UWM Holdings Corporation (UWMC) Q1 2022 Earnings Report, Transcript and Summary

Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the UWM Holdings Corporation First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there'll be a question-and-answer session. [Operator Instructions] Thank you. Blake Kolo, you may begin your conference.

Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us and welcome to the first quarter 2022 UWM Holdings Corporation’s earnings call. Before we start, I would like to remind everyone that 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 this morning. I will now turn the call over to Mat Ishbia, Chairman and CEO of UWM Holdings Corporation and United Wholesale Mortgage.

Thanks Blake. I appreciate it. And thank you all for joining the call today. Before we start, I really want to thank everyone at UWM for their continued commitments to providing the best-in-class service to our clients are the brokers and congratulate our brokers for adapting and winning in this current market. On every earnings call, I've said how important a strong purchase business is to the health, if any mortgage lender and why UWM’s business to thrive when rates rise? A purchase heavy market magnifies the winning combination of broker expertise and UWM speed technology and service. We are now in that market where you can easily identify the winners from the rest. This environment will propel the broker channel to the next level. It's simple. The broker channel is the best place for loan officers to work and the brokers are the best place for consumers to get loan. These two facts drive our strategy at UWM and why we are going to have success in this market and really in any market environment. The purchase market though is where we are today. And that is the key. As our first quarter results demonstrate, we have a lot to be excited about. 2022 feels a lot like 2018, the last year when rates went up substantially and lenders had to figure out how to operate in a new environment. We were very profitable back then. And while most lenders weren't, you'll see the same story play out this year and Q1 was the beginning of that story. We closed $38.8 billion in production for the quarter. That is almost what we did in the whole year of 2018, which shows our massive scale and growth we've achieved in the last four years. More importantly than that volume number is our production is only down 21% when comparing the first quarter of 2021 to the first quarter of 2022. I invite you to compare our year-over-year first quarter Q1 – to first quarter 2021 to 2022 comparison with any lender in the country, as proof of the strength of our business. This trend will continue in 2022, but beyond that, the $19.1 billion production of purchase volume, which is the largest first quarter in our 36 year history here at UWM. This is a big number by anyone standard. And we think we'll do even more in second quarter of 2022. We are confident that UWM will continue to be the number one purchase lender in America and eventually the number one overall lender in America. We delivered $453.3 million of net income for the quarter with a gain margin of 99 basis points. That $453.3 million represents $0.22 per share, which shows very strong earnings across the board. In addition, only $170 million in that $453 million is a fair value adjustment to our MSR portfolio. So our business is very strong with our MSRs and without the MSR value write-up. Now, let's talk about a couple other focuses, scale, optionality, broker channel. First on scale, our technology is superior. What we've provided for mortgage brokers, so they can win in this market is better than what retail lender have. This is helping brokers win. Now one of our big technologies, BOLT is a great example. It's the best underwriting platform in America. We've seen a 50% adoption increase just from the fourth quarter to the first quarter. That's big, but it's going to continue to grow. You'll see the BOLT story play out more in Q2, Q3 and Q4, because not only drives productivity higher for underwriters, lowers overall costs but it also makes our quality better across the board. More to come on – coming soon. Also optionality, talk about MSR values. Our MSR book is one of the best in the country. Our WAC is at 3.04% up from 2.94%, but our values and our MSR book is so strong because we originate so much business every quarter, even after selling some MSRs, which I'll reference in a little bit. The reality is this, our MSR book is strong and when rates are low, we'll originate a lot of business that have high game margin. When rates go up, we’ll still originate a lot of business on the purchase side, but our MSR values will go up as well. We’re very proud of where we at. 36 years in business and we’re going to win regardless of the market. Lastly, I want to mention one other thing about loan officers. The broker channel continues to grow. This has been what we’ve been saying for years and it’s really happening right now. LOs are leaving retail to join broker that is going to help UWM. Consumers are realizing it. Realtors are realizing that they should go to mortgage brokers and brokers are winning. 