UWM Holdings Corporation (UWMC) Q4 2020 Earnings Report, Transcript and Summary

Good morning, afternoon, evening. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the UWM Holdings Corporation Fourth Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remark, there will be a question-and-answer session. [Operator Instructions] Thank you. Matt Roslin, you may begin your conference.

Good morning. I'm Matt Roslin, EVP of Legal Affairs, Investor Relations. Thank you for joining us, and welcome to the fourth quarter 2020 earnings call for UWM Holdings Corporation. Before we start, I'd like to remind everyone this conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued yesterday. Now I'd like to introduce UWM Holdings Corporation and the United Wholesale Mortgage President, CEO and Chairman, Mat Ishbia.

Thanks a lot, Matt. Thank you guys all for joining. We appreciate it. Excited for our first earnings call and to have you guys all join. We're going to definitely take some questions at the end looking forward to that; before we do that, obviously, I'll go into a little bit about the business and about the fourth quarter and the release that we put out yesterday. But before I get started, just thanks again for being here. We're excited about the growth ahead. 2021 is going to be a great year. We're really big on -- focused on mortgage brokers and helping make the process faster, easier, cheaper. And that's helped us become the number two overall mortgage lender and, hopefully soon, we'll become the number one overall mortgage lender with our strategies that we'll maybe discuss during the call today. Let's look back now briefly on the fourth quarter. It was an all-time record origination quarter for us. We did $54.7 billion, which is an all-time record at UWM. Our gain margin was 305 basis points, which is our second best of all time, and $1.37 billion of net income, which was almost $500 million beyond what some people expected for the quarter. It was a great quarter across the board. The full year 2020 was excellent, with $182.5 billion in mortgages, 249 basis point gain margin and $3.38 billion in net earnings. So it was a fantastic year across the board, and we're excited about where we stand. And obviously, at the same time, some people might look and say, you made a lot more money in the fourth quarter than a lot have projected, but your overall volume was slightly less than people thought. The way we looked at it is there's opportunity to -- as the leader in the market, as opportunity to gain margin and continue to make a lot of money and maybe do less volume in certain situations. We'll always do what's best for shareholders and our business for the long term, and so we had opportunity. And capitalize on it and had a fantastic quarter by all accounts. Now although it was a fantastic quarter by all accounts, we are past 2020. We're already on 2021. We're in Q1, and we're making some big plays right now. We're more excited about the future. So our never-relax mentality at UWM. 2020 wasn't a high point to us. It's a launching point from where we're going, and that's the plan. So we're going to continue to build our business. We're well positioned for the future. And we expect 2021 to grow significantly from an origination perspective, and we're very excited about it. Now how are we going to do that? Let me talk about a couple of different things. The big thing I want to make sure we discuss and understand is the singular focus on brokers. The fastest, easiest, cheapest way to get a mortgage through an independent mortgage broker at findamortgagebroker.com, we believe that. We know that, and actually, we'll go through some of the data to support that with the actual facts, which most of you guys understand. And most of the industry has already seen this now as many people are realizing that the wholesale channel is the growth plan because it's best for consumers and is best for loan officers. As we go into this, we've been growing because of our singular focus. And we've grown every year. I don't think there's any other mortgage company in America that can say that they've done more volume. 2014 to '15 to '16 to '17, '18, '19, '20 and now '21, we'll do more volume as well. We have not had one year dipping back down like all of our competitors. We also have been profitable, obviously, every year, including those tough years. A lot of people struggled in 2017, '18 and '19. UWM has about 35% market share of the broker channel, and we believe that will continue to grow, and we'll talk about some of the plans to do so. Now a couple of things to discuss. Technology, so big investment in 2020. We rolled out -- I'm going to talk about a couple of things we rolled out that were huge, that made a big impact. But huge investment in 2020. And the thing about the 2020 investment, those things will pay off in 2021, '22, '23, '24. The investments we made in '14, '15, '16 and '17 is why we continue to have the dominant position in the wholesale channel. We will accelerate our growth in 2021. We have over 1,000 technology team members here at UWM and growing, and we're excited about that opportunity to continue to double down in technology. Now that we have access to some liquidity and some opportunities, we will continue to double down in technology and take it to a whole another level with our homegrown-built system, which we'll show some of the results in a minute. findamortgagebroker.com is another thing we're going to be spending a lot of time, all about educating consumers. The best way to get mortgages through an independent mortgage broker, findamortgagebroker.com is how you find that loan officer. And we actually have a Super Bowl commercial that will be out Sunday, and it's already got some rave reviews. We're excited about it, about educating consumers. Once we educate consumers, what will happen inevitably will be that the mortgage broker channel will grow, which means -- UWM is the number two overall mortgage company in America, and we're only playing in 20% of the market, the broker space, where all of our competitors play in 100% of the space. And so as that broker channel grows, and it will, we grow, too. And so we'll go through some of those things. Also closing even faster. So everyone says that their technology is great. How do you prove it? We believe it is faster. How do you make things faster and easier for consumers? The faster is very simply measured by an app, the CTC in that closing process. UWM was 18 days. The market is actually 56 days in Q4. And actually, in December, UWM was at 16 days, so lower. And the market actually looked like it got a little slower to 58 days. So the whole point is 18 days to 56 days, we're 3x faster than the industry. Time kills deals. We make sure that we focus on speed, efficiency, and that's all based on our proprietary technology that we built at UWM. And beyond the technology is also the operational excellence, which we focus on process. We're very big on process and technology. And so those things really drive success, and the time to close is a big differentiator. It saves you money on cost. It saves money for the consumer. It makes it so you can deliver a faster, easier, cheaper mortgage and a better product altogether. Once again, singular focus enables us to do that because we're not trying to do everything for everybody. We're dominating one channel. We have a single campus here in Pontiac, Michigan, where we have -- all of our team members, obviously, with COVID, a lot of people are working from home. But we will have all of our team members back here once it is safe for everyone to do so. This helps drive our lower costs for UWM. Our cost to originate, which I'm sure Tim will speak to, my CFO, has given us a differentiation. So we -- of course, we can win in this market when we're doing these massive volumes. But we also will win in a rising rate environment, just like we did in 2018. From '16 to '18 rates went up, and our compound annual growth rate was 28%, when most people were going down, and that's all tied to our cost to originate. Now some people say, isn't the middleman and wholesale, how is it cheaper in wholesale than retail? And this is the thing that people just don't understand. There's, oh, there's a middleman. Why can't I just go direct to a retail lender? It is always -- and I hate to say the word always. So it is almost always more expensive to go direct to a retail lender. And that's because you're getting wholesale versus retail rates. And you say, well, how is that possible? Well, you could ask them if you want. And you can ask those other lenders that are in both channels, why do they offer lower rates to their consumers in wholesale. But I can just give you the data, which, in the fourth quarter, UWM, the average interest rate at UWM was 2.74% versus the industry average, which was 2.89%. That's 15 basis points, which on a $350,000 loan is $28 per month. So that's a substantial difference for a consumer, $28 per month. Now for the year, it was the same thing. Our average interest rate for the whole year of 2020 was 3.08%. The market was 3.23%. So we are lower. We offer lower rates. It's not because we have no margin, as you guys see. It's because we have a more efficient process at UWM. Brokers are the better option because they don't have as many -- as much overhead and, therefore, we can deliver a better product to the end consumer. Now credit quality is a huge, huge focus at UWM. We don't -- we are going to be the biggest mortgage company in America, but we will never sacrifice being the best. Best is much more important than biggest. And we are the number two overall, but we are the best mortgage company, in our opinion, based on a lot of facts. One of them is credit quality. We are -- our average FICO in 2020 was 757, which is number one or number two out of the top 25 lenders in America. Also, you say, we don't do non-QM loans. We don't do riskier loans. We focus on doing the right loans, faster, easier, cheaper. That ties into also like how to -- hey, FICO is one way. How do I prove that? Let's look at our delinquency rates and our forbearance rate. The industry delinquency rate is 4.7%. Ours is below 2% here at UWM. The industry forbearance rate was 5.46%. Ours is below 2% at UWM. So we're better or twice as good as the industry average on those things. We will always focus on quality. We have chosen, and even did in the fourth quarter, less volume, less market share for quality. And that's what we're going to always focus on because we're trying to win long term. We've been in business 35 years. We're going to be in business the next 35 plus. We're not sacrificing quality for production. This is not who we are. That's not how we got here. Now let's talk about 2020 as a foundational year. Obviously, liquidity is a big deal. $133 million at the end of 