0001783398-22-000068.txt : 20220809 0001783398-22-000068.hdr.sgml : 20220809 20220809151427 ACCESSION NUMBER: 0001783398-22-000068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 87 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220809 DATE AS OF CHANGE: 20220809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UWM Holdings Corp CENTRAL INDEX KEY: 0001783398 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 842124167 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39189 FILM NUMBER: 221147800 BUSINESS ADDRESS: STREET 1: 585 SOUTH BLVD E CITY: PONTIAC STATE: MI ZIP: 48341 BUSINESS PHONE: 800-981-8898 MAIL ADDRESS: STREET 1: 585 SOUTH BLVD E CITY: PONTIAC STATE: MI ZIP: 48341 FORMER COMPANY: FORMER CONFORMED NAME: Gores Holdings IV, Inc. DATE OF NAME CHANGE: 20190723 10-Q 1 uwmc-20220630.htm 10-Q uwmc-20220630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number 001-39189

UWM HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
84-2124167
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
585 South Boulevard E.
Pontiac,MI48341
(Address of Principal Executive Offices)
(Zip Code)
(800) 981-8898
Registrant's telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareUWMCNew York Stock Exchange
Warrants, each warrant exercisable for one share of Class A Common StockUWMCWSNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x   No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
  
Non-accelerated filer  
o
Smaller reporting company
  
Emerging growth company
  
        
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes        No  x

As of August 5, 2022, the registrant had 92,575,425 shares of Class A common stock outstanding and 1,502,069,787 shares of Class D common stock outstanding.


Table of Contents





PART I
Item 1. Financial Statements
UWM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share amounts)
 June 30,
2022
December 31, 2021
Assets(Unaudited)
Cash and cash equivalents$958,656 $731,088 
Mortgage loans at fair value5,332,383 17,473,324 
Derivative assets125,079 67,356 
Investment securities at fair value, pledged 125,193 152,263 
Accounts receivable, net350,090 415,691 
Mortgage servicing rights3,736,359 3,314,952 
Premises and equipment, net153,971 151,687 
Operating lease right-of-use asset, net
(includes $102,454 and $104,595 with related parties)
102,533 104,828 
Finance lease right-of-use asset
(includes $27,900 and $28,619 with related parties)
50,179 57,024 
Other assets82,467 60,145 
Total assets$11,016,910 $22,528,358 
Liabilities and equity
Warehouse lines of credit$4,497,353 $15,954,938 
Derivative liabilities93,958 36,741 
Borrowings against investment securities118,786 118,786 
Accounts payable, accrued expenses and other780,166 1,087,411 
Accrued distributions and dividends payable159,461 9,171 
Senior notes1,982,103 1,980,112 
Operating lease liability
(includes $109,732 and $111,999 with related parties)
109,811 112,231 
Finance lease liability
(includes $28,633 and $29,087 with related parties)
51,370 57,967 
Total liabilities7,793,008 19,357,357 
Equity
Preferred stock, $0.0001 par value - 100,000,000 shares authorized, none issued and outstanding as of June 30, 2022
  
Class A common stock, $0.0001 par value - 4,000,000,000 shares authorized, 92,539,245 shares issued and outstanding as of June 30, 2022
9 9 
Class B common stock, $0.0001 par value - 1,700,000,000 shares authorized, none issued and outstanding as of June 30, 2022
  
Class C common stock, $0.0001 par value - 1,700,000,000 shares authorized, none issued and outstanding as of June 30, 2022
  
Class D common stock, $0.0001 par value - 1,700,000,000 shares authorized, 1,502,069,787 shares issued and outstanding as of June 30, 2022
150 150 
Additional paid-in capital669 437 
Retained earnings137,955 141,805 
Non-controlling interest3,085,119 3,028,600 
Total equity3,223,902 3,171,001 
Total liabilities and equity$11,016,910 $22,528,358 