35,000 loan officers, unique loan officers submitted loans to UWM in 2021 and we think we’ll have more unique loan officers submitting to us in 2022. It’s a very strong fact about the growth of the broker channel in UWM. Now Tim Forrester, our CFO is unable to be here today. So I’m going to give a little bit of color from his perspective and some of the things we’ve talked about to highlight a little bit about our business from the financial before I take some questions. So quickly, as Tim would like to point out and we’d like to talk about from our finance team, 56% year-over-year growth from a purchase perspective that is massive and a huge part of our success. If you notice income grew, a lot of that is tied to the business, but also our interest expense went down because we’re using self-funding using our cash to help us make more cash. That’s important for our success. On the expense side, it’s very important that we continue to manage our expenses. We have complete control of this and we feel great about where we’re at. Our expenses looked higher year-over-year. However, in reality, they were lower. A couple things to note. There’s a $20 million or so reversal from Q1 of 2021, which actually reduced our numbers last year when they were actually higher. Also there’s a change in presentation about $13 million this year that affects that number. And then also don’t forget, our servicing book is about 50%. So there’s about $26.7 million higher in servicing costs. You take that out and our actual costs are down. We are managing our costs, we feel great about our costs, which is a big part of our significant profits. Also our assets, a common from the first quarter versus the fourth quarter if you recognized in October of 2021, the new conforming loan limits went out. So our assets looked bloated about $22 billion at the end of last year. A lot of people may comment on it. It normalized back down to around $10 billion because we held a lot of loans in the PLS market, also with Fannie and Freddie loans to pick up profitability, which we will see in the fourth quarter. But now those assets have been normalized and you’ll see our $10 billion roughly number out there. Also one other thing on MSR sales, I mentioned earlier, we sold some MSRs about $73 billion and brought in liquidity of $872 million as of April 1. That doesn’t impact our P&L much. However, liquidity is important. And as you see, our liquidity is in a great position across the board. Liquidity being strong is important, which is why we are once again, continue to pay out a dividend. We’ve done it six quarters consecutive. We will continue to pay out dividend. Our Board feels strong about it. We want to reward our shareholders and our dividend is very strong and it will continue to be. We feel great about that that dividend is out once again for the first quarter. And as you saw in the earnings release, it shows the dates along with when we will pay it out. Now really quickly, before I turn to over questions, I want to highlight a couple of things. Our scale enables us to win in any market. The balance sheet is strong. Our MSR portfolio with a key asset is the best MSR book in the business. And our business model allows us to stay on the offensive. The loan officer migration to the wholesale channel is gaining steam, just as I’ve said before and it will continue to grow going forward. Please watch how we continue to sustain production going forward and we continue to win. And like I said, the dividend is demonstrating our commitment to return cash to our shareholders. For second quarter 2022 I see our production going between $26 billion and $33 billion. And our gain on sale margin is around 75 to 90 basis points. It’ll be another fantastic quarter in Q2. We look forward to seeing many of you here at UWM headquarters for our UWM Live where about 5,000 of our clients will be out here at UWM, talking about growth, working on how to build their business, and we’re going to be here excited. Tony Robbins is going to be here. I’m going to speak about some things looking forward to it. Now let’s turn it back over to the moderator for some questions and happy to answer any questions about UWM, the business or the marketplace in general.

