KBRA Affirms Ratings for United Wholesale Mortgage, LLC

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 reflect the company’s comparatively solid multi-year operating performance in what remains a highly cyclical industry, moderate core leverage, and maintenance of a favorably liquidity profile; with respect to both primary as well as contingent sources.

As a historically origination-focused business model that remains core to its contemporary operating profile, UWM had systematically sold most of its MSRs after some accumulation and seasoning for much of its operating history. Constrained bulk purchase demand during much of 2020, together with unprecedented company (and industry) production volumes initially contributed to UWM’s partially adjusted strategy to retain a majority of their MSRs during both 2020 and 2021. With a recent period servicing portfolio of >$200 billion, the company’s now meaningful MSR investment certainly represents more than a short-term change, notwithstanding, continued active bulk sales. Adding some ‘business model’ balance to the leading origination franchise, the scale servicing book should continue to help dampen the cyclical effects on operating performance in more challenging origination environments. 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.

UWM’s longstanding operational intensity around its origination business – benefiting from industry leading technology, unwavering / singular focus on the broker channel, share leadership in purchase mortgages, and overall operating execution – should continue to serve the company comparatively well in the current, lower production volume environment. Mortgage origination, including the wholesale channel, remains highly competitive, in some respects magnified by UWM’s competitive pricing strategies and related product development, which together, have and could continue to facilitate somewhat reduced competition over time, but, with an impact to the company’s profitability and operating cash flow.

UWM’s future success with its unique, origination focused business model remains reliant both on its continued operational excellence and differentiation, as well as continued market share development for the wholesale channel in aggregate. Additionally, KBRA continues to monitor operating cash burn and a moderate increase in corporate leverage associated with the company’s pricing strategies.

Rating Sensitivities

Continued solid operating results / relative growth in equity base through cyclicality in the origination market, as well as the maintenance of an enhanced liquidity profile and similar core leverage would be considered positive, as would the development of an MSR hedging program. An unexpected deterioration in profitability, more significant operating cash burn than expected, together with a related increase in corporate leverage, could have negative rating ramifications.

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Methodologies