2019 to -- the day we closed on this -- through the SPAC or de-SPAC, $1.4 billion on balance sheet here at UWM. We more than doubled the size of our campus. We're prepared for more growth. We've hired thousands and thousands of people. We are over 8,000 people as we stand here today at UWM, once again, all here in Pontiac, Michigan, once again, working from home a lot of these people. However, all here for one campus environment, which is a big part of our culture. Of course, I welcome any of you guys to come out if you're ever out in the metro Detroit area, would love to show you round because you'll see the culture, the dynamic environment is a big part of the secret sauce, which drives UWM to success in the business side. Obviously, the success is obviously seen there with six consecutive years. This was our sixth consecutive year in 2020 being the number one wholesale lender and about 35% market share. Neither of those things have ever been broached. Part of that is based on our partnership with our clients and our service. Our Net Promoter Score was plus 85 for the year, plus 87.5 for the fourth quarter, so it got better. And our clients love working with us for many reasons: our service, our technology. But also, we don't compete with them. They understand that. They understand the big difference is that we are not their competition. We are their partner, and that drives a lot of loyalty, and you've seen that not only in our margins, but you've seen that in our consistent growth and dominant market share position. We've made some significant investments in technology in 2020, allowing our brokers to compete and beat the retail channel. So the game here is mortgage brokers have lower costs. Mortgage brokers have better rates, but how do they compete with the mega retail lenders? We have to give them the technology to enable them to compete. We help them from a marketing perspective. We help them from a technology loan origination system. And so some of these things, we made massive moves in 2020. Blink+ was a great digital mortgage app, and it's turned into a loan origination system for our clients. We build all of our technology, so it's not only to be used with UWM. These brokers can use this technology and work with our competition. Our key is to let them be competitive and win. And if they win, they're going to be partnering with UWM because we are the best at what we do in the mortgage market. Now we also build InTouch app, is what it's called, InTouch. It's the first of its kind in wholesale. So mortgage brokers can upload their conditions. They can lock loans all from their app that we created, proprietary, built in-house here at UWM. We don't believe there's another one out there in the market, and definitely not one at the level that ours is. And that's continuously making things, once again, faster, easier, cheaper. Everything we do is how do we make it faster, easier, cheaper for the brokers, so they can pass that faster, easier, cheaper on to consumers. findamortgagebroker.com, massive investment. I already talked about that. You'll see the Super Bowl commercial. We're going to be driving millions of consumers there in '21, and that will drive people to the mortgage broker. And as we educate consumers, we're all going to succeed. And we spend a lot of time on that. EASE Docs 2.0, which is a thing we rolled out. Once again, all these things were rolled out in the last six months, and so we haven't even seen the benefit of a lot of these things. EASE Docs 2.0, we have over 99% adoption on a technology that's not even -- outsourced technology, like we use it and they have to use it if they want to. And 99%, that means it's great, right? People love using it. And so we built a great technology platform there. We have our PRO Rankings, where we're not only focused on -- we came up with a proprietary algorithm to focus on who is the best loan officer in your area. Who is making it faster, easier, and of course, brokers are cheaper, so they all make it cheaper. And we built that from scratch here at UWM. And then we have other technology that we've enhanced, such as UTrack, which is basically -- the broker can give the borrower, the selling agent and the list -- and the buying agent, all of them a link to track what's going on, like a FedEx delivery, what's going out with the loan. We make it so that purchases and refinances go smoothly through the process with UTrack. And so all these things are big technology, and we got bigger things in 2021 coming. We're very excited about it. Now let's talk a little bit about capital and liquidity. As you guys know, I'm the largest shareholder. And so we are completely aligned with what we're trying to do together, is we add value to shareholders and continue to build this business for our team members, our clients and all consumers throughout America. The Board did approve a dividend, a $0.10 quarterly dividend to be paid on April 6 for all shareholders of record as of March 10. We expect this to be a regular quarterly dividend. And so you guys know how we're thinking about this. Our balance sheet is a fortress. And our current liquidity position is very strong, and we have access to the capital markets as well. The way we think about this going forward is we're producing a lot of cash. We're going to maybe be more profitable than some expected and be very successful in 2021. And if we have excess cash that I and the Board deem is too much, we will be delivering that back. And whether we have to change the dividend in the future, as in raise it or a special dividend, those things are definitely on the table or even buying back shares. But we are very excited about the fact that we think that there's going to be excess cash in the business, and we will not let it sit here and go to waste. We will either use it to grow the business or deliver it back to the shareholders. Now regulatory environment. It is changing a little bit with the new administration. That's all positive for UWM. The reality is, unlike most large companies, more regulation helps UWM because the regulation is focused on helping consumers and that consumer's best chance is because they have a mortgage -- access to mortgage brokers. So it helps brokers and consumers. And since we're tied to the little guy, the brokers and the consumers, we grow as well. Richard Cordray, the CFPB director, previous -- in the Obama administration before Donald Trump was the president, did a lot of things to help consumers. The new CFPB director, Rohit Chopra, used to work for him. And so we believe there will be a little bit more of the Richard Cordray way, which is focused on consumers, make sure that people are focusing on doing right by consumers and focusing on them. If that happens, that will help mortgage brokers and, thus, it will help UWM. That's happened before, and we expect that to happen again with any change. If no changes happened, then we're in the same environment we're in right now, which is obviously working fine for us. Now a couple of other things before I turn it over to my CFO, Tim Forrester. We can't control rates as everyone understands that. We understand the market very well. What we can control is how we do our wholesale business. We focus on dominating the wholesale channel. The market is only 20%. Brokers are only 20%. Now it used to be over 50% pre-crisis, and it went down to 14%, and now it's growing back up to 20%. And it will hover in that area until rates start to tick up, and it will continue to grow in 2022, '23, '24, '25. We expect it to be 33% by 2025, 2026, which is 1/3 of all mortgages going through the mortgage brokers. Now that will be a big deal for us because, obviously, that means our pie will grow. Think about it this way. This past year was about a $3 trillion mortgage year. I know some people report higher numbers, but let's call it $3 trillion because I believe there's -- a lot of people count correspondence so they double count the loan. So you have to look at hundreds of data. If you look at a company like some great competitor, like Wells Fargo, they do a lot of correspondent loans, which means that maybe I sold them the loan, so I'm counting it and they're counting it, double counting. So we look at direct originations, who actually underwrote the loan. A loan can only be unwritten once so we look at it as more like a $3 trillion-type year. And we imagine what does 2024 look like about if $1.5 trillion year, the market cuts in half. Well, here's what happens. The brokerage channel grows to 33%, not only because the brokers grow, but also purchase business, and so 33% or $500 billion. Our share will be 50%. We believe that we have a clear path to 50% from the 35% we're at right now. So we'd be doing $250 billion even in that small of a mortgage market. Even if we don't believe we can get the 50% and say we go to 40%, still $200 billion. We are less cyclical than our biggest competitor, who is almost 92%, 93% refinance. We are not as cyclical as those types of lenders. Once again, we might not look as good at this time, but we're doing pretty good. The focus is on how do we win long term, consistently for our shareholders and our partners and our clients? Now purchase refi, back to that a little bit, so we can just hit this before I turn it over to Tim, which is, we did over $12 billion of purchase in the fourth quarter, and that was our biggest purchase quarter ever. We actually did a little bit less purchase in 2020 than we did in 2019. And a big why behind that, so you understand that the belief system here is one thing I talked about, quality. When COVID hit, we pulled out of a lot of products, specifically FHA and jumbo and basically said, we're not going to focus on these products. Those delinquencies are higher, there's uncertainty in the market, and I'm okay doing less business because I'm going to make sure we steer this ship safely for the long term. So we -- one of the consequences, we did less purchase business in those two buckets, which made our purchase business look not as exciting as it has been. But we've turned back on the FHA on our Conquest program in December. And we also will plan on turning on the jumbo product in the third month of this quarter, so in March, which we will drive by the third quarter of 2021, $14 billion, $15 billion, $16-plus billion. We expect to have big, big purchase numbers going forward. So once we have all the products, we are a purchase lender. We did 71% purchase in 2018. We've done this before. Our biggest competitor and many of our top competitors have not done it before. And so we're excited about that opportunity. With that being said, I know I'm going to give a little guidance here shortly and then, of course, take questions. I'm going to turn it over to my CFO, Tim Forrester, to talk a little bit more about some of the financial details.