Thank you. [Operator Instructions] We’ll take our first question from Doug Harter with Credit Suisse. Your line is now open.

Thanks. Mat, I was hoping you could talk a little bit about the gain on sale margin for the first quarter. It was above expectations. Just kind of what drove that for the quarter?

Yes. Thanks, Doug. As we’ve talked about before we control our margins here, we’re not reactive to the market. We control the market. We talked about in my last call, that 75 to 85 is the bottom. And so we’re obviously not going to go below those numbers. We felt good about where margins were. A lot of other people have a long ways to come down and that’s where we differentiate and purchase market is a lot less rate sensitive from a perspective of margins. And so we feel strong in our position right now and we feel that margins will not be going down below the numbers I’ve told you and try to be consistent with that for every quarter I’ve been on these earnings call.

I guess, just following-up on that comment. I guess, what do you see differently in the second quarter that would kind of have margins come – kind of come back down to the range you had previously given for the first quarter versus kind of where they came in?

Once again, I feel strong about where our margins are. I like to make sure we guide to the point where we will not be going below 75, as I pointed out in the call. And also in the earning release 75 to 90 is where I feel confident. However, there are a lot of factors that have ability to make it so that we don’t go below that number. But at the same time, there’s competitive pressures on everybody else. We’ve already felt those competitive pressures and we control our margins where they’re usually following us, not the other way around. So therefore, once again, we’ll choose to put our margins different spots. However, that’s not the major indicator of our profitability, right? There’s a lot of different factors into our profitability in the 75 to 90. I feel really confident in going forward.

All right. Thank you, Mat.

Next, we’ll go to Henry Coffey Jr. with Wedbush. Your lines open.

Good morning. Thank you for putting up another great quarter. Couple of issues and questions. Number one, you’ve made the much, much well received comment that you weren’t reducing staffing like so many others are. As originations obviously are trending lower. What is the mechanism you have in place then to keep operating profitability up without...

Thanks, Henry. Our culture is key to our success. I know a lot of you guys will be out here at UWM Live where you’ll see our 5,000 clients out here. You’ll also see our campus with all our people here in the growth and the success. The reality is, the question you’re asking is how can we do another’s don’t it’s because of technology, technology and efficiencies. We’re going to be extremely profitable like I said, last quarter. As long as we continue to run our business, the way we run it with the purchase market. Everyone else has been so dependent on a refinance for so long that their costs were bloated. And so they had to reduce that. We did not do that. We did not scale up the people because of our technology didn’t require us to do. And so therefore we don’t have to scale down the people to stay profitable. As you saw in the first quarter, I mentioned it in the fourth quarter that we would be highly profitable and obviously we were and we will continue to be very successful going forward without having to have any reduction in team members. That’s not who we are and what we believe in, and that is not going to move the needle as you saw the first quarter was obviously highly profitable.

So in terms of measuring the migration from retail to broker channel, you have your own numbers. You’re looking at the unique brokers that you’re working with. Can you put that 35,000 into historical perspective for us? How much of has it grown over the last few years? And then secondly, any thoughts on how we can track that as outsiders? I mean, is there some, one place we should be looking to watch this data on a monthly basis or something?

I don’t know if there’s any great external sources for it. The reality is...

I agree. That’s why I was asking.

It’s so backwards looking as it looks so far back. I don’t have a great data source to show you besides I can give you my data of what we’ve grown and 35,000 LO’s last year. And my point is, I think we’ll do more business with more loan officers this year and so if we do less volume in the market with less volume, but we do business with more loan officers. That’s a very good indicator. The loan officers are coming to the broker channel. And that’s what we’ve been saying for years. I think actually one of the analysts at Wells Fargo even made a comment and showed how the broker channel loan officers have grown were back in 2007, 208, how they dipped down and how they’re coming back up to maybe the highest levels of all time. And so you’ll start to see that trend and we’ve been talking about it for years, and I think it’s starting to show face now with the market conditions.

Yes. No, we all have the IMF data that shows that. But what I’m wondering is what was your account say a year or two ago? So we can understand where you are in terms of growth and expansion.

Yes. I don’t have that number in front of me. But I can get it for you and you can follow up with Blake Kolo and he’ll get you that information.

Yes. I’ll give Blake a call. And then finally, in terms of benchmarking profitability, obviously you’re looking at market share and volume. You’re looking at what you can do in the purchase market, all which are coming on really strong. Do you have some sort of bottom line metrics that we should keep our eyes on? Not short-term, but long-term in terms of earnings or ROE? I think you’ve pretty much demonstrated that you have gain on sale margin under control. What are your thoughts in terms of the business’ ultimate earnings either in terms of dollars or per share figures or ROE?