See accompanying Notes to the Condensed Consolidated Financial Statements.
2


UWM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except shares and per share amounts)
(Unaudited)
 For the three months ended June 30,For the six months ended June 30,
 2022202120222021
Revenue
Loan production income$296,535 $479,274 $680,406 $1,553,939 
Loan servicing income179,501 145,278 378,066 269,067 
Change in fair value of mortgage servicing rights
26,169 (219,104)198,132 (278,363)
Gain on sale of mortgage servicing rights 10  4,773 
Interest income62,020 79,194 129,415 125,106 
Total revenue, net564,225 484,652 1,386,019 1,674,522 
Expenses
Salaries, commissions and benefits138,983 172,951 299,592 386,012 
Direct loan production costs25,757 15,518 52,475 28,680 
Marketing, travel, and entertainment20,625 11,330 33,462 21,825 
Depreciation and amortization11,181 8,353 22,096 15,642 
General and administrative39,909 42,116 78,232 58,894 
Servicing costs44,435 23,067 91,619 43,575 
Interest expense57,559 72,673 117,933 125,663 
Other expense/(income)9,562 (1,530)17,064 (18,834)
Total expenses348,011 344,478 712,473 661,457 
Earnings before income taxes216,214 140,174 673,546 1,013,065 
Provision for income taxes769 1,462 4,814 14,348 
Net income215,445 138,712 668,732 998,717 
Net income attributable to non-controlling interest207,079 130,448 638,436 942,468 
Net income attributable to UWM Holdings Corporation$8,366 $8,264 $30,296 $56,249 
Earnings per share of Class A common stock
 (see Note 16):
Basic$0.09 $0.08 $0.33 $0.55 
Diluted$0.09 $0.07 $0.32 $0.39 
Weighted average shares outstanding:
Basic92,533,620 102,760,823 92,374,988 102,908,906 
Diluted92,533,620 1,605,067,478 1,594,444,775 1,605,215,562 

See accompanying Notes to the Condensed Consolidated Financial Statements.
3


UWM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except shares and per share amounts)
(Unaudited)
Class A Common Stock SharesClass A Common Stock AmountClass D Common Stock SharesClass D Common Stock AmountAdditional 
Paid-in Capital
Retained
Earnings
Non-controlling InterestTotal
Balance, January 1, 2021 $  $ $24,839 $2,349,441 $ $2,374,280 
Cumulative effect of change to fair value accounting for mortgage servicing rights— — — — — 3,440 — 3,440 
Net income prior to business combination transaction— — — — — 183,756 — 183,756 
Member distributions to SFS Corp. prior to business combination transaction— — — — — (1,100,000)— (1,100,000)
Net proceeds received from business combination transaction— — — — — 879,122 — 879,122 
Cumulative effect of reorganization post business combination transaction103,104,205 10 1,502,069,787 150 (24,839)(2,164,975)2,189,654  
Opening net liabilities of Gores Holdings IV, Inc. acquired— — — — — (75,381)— (75,381)
Dividend and distribution declared February 3, 2021 and payable April 6, 2021— — — — — (10,310)(150,207)(160,517)
Member distributions to SFS Corp. post business combination transaction— — — — — — (2,913)(2,913)
Net income subsequent to business combination transaction— — — — — 47,985 628,264 676,249 
Balance, March 31, 2021103,104,205 $10 1,502,069,787 $150 $ $113,078 $2,664,798 $2,778,036 
Net income — — — — — 8,264 130,448 138,712 
Dividend and distribution declared June 10, 2021 and payable July 6, 2021— — — — — (10,237)(150,207)(160,444)
Member distributions to SFS Corp.— — — — — — (65,504)(65,504)
Stock-based compensation expense 5,170 — — — 187 — 2,147 2,334 
Class A common stock repurchased(790,599)— — — — (403)(5,745)(6,148)
Re-measurement of non-controlling interest due to change in parent ownership— — — — — (1,305)1,305  
Balance, June 30, 2021102,318,776 $10 1,502,069,787 $150 $187 $109,397 $2,577,242 $2,686,986 
4


Class A Common Stock SharesClass A Common Stock AmountClass D Common Stock SharesClass D Common Stock AmountAdditional 
Paid-in Capital
Retained
Earnings
Non-controlling InterestTotal
Balance, January 1, 202291,612,305 $9 1,502,069,787 $150 $437 $141,805 $3,028,600 $3,171,001 
Net income     21,930 431,357 453,287 
Dividend declared on February 25, 2022 and payable on April 11, 2022     (9,253) (9,253)
Member distributions to SFS Corp.      (450,621)(450,621)
Stock-based compensation expense918,768    105  1,723 1,828 
Re-measurement of non-controlling interest due to change in parent ownership and other     (15,648)15,648  
Balance, March 31, 202292,531,073 $9 1,502,069,787 $150 $542 $138,834 $3,026,707 $3,166,242 
Net income     8,366 207,079 215,445 
Dividend declared on June 21, 2022 and payable on July 11, 2022     (9,254) (9,254)
Member distributions to SFS Corp.      (150,207)(150,207)
Stock-based compensation expense8,172    127  1,549 1,676 
Re-measurement of non-controlling interest due to change in parent ownership and other     9 (9) 
Balance, June 30, 202292,539,245 $9 1,502,069,787 $150 $669 $137,955 $3,085,119 $3,223,902 