Thank you, Mat. Want to talk about mortgage servicing rights costs and liquidity. So let's start with mortgage servicing rights. The MSR asset balance has increased by roughly $345 million, while the notional portfolio has grown from $153 billion to $188 billion. Within that change is a considerable amount of capitalization of new, lower-rate MSR assets, while the write-off of any paid-in-full mortgages typically have higher interest rates. Most importantly, our weighted average interest rate for our servicing portfolio has declined to 3.13% from 3.98% at prior year-end. Let's talk about costs for a moment. As volume has remained very strong, our cost to produce loans has been favorable. For the year, we were below the estimates of our cost of $1,500 to produce a loan. When adding the cost for broker compensation, the average cost to produce for the year on a comparable basis for UWM-originated loan is under $5,800. By comparison, in 2019, and the retail cost to originate loans averaged $8,872. As Mat noted, we anticipate further investment in our technologies, service and how we execute, so we can continue our focus on the process and cost efficiencies. Let's turn to liquidity management. Mat mentioned that we ended 2019 with $133 million as our cash balance, and we've continued to grow our liquidity throughout 2020 and into '21 as we consummated our merger transaction, ending with $1.4 billion in liquidity. That figure is at the high end of the $1.2 billion to $1.4 billion range we've communicated that we seek for liquidity to run the business. As announced, we will have a dividend to our shareholders in the coming months. We believe this is consistent with our objectives to preserve liquidity, while sharing incremental amounts with our stockholders. We will continue to evaluate the risks of the business and collaborate with the Board on appropriate liquidity levels given current and anticipated risks. I'll now turn it back to Mat for additional information before we open to Q&A.