Yes. I mean, so you can obviously do the math and see what we’re going to be doing based on, we have our dividend, which I’ve told you for years, or not for years, I guess, for two years now. But that we’re highly confident paying it’s $0.40 per year, we’re paying $0.10 a quarter, it’s $640 million a year. We’ll well out earn that. And obviously the first quarter shows that will we make $1 billion plus, I mean, it seems like that’s where it’s trending. Obviously, I feel very comfortable that we’re profitable in all cycles. And as I told you last quarter, highly profitable. And I think the first quarter shows that and then some. And I think the second quarter will be very strong as well. And you’re going to see the whole year that way, because we feel really confident in what our business has done in the past and what we’ve built for the future and where other companies might not be ready for a purchase focused environment with these margins we are. And I think the first quarter really demonstrated that. And I think you’ll see more of that in the second quarter.

Thank you.

Thank you. Next, we’ll go to James Faucette with Morgan Stanley. Your line is now open.

Hi. This is actually Sandy Beatty on for James. How are you thinking about, I know you provided a little bit of color here. But capital allocation, just in terms of the balance between liquidity, obviously capital returns and even buybacks all within the context of internal investments as well within technology particularly as originations contract throughout this year.

Yes. So we’re very cash strong right now. We feel good about that. We plan on continuing to pay the dividend as I’ve already announced. We always have to balance what’s the best use of cash. We really like to reward our long-term shareholders, and we’ll continue to do that at where the stock prices today. I think it’s one of the best investments out there based on our dividend yield. And so people are going to get rewarded for being a partner with UWM and being a shareholder at UWM. In addition to that we look at all different reasons and ways to use our cash in the most beneficial way for our company, our shareholders, our clients and there’s a lot of things on the horizon that we’re looking at doing to continue to build going forward.

Got it. Got it. Thank you. And just one quick follow-up, can you just talk to us a little bit, just with regards to the strength in purchase. Anything specific there closed times, things like that that you’d like to call out just with regards to share gains? And how you might expect that to track over the remainder of the year?

Yes. There’s a lot of pieces to purchase that people don’t understand. A lot of companies are so refi centric and rate and term refinance. And I think a lot of people talked about how they refinanced their book, their servicing book. And that was how they were being so successful that wasn’t UWM. UWM was a purchase business. Of course, we do refinances, of course, we do cash out refinances, but we dominate in the purchase business. It’s a much more complex transaction involving not just a borrower and a lender, it’s a borrower, a lender, two title companies many times, two realtors many times, appraisers. There’s a lot of nuances and you have to be great on all aspects to be able to grow your purchase market share. And that’s why we’ve been the number one purchase lender for two consecutive years. This will be the third consecutive year where we’ll reach that achievement. And there’s a lot of nuance to it. And it’s not as easy as saying, hey, let’s just start focusing on purchases. Let’s just buy purchase leads and we’ll do purchase business. That’s what a lot of other companies are trying to do. And as you see in the first quarter, that’s not how it works and you’ll see that going forward. As brokers dominate the purchase market, brokers will continue to dominate the purchase market. We are the predominant partner for mortgage brokers.

Got it. Thank you.

Thank you.

Next, we’ll go to Kevin Barker with Piper Sandler. Your line is open.

Good morning. Thanks for taking my questions. You mentioned several items that were not core expenses this quarter. Could you – went through them pretty quickly. Could you reiterate those and what you would view as like a core quarterly operating expense estimate for the first quarter?