See accompanying Notes to the Condensed Consolidated Financial Statements.
5


UWM HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 For the six months ended June 30,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$668,732 $998,717 
Adjustments to reconcile net income to net cash provided by operating activities:
Reserve for representations and warranties13,739 21,661 
Capitalization of mortgage servicing rights(1,058,115)(1,180,615)
Change in fair value of mortgage servicing rights(198,132)278,363 
Depreciation and amortization of premises & equipment, finance lease assets and debt issuance costs24,033 17,065 
Stock-based compensation expense 3,504 2,327 
Decrease in fair value of investment securities20,845  
Decrease in fair value of warrants liability(6,982)(18,834)
(Increase) decrease in:
Mortgage loans at fair value12,140,942 (4,487,597)
Derivative assets(57,723)(14,366)
Other assets80,239 (74,352)
Increase (decrease) in:
Derivative liabilities57,217 16,314 
Other liabilities(327,598)95,360 
Net cash provided by (used in) operating activities11,360,701 (4,345,957)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of premises and equipment(15,362)(32,273)
Net proceeds from sale of mortgage servicing rights824,196 2,708 
Proceeds from principal payments on investment securities6,083  
Margin calls on borrowings against investment securities(12,326) 
Net cash provided by (used in) investing activities802,591 (29,565)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under warehouse lines of credit(11,457,585)4,307,814 
Repayments of finance lease liabilities(8,570)(5,895)
Borrowings under equipment notes payable 1,078 
Repayments under equipment notes payable(493)(25,022)
Borrowings under operating lines of credit 79,700 
Repayments under operating lines of credit (400,000)
Proceeds from issuance of senior notes 700,000 
Discount and direct issuance costs on senior notes (7,036)
Proceeds from business combination transaction 895,134 
Costs incurred related to business combination transaction (11,260)
Dividends paid(18,425)(10,310)
Member distributions to SFS Corp. (450,651)(1,318,625)
Class A common stock repurchased (5,716)
Net cash (used in) provided by financing activities(11,935,724)4,199,862 
INCREASE IN CASH AND CASH EQUIVALENTS227,568 (175,660)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD731,088 1,223,837 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD$958,656 $1,048,177 
SUPPLEMENTAL INFORMATION
Cash paid for interest$81,508 $104,515 
Cash paid for taxes 1,699 
See accompanying Notes to the Condensed Consolidated Financial Statements.
6



