UWM Holdings Corp (UWMC) Q2 2026 Earnings Call Transcript

Audio gap. I'm going to go through every one of them; at least I'm trying to get through every one of them. Hopefully make it as effective for everyone as possible. Before I get into that, obviously, from a second quarter perspective, operating income, over $180 million adjusted EBITDA along with about $40 billion of business. We feel really good about UWM and the strength of the broker channel and the growth of the broker channel. So we feel great about where that's at. Obviously, I got so many questions about the Oaktree partnership, the dividend, Two Harbors, the hedging; we're going to get through all that stuff, and I'll try to get through it. Before I get into it, I wanted to start with the overall picture from where we are at UWM and the partnership with Oaktree. We feel great about Oaktree and the partnership that we have and are creating — and Oaktree is not just capital, they're strategic partners of ours. They have MSR background, non-agency — they have a lot of mortgage-related experience, and they're betting on housing, and they're betting on UWM. And so we're excited about the partnership and what it's going to do for our business long term, and that's what we always think about: how do we dominate long term. The mortgage market has been tough for the last five years now. And UWM has consistently made operating income. Two Harbors recognized the strength of our business and asked, how can we take this to the next level. From a strategic perspective, we see a lot of the same vision about the brokers, about the operating model and infrastructure that we've built to help the independent mortgage channel grow and dominate. That's really what we're about here at UWM. Housing and mortgages are going to be here and be strong. It's a huge market. It's been a tough four to five years, and we expect the next four or five years to be significantly, significantly better. In the tough years, we still are successful and profitable at UWM. As Oaktree points out many times — we spent time with them — and now it's how do we take it to another level. The balance sheet is fortified. The debt ratios that people are concerned about are non-questions anymore, and we're ready to go forward in a really, really strong way. So with that being said, I know there are AI questions, there are dividend questions. So let me just go into all these questions and hopefully answer all of them. I'm going to try to mention a couple of people that asked the questions, but to be fair, I think we got the same questions from about 15 different people. So I won't name everyone's name that asked the question. But the basic question is, hey Matt, UWM, why are we cutting the dividend now? The first part, how we got here: a lot of things tied to the dividend. We've always rewarded our shareholders, and we feel good about rewarding our shareholders, and we're going to always look at ways to do that. The decision to cut it right now is just capital allocation. Right now, after this transaction, after the $2 billion plus, which is the largest capital raise, I think, in mortgage history, we're going to have over $3 billion of equity. So how do we continue to build on that going forward? The dividend obviously takes out from that. We made the decision that the right thing for our business for the long term is to continue to build up equity, continue to solve for the debt ratios, which are well below industry norms now with the capital infusion, and run the business in the most effective way. Will there be special dividends down the road? Possibly. Will we go back to a regular dividend? Possibly. We look at that every single quarter with our Board of Directors and see what's best. But right now, I see a going-forward path of retaining equity, retaining earnings, continuing to build, continuing to grow and take advantage of the market in front of us. Liquidity matters, equity matters, and we have the best operating business and infrastructure for brokers to grow and dominate. If I can make sure the capital and liquidity are in a great position, then the rest takes care of itself. Once again, it's been a tough four to five years in the mortgage industry. The next four or five years are going to be significantly better. Oaktree believes in that. They believe in housing, they believe in UWM and so do we, and so do I, obviously. That's how I think about the dividend. It's the right time to pause and suspend that process. We'll evaluate every quarter with our Board. Let's talk Two Harbors. A couple of questions on the transaction. Did that create the need for capital? I don't really look at it that way. The way we look at it is how do we make sure we have a good amount of equity, good ratios, and a fortified balance sheet. That's a big part of why we have the capital raise. It's not just capital because if it were just capital and I could put money in myself or have random people put capital in, that would be different. This was a strategic partnership with Oaktree because of their MSR background and their knowledge and sophistication around capital markets, which will help us in many ways. We're excited about the partnership. The Two Harbors transaction definitely was unfortunate in how it happened. You'll see some litigation and some things that they did inappropriately, and we'll go through that process when the time comes. However, I'm not going to spend my time talking about that. The Two Harbors transaction was one of the strategies of helping from a cash, liquidity and equity perspective. When that did not go the way we expected, we had another option. It's great to have options. Oaktree wrote a massive-size check to be part of this and to be next to me and UWM and help us grow together. If the Two Harbors deal had closed, maybe the Oaktree thing would not have happened as quickly. The silver lining is Oaktree is a better partnership for us than Two Harbors or anything else would have been. I think of it as a long-term upside for UWM the way it all played out. We'll go through the litigation process with Two Harbors, CrossCountry, and some of the inappropriate things that happened in that deal. Now, the hedge loss: can you please explain the hedge loss, what caused it, and how investors should think about it? Hedging in general in the mortgage industry is expensive, and it's something I generally don't believe in. We have traditionally not hedged our MSRs. Our origination machine is so big and strong that if rates drop, you'll lose MSR