Thanks, Tim. I appreciate it. To give a quick -- before we jump into questions, a quick looking forward. In the mortgage business, the first quarter is always consistently the slowest quarter from a cyclical perspective. However, we expect to have a very strong first quarter. We expect production to be between $52 billion and $57 billion with gain margin between 200 and 235 basis points. All those numbers will be significantly over our 2020 numbers. And so we're excited to start the 2021 year off very, very strong. With that, I'm going to turn it back to the operator, and we're going to take some questions. We're excited to talk about any part of the business. And so I'll turn it back over. And please announce the questions, and we can go from there.

[Operator Instructions] And our first question comes from Steve Delaney from JMP Securities.

Tim, I guess, or Mat, either of you. It was great to have the release for -- with some fourth quarter data, and then also your update on the first quarter. Maybe how are you thinking about the rest of the year as far as -- back on November 17, we got some projections. I think it was Page 34. Just sort of 2021, 2022, a lot has changed since then in terms of Freddie, Fannie estimates of the size of the market. Are you thinking that for this year, take it quarter-to-quarter as you did last night with the information about the first quarter? Or at some point, are you thinking, through some kind of a document or at some point, update your full year outlook relative to what the analysts received from Mark and [Maria] back in November?

Thanks a lot, Steve. Appreciate the question. I appreciate you reaching out. So my quick take on that is we're going to -- we like to give guidance. We want to make sure that -- I know there's other numbers that have been out there. We believe 2021 is going to be a fantastic year. We think there's a lot of upside in some of the numbers that have been reported. However, we want to really focus on each quarter to deliver very certain numbers to our partners, such as yourself and our shareholders. So we feel very confident in that. Now the market changes throughout the year. We will try to give updates, and I'll try to give guidance. And we are always available, as you know, Steve, to take calls. And there's EVP of Investor Relations, Matt Roslin, or myself or Tim to give you any direction or color. But the reality is, we think, focusing on the first quarter and dominating this quarter and then preparing for a great second quarter, having a record year is our plan.

Great. Well, you're already off to a good start because you beat us on volume and estimated margin in the first quarter. So we like the trend here.

Thank you, Steve. I appreciate it.

Yes. I got a question last night late from a client who said, "Gosh, I'm reading the release, and it's got a lot of good information about the business, but no balance sheet, no classified income statement." Is this simply because you actually -- you haven't filed your K? Obviously, I don't know where the auditors are in their process. Going -- let's look ahead to first quarter press release. Should we assume that when you -- going forward, now that you've got the IPO behind and your March 31 numbers will be -- fully reflect all the activity, right, debt, IPO, et cetera. Would you normally expect to give us a full balance sheet and income statement in the quarterly releases?

Hey, Steve. It's Tim Forrester. I appreciate the question. We anticipate that for this quarter, for this year-end, the balance sheet and the full income statement will both be in the 10-K once the auditors have completed their exercise and their audits. Going forward, for the quarterly reviews, we would anticipate -- we're still under deliberation of how to execute that, but we would anticipate sharing a more thorough balance sheet and income statement with the release.

Our next question comes from Henry Coffey from Wedbush.

Let me add my congratulations and observations to Steve's comments. Just a couple of items. Number one, when we think about the broker channel, you obviously are going to be spending a lot of money to promote it. And anybody who's done a digital close and -- versus a broker close will never go back to the digital process again. I speak as an old man, so we'll leave it at that. But granted, I think you've done a great job of convincing a lot of people that it's a great channel. You're going to be spending heavily on that. When you think of the growth of the channel, how much of that do you think comes from bringing in new customers? And how much of that do you think comes from gaining share within the channel? And who does that share come from in your mind, the bottom of the business, where things consolidate to the top, and the top four or five growers -- people grow? Or does it come from battling it out amongst the big 5?

Yes. Thanks for the question, Henry. I appreciate it, and thanks for the kind words. Obviously, as you just referenced, going through a mortgage broker is easier. And a lot of times, it's faster in a lot of respects. What we've also done is build the technology so that some brokers and some people do want that exact digital feel. We've given the brokers the ability to deliver that across the board. So you got the human-enabled technology, you've got the best of both worlds with lower rates than mortgage brokers. So we're expecting that channel to grow. So we're going to spend a lot of money educating consumers. That's a big part of it, and that's a big thing that drives the findamortgagebroker.com. But also, as rates tick up, a lot of loan officers currently are working at some of these mega retail lenders. And when you're sitting there and they feed you leads of loans that are at 3.5% and 4.5%, you're getting leads all day. They don't really leave because you're making a lot of money, you can continue. But when rates tick back up, and there's not a significant amount of leads coming your away from a servicing portfolio, those loan officers start to look around. And what we saw back in '17 and '18 is they start joining the mortgage broker channel. And the broker channel is stronger than ever right now. So we think a big part of the broker channel growth will be educating consumers, but also retail loan officers leaving the Guaranteed Rates, the Rocket Mortgage, the loanDepots, the Caliber retails and joining mortgage brokers. And we see that trend. That happens every single day right now, but it will be a bigger push in the future. So that's a big part of the growth in the mortgage broker channel. But it just doesn't happen when rates are so low and you're getting so many leads and your pipeline is full, if you think of it that way. Now on the share perspective, our full intention is to take share as we have consistently. But I think that share will come a little bit from everywhere. But I think it will actually come from some of the top players that you might see in the wholesale, the top 10. There is a wide gap in technology and delivery of speed of close where we are winning right now. And a lot of other people have to significantly lower their margins just to get even close to the amount of volume that they want to compete with us. And so as we continue to widen the gap, and the pricing is much more -- becomes more aligned, we believe that our growth will be substantial. And I'm expecting that growth to be in 2021 and '22 from a margin -- not from a margin, from a market share perspective. So we expect -- obviously, it's hard to go from 35% to 50% in a year. And we're not expecting us to go to 50% this year. However, we know, once a mortgage broker uses us, they stay because we're a great partner. We don't compete with them. Our technology is top of the line without question, and our service and speed to close is best-in-class. And so therefore, they look good to the realtor, they look good to the consumer and, therefore, they get more referrals, and they want to keep sending loans to UWM. So we think there's a big share. So LOs, consumers and then obviously taking share with our technology and service, so those are the three ways I would think about it, Henry.