UWM HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
UWM Holdings Corporation, through its consolidated subsidiaries (collectively, the “Company”), engages in the origination, sale and servicing of residential mortgage loans. The Company is organized in Delaware but based in Michigan, and originates and services loans throughout the U.S. The Company is approved as a Title II, non-supervised direct endorsement mortgagee with the U.S. Department of Housing and Urban Development (or “HUD”). In addition, the Company is an approved issuer with the Government National Mortgage Association (or “Ginnie Mae”), as well as an approved seller and servicer with the Federal National Mortgage Association (or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (or “Freddie Mac”).
The Company (f/k/a Gores Holdings IV, Inc.) was incorporated in Delaware on June 12, 2019. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On September 22, 2020, the Company entered into a Business Combination Agreement (the “Business Combination Agreement”) by and among the Company, SFS Holding Corp., a Michigan corporation (“SFS Corp.”), United Wholesale Mortgage, LLC, a Michigan limited liability company (“UWM”), and UWM Holdings, LLC, a newly formed Delaware limited liability company (“Holdings LLC” and, together with UWM, the “UWM Entities”). The business combination with the UWM Entities closed on January 21, 2021.
Prior to the closing of the business combination with the UWM Entities, SFS Corp. was the sole member of UWM, which had one unit authorized, issued and outstanding. On January 21, 2021, SFS Corp. contributed its equity interest in UWM to Holdings LLC and adopted the Amended and Restated Operating Agreement to admit Holdings LLC as UWM's sole member and its manager. Upon completion of the business combination transaction, (i) Holdings LLC issued approximately 6% of its units (Class A Common Units) to the Company, (ii) SFS Corp. retained approximately 94% of the units (Class B Common Units) in Holdings LLC and accordingly retained approximately 94% of the economic ownership interest of the combined company and (iii) Holdings LLC became a consolidated subsidiary of the Company, as the Company is the sole managing member of Holdings LLC. The economic interest in Holdings LLC owned by SFS Corp. is presented as a non-controlling interest in these condensed consolidated financial statements (see Note 10 - Non-Controlling Interests for further information).
Following the consummation of the transactions contemplated by the Business Combination Agreement, the Company is organized in an “Up-C” structure in which UWM (the operating subsidiary) is held directly by Holdings LLC, and the Company’s only material direct asset consists of Class A Common Units in Holdings LLC. The Company’s current capital structure authorizes Class A common stock, Class B common stock, Class C common stock and Class D common stock. The Class A common stock and Class C common stock each provide holders with one vote on all matters submitted to a vote of stockholders, and the Class B common stock and Class D common stock each provide holders with 10 votes on all matters submitted to a vote of stockholders. The holders of Class C common stock and Class D common stock do not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of Class A common stock and Class B common stock. Immediately following the business combination transaction, there were 103,104,205 shares of Class A common stock outstanding, and 1,502,069,787 shares of non-economic Class D common stock outstanding (all of which were held by SFS Corp.), and no shares of Class B or Class C common stock outstanding. As of June 30, 2022, there were 92,539,245 shares of Class A common stock outstanding and 1,502,069,787 shares of Class D common stock outstanding. Each Holdings LLC Class B Common Unit held by SFS Corp. may be exchanged at the option of the Company, along with its stapled share of Class D common stock, for either, (a) cash or (b) one share of the Company’s Class B common stock (See Note 10 - Non-Controlling Interests). Each share of Class B Stock is convertible into one share of Class A Stock upon the transfer or assignment of such share from SFS Corp. to a non-affiliated third-party. Pursuant to the Business Combination Agreement, SFS Corp. is entitled to receive an aggregate of up to 90,761,687 earn-out shares in the form of Class B Common Units in Holdings LLC and Class D common shares upon attainment of certain stock price targets prior to January 2026. There are four different triggering events that affect the number of earn-out shares that will be issued based upon the per share price of Class A common stock ranging from $13.00 to $19.00 per share. The Company accounts for the potential earn-out shares as a component of stockholders’ equity in accordance with the applicable guidance in U.S. GAAP. See Note 16 - Earnings Per Share for further information.


7


Basis of Presentation and Consolidation
The business combination transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP as UWM was determined to be the accounting acquirer, primarily due to the fact that SFS Corp. continues to control the Company through its ownership of the Class D common stock. Under this method of accounting, while the Company was the legal acquirer, it was treated as the acquired company for financial reporting purposes. Accordingly, the business combination transaction was treated as the equivalent of UWM issuing stock for the net assets of the Company, accompanied by a recapitalization, with the net assets of the Company stated at historical cost, with no goodwill or other intangible assets recorded. The net proceeds received from Gores Holdings IV, Inc. in the business combination transaction approximated $895.1 million, and the Company incurred approximately $16.0 million in costs related to the transaction which were charged to stockholders' equity upon the closing of the transaction. As part of the business combination transaction, the Company assumed the liability related to the Public and Private Warrants (described below) of $45.6 million. The Company’s financial statement presentation included in these condensed consolidated financial statements include the condensed consolidated financial statements of UWM and its subsidiaries for periods prior to the completion of the business combination transaction with the UWM Entities and of the Company for periods from and after the business combination transaction.
The condensed consolidated financial statements are unaudited and presented in U.S. dollars. They have been prepared in accordance with U.S. GAAP pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In our opinion, these condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair statement of our results of operations, financial position and cash flows for the periods presented. However, our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Loans Eligible for Repurchase from Ginnie Mae
When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the previously sold assets are required to be re-recognized on the condensed consolidated balance sheets, regardless of the Companys intent to exercise its option to repurchase. The recognition of previously sold loans does not impact the accounting for the previously recognized mortgage servicing rights (or “MSRs”). At June 30, 2022 and December 31, 2021, the Company had recorded Ginnie Mae pool loans as part of "Mortgage loans at fair value" totaling $319.0 million and $563.4 million, respectively, with related purchase liabilities equal to the gross amount of the loan recorded in "Accounts payable, accrued expenses and other" on the condensed consolidated balance sheets. At June 30, 2022 and December 31, 2021, the fair values of the Ginnie Mae pool loans were $309.6 million and $555.1 million, reflecting fair value adjustments of $9.4 million and $8.3 million, respectively.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under applicable U.S. GAAP. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the U.S. and various state and local jurisdictions. The tax laws are often complex and may be subject to different interpretations. To determine the financial statement impact of accounting for income taxes, the Company must make assumptions and judgements about how to interpret and apply complex tax laws to numerous transactions and business events, as well as make judgements regarding the timing of when certain items may affect taxable income.
Deferred income taxes arise from temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. If based upon all available positive and negative evidence, it is more likely than not that the deferred tax assets will not be realized, and a valuation allowance is established. The valuation
8


