UWM Holdings Corp (UWMC) FY 2021 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and the related notes and other information included elsewhere in this Annual Report on Form 10-K (the “Form 10-K”). This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this report and in Part I. Item 1A. “Risk Factors” and elsewhere in this Form 10-K.

Business Overview

On January 21, 2021, we consummated the business combination transaction contemplated under the Business Combination Agreement by and among us, SFS Corp., UWM, and Holdings LLC (together with UWM, the “UWM Entities”). Upon completion of the business combination transaction, UWM became our indirect subsidiary and our accounting predecessor.

We are the second largest direct residential mortgage lender and the largest wholesale mortgage lender in the U.S., originating mortgage loans exclusively through the wholesale channel. With approximately 8,000 team members as of December 31, 2021 and a culture of continuous innovation of technology and enhanced client experience, we lead our market by building upon our proprietary and exclusively licensed technology platforms, superior service and focused partnership with the independent mortgage broker community. We originate primarily conforming and government loans across all 50 states and the District of Columbia. For the last seven years, including the year ended December 31, 2021, we have been the largest wholesale mortgage lender in the U.S. by closed loan volume, with approximately 31% market share of the wholesale channel for the year ended December 31, 2021 (based on data released by IMF).

Our mortgage origination business derives revenue from originating, processing and underwriting primarily GSE-conforming mortgage loans, along with FHA, USDA and VA mortgage loans, which are subsequently pooled and sold in the secondary market. During the second quarter of 2021, we began selling pools of originated mortgage loans through private label securitization transactions. The mortgage origination process generally begins with a borrower entering into an IRLC with us pursuant to which we have committed to enter into a mortgage at specified interest rates and terms within a specified period of time, with a borrower who has applied for a loan and met certain credit and underwriting criteria. As we have committed to providing a mortgage loan at a specific interest rate, we hedge that risk by selling forward-settling mortgage-backed securities and FLSCs in the TBA market. When the mortgage loan is closed, on average, we fund the loan with approximately 2-3% of our own funds and the remainder with funds drawn under one of our warehouse facilities. At that point, the mortgage loan is “owned” by our warehouse facility lender and is subject to our repurchase right. When we have identified a pool of mortgage loans to sell to the agencies, non-governmental entities, or through our private label securitization transactions, we repurchase such loans from our warehouse lender and sell the pool of mortgage loans into the secondary market, but in most instances retain the mortgage servicing rights, or MSRs, associated with those loans. We retain MSRs for a period of time depending on business and liquidity considerations. When we sell MSRs, we typically sell them in the bulk MSR secondary market.

Our unique model, focusing exclusively on the wholesale channel, results in complete alignment with our clients and superior customer service arising from our investments in people and technology has driven demand for our services from our clients. This has resulted in significant increases in our loan origination volume year over year for the last eight years.

New Accounting Pronouncements Not Yet Effective

See Note 1 – Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements for details of recently issued accounting pronouncements and their expected impact on the Company's consolidated financial statements.

Factors Affecting Comparability

On January 1, 2021, the Company elected to adopt the fair value method to measure its servicing assets and liabilities for all current classes of servicing assets and liabilities subsequent to initial recognition. Management believes that the fair value method more directly reports the current expected benefits and obligations of the Company's servicing rights. The adoption of the fair value method for a particular class of servicing assets is irrevocable. Prior to January 1, 2021, the Company measured its servicing assets and liabilities after initial recognition using the amortized cost method. This change in accounting resulted in a $3.4 million increase to retained earnings and the MSR asset as of January 1, 2021. Subsequent to the adoption of

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the fair value method for MSRs, changes in fair value of MSRs, including changes due to valuation inputs or assumptions and realization of cash flows/other (including mortgage prepayments), are reported as a component of "Total revenue, net" within the consolidated statements of operations.

Prior to the adoption of the fair value method, MSRs were amortized in proportion to the estimated future net servicing revenue, and periodically evaluated for impairment. When a mortgage prepaid, the Company permanently reduced the associated MSR in the period of prepayment with a charge to operations. Prior to the adoption of the fair value method, "Amortization, impairment and pay-offs of mortgage servicing rights" was reported as a component of "Total expenses" within the consolidated statements of operations. Refer to Note 1 - Organization, Basis of Presentation and Summary of Significant Accounting Policies to the consolidated financial statements for further details.

