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$UWMC – The Long View

$UWMC has become one of the most hyped stocks in the online investment community. Online activity appears to be ramping up after earnings and heading into May 21st option expiries. Since UWM is getting a lot of new eyes, it seemed like an appropriate time to share why some investors may consider UWM as a long term hold.

UWM is a mortgage company that focuses exclusively on the broker channel. It’s the largest wholesale mortgage provider in the US and the second largest mortgage originator, behind Rocket Companies.

It’s CEO is Mat Ishbia, who started as it’s 12th employee and who’s dad, Jeff, started the company as a side hustle. Mat and his brother own 94% of the company in Class D shares. The rest of the public float, ~100m Class A shares, are what is available for the public to purchase.

What trends are pushing $UWMC’s stock down?

The largest threat UWM is facing is raising interest rates:

About 75% of UWM income is related to refinance activity. The pandemic pushed rates to historic lows so most consumers were better off refinancing. Millions have done that, leading to record profit for mortgage providers like UWM and Rocket.

The strength of the broker channel:

UWM is completely dependent on brokers finding business and closing loans. It doesn’t have any direct-to-consumer lending operations like Rocket does.

Short Interest:

Sophisticated investors are seeing 75% of income potentially attached to rate sensitive products (not all refi’s are rate sensitive like cash out), and are salivating. They think the market is under appreciating this headwind and shorting the stock. They have basically shorted all the shares they can. Friday the stock ended with 200 shares available and an insane 93% borrow rate.


It is true that the SPAC market has softened recently. It is very reasonable to assume $UWMC is a part of that softening. It may not attract institutional investors because of the SPAC situation and the short period it has been publicly traded. Lots of other nice places to put institutional money.

Competitors: Mortgages are a mature market and competition is fierce. Rocket, LoanDepot and UWM mentioned a pricing war in their earnings. (LD statement). This will compress loan sale margins in the short term.

What trends are pushing $UWMC stock up?

Short term retail pressure:

there is a lot of retail attention on the potential short squeeze/gamma squeeze you could see this week in UWMC. My post is about UWM’s long term perspective, so I’ll let this post take you further down that rabbit hole. Additionally, smart money is now tracking online sentiment, which can lead to increased institutional purchases.

Broker Channel Growth: Mat has claimed two reasons for taking UWM public. He wanted access to the liquidity market and marketing exposure for the retail channel. For UWM to become the largest mortgage originator, Mat has targeted ⅓ mortgages to be originated by brokers and UWM to own 50% of that channel by 2025/26. Currently UWM owns 36% of the broker channel with brokers originating 20% of all mortgages. Before the housing crisis in 2008, brokers were 58% of mortgage originations (Per Mat & Q1 2021 Earnings call), so it isn’t crazy to think they could get back to ⅓ as it is growing:

I had a loan with Rocket and tried to refinance with them. I then went through a mortgage broker and got the same loan for $4.5k cheaper in closing costs. This is because Rocket’s retail channel has 4% margins and it’s partnership network (includes wholesale, realtors, etc.) has 1% margins.

New Product Offerings:

UWM recently released new products like their jumbo loan. In earnings, Mat said he expects $2b in volume from Jumbo. They also added ARM’s, manufactured homes and expanded government programs.

Wholesale mortgage provider consolidation:

Mat said 3 of the top 25 wholesale lenders have been purchased in the last 90 days. This type of consolidation happens in mature markets by companies that are reaching for market share. THis could be a sign companies are under pressure to grow but cannot organically get market share from UWM.

UWM “All In” Ultimatum:

Rocket and Fairway are priortizing other channels (cause the margins are so much higher) and trying to squeeze out brokers. UWM said if you work with those two, don’t work for us. The goal was to stand up for the broker channel WHILE putting some pressure on Rocket and Fairway’s partnership channel. This may have kickstarted the pricing war.

Aggressive Capital returns:

UWM pays an annual .40 dividend on its class A shares. That only costs them ~$42m/year. Remember their Q1 net income was $800m+. So their dividends hardly affect the balance sheet. The board just approved a $300/million share buyback as well that will reduce share count. Mat knows a thing or two about shorting stocks. He just sold at $10 and has authority to buy back with the current price under $8. The man successfully shorted his own company. What a legend.

Long Term Prediction:

I’m invested in UWM because I believe the capital returns will be aggressive during the upswing and the company will remain profitable in a downturn. With a 5%+ dividend return, share buyback, and *potentially* growing market share, UWM could be primed to overtake Rocket within the next few years.

Price Target: $14/share in 2023

submitted by /u/Accurate_Sandwich_49
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