Correction: The original version of this report incorrectly stated how much United Wholesale came from fourth quarter mortgages and gave Tim Forrester the wrong title. We are sorry for the errors.

The past year was marked by strong activity in the mortgage market. The COVID-19 pandemic sparked an economic collapse, which caused the Fed to lower lending rates to zero and aggressively support the mortgage market. Mortgage bankers have had their best years in ages, and many of them, like Rocket (NYSE: RKT), took advantage of the market to go public.

Another leader in mortgage lending, Wholesale plain (NYSE: UWMC), has just been floated on the stock market via an ad hoc acquisition company (SPAC). United Wholesale, with a completely different business model than the typical initiator, just announced its fourth quarter and full year 2020 results.

United Wholesale has a different business model

United Wholesale, which is at the origin of findamortgagebroker.com website (and Super Bowl advertisement), has a different business model than traditional retail brokers like Rocket or corresponding stores like PennyMac Financial (NYSE: PFSI). Rocket is a retail model, largely focused on the consumer. He manages the loan creation process from start to finish. PennyMac Financial is a correspondent lender that purchases completed loans from small originators.

In contrast, United Wholesale uses a broker model. He works with independent mortgage brokers who bring interested borrowers to United Wholesale and then United Wholesale makes the financing available.

Brokers made up half of the mortgage market before the Great Recession which lasted from 2007 to 2009. That number has fallen to just 20%, but United Wholesale expects broker market share to rebound.

The company recently released some of its numbers for the fourth quarter and full year. He only offered abridged financial statements in the press release with high-level figures that did not include certain figures, including earnings per share. Full statements will be released when the company files its 10-K and its audit is complete.

What we have, however, shows strong growth. For the fourth quarter, United Wholesale generated $ 54.7 billion, an increase of 71% over the fourth quarter of 2019. For the full year, United Wholesale generated $ 182.5 billion, This is 69% more than in 2019. The company posted net income of $ 1.4 billion for the fourth quarter, almost ten times more than a year ago. The gain on the sale was 3.05% versus 1.1% a year ago. Note that United Wholesale suspended Federal Housing Administration (FHA) loans and jumbo loans early in the crisis, so there is a question about the usefulness of comparisons between these numbers.

Technology investments translate into lower costs

United Wholesale has invested heavily in technology. Findamortgagebroker.com, which ran an ad for the 2021 Super Bowl, was a massive investment. It aims to promote awareness of mortgage brokers as a loan vehicle for home buyers. Consumers may be referred to a mortgage broker who will help them decide which product is the best.

Other technology investments include UTrack, a tracking app that will tell the borrower, broker, and real estate agent the current status of a loan. Blink + is the company’s loan origination system, which assembles documents and manages the nuts and bolts of loan formation. Finally, EASE Docs manages the final documents for closing.

The gain from this technology is not only faster shutdown times, but lower creation costs. In the fourth quarter, United Wholesale took 18 days to manufacture a loan, compared to 56 days for the typical retail lender. On the conference call, CFO Tim Forrester said United Wholesale’s cost of creating a loan (including broker’s compensation) was $ 5,800 per loan, compared to an average retail cost of $ 8,872. $. This translates into lower borrowing costs. United Wholesale’s average lending rate was 2.74% in the fourth quarter, compared to 2.89% for the industry as a whole.

A mortgage originator with a yield

Finally, United Wholesale introduced a quarterly dividend of $ 0.10 per share, which gives the company a dividend yield of 4%. That’s higher than most of its competition aside New Residential, an initiator with a different business model. The Street sees United Wholesale earning $ 1.40 next year, giving the company a price-to-earnings ratio of 7.1 times. United Wholesale’s cost advantage may allow it to take shares from other lenders, which may justify a premium multiple.

Mortgage originators typically don’t trade with massive multiples unless the industry is going through a rough patch and profits are low. In this way, mortgage originators most closely resemble cyclical stocks. United Wholesale has a sustainable business model and attractive returns. It is probably more attractive to income-oriented investors. I would like to see 10-K before I make recommendations on the stock.