

Yeah, once again, opportunistic, we'll look at it again, and looking at the cash needs of the business and people want to pay us high multiples which they do, we'll sell some MSRs and at the same time, we feel really great about our business and don't feel like we have to sell any MSRs in certain situations. So we manage that. We look at that, we meet with our risk committee, I meet with my executive team and we make decisions, we feel really good about where we're at. We're obviously still producing a high volume of MSRs where most people don't. And so people that are new originations are wanted by a lot of these MSR buyers.
And so we're obviously a big target for that. So we'll continue to do that and look at that, but we have no requirement to sell MSRs we look at that opportunistically and whatever I think is best for the business, the investors, our partners, everything and we analyze it on a day to day or what's called more realistically a week to week, month to month basis.

Operator

Doug Harter, UBS.

Douglas Harter

Can you talk about the higher gain that you achieved? Is that a difference in gain between kind of purchase and refi or is it kind of your capacity and technology that allows you to kind of seize on the opportunity when volumes increase and those volumes, whether they purchase or refi have have a higher gain?

Mat Ishbia

Yeah, I mean, I think the gain on sale is tied to, I talked a little bit about the ancillary products, but I really think it's tied to being able to handle the capacity. And the reality is when rates drop, people think refis are more price sensitive, but they're actually, I don't look at it that way. I look at it as there's so much volume. People want to close their loans fast and efficiently. And when a borrower is saving $94 a month versus $96 a month, a lot of times borrowers are not focused on that, they want to get the savings now.
And so our brokers recognize that and they want to close loans fast and efficiently. So, gate on sale for the whole industry, not just UWM will go up when you guys come back. And so based on the tenure, you can probably pretty simply draw a little conclusion based on 10 year, the 10 year rates or the 10 year versus gain on sale.
And as the tenure goes down into the threes margins for UWM, but really everyone in our industry will go up and how much they go up is depending on their preparations for scale and the preparation and ability to close and execute. But it will definitely go up. People, it's definitely more price sensitive and price competitive when the tenure is higher because people can't afford the house potentially if the rate isn't at 6.99 versus seven and eight. Right? But when you're saving $68 versus $71 or $97 versus $101 or $186 versus $188, people are not as sensitive on that.
They're just decided to save $186. And so I think that's just not just, that's not a UWM thing, that's an industry thing. And so when the tenure goes down to $375, $350 you'll see all of my competitors, everyone in this industry will have higher margins and higher volumes. So it's a very positive thing for our industry. In the meantime, we'll continue to do great and we're at.

Operator

And we did have an additional caller come into the queue. So this will be your last question. Jordan Hymowitz, Philly Financial.

Jordan Hymowitz

You mentioned that had rates stayed a little bit lower that you're prepared to guide up on the margins. It had rates stayed where they were in mid to late September. Where do you think the fourth quarter margin guidance would have been?

Mat Ishbia

So obviously, I don't know exactly what it would have been. I would have definitely looked at analyzing the market and seeing where they stayed and understand the levels, but understand that you saw our margins was 118. I wouldn't have thought if the 10 year would have went down, our margins would not go down, right? So that's how I would have thought about that is that we definitely would have guided up a level, maybe a level or two and probably been in a range like that. And so we'd expect it to go up. I do expect margins to go up as the tenure goes down, but it's hard to think back what I would have done on September 20 after they lowered 50 basis points. But the market got worse.
So, but I understand where the market is today. When the tenure goes down, our margins will go up and when our margins go up, we will do more volume with higher margins and a better return for our investors, our dividend will continue as it continued going forward. So as investors, like I said, at the end of my prepared marks was, it's a great time to be a partner at UWM because you're getting a great dividend today and you have the upside of the stock price, which I know some, you know, analysts, I believe we will go much higher, we believe we will go much higher and you get the benefit of gain on sale volume.
And a tailwind, obviously, with the new President, there will be some new changes like a lot of really positive things in our business. So we feel like there's a nice tailwind behind us, we feel great. But at the same time, we're going to sit here and patiently wait while the tenure to see what happens with the rates. But in the meantime, we'll continue to dominate on purchase, help our brokers grow, continue to build the business and be the most prepared mortgage company in America.

Jordan Hymowitz

Does the mortgage spreads the treasury impact that number as well because that's widened out appreciably?

Mat Ishbia

Yes, of course, it does, right. So obviously, whether that's wider or then that's all tied to it. That's why as you, you're obviously instincts and understanding the knowledge of the 10 year is not the perfect metric. I'm just using it because it's the metric. Everyone talks about obviously the spread between that changes as it gets bigger, it's less exciting for me and when it gets smaller, it's more exciting. But in general, it's the trend I'm talking about the 10 year is a good indicator for everyone to understand where the refi action will be based on where the market has been on '22, '23 and '24. And the 10 year at 375 is a pretty good bellwether and below 10, 375, I think you'll see a lot of refi activity, higher margins and a little bit of fun for all the investors and also at UWM and our brokers and for consumers. So everyone's going to win across the board.
But I guess my point is the last thing is even if the 10 year stays higher mortgage price, the treasuries could narrow even to where they were six months ago, much less, but they were historic highs and you could get a wider gain on sale margin from that into 2025.

Andrew Hubacker

Absolutely. That sounds like fun for me too. I think all those things can happen. There's 38 variables is going to be the most common one and we feel really good about it when we're ready.

Operator

And that will wrap up the Q&A portion. I'd like to turn the call back over to Matt Ishbia for closing remarks.

Mat Ishbia

Yeah. Thank you. And thanks everyone for the questions and being part of it we're excited about. We at a UWM, we're excited for the fourth quarter and we're really excited for 2025. So the company is in a great position. We appreciate the support and we're excited to continue to win with our broker partners. Our brokers are doing great. We're doing great and we're going to continue to win together as a team. Thank you. Have a great day.

Operator

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