value and equity, but you'll do so much more business that you're good. If rates go up, your MSR values go up and you do fewer originations, but your equity goes up. That's how we've always played it. When acquiring a company like Two Harbors with a massive MSR book, our MSR book became double the size of what we've always managed, creating more risk. So when we did put a hedge on to protect against that risk, a lot of things happened: geopolitical events and other market moves caused the 10-year to go up, and then the Two Harbors transaction went away. A confluence of events created a hedge loss. We hit a certain risk threshold and decided not to continue hedging because we didn't want more of an equity drain, and we took the hedge off. That's our long-standing strategy: let's not hedge, let's run the business effectively. Oaktree has a strategic perspective on this, and we'll go through that with them and decide whether we hedge going forward or not. With $3 billion of equity, you're not at risk from an MSR value move of a few hundred million being as relevant. When you're hovering around $1.5 billion or $2 billion, it's more relevant. This was a onetime, transaction-specific event tied to Two Harbors; the market moved against us, and it's a onetime event that won't happen again. Our hedging policies are stronger now, and we're not planning to acquire another company with an MSR book like that at the moment. This is not a reflection of our operating business. As I pointed out at the beginning of the call, we consistently generate roughly $160 million to $200 million of adjusted EBITDA almost every quarter, a little higher if you look at the numbers. What did management learn from the hedge loss? I covered this. It was a unique circumstance. Traditionally, we don't hedge MSRs at UWM. With the size of the book we have now, we wouldn't be hedging MSRs at that level. The market moved in a certain way, and it was an unfortunate, unexpected event. We're looking forward and know what our business is about; the operating business is great. The balance sheet is fortified and has never been stronger. I looked at the balance sheet from 2020 and 2021; $3 billion is kind of the high watermark, and we're going to be at that number when this capital raise is done. After another quarter or two of earnings, it will continue to grow. With no dividend, that will strengthen our balance sheet and liquidity, and then we'll continue to build and dominate helping the independent mortgage channel operate with AI and the investments we've made for years. So I think that covers those points. Now, a bunch of Oaktree questions. Why was Oaktree the right partner for UWM at this point of the cycle? Oaktree has a great background and reputation from their leadership to their mortgage knowledge and belief in housing. They believe in housing and UWM, and we partner together. My background has been that I'll just do it myself; we don't often bring outside parties in. But as we started in-depth conversations with Oaktree, I realized the strategic benefit of bringing someone next to me. Instead of me putting in $1 billion or more, I put in about $500 million, $550 million and they put in $1 billion to $1.5 billion. That's how we get to the $2 billion. It's strategic money, not just capital. We'll have a member or two of their team on the board, they'll have different perspectives, and they believe heavily in our strategy and vision for the broker channel, the infrastructure, and the AI investments we're making. They understand the cycles of the industry. In most cycles, mortgage originations are on the order of $15-plus trillion across years and the good years of $2 trillion to $4 trillion are likely coming in the next three to five years. They understand this is an amazing time to be partnered with UWM. I'm the biggest shareholder and put significant capital into this deal. We believe in the market and in UWM, and Oaktree is a great partner. People look at the size and cost of the transaction and say Oaktree is getting a great deal, which they are, and they should get a great deal. When Oaktree makes a lot of money, so do shareholders and UWM. Everyone is going to win together. Will the warrants become very profitable? I think everyone that owns shares today will make a lot of money as well. Oaktree wrote a $1.5 billion check; I'm putting up to $550 million. I believe that's an opportunity for everyone to succeed; it's putting common shareholders and debt holders in a better long-term position. My job is to run the business most effectively for the long term, not for today, August 6. It's about 2027, 2028, 2030, 2032. Anyone partnered with us — including Oaktree and me as a big shareholder — will win together. It's about UWM, the operating platform, the AI, and the technology we've built to dominate long term. Our balance sheet is fortified and integrated. Yes, Oaktree is getting a great deal, and I'm happy for them. When they make a boatload of money, most of our shareholders will also benefit, especially based on where the stock is today. We're excited about everyone winning together and we'll continue to win going forward. Debt ratios and equity: total equity increases from roughly $1 billion to roughly $3 billion and growing. The non-funding debt-to-equity ratio spiked at the end of the quarter because of hedging losses to over 5x (I think 5.6x), but now we're down to 1.2x. So 1.2x is well below industry norms. Most operate at 1.5x to 2x. We're well below that and have plenty of room to grow. The $2 billion capital raise is a real positive. Is the company stronger today than six months or a year ago? Anyone would say yes. We have never been better positioned, not just because of equity and liquidity but also because of the Oaktree strategic partnership and everything they bring. We're the best and biggest mortgage originator in America. We brought servicing in-house. We are dominating in that respect. Operating-wise, we have a massive moat. The broker channel is growing and our infrastructure and AI are helping them grow further. Even in bad years, we've been doing well operating-income-wise. Why choose preferred equity with warrants instead of issuing common stock? A large common issuance at current trading levels would create significant immediate dilution. Preferred equity provides permanent capital and balances near-term capital with long-term shareholder upside. The warrants do create dilution; we weighed that heavily. The long-term benefit of making significantly more money and