Yes, so I didn’t say they weren’t core expenses. Well, I was pointing out to you that they were anomalies from Q1 to Q1. So when it looks like our expenses went up, they actually didn’t go up. They actually went down quite substantially. I’ll rattle them off for you. Just so you get an idea. One was a $19.6 million, I said about $20 million, but $19.6 million contingency reserve reversal in G&A from last year. So last year’s were deflated by $19.6 million. So that’s one thing I mentioned. There’s another $13 million change in presentation on the loan production income. So that was another $13 million. And the bigger one was the $26.7 million people don’t realize our servicing book is up 50% from about $200 billion to over $300 billion. And so those expenses are just aligned with that. There’s actually a couple others that I didn’t mention because I just don’t need to get into. But the overall thing was to point out that we’re all over and we control our expenses very well. And we’re very efficient with our cost and we’re excited to continue going forward with our cost structure as is. And we’ll continue to win with this – in this market, even at margins where they’re at with the opportunity for us to continue to grow.

Okay. And then, going back to some of the capital questions, I mean, your debt to equity ratio is now below 2, like 1.6x tangible common equity ratios, nearly 29%. So you’ve seem very over capitalized from that standpoint. And it seems like there’s a lot of opportunity out there just given evaluations across the space. I mean, do you see any opportunity to make, whether it’s a strategic acquisition or maybe some other structural changes to take advantage of the capital base you have today?

Yes. We feel really great about our capital base, our cash position, our size, our scale and our structure. And we definitely look at opportunities, take advantage of that. So there’s a lot of opportunities in the market. We’ve been organic builders and we will continue to be that. However, we always look at other things and that’s one of the benefits of having so much cash and such as strength of our business right now in scale. And so we are looking at a lot of things and we’ll continue to do so. We feel really good about where our business is right now, and I think you’ll continue to feel confident in us as a partner.

Okay. Thank you very much.

Next, we’ll go to Michael Kaye with Wells Fargo. Your line is open.

All right. Good morning. I wanted to chat more about the Q2 gain on sale margin. My understanding was that you significantly improved pricing to brokers in April and then implemented a price matching program compete and beat in May. How much of that’s impacting your future margins and what is the strategy behind these pricing adjustments? Is this more just going after the purchase market?

Yes. So thanks for the question. We do different types of incentives and opportunities. I won’t say every month, but very often we had one in the first quarter as well. So, my guidance is in telling all of these types of things and none of those things will impact the guidance that I’ve given. We feel really good about the volume. We feel really good about putting pressure on some competitors, while helping our brokers continue to win. That’s the game right now is helping brokers win, helping retail loan officers convert over to broker and come have more success in the broker channel they did in the retail channel. So then they thrive and then more will come. So we continue to build the pie of the broker channel with a lot of these structures and incentives and concepts that we come out with. And it’s working very, very well as the data shows.

Okay. And I know you’ve been very vocal, no layoffs, no plan layoffs. But how much benefit do you get just from attrition of employees over time, like for example, how many employees do you have today? And how low could it go by year end just with attrition alone?

Well, we’re still hiring people. So we’re different than these other guys and gals companies, however, we want to say it. So we’re hiring and we look for great people to join our company all the time. And so will attrition effect you, of course, when you have so many team members, always some people leave, some people move out of town, things happen. But in general, that’s not going to drive our costs down. Our costs are in a great position. Our profitability is excellent and we feel really good about our business. So that’s not a part of the thought process here right now at our company. We feel really good about where we are from a team member count. We feel really good about hiring in a lot of positions. We have lots of open positions. We’re hiring some people that maybe were not part of other companies anymore, because we believe in the long-term benefit of our business. And we’ll continue to win our people as an investment, and we’re continuing to win with it. That’s how we got here and that’s how we’re going to get there to the next level.

Okay. Thank you very much.

Thank you. Next, we’ll go to Steve DeLaney with JMP Securities. Your line is now open.

Thanks. Mat, congrats on the strong quarter. Could you remind us, you talk a lot about the organic flow of producers from retail to wholesale, it seems to clearly be happening but could you remind us about what kind of regional infrastructure that UWM has in place around the country to just help move that process along?