allowance may be reversed in a subsequent reporting period if the Company determines that it is more likely than not that all or part of the deferred tax asset will become realizable.
Our interpretations of tax laws are subject to review and examination by various taxing authorities and jurisdictions where the Company operates, and disputes may occur regarding our view on a tax position. These disputes over interpretations with the various tax authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which the Company operates. We regularly review whether we may be assessed additional income taxes as a result of the resolution of these matters, and the Company records additional reserves as appropriate. In addition, the Company may revise its estimate of income taxes due to changes in income tax laws, legal interpretations, and business strategies. We recognize the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. We record interest and penalties related to uncertain tax positions as a component of the income tax provision. See Note 14 – Income Taxes for further information.
Tax Receivable Agreement
In connection with the Business Combination Agreement, the Company entered into a Tax Receivable Agreement with SFS Corp. that will obligate the Company to make payments to SFS Corp. of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes as a result of (i) certain increases in tax basis resulting from exchanges of Holdings LLC Common Units; (ii) imputed interest deemed to be paid by the Company as a result of payments it makes under the tax receivable agreement; (iii) certain increases in tax basis resulting from payments the Company makes under the tax receivable agreement; and (iv) disproportionate allocations (if any) of tax benefits to the Company which arise from, among other things, the sale of certain assets as a result of section 704(c) of the Internal Revenue Code of 1986. The Company will retain the benefit of the remaining 15% of these tax savings. The Company recognized a liability of approximately $1.9 million for estimated amounts due under the Tax Receivable Agreement in connection with the business combination transaction. Subsequently, the liability is accounted for as a loss contingency, with changes in the liability measured and recorded when estimated amounts due under the Tax Receivable Agreement are probable and can be reasonably estimated, and reported as part of other expense/(income) in the condensed consolidated statements of operations. During the six months ended June 30, 2022, the Company recorded an additional liability of $3.2 million, representing 85% of the estimated tax benefits to the Company resulting from sales of MSRs during the first half of 2022. As of June 30, 2022, the total liability recorded for the Tax Receivable Agreement was approximately $17.1 million.
Related Party Transactions
The Company enters into various transactions with related parties. See Note 13 – Related Party Transactions for further information.
Public and Private Warrants
As part of Gores Holdings IV, Inc.'s initial public offering ("IPO") in January 2020, Gores Holdings IV, Inc. issued to third party investors 42.5 million units, consisting of one share of Class A common stock of Gores Holdings IV, Inc. and one-fourth of one warrant, at a price of $10.00 per unit. Each whole warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, Gores Holdings IV, Inc. completed the private sale of 5.25 million warrants to Gores Holdings IV, Inc.'s sponsor at a purchase price of $2.00 per warrant (the “Private Warrants”). Each Private Warrant allows the sponsor to purchase one share of Class A common stock at $11.50 per share. Upon the closing of the business combination transaction, the Company had 10,624,987 Public Warrants and 5,250,000 Private Warrants outstanding.
The Private Warrants and the shares of common stock issuable upon the exercise of the Private Warrants were not transferable, assignable or salable until after the completion of the business combination, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The Company evaluated the Public and Private Warrants under applicable U.S. GAAP and concluded that they do not meet the criteria to be classified in stockholders’ equity due to certain terms of the warrants. Since the Public and Private Warrants meet the definition of derivatives, the Company recorded these warrants as liabilities on the balance sheet at fair value upon the closing of the business combination transaction and subsequently (recorded within "Accounts payable, accrued expenses and other"), with the change in their respective fair values recognized in the condensed consolidated statement of operations (recorded within "Other (income)/expense"). During the three months ended June 30, 2022 and 2021, the Company recognized $2.8 million and $1.5 million, respectively, of other income related to the change in fair value of warrants. During
9