building a bigger business is the right decision for all shareholders, including myself. Dilution is most relevant when warrants are in the money. The average warrant strike is $4, which is significantly higher than our current stock price. Many warrants are at $6. This structure balances near-term capital with long-term upside. Interest savings from the transaction: a lot of borrowed money is between 6% and 8%. Yes, the coupon on this new partnership is 10%, but it's not 10% on the full $1.65 billion initially because we're paying down MSR lines and other borrowings. We're saving about $100 million by paying down MSR lines, and then we're paying out roughly $165 million on the 10% preferred money. So net interest expense is not simply $165 million more. Interest expense will go down roughly $100 million, but we'll pay about $165 million on the preferred. So it's not truly $165 million more of expense when you net the savings. The net is slightly more expensive in that perspective, but not the full amount; it's not simply interest savings overall. Total potential dilution from the warrants: there are 330 million total warrants — 165 million warrants that can be exercised at $2, which is higher than the current stock price. Most won't exercise until the stock is well above $2; I believe those will be exercised more around $3 to $3.50. The other 165 million warrants are at $6, likely to be exercised when they're above $6. That's the clarity on dilution. What happens to the MSR book if rates fall sharply? If rates fall sharply, that's a win for our mortgage business. MSRs will experience a write-down when rates drop sharply, but origination volumes will surge. Our origination machine will kick in at a high level. We've always relied on the natural hedge: if rates drop, we do many more loans; if rates rise, MSR values increase but originations drop. The Two Harbors situation was different because the MSR book doubled, geopolitical events happened, and equity levels were too low, which led us to hedge at the level we did. So a sharp rate drop would be great for our mortgage business. We can handle significantly larger volumes; we did $40 billion in a tough market and $45 billion the prior quarter. Our origination capacity today can handle $250 billion to $300 billion, if not more. If rates drop and we have to deal with MSR write-downs, that would be a fine problem to have because we would originate many more loans at big margins and brokers would grow. Is UWM becoming a servicing-focused company? No. We're big in housing, AI, and infrastructure to help mortgage brokers grow the independent channel, but we are an origination machine. We have a moat around our business that is difficult to replicate. The barriers to entry to compete with UWM are higher than ever. Our balance sheet is now fortified at a level that has almost never been done before at our size. We're not a servicing-focused company; we will continue to build our servicing book and we brought servicing in-house, but our focus remains origination and technology for brokers. Servicing costs are higher right now because we have both internal and external servicing while we're transitioning away from outsourcing with Cenlar. We're taking on onboarding and offboarding costs this year, so we're getting a double hit on servicing costs this year. Next year, we'll see the benefits we discussed previously. Can we continue to scale the MSR book? With the equity we have now, we'll continue to opportunistically sell servicing when it makes sense. We don't have a need to sell, but if someone pays a great price and there is strategic benefit, we will sell MSRs to bring in cash. Oaktree has intimate knowledge of the MSR asset and will be helpful there. We originate MSRs at a level few can match, which helps us continue to grow. We will continue to build the servicing book and be one of the best servicers in America. We may not be the biggest; we'll opportunistically sell. The retention of loans and giving them back to our broker channel has been a huge benefit. Now that we're handling servicing internally, we should do an even better job, which should drive a higher percentage of refinances back to UWM when they occur. As we build in-house servicing, how are we balancing the strategic value of retaining MSRs against liquidity from MSR sales? We've answered that: we will continue to grow the MSR book, be the best servicer we can be, and opportunistically sell when it makes strategic sense. Why Oaktree and not other capital? Capital is capital, but if you get someone who can help build your business and aligns with your vision, that's different capital. Oaktree has strategic value, MSR knowledge, and views on non-agency that we can leverage. They have strong leadership and people we'll partner with who think differently and provide different perspectives. I'm going to continue to run the business for brokers, team members, shareholders, and partners, including Oaktree. I'm a shareholder too, so we're all aligned. Could we have gotten cheaper capital elsewhere? Probably, but is that the right long-term benefit? I wanted a partner that could contribute meaningful capital and strategic value. I want Oaktree to make a lot of money; when they do, most shareholders will benefit. They wrote a big check, they believe in housing, and they believe in UWM. I'll wrap up because many questions are duplicative. If I did not cover your question, I'm personally happy to get on a call with people. Investor Relations, Blake, Mat Roslin, my CFO Rami, everyone is available to talk. The Oaktree team is ready to talk. We're happy to discuss anything with anyone. We're excited about the opportunity. The biggest thing is long-term winning. UWM is always about the long term. We're not looking back at a bad month, a bad quarter, or a bad trade. That's not what UWM is about. UWM has been in business 40 years, helping brokers win, growing, and continuing to put ourselves in a position to dominate in all cycles. The last five years have been a down cycle and UWM has consistently generated significant profits. I look at $150 million to $200 million of adjusted EBITDA pretty consistently. We are a strong operating business. With the capital infusion and liquidity we have now, the sky is the limit. My focus is long-term domination, and UWM has never been better positioned than we are today. Thanks for the time. I look forward to talking to anybody about it. We appreciate the questions, the support, and you being on the call with us. Have a great day.