I know you've given good guidance on that number, but the number one anxiety amongst investors is gain on sale. If you look at the primary and secondary spreads, they see that number has been contracting since August from an insanely high level. We -- I think analysts know how well the business works in different environments. But when we look at that as an input, given where the origination capacity of the industry is, given where rates are, given the yield curve, given all those different factors, do you think we continue to see, during the course of the year, contraction there? And -- or does it stable -- or do we see some stability in, say, February or March?

Yes. So think of it this way, we had very large margins. A lot of people's margins went down much more than our 13 basis points did from -- from the third quarter to fourth quarter. And so -- and we did that by delivering the lowest rates in the country. Back to my example, we did 2.74% versus 2.89%. So I think that margins -- understand what a more normalized margin looks like. I think I've given guidance before that and -- if you look at over years and years of wholesale mortgage rates, 1.30 to 1.90, 1.30 to 1.50 so I've said. And obviously, we have a premium based on what we've done. And so 1.60 to 1.90 is kind of what we expect our normalized world to be in. However, with that being said, I don't see it getting down to a more normalized year in 2020. I do think that the margins will stay larger in 2021 -- sorry, 2021, excuse me. But in a more normalized world -- and that's what we prepared our business. We've actually built our business for the tougher times. We win in purchase. So we're not only successful because rates are low like some others. We are successful when rates are higher or lower. Like I said, in 2016 to '18 is the best way to look at any mortgage company in the country. Did you win from '16 to '18? Everyone who won in '16 when Brexit happened, rates were low. We won that year, too. But what happened in '17 and '18, two consecutive years, our compound annual growth rate was up 28%, and most of our biggest competitors were down. Almost everyone was down and a lot of people didn't make money. And so that's how we think about it from our perspective. Will margins compress? They're not going to be 305. Yes. But they're not going to be maybe down to some other numbers that other people have seen in the past either. We expect very strong margins in 2021 going forward.

Another way of thinking about it in -- between the third quarter and the fourth quarter, the average primary, secondary spread declined about 17 basis points. You were down about 13 basis points. Do you think you'll be able to continue to sort of outperform that benchmark going forward?

Yes, it's great question. No, I've not -- I don't look at that benchmark particularly, but I do believe that because of our value proposition, our technology, what we've done from a service perspective, we will not decline in gain on sale margins as fast as most of our competition. And so you'll see that in the numbers quarter after quarter. And I would only hesitate to say you're looking at wholesale to retail margins. But looking at all margins, we will probably in the perspective -- outperform in that perspective.

So in looking at some of the components of the balance sheet that you shared with us, you've got $2.4 billion of equity. There are a whole bunch of adjusting transactions that occurred with the SPAC that you've detailed for us, including a large dividend upstream. Should we assume that this $2.4 billion includes none of those numbers, and then we should just go back to some of your past filings to get a sense of where equity -- where book value is and equity value is post close?

Yes. This is Tim. The equity value that was shared in the press release is as of 12/31. It does not reflect the results of the de-SPAC, the merger, the consummation. So some of that information that we shared previously, I think, will be helpful in reconciling that. But as we continue to perform, what we expect in the first quarter, as Mat communicated, is a very solid first quarter. And so that replenishment of any decline that might happen in equity temporarily from the result of the SPAC will be replenished sufficiently.

And we should take out the dividend as well?

Yes, the dividend was part of the overall transaction. That's correct.

And our next question comes from Bose George from KBW.

I'd just echo the others comments on the good quarter. Actually just wanted to follow-up first on the gain on sale margin. Some companies book gain on sale margins on rate lock and some do it on closing. I just wanted to confirm how you guys do it.

Yes. Thanks for the question, Bose. Appreciate it. I'll let Tim speak to it, but the quick answer is we do it on closing. We think it's a more certain way of doing it. But go ahead, Tim, why don't you explain.

That's correct. You're right, Bose, the -- a lot of folks will recognize the majority of their revenue recognition, their gain margin at the point of application. Our historical preference has always been to recognize that consistent with the fair value concept of when the loan becomes originated, it becomes a full fair value asset that we can more easily mark to a more reliable market position. So that is the critical point of revenue recognition for us effectively. It is at that point of loan origination.

Okay. Great. And then actually, I wanted to ask about the decision to, I guess, reduce the exposure to the FHA channel. I mean is that a risk issue? Or just curious just the positioning there.

Yes. We obviously have a large servicing book, which is growing substantially right now on all fronts. And when we looked at the analysis on the FHA loans, the delinquency and forbearance were substantially, substantially higher than what we're comfortable with and with the rest of the market. And that's aligned with the rest of the market. Actually, FHA delinquencies were lower than the rest of the market from the data I looked at. However, we wanted to focus on quality, and we thought that the right -- at that point, the FHA was not the focus, and we backed out of it. And same thing with the jumbo product, with the uncertainty in the secondary markets. So we did both those things. It reduced our purchase business substantially. But once again, I'm focused on being the best and not the biggest. We're going to make sure we do the right thing. We'd bring those products back. We've just brought back FHA Conquest in December, and we're already seeing a huge lift of that. And so you'll see that in our results in Q1. But when jumbo comes back and FHA and we're fully humming, you'll see the third quarter purchase numbers will be something we'll all be very proud of.

