KBRA Affirms Ratings for United Wholesale Mortgage, LLC
1 Dec 2023 | New York
KBRA affirms the Issuer and senior unsecured debt ratings of BBB- for Pontiac, Michigan-based United Wholesale Mortgage, LLC (“UWM” or “the company”). The Outlook for the ratings is Stable.
Key Credit Considerations
UWM’s ratings are supported by the company’s solid multi-year operating performance history (including during much of the 2022 and 2023 cyclical industry downturn for the mortgage origination business), continued moderate core leverage, and maintenance of an enhanced liquidity profile.
Historically a wholesale origination-focused business model that systematically sold most of its MSRs after some accumulation and seasoning, UWM adjusted its corporate strategy beginning in 2020 by retaining a majority of their MSRs that year and into 2021. With recent period servicing portfolio balances of ~$300 billion ($281 billion at 3Q23), the company’s now meaningful MSR investment certainly represents more than a short-term change; notwithstanding active bulk sales during 2022 ($113 billion of total UPB) and YTD23 (~$99 billion). Adding the ‘business model’ balance of a scale servicing book to a leading production platform should continue to help dampen the cyclical effects on operating performance in the current challenging origination environment. With that said, we believe that the ‘economic’, financial and business model benefits associated with a refined, financial instrument MSR hedging program would represent a credit positive for the company over time.
UWM’s longstanding operational intensity around its origination business – benefiting from industry leading technology, unwavering / singular focus on the broker channel, distinct share leadership in purchase mortgages, and overall operating execution – should serve the company comparatively well as the current, lower production volume environment persists. The wholesale channel has remained highly competitive, magnified by UWM’s intense recent pricing strategies; one which could continue to facilitate reduced competition over time.
UWM’s continued ultimate future success is reliant both on the maintenance of the company’s operational excellence and differentiation, as well as continued market share development that has occurred in recent years for the wholesale channel in aggregate. Additionally, cash burn related to UWM’s origination activities, as well as any related change in corporate leverage trends, in part associated with the company’s competitive pricing strategy during the current cyclical downturn, will need to be monitored.
Rating Sensitivities
An upgrade is not contemplated at this juncture. Continued solid operating results / growth in equity base in the less robust origination market, as well as the maintenance of an enhanced liquidity profile and similar core leverage would be positive. Development of an MSR hedging program would also be considered favorably. An unexpected deterioration in profitability, more significant operating cash burn than expected, together with a related increase in corporate leverage could have negative ratings ramifications.
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