Yes. Thanks for the question. Thanks for the support. I appreciate it, Steve. So we have a whole process and team of helping build out the brokers throughout the country, help loan officers convert over many loan officers. We talk about in the audit, the reports show, how many of these loan officers leave XYZ retail company to start their own broker shop. But a lot of people don't capture is when Johnny Smith leaves ABC retail lender, and just joins XYZ broker, not necessarily starting their own broker shop. And so we have infrastructure in place, teams in place, partnerships in place throughout America to help make this thing a reality. And it's been picking up substantially. We saw a huge pickup in the first quarter from the fourth quarter, and I see the momentum continuing it's like a snowball going downhill. It's always better for a loan officer to be at a mortgage broker shop. They can offer better rates and have better technology and better processes than they have at retail. That's just fact. And so for consumers to go there and the realtors to follow those loan officers that's happening. And so it's just a matter of how fast it happens. And I think a lot of data out there is showing that the speed is picking up because as I think I said last year, a bunch of times when the market is so busy and the loan officers are closing 25 loans a month, it's hard to pick up and leave a retail shop. When their volume goes from 25 down to 10 and they're not getting those leads on the refinancing of the servicing book, they start to look around a little bit and say, why are these brokers making more money and offering better rates with better technology than I have. And so they start to migrate and have those conversations. So we're having so many conversations. We have so many teams right now, UWM built to help facilitate those conversations and help these loan officers start throwing shots or join a broker shop in their market.

Mat, what's the current, the broker relationship headcount, currently?

The broker relationship headcount, I'm not familiar with what you're asking. You're talking about the teams that are doing this.

No, the number of brokers that you have signed up at UWM, I mean, that's something I assume you track and to keep track of how many of this migration that you're referring to.

The loan officers is what I track more closely than the broker shops. I don't have it in front of me right now, but Blake can get you that information, 11,000 brokers is the number that pops to my head. And then I also think of 35,000, 40,000, 45,000 loan officers. I don't have the exact number, but I focus more on how many are using us. And that was the data I said earlier, which is 35,000 sent us a loan last year, more loan officers will send us a loan this year, which is really the most important factor, depending on how many loan officers there but how many are using UWM is the key focus that we have.

Okay. Thank you.

Thank you. Next, we'll go to Brock Vandervliet with UBS. Your line is open.

Thank you. Good morning. Just to clarify, Mat, were any of those special items that you called out in the expense area? Were those in the salary benefit line or was that 160, a solid number?

No, I think that's a solid number, the 160.

Okay. I just – you're guiding for another, not surprisingly but material decline, decel in volume in Q2, given where mortgage rates are. That makes sense. This is it's a cyclical business. I don't understand why you're not taking out more costs more aggressively.

Yes. That's why I'm the CEO. I feel pretty good about what we're doing here. And we made $453 million in the quarter so that's why I sit here and you sit there and the reality is, you'll see our profitability going forward. I guess, you have to just continue to follow us. That's why I run the show. And so I feel really good about it. I think all of our shareholders feel really good about it and our team members feel good about it. And from a culture perspective, a team member perspective, there's a lot of things that I don't think you would understand. And I will just put out there as some people think very shortsighted, could I save $5 million a month? Great job, $15 million a quarter, $60 million a year, high-five in everybody, let's say I saved $120 million over the next two years. Well, if I keep my team members, I do a great job supporting them, build the culture that we've built. What happens in July of 2024, rates go down a little bit. I make an extra $400 million that month. So I saved $200 million over the last two years. And you're high-fiving me, but you don't realize I made – I didn't make $400 million in July of 2024. That's how I run the business. That's why we keep winning. And that's why we're sitting here making $450 million in the first quarter. And my competitors are losing money.

Mat, this isn't subtle though. I mean, the market's gone from $4 trillion to $1 trillion or $1.5 trillion in like six months, even your competitors are, they're not laying off, they're furloughing people. I just don't – and your results. I mean, maybe you feel comfortable about the future MSR fair value mark. But I just – I don't understand.