Okay. No, that makes sense. And then actually, you've noted that you don't compete with your brokers. And part of that is that you don't try and recapture borrowers that's in your MSR. Is the benefit from doing that really like having more loyal brokers, getting more volume that way? Or is there any difference in the economics by -- like when you get a loan and you don't recapture them, refer that to your broker. Does that change the economics in any way?

Yes. Well, it changes the economics because the reality is, we make more money. Our margins are larger upfront. So think of it upfront. Because of our technology and service, but also because of our partnership, people would rather work with us and maybe have a little bit more expensive loan than a competitor because they know that we're a partner, and we're not competing with them. I think it's a very bad decision to try to solicit those clients. So a lot of our competitors have done that, and they have failed, and they will continue to fail. There are brokers in the country, for example, a very -- I'll just say -- I won't say all the percentages because I don't want to be off by anything. But two of the top three or two of the top mortgage brokers in America have terminated their relationship with Rocket Mortgage based on their solicitation and their competitiveness to them, which, obviously, Rocket has a great retail presence. But brokers don't want to have to compete with their own partner. And so there's a major discrepancy in the wholesale channel and a big concern where people do not want to partner with people that are their competitors or are going to solicit their past clients. And so we've taken an opposite stance than the rest of the market, and it's been rewarded with 35% market share and growing and the largest margins in the channel and the largest volume by a lot, obviously. And so I think all of those things tie into it, the loyalty we have with mortgage brokers. These are independent people building their business in Portland, Maine, or Albuquerque, New Mexico, or Boulder, Colorado. Like they're building their relationships in that market. They want to be the mortgage guy or gal. They don't want UWM. And so what we do is we empower them. We enable them to succeed and compete against all the retail lenders that are competing and grow their business, and that creates a massive upstream loyalty to UWM. And it's been a big part of the secret sauce of our growth. Which also puts a great motor on our business because some of our top competitors, obviously, are the opposite of that, thus, creating a tailwind for our business and maybe a headwind for a lot of them in the wholesale channel.

Okay. No, that makes sense. And then actually, just the last one, just going back to -- you spoke about competition already, but just wanted to just touch on that again. Can you just talk about the competitive landscape in terms of getting loan officers to essentially move from the retail over to the broker side? Do you feel are more of those people coming from banks, nonbanks? Just any sort of color on how that shift is happening.

Yes. So we're seeing a massive shift. I mean it's a substantial amount of people, but I think it's like the flood gates open when rates pick up, which is, once again, another benefit to us being less cyclical. So we're going to actually have a bigger pie to play with because a lot of these loan officers are kind of kept there, like I mentioned earlier. Because, again, it's so easy right now. I'm getting so many leads, so many loans. And if I lose a couple of loans to brokers with lower rates, it doesn't matter. I've got so many loans here, and they're not as concerned about it. When it gets a little more competitive, then the originators who are the key to a lot of the business, will be leaving. And so we're seeing -- we have a team of people called wholesale development here at UWM, that actually, we created our own proprietary way. We call it broker in a box, which helps them set up their own mortgage broker shop. And you're going to see in 2021, but maybe not until 2022, some of the top mortgage originators, at least in America that are in all the book, are going to become mortgage brokers. And I speak with some of them. They all talk about it, and I know what's happening with that. We've had a couple of the top 10 already jump ship from retail to become wholesale brokers in 2020, I believe it was, maybe it's 2019, some of these top names, and that's going to continue. And that's just -- that's the tailwind in our business that everyone else is going to struggle. The retail branching model where you have branches all around the country, that's -- it's a dinosaur model. It's really hard to compete. Because if you're going to have a branch somewhere, you'd rather be a mortgage broker branch because you have access to wholesale rates, which are lower. And now because of UWM's technology, you have access to the same or, a lot of people consider, better technology across the board.

Our next question comes from Michael Kaye from Wells Fargo.

Rocket's partner channel focuses not only on independent brokers, but they also work with corporations like Charles Schwab, State Farm, Amex, et cetera. I don't recall hearing you talk about these type of corporates as your clients. I was just wondering, is there anything preventing you from going after these corporate partnerships? Or does Rocket have some sort of technology edge here? Or is there a reason why you don't view these corporate partnerships as attractive to you?

Yes. So good question. Thanks a lot, Michael. I appreciate it. So first off, in Rocket's partner network, where they try to disclose their broker channel business, we understand it to be 30% plus of that business is actually through the partner channels that are not mortgage brokers or not true brokers. And also it drives their margins up because those are higher-margin loans than the actual broker channel. With that being said, we do not do business with any of those partners, and it's definitely not a technology advantage. It's a business strategy advantage. We've decided to not do that because what we're -- our job is to be singular focused on helping the mortgage brokers dominate and grow. For us to go into a Charles Schwab or one of these relationships, which we could have, that would be us originating. We are going to partner, and we have some big partnerships that we talked about. Partnering them in their local community with an independent mortgage broker is the focus, not directly to UWM. UWM, we're going to be the biggest mortgage company in America, and we will not originate a loan here. Even if you work at my company, 8,000-plus people, we tell them the best way to get a mortgage is to go an independent mortgage broker. They will shop for you when you get the right lender. And hopefully, it's UWM, but it's not always is. That's the right strategy because that's a long-term play. The short-term play is cutting off your nose to spite face. Sometimes that's what some other people do, and that's not the strategy we're going to enact here at UWM. We're going to focus on growing the broker channel, helping be great partners and never, and I say never, never compete with our brokers because that's a bad strategy if you want to win long term. And that's been proven, and why we've been number one for six consecutive years with our market share numbers.

