UWM Holdings Corporation 2026 Q2 Earnings Call

I'm going to go through every one of them, or at least I'm trying to get through every one of them, hopefully make it as effective for everyone as possible. Before I get into that, obviously, from a second quarter perspective, operating income over $180 million EBITDA, Adjusted EBITDA, along with about $40 billion of business. We feel really good about UWM and the strength of the broker channel and the growth of the broker channel. We feel great about where that's at. Obviously, I got so many questions about Oaktree partnership, the dividend, Two Harbors, the hedging. We're going to get through all that stuff, and I'll try to get through it. Before I get into it, I wanted to start with the overall picture from where we are at UWM and the partnership with Oaktree.

We feel great about Oaktree and the partnership that we have and are creating. Oaktree's not just capital, they're strategic partners of ours. They have MSR background, non-agency. They have a lot of mortgage-related, and they're betting on housing, and they're betting on UWM. We're excited about the partnership, and what it's going to do for our business long term, and that's what we always think about is how do we dominate long term? The mortgage market's been tough for the last five years now. UWM's consistently made operating income, and Two Harbors recognized the strength of our business and says, "Hey, how can we take this to the next level?" From a strategic perspective, we see a lot of the same vision about the brokers, about the operating model and infrastructure that we've built to help the independent mortgage channel grow and dominate.

That's really what we're about here at UWM, and housing and mortgages are going to be here and be strong. It's a huge market, and it's been a tough four or five years, and we expect the next four or five years to be significantly better. In the tough years, we still are successful and profitable at UWM, as Oaktree points out many times when we've spent time with them. Now it's like, how do we take it to a whole another level? The balance sheet is fortified. The debt ratios that people are concerned about are a non-question anymore, and we're ready to go forward in a really, really strong way. With that being said, I know there's AI questions, there's dividend questions, let me just go into all these questions and hopefully answer all of them.

I'm going to try to mention a couple people that asked the questions, but to be fair, I think we got the same questions from about 15 different people, I won't do too many. Let's just start, I guess, with the dividend. I got some questions. Jason Stewart, Bose, Jeff Atl. I got a people, I'm not going to name everyone's name that asked the question. The basic question is, "Hey, Matt, UWM, why are we cutting the dividend now?" The first part, how we got here, a lot of things tied to the dividend. We've always rewarded our shareholders, and we feel good about rewarding our shareholders, and we're going to always look at ways to do that. The decision to cut it right now is just capital allocation.

Right now, after this transaction, after the $2 billion plus, which is the largest capital raise, I think, in mortgage history, we're going to have over $3 billion of equity. How do we continue to build on that going forward? The dividend obviously takes out from that, and we made the decision that the right thing for our business for the long term is to continue to build up equity, continue to solve for the debt ratios, which are significant, are well below industry norms now with the capital infusion, and run the business the most effective way. Will there be special dividends down the road? Possibly. Will we go back to regular dividend? Possibly. Once again, we look at that stuff every single quarter, but the reality is, liquidity matters, equity matters, and we have the best operating business and infrastructure for brokers to grow and dominate.

If I can make sure the capital and liquidity are in a great position, then all of the rest takes care of itself. Once again, it's been a tough four or five years in the mortgage industry. The next four or five years are going to be significantly better. Oaktree believes in that. They believe in housing. They believe in UWM, and so do we, and so do I, obviously. That's kind of how I think about a dividend. It's just the right time to pause that and suspend that process, and then we'll always evaluate every quarter with our board of directors and see what's best. Right now, I see a going forward path of let's retain equity, retain earnings, continue to build, continue to grow, and take advantage of the market that we have in front of us. All right. Let's see. Two Harbors, I guess we can talk Two Harbors, a couple questions on the transaction.

Let me just. Did that recreate the need for capital? I don't really look at it that way, here's what I'll say. The way we look at it is, how do we make sure we have a good amount of equity, we have good ratios, and we have a fortified balance sheet? That's a big part of why we have the capital raise. It's not just capital, because if it was just capital, then I could put money in myself or you get random people put capital. This was a strategic partnership with Oaktree because of their MSR background. They have a whole view. Also just their knowledge and their sophistication on capital markets, which will help us in so many ways.