All right, that's why you sit there. And I sit here. So that's the reality is $170 million of our $450 million was fair value markup, not $450 million of it. So understand our business is extremely profitable. As I told you guys last quarter, it's going to be extremely profitable again in the second quarter. So you'll have to be confident that I sit over here and I run the show and we're doing a great job. And once again, 2018, I referenced it earlier in the call was the last time this happened. Most companies didn't make money. We did, I've seen this before. This isn't like my first day on the job, I've been here 19 years. I built the company, we're doing pretty well. I think you'd understand that and agree with that.

All right. Thanks for the questions.

We'll move to Kevin Barker with Piper Sandler.

Hey, Mat, just wanted to follow up. If I take out the change in the fair value of the MSR, $391 million versus your pretax income of $457, getting like an operating income around $57 million or about $0.04 per share, which is slightly below the dividend of $0.10. I mean, do you feel like you can continue to generate operating earnings, excluding the fair value marks equal to roughly $0.10 per share where the dividend is today. And then what are the main drivers of that besides continuing to maintain margins at the current level?

Yes. So once again, the fair value change is $170 million. You're not looking at it correctly. We feel very confident. I won't say confident, I'll say very, to extremely confident that we will always generate more than that money. We're going to pay the dividend. So people that question, whether we'll pay the dividend just don't understand our business once again. And it's fine because people that don't understand our business in general, that's why our stock price is so low that it's irrational at this point. So we feel really good about the dividend. We feel really good about our earnings. We'll continue to make a lot of money. You'll be on the call next quarter and you'll be able to ask me about it again, and I'll show you, we made a bunch of money. And if you're a shareholder, you'll get a lot of money every quarter and you'll feel really good about being part of it. And so we're excited about that. We run the business very profitably, very successfully, and it's going to continue going that way.

Okay. And then your guidance implies something about production income declining, over maybe about $100 million. If we assume everything is just the same servicing and maybe a little bit lower amortization expense, where will you make up the decline in production income on the income statement, would it primarily be other expenses or will we see interest income come up a lot, just due to higher interest rates?

There's a lot of spots where you'll see the income, where there's revenue sources that you probably don't see that we see there's obviously interest income, but also really the thing is interest expense. We'll go down because we can sell warehouse with our excess cash. There's a lot of pieces to it, to the puzzle once again. And the key to everything that people have to realize. And I think you do realize is, is our overall cost to originate. We've always said, Tim Forrester is not here today. Always talked about our cost to originate is better than everyone else in the country because of our technology investments. That's going to come through. Everyone else has to continue to drop margins. We don't have to. And at the same time, we're in position where we are profitable, highly profitable at these levels. And so you'll see more over the second quarter, our servicing book is strong. We make money there too, but we're not dependent on fair value markups to be profitable. We're going to be continuing to be profitable operationally as we have been every quarter.

Yes. And then one last one, have you considered potentially bringing servicing in-house? And then if so, like what's the timing on something like that?

Yes, no, it's a good question. We've looked at that bringing servicing in-house, it could save us a couple million dollars have opportunities but at the same time, there's a lot other places that we invest our time and technology to grow. And so we balance that actually me and the risk team talk about it quite often about bringing servicing in-house. And it's definitely a discussion that we have out there but there's a lot of other things that are out there that we think will generate income along with generate growth for our broker channel, helping our loan officers win. And so it's just a balance of where do we want to focus our attention going forward.

Thank you, Mat.

Thank you.

Next, we'll go to Henry Coffey Jr. with Wedbush.

Hey, good morning again. Thank you. You gave out the fair value mark number. I didn't write fast enough. Can you give that to me again?

I said about 170. I think it's actually 172, if I'm exact, but 170 million is what I think I said earlier, but I think it's 172 exactly.