Great. Another quick question. Both yourself and your largest competitor, Rocket, both now public, focused on the wholesale market, now doing these Super Bowl ads highlighting the broker channel. What do you see as the likelihood as the market -- what do you see as the likelihood that the market becomes hypercompetitive again? And in terms of pricing, similar to what you saw in early 2019, especially as the refi opportunity begins to shrink, it seems like you have a lot more to lose if Rocket gets more aggressive as they also have that large consumer direct business in your -- and on wholesale.

Yes. So good question. A couple of things. We love that Rocket is trying to focus on brokers. They've been doing it for 10 years, and they've done -- they're trying to build that relationship. But they still have the issue with competitiveness. But the positive is that it's basically them competing, along with everybody else, can see that the mortgage broker is the growth channel. So the story we've been selling is it's the growth channel. Everyone sees it, it's very, very clear. And so we're excited about that in that we're obviously the leader, therefore, people are following, people are trying to keep up with us from a perspective of partnering with the brokers. So we're -- but the difference is -- from a competitive position is, I don't see what you described as a competitive position from a price-type play. Remember, Rocket Mortgage, they're buying the client from the broker. We just buy the loan. There's a big difference there where we are true partners. We aren't trying to steal your client. And so mortgage brokers know this. If you go -- you can go on findamortgagebroker.com, call any mortgage broker you want, see what they say. There's about 30% to 35% of mortgage brokers, is some of the data we've seen, that just won't ever send them a loan. So therefore, their pie is smaller in the broker channel because of the competition, and that's going to continue to grow. And that's the same with some other retail lenders that maybe don't have as big of a brand. But brokers don't want to compete with you because it's their own independent business. And so do I see more competitiveness in the broker channel? Absolutely. And that's because it's the best channel, it's the growing channel, and everybody knows that the retail model is not going to win, especially if mortgage brokers have technology to compete. They already knew that they have lower rates. Everyone will answer that question: Who has the lowest rates, brokers or retail? It's not a discussion. It's factual. Mortgage brokers have lower rates. You can look at their rate sheets, whether it's at Rocket or whether it's at Caliber, they have lower rates for mortgage brokers than they do in retail, period. Now with that being said, if brokers have the same technology and same marketing capabilities, they're going to beat them. And so everyone sees that shift, and we're proud to be part of that shift in helping push it in that direction. And we're going to continue to do that in 2021 and beyond and, therefore, UWM will continue to grow. And don't forget our lower cost, our lower fixed cost. We don't have a billion dollars of marketing spend. So therefore, we can win on less volume and still be very profitable and delivering awesome dividend to our partners.

Our next question comes from Ashish Sabadra from Deutsche Bank.

Maybe I'll just focus on the technology part. I was wondering if you can provide any color on adoption for the InTouch mobile app and any initial feedback that you might have received from the brokers. And the same thing on the Blink+ as well, the adoption there for the Blink+?

Yes. Thank you very much, Ashish. I appreciate it. Yes, the technology is the game changer. I appreciate you asking that question because people gloss over some of this. When we have 1,000 people building amazing technology just for our clients, it's been a big thing. Blink+ has been a huge hit for our clients. And same with the app. We just rolled out both these things in August and September, if I recall, maybe August and September of 2020. So it's still adapting and people are adopting it. But we have massive adoption on Blink+ or much more than we expected, and the app is following in the same way, where thousands and thousands of people are using this every single day to check pipelines, do different things. So once again, if you can make it faster, easier and cheaper, people are going to come. And that's what we're focused on our technology. And both those things you mentioned, Blink+ and the app, are two of those examples.

That's very helpful color, good results. And maybe just if I can ask a follow-up question on the technology road map. As you think about the road map, I was wondering if you could point to some of the other enhancements or products that you're planning to launch over the next year or so.

Yes. So I can't point to them for competitive purposes exactly what we're working on. But we have some groundbreaking stuff, we think, that will make the process -- once again, the only thing I can commit to you is every time we spend a lot of time and money on technology, it's making the process faster, easier and cheaper or one of those three. And so we got 1,000-plus technology people building this stuff, proprietary, every single day. And that's what we're focused on. So we have some great stuff coming, and I'm excited to share. And I'll definitely share it as soon as I can once we get to that point.

And our next question comes from Bernard Tan from Mavericks Financial. And we'll move along. Our next question comes from Steve Gish from Allianz.

It's Steve from Allianz. A question on the UWM's average 18 days closing versus the industry that's increased to 56 days. I'm sure there's no doubt that there are some loans that close faster than 18 days. But do you anticipate those trends to tighten further with your investment in technology? And then I know you talked at the high level of how time kills deals and your investment in proprietary technology. But for us -- for some of us, can you help us understand what are the snags that hold up a loan going outside of UWM, either through retail or digital?

Yes. Thanks for the question. Really appreciate it, Steve, and so -- and the kind words. So 18 versus 56, so it's a massive advantage, massive advantage across the board. And so let me explain a little bit about that. And so -- and it's all tied to technology, and I'll talk about how time kills deals. But understanding that 18 versus 56 days, we do have loans. We have loans that get clear to close in four days, six days, seven days, two days. I mean we move the process very, very fast. We can run as fast as our mortgage broker partners can as well. And so that gives them a competitive vantage because there's a couple of examples. 18 versus 56, every day in this kind of time kills deals, every day that it sits out there in a competitive mortgage market, like it always is, there's another day for people to trigger leads, for people to solicit them, for them to bump into their neighbor that happens to be in the mortgage business. And you have to -- what happens is, as time goes on every day, there's more things. There's a chance that they lose their job. There's a chance that they don't make overtime. There's -- all these things get -- count there. Every day that goes by is a diminishing chance that, that loan closes. So you have to understand that speed solves those things. And so making sure there's certainty. Every day that goes by -- if you say, I'm going to send it to the underwriter and I'll get back with you in nine days, that's nine dead days we look at it. And so nine dead days is -- we underwrite loans in one or two days is what we focus on. And sometimes it's as fast as hours if we can put it in certain products. And so the whole point is we want to make sure that, that broker can have consistency and know that they can reliably spend money in marketing and get paid back quickly and efficiently. Now to add to that on time kills deals, remember, the lock period take -- cost money, too. A 60-day lock is more expensive than a 15-day lock. We're able to take advantage of that and pass that through to consumers, thus, still having massive margins, as you guys see, but also delivering very low rates. And so all these things tie into it. So the technology investment in making so we can close loans so fast and our process gives us a cost advantage so, therefore, we can make large profits, have great gain on sale margins, but still deliver a very low rate to a consumer at the end of the day. And so all those things tie into it. People that take that long, 30, 45, 60, 75 -- remember, 56 is an average, too. There's people taking 75, 80, 90 days right now. Those loans, the likelihood of closing is so low and, therefore, what happens is it's operationally inefficient. We only work on loans that are going to close here because we're underwriting very fast, closing and moving them through the process. And then the last piece, I'll say, the return on investment on an 18-day close versus a 56-day close is 2x if you think of it this way. Think about the referrals. If, Steve, you did a mortgage and it got done in 14 days and you got a 2.75% interest rate, and it was not a hassle, you'd tell your cousin, your brother, your sister about it. And therefore, the broker gets referrals and grows. If you take 56 days and it's -- they drag you through the mud and you get a rate at 2.875%, a little higher, and it takes 56 days, think about that. Is the likelihood that you promoting this mortgage originator? Probably much less likely. And so we see that people that partner with UWM specifically have substantially more referrals per closed loan than the market.

