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Bitcoin mortgage? Rocket vs United; Home Depot, Lowe’s 🤔

By August 18, 2021 No Comments

UWM wants to take bitcoin for mortgage payments

United Wholesale Mortgage CEO Mat Ishbia said Monday that the Pontiac-based company plans to start accepting cryptocurrency for payments before year's end, making it the first major nationwide mortgage lender to do so.

We've evaluated the feasibility, and we're looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments, Ishbia said late Monday afternoon in an earnings call with Wall Street analysts (Full transcript here.).

He later told the Free Press that UWM could begin accepting one or more digital currencies later this quarter or in the fourth quarter.

“I think we’re starting with Bitcoin, but we’re looking at Ethereum and others,” Ishbia said in an interview. “We’re going to walk before we run, but at the same time, we are definitely a leader in technology and innovation and we are always trying to be the best and the leader in everything we do.”

Ishbia announced UWM's crypto ambitions in the middle of the company's earnings call about its second quarter financial results when it saw a record volume of mortgage business but had lower profits because of shrinking margins that are impacting all of the mortgage industry.

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Whalen writes: Rocket and United: “two very different perspectives on the mortgage business” 

On the back of earnings for both United and Rocket, the Institutional Risk Analyst author Chris Whalen took a deep dive into the viability of the two business models in a recent post (subscription only, recommended).

“Looking at RKT and UWMC, we have two very different perspectives on the mortgage business. Both companies are being buffeted by market volatility and sharp swings in secondary market spreads, but RKT has the broader business model and greater operational efficiency,” Whalen writes. 

And as readers of Rise&Shred learned yesterday UWM CEO Matt Ishbia is extremely optimistic about his chances to keep growing both his share of the borker market, as well as the broker’s share of the mortgage market. 

Only yesterday, we reported that he declared the last quarter, “our best quarter of all-time,” which is something Whalen takes notice of.

“When Ishiba states that UWMC will prosper “as long as the wholesale channel flourishes,” he states the case succinctly,” Whalen continues. 

“UWMC is the classic bottom-feeder, what we lovingly call the monkfish. His fate will follow conditions in the wholesale channel, which is the first channel to disappear in a rising interest rate environment. Will interest rates rise anytime soon? Probably not, but the market does not care.  As a result, look for UWMC to push the envelope in terms of loan purchase volume as Ishiba tries to balance declining profitability with higher volumes.  We all know how that story ends,” Whalen concludes.

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Is the slowdown at Home Depot and Lowe’s really a poor sign for housing?

An interesting angle in a recent CNN article ties the performance of Home Depot and Lowe’s to the homebuilders market and we’re left wondering if that is a logical association.

Yes, the price of lumber has fallen sharply in the last few months, but apparently that has not been enough to take the pressure off homebuilders.

Sentiment among single-family homebuilders dropped 5 points to 75 in August on the National Association of Home Builders/Wells Fargo Housing Market Index.

Anything above 50 is considered positive, but that is the lowest reading since July 2020. The index stood at 78 last August. 

Of the index’s three components, current sales conditions fell 5 points to 81 and traffic of prospective buyers also fell 5 points to 60. Sales expectations in the next six months were unchanged at 81. 

But builders aren't constructing new homes fast enough, according to the CNN article. 

Shares of Home Depot, which have soared more than 25% so far this year, were down more than 4% in early morning trading Tuesday on the news. Investors seem worried this could be a trend, as rival Lowe's  — which will report its second-quarter results Wednesday — fell 4% too.

The federal government will report housing starts and building permits numbers for July on Wednesday morning. Economists are forecasting a drop in housing starts from June and that building permits will be flat.

“That would be bad news for Home Depot, especially as lumber prices have sunk in recent months due to slowing demand. Surging lumber costs had given Home Depot a big sales lift earlier this year.,” writes CNN report Paul La Monica. 

While lumber costs did surge, do homebuilders even buy lumber from retail shops Home Depot and Lowe’s? We ask because we’ve never seen Lennar trucks loading up and home improvement shops.

Sure contractors pop in for the one off faucet they’re running short on, and these independent workers do get a discount when buying in bulk, but is there really more of a correlation than that? 

We don’t think so.

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