We're excited about the partnership. Now, the Two Harbors transaction, it definitely was unfortunate in how it happened. You'll see some litigation and some things that they did inappropriately, and we'll go through that process when that time comes. However, I'm not going to spend my time talking about that. What I'm going to talk about is that Two Harbors transaction was one of the strategies of helping from a cash, liquidity, and equity perspective. When that did not go the way we expected, we had another option. It's great to have options. Once again, Oaktree wrote a massive size check to be part of this and to be next to me and UWM and help us grow together. If the deal would've closed, maybe the Oaktree thing would not have happened as quickly.

The silver lining is Oaktree has so much better partnership for us than Two Harbors or anything else would've been. I think of it as a long-term upside for UWM, the way it all played out, and we'll go through the litigation process with Two Harbors and CrossCountry Mortgage and some of the inappropriate things that happened in that deal at that time. I think that covers Two Harbors. I'm trying to think if there's anything else that looks like it's going to be the other Two Harbors questions. Let me go into the hedge loss, because I think that's a handful of other questions here. "Can you please explain the hedge loss, what caused it, and how investors should think about it?" Listen, hedging in general in the mortgage industry is expensive, and it's something I actually don't believe in general.

We have never hedged our MSR. I won't say never. We don't traditionally hedge our MSRs. Our origination machine is so big and strong that if the rates drop, you'll lose MSR value and equity, but you'll do so much more business that you're good. If rates go up, your MSR values go up, and you do less originations, but your equity goes up. That's kind of how we've always played it. When you're going through and acquiring a company like Two Harbors and a massive MSR book, then our MSR book became double the size of what we've always managed, and therefore it created a little more risk. When we did put a hedge on to protect against that risk, a lot of things happened. Let's just be real. Whether it's a war, a lot of different things that happened that created the 10-year to go up strategy, obviously the Two Harbors transaction went away.

A confluence of events that created a hedge loss. We hit a certain risk threshold that I said, "Hey, listen, we're not going to continue hedging regardless," because we didn't want to have more of equity drain, and we took the hedge off. Of course, that's the strategy that we've always had is let's not hedge. Let's run the business effectively. Once again, Oaktree has a strategic perspective on this, and I'll go through that with them after this process and whether we hedge going forward or not. Once you have $3 billion equity, you're really not at a risk of the MSR values go down $400 million for this quarter or go up $400 million.

It's less relevant. When you're hovering around $1.5 billion or $2 billion, it becomes a little bit more relevant. That became an issue. We hedged. It was a one-time event, to be honest with you, because of Two Harbors. We were over-hedged, if you think of it that way, protecting against the Two Harbors transaction. The market moved against us, and it's a one-time event that won't happen again. We feel like our hedging policies are much stronger now, but also we're not acquiring another company that has an MSR book like that. At least that's not the plan of now, and we know how to handle it differently going forward. I think that covers it. It was a transaction specific event. It's not a reflection of our operating business, by the way, at all.

As you guys know, as I pointed out at the beginning of the call, $160 million to $200 million of Adjusted EBITDA almost every quarter consistently. A little bit higher than that if you look at the numbers, but we're consistently making that much money. "What did management learn from hedge loss?" I kind of covered this one. A unique circumstance. Traditionally, we don't hedge MSRs at UWM. Definitely with the size book we have right now, we wouldn't be hedging MSRs at that level. Once again, the market moves in a certain way and is an event that obviously unfortunate and not planned and not expected. At the same time, we're looking forward now and know what our business is about, and operating business is great. The balance sheet is fortified. It has never been stronger. Then looked at the balance sheet from 2020 and 2021.

I think $3 billion is kind of the high water mark, and we're going to be at that number when this capital raise is done. At the same time, after another quarter or two of earnings, as we're going to have, it will continue to grow. With no dividend, that will make our balance sheet strong, liquidity strong, and then just let's continue to build and dominate helping independent mortgage operate in this housing market with AI, all the things that we've really been building for years and years here at UWM can now go to the next level. I think that covers those. Let me see if there's any other ones. Let's talk. There's a bunch of Oaktree questions, obviously. Let me talk about that.