No, that's great. I appreciate that. And just thinking about the extraordinary growth you saw last year and the originations you expect for the first quarter, just with the cash that you're generating, you mentioned or -- and stated the quarterly dividend, potential for increases, maybe special dividends and even stock share repurchase. But are there pieces of technology in the market you might have an appetite for? Do you see that your growth profile is sufficient with organic growth only? And I'm just curious about with the MSR balance and portfolio, is that an area that you expect to see growth either -- not just organically, but buying?

Right. So thank you. Yes. So we -- once again, if I can ever get any of you guys out to our office, I'd love to show you around. The culture is contagious in a positive way, energetic. And so we do look at opportunities. We have the capital and liquidity now to make a decision if we found an opportunity to buy a company from a technology perspective. We have had so much success organically building it. That's where our heavy lean is. And so our heavy lean is continue to invest in technology internally. We feel like we can build almost anything. And we know what needs to be built rather than acquiring another company. However, we are open minded, and we do look around for those opportunities. And so going forward, we think organic is the best strategy, which will not only help us get proprietary technology, but also help us continue to deliver value and liquidity back to our shareholders. We do not buy others' MSRs, another example from casto. Every loan we have on our MSR book, which is at $188 billion, and as you can obviously imagine, it's over $200 billion as we sit here today, is that those are all loans we've originated with our technology, with our service, with our partners. We're not buying other people's closed loans. We are not trying to acquire it that way. And so our cash from the MSRs is going to continue to grow. And as Tim pointed out, our average interest rate is 3.13%, and that's dropping, that's going down. And so when rates do tick up, this value of the servicing book is going to be immense. And so once again, we will build most things internally from a technology perspective. We're going to continue to invest in our own MSRs. We underwrite 100% of the loans that come in our door. And actually, the only way we can be sure of the quality and the type of loans we want to do so we win long term.

Okay. Look forward to hearing -- or seeing the Super Bowl commercial on Sunday.

Well, thanks a lot, Steve. I appreciate it. Hopefully, you enjoy it. Our marketing team built it all in-house and did a great job, I think.

Our next question comes from [James McNerney], a private investor.

Mat, Tim, can you guys hear me?

Yes.

I have a quick question for you. Will your company have to wait for positive quarters after the merger completion? Or are your previous reported quarterly earnings before the merger suitable or in compliance for early entrance into Russell or S&P 500?

So good question. I'll turn it over to Tim. Do you know that off the top of your head? If not, I can get back with our Investor Relations. I don't know that answer off the top of my head of what qualifies us for S&P and Russell. Maybe some others on the call will probably know off the top of their head. But I'll get that. I'll have -- [James], if you want, I'll just -- I think we have your information. I'll have my EVP of Investor Relations get the data and information for you on that answer, and we'll get back with you later today or tomorrow.

And just real quickly, it's Matt Roslin. Russell is generally small caps. We have -- as of this morning, over an $18 billion market cap, so we wouldn't be in the Russell index. The S&P 500 would be for large caps, and that's up to Standard & Poor's. But we -- I do believe we would qualify.

Okay. That's -- one more question. My next question, a simple one, would be, I remember reading the S-1 that you would look at calling new warrants at the 12-month period. That's the earliest you can call them unless your stock hit above $18 for 30 consecutive days or 20 trading days. Are you still holding on that plan on the warrant?

Yes. Again, this is Matt. I think you're misreading the S-1 in that regard. It's not a plan. It's just how the securities are written and what the Company has an option to do, and that's typical of SPAC transactions.

And we only have time for one final question. Your final question comes from the line of [Lisa Telford], private investor.

My name is [Lisa Telford], and I represent the little guy or the little gal. I bought about 4,000 shares of the Company because I watched a couple of your videos. And I was just really impressed on your focus on the relationship with the broker and understanding that if you invest in relationships, then that will yield more relationships and be exponential in terms of benefit to your growth. The gentleman before me asked a few of the questions that I had in mind in terms of -- I think us small-time investors, we'd love to see your company on an index fund or a few so that we can see growth in our investment. So my question was answered. But just congratulations, you guys do a great job, and we're out here watching you guys and rooting for you guys.

Lisa, I appreciate the trust and belief in our business, and thank you for the question. And if you ever have anything, you can always reach out to us again, and we're excited about 2021. So thanks for all the support. And so I think we're done now. It's all the questions. Lisa , thank you. And I'll just close it out, I believe, as we hit the 11:00 Eastern time. But thank you all for the time today. We appreciate it. Of course, our Investor Relations, we're going to give fantastic service and deliver responses to anyone who has any follow-up questions or we couldn't answer [Technical Difficulty].

And that concludes our call for today. We thank you for your participation. You may now disconnect.