the six months ended June 30, 2022 and 2021, the Company recognized $7.0 million and $18.8 million, respectively, of other income related to the change in fair value of warrants.
Stock-Based Compensation
Effective upon the closing of the business combination transaction, the Company adopted the UWM Holdings Corporation 2020 Omnibus Incentive Plan (the “2020 Plan”) which was approved by stockholders on January 20, 2021. The 2020 Plan allows for the grant of stock options, restricted stock, restricted stock units (“RSUs”), and stock appreciation rights. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period based on the fair value of the award on the date of grant and is included in "Salaries, commissions and benefits" on the condensed consolidated statements of operations. The Company made a policy election to recognize the effects of forfeitures as they occur. See Note 15 – Stock-based Compensation for further information.
Recently Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which was subsequently amended by ASU No. 2021-1, Reference Rate Reform (Topic 848): Scope, which was issued in January 2021 and will remain effective through December 31, 2022. This guidance provides practical expedients to address existing guidance on contract modifications due to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR"). The ASU was effective upon issuance on a prospective basis beginning January 1, 2020 and the Company may elect certain practical expedients as reference rate activities occur. The Company will evaluate its debt and other applicable contracts that are modified in the future to ensure they are eligible for modification relief and apply the practical expedients as needed. The Company does not anticipate this will have a material impact on its condensed consolidated financial statements and related disclosures.
NOTE 2 – MORTGAGE LOANS AT FAIR VALUE
The table below includes the estimated fair value and unpaid principal balance (“UPB”) of mortgage loans that have contractual principal amounts and for which the Company has elected the fair value option. The fair value option has been elected for mortgage loans, as this accounting treatment best reflects the economic consequences of the Company’s mortgage origination and related hedging and risk management activities. The difference between the UPB and estimated fair value is made up of the premiums paid on mortgage loans, as well as the fair value adjustment as of the balance sheet date. The change in fair value adjustment is recorded in the “Loan production income” line item of the condensed consolidated statements of operations.
(In thousands)June 30,
2022
December 31,
2021
Mortgage loans, unpaid principal balance$5,336,456 $17,194,330 
Premiums paid on mortgage loans47,004 238,963 
Fair value adjustment(51,077)40,031 
Mortgage loans at fair value$5,332,383 $17,473,324 
NOTE 3 – DERIVATIVES
The Company enters into interest rate lock commitments (“IRLCs”) to originate residential mortgage loans at specified interest rates and terms within a specified period of time with customers who have applied for a loan and may meet certain credit and underwriting criteria. To determine the fair value of the IRLCs, each contract is evaluated based upon its stage in the application, approval and origination process for its likelihood of consummating the transaction (or “pullthrough”). Pullthrough is estimated based on changes in market conditions, loan stage, and actual borrower behavior using a historical analysis of IRLC closing rates. Generally, the further into the process the more likely that the IRLC will convert to a loan. The blended average pullthrough rate was 75% and 86%, as of June 30, 2022 and December 31, 2021, respectively. The Company primarily uses forward loan sale commitments (“FLSCs”) to economically hedge the IRLCs.
The notional amounts and fair values of derivative financial instruments not designated as hedging instruments were as follows (in thousands):
10


 June 30, 2022December 31, 2021 
Fair valueFair value
 Derivative
assets
Derivative
liabilities
Notional
Amount
Derivative
assets
Derivative
liabilities
Notional
Amount
 