And then the discussion on the dividend is interesting and it shows how important this is to everybody. There are a couple of interesting mechanisms there because you got to and if I got the alphabet stuff right, wrong, forgive me – but you've got, what is it the D shares and A shares and you could – if you wanted to defer the dividend on the D shares and pay the dividend on the A shares, if I'm right on that, that gives you a lot of flexibility. And then the other question is, there's a subtle difference between a declared dividend and a regular, have you thought of switching the terminology around how you define the dividend so people could have even more confidence in that number?

Yes. So you're correct in your comments. I don't know how to give people more confidence than telling you that I'm going to pay the dividend and I'm the chairman and CEO and we paid the dividend every quarter and I've said that, and I continue to say everything you say always comes through and you'll eventually feel that after a quarter after quarter. The dividend gets paid out, I own quite a bit of it. And so people can have confidence, but at these levels, people are – we're going to continue to pay the dividend. We continue to make a lot of money. We are cash strong across the board, as you can see, and even stronger than we were at the end of the first quarter from a cash perspective, the dividend not being paid is not even a concept that crosses my mind this year or in the future beyond that. Like I just don't even – it doesn't even cross my mind to be honest. Obviously, I meet with the board and we talk about those things as we talk about everything, because I got great partners on the board and we discuss how to strategize and how to grow this channel and grow the business. But it's not even a concept where my competitors might cut the dividend or change it, not even crossing my mind.

When you think about keeping the business going forward, obviously there's a lot of momentum here. From a capital point of view, what is it that you need quote capital for? Is it just to hold MSRs for a while? Is it – if the business – the origination business looks like it's profitable so, what – as you grow the business forward, what sort of capital do you need and what do you need it for?

Yes. So the key is cash is king, and how do we make sure that we use cash to have flexibility, to take care of opportunities. So there's opportunities that could come up in the market there's opportunities that we can invest heavily from a technology perspective. So I like having more cash in less, but at the same time, I like to share our cash with our shareholders, which is why I continue to pay the dividend and we'll continue to do so. So we look at – let's make sure we have cash. We're strong for all different opportunities, because there's a lot of things out there. I think someone asked me the question earlier about a lot of other companies struggling or other things out there and how can we pounce and having the strong cash position that we're in. We feel really good about that. And so we'll continue to have a lot of cash on balance sheet. We'll continue to pay a dividend. Everyone's going to be happy.

Great. Thank you.

Thank you.

Next, we'll go to Bose George with KBW. Your line is open.

Hey guys. Good morning. Actually I wanted to follow up on the gain on sale question. Did the gain on sale margin trend down during the quarter? Just curious if the 2Q guide is closer to what you guys saw in March?

No, it's in trend down through the quarter, we felt good about it and I still feel good about it. And so just understanding that there's a lot of things that a lot of moving parts and we want to make sure that you feel confident that everything I tell you will come true and that we'll never miss these numbers. We feel really good about 75 to 90 range where everyone else has to continue to cut margins as you'll see we don't need to do that. We feel really good about the first quarter numbers and we feel good about the second quarter numbers going forward.

Okay, great. Thanks. And then actually just wanted to go back to the MSR mark, in the release, you guys have the change in fair value of the MSR, the $390.98 million. And you mentioned 170 million as a mark. So does that 390 million include the MSR DK as well? Is that because I thought this the 390, I thought was the MSR mark?

Yes. 170 is the number. So the 390 includes a lot of different things. I think that you're referencing the 170 is what the change in valuation. So a lot of other companies are out there marking up their MSRs. And we obviously marked ours up in line, but ours was 170 million of our $450 million – I'm giving round numbers 172 of 453, whatever it may be.

Okay, great. Thanks.

Thank you for the questions. I appreciate everyone's thoughts and Blake Kolo and our team will be available for any other follow ups. I think that was all the questions at queue. And I'll turn it back over to the moderator.

That wraps up the Q&A portion. And I'd like to turn the call back over to Mat Ishbia for any closing or additional remarks.

Thank you guys for the time today, we appreciate the support and look forward to talking to you guys in the next earnings call. Have a great day.

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