IRLCs$67,783 $19,474 $11,136,192 (a) $24,899 $11,138 $13,450,967 
(a) 
FLSCs57,296 74,484 15,325,601 42,457 25,603 28,887,178  
Total$125,079 $93,958 $67,356 $36,741 
(a)Adjusted for pullthrough rates of 75% and 86%, respectively.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
The following summarizes accounts receivable, net (in thousands):
 June 30,
2022
December 31,
2021
Servicing fees$95,840 $136,981 
Servicing advances80,924 135,117 
Derivative settlements receivable71,262 21,987 
Investor receivables52,635 44,192 
Receivables from sale of servicing 37,786 13,503 
Origination receivables15,908 56,569 
Warehouse bank receivable1,065 8,510 
Other receivables177 127 
Provision for current expected credit losses(5,507)(1,295)
Total Accounts Receivable, Net$350,090 $415,691 
The Company periodically evaluates the carrying value of accounts receivable balances with delinquent receivables being written-off based on specific credit evaluations and circumstances of the debtor.
NOTE 5 – MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are recognized on the condensed consolidated balance sheets when loans are sold and the associated servicing rights are retained. The Company has elected the fair value option for all current classes of its MSRs. The Company determined its classes of MSRs based on how the Company manages risk. The Company's MSRs are measured at fair value, which is determined using a valuation model that calculates the present value of estimated future net servicing cash flows. The model includes estimates of prepayment speeds, discount rate, cost to service, float earnings, contractual servicing fee income, and ancillary income and late fees, among others. These estimates are supported by market and economic data collected from various outside sources.
The unpaid principal balance of mortgage loans serviced for others approximated $308.1 billion and $319.8 billion at June 30, 2022 and December 31, 2021, respectively. Conforming conventional loans serviced by the Company have previously been sold to Fannie Mae and Freddie Mac on a non-recourse basis, whereby credit losses are generally the responsibility of Fannie Mae and Freddie Mac, and not the Company. Loans serviced for Ginnie Mae are insured by the FHA, guaranteed by the VA, or insured by other applicable government programs. While the above guarantees and insurance are the responsibility of those parties, the Company is still subject to potential losses related to its servicing of these loans. Those estimated losses are incorporated into the valuation of MSRs.
The following table summarizes changes in the MSR assets for the three and six months ended June 30, 2022 and 2021 (in thousands):
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For the three months ended June 30,For the six months ended June 30,
2022202120222021
Fair value, beginning of period$3,514,102 $2,300,434 $3,314,952 1,760,304 
Capitalization of mortgage servicing rights412,678 581,226 1,058,115 1,180,615 
MSR sales(216,126) (872,796) 
Changes in fair value:
Due to changes in valuation inputs or assumptions
176,456 (38,035)567,436 159,767 
Due to collection/realization of cash flows/other(150,751)(181,069)(331,348)(438,130)
Fair value, end of period$3,736,359 $2,662,556 $3,736,359 $2,662,556 

The following is a summary of the components of change in fair value of servicing rights as reported in the condensed consolidated statements of operations (in thousands):
For the three months ended June 30,For the six months ended June 30,
2022202120222021
Changes in fair value:
Due to changes in valuation inputs and assumptions$176,456 $(38,035)$567,436 $159,767 
Due to collection/realization of cash flows and other(150,751)(181,069)(331,348)(438,130)
Reserves and transaction costs on sales of servicing rights464  (37,956) 
Changes in fair value of mortgage servicing rights$26,169 $(219,104)$198,132 $(278,363)

During the six months ended June 30, 2022, the Company sold MSRs on loans with an aggregate UPB of approximately $72.7 billion for proceeds of approximately $871.7 million. In connection with the sales of these MSRs, the Company recorded $38.0 million for its estimated obligation for protection provisions granted to the buyer and transaction costs, which is reflected as part of the change in fair value of MSRs in the condensed consolidated statements of operations.
The following table summarizes the loan servicing income recognized during the three and six months ended June 30, 2022 and 2021, respectively (in thousands):
For the three months ended June 30,For the six months ended June 30,
2022202120222021
Contractual servicing fees$177,375 $143,947 $373,325 $266,253 
Late, ancillary and other fees2,126 1,331 4,741 2,814 
Loan servicing income
$179,501 $145,278 $378,066 $269,067 
The key unobservable inputs used in determining the fair value of the Company’s MSRs were as follows at June 30, 2022 and December 31, 2021, respectively:
 June 30,
2022
December 31,
2021
RangeWeighted AverageRangeWeighted Average
Discount rates8.5 %14.5 %9.2 %9.0 %14.5 %9.6 %
Annual prepayment speeds8.3 %18.8 %9.6 %8.3 %45.4 %10.5 %
Cost of servicing$74 $103 $81 $