Components of Revenue

We generate revenue from the following three components of the loan origination business: (i) loan production income, (ii) loan servicing income, and (iii) interest income. As discussed above, effective January 1, 2021 we made an election to account for all classes of our MSRs using the fair value method. Under this new accounting policy for MSRs, the change in fair value of MSRs is reported as part of total revenue, net, and MSRs are no longer amortized and subject to periodic impairment testing.

Loan production income. Loan production income includes all components related to the origination and sale of mortgage loans, including:

•    primary gain, which represents the premium we may receive in excess of the loan principal amount adjusted for previous fair value adjustments, and certain fees charged by investors upon sale of loans into the secondary market. When the mortgage loan is sold into the secondary market, any difference between the proceeds received and the current fair value of the loan is recognized in current period earnings;

•    loan origination fees we charge to originate a loan, which generally represent flat, per-loan fee amounts;

•    provision for representation and warranty obligations, which represent the reserves established for our estimated liabilities associated with the potential repurchase or indemnity of purchasers of loans previously sold due to representation and warranty claims by investors. Included within these reserves are amounts for estimated liabilities for requirements to repay a portion of any premium received from investors on the sale of certain loans if such loans are repaid in their entirety within a specified time period after the sale of the loans;

•    the change in fair value of IRLCs, FLSCs and recorded loans on the balance sheet, due to changes in estimated fair value, driven primarily by interest rates but also influenced by other assumptions; and

•capitalization of MSRs, representing the estimated fair value of newly originated MSRs when loans are sold and the associated servicing rights are retained.

Compensation earned by our Independent Mortgage Brokers is included in the cost of the loans we originate, and therefore netted within loan production income.

Loan servicing income. Loan servicing income consists of the contractual fees earned for servicing the loans and includes ancillary revenue such as late fees and modification incentives. Loan servicing income is recorded upon collection of payments from borrowers.

Interest income. Interest income represents interest earned on mortgage loans at fair value.

Components of operating expenses

Our operating expenses include salaries, commissions and benefits, direct loan production costs, marketing, travel and entertainment, depreciation and amortization, servicing costs, amortization, impairment and pay-offs of mortgage servicing rights (for periods prior to the adoption of the fair value method for MSRs), general and administrative (including professional services, occupancy and equipment), interest expense, and other income or expense (primarily related to the decrease or increase, respectively, in the fair value of the liability for the Public and Private Warrants, the decrease or increase, respectively, in the Tax Receivable Agreement liability, and the increase or decrease, respectively, in the fair value of retained investment securities).

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Year Ended 2021, 2020 and 2019 Summary

For the year ended December 31, 2021, we originated $226.5 billion in residential mortgage loans, which was an increase of $44.0 billion, or 24%, from the year ended December 31, 2020. We generated $1.57 billion of net income during the year ended December 31, 2021, which was a decrease of $1.81 billion, or 53.6%, compared to net income of $3.38 billion for the year ended December 31, 2020. Adjusted EBITDA for the year ended December 31, 2021 was $1.42 billion as compared to $3.45 billion for the year ended December 31, 2020. Refer to the "Non-GAAP Financial Measures" section below for a detailed discussion of how we define and calculate adjusted EBITDA.

For the year ended December 31, 2020, we originated $182.5 billion in residential mortgage loans, which was an increase of $74.8 billion, or 69%, from the year ended December 31, 2019. We generated $3.38 billion of net income during the year ended December 31, 2020, which was an increase of $2.97 billion, or 714.9%, compared to net income of $415.1 million for the year ended December 31, 2019. Adjusted EBITDA for the year ended December 31, 2020 was $3.45 billion as compared to $472.8 million for the year ended December 31, 2019. Refer to the "Non-GAAP Financial Measures" section below for a detailed discussion of how we define and calculate adjusted EBITDA.

Non-GAAP Financial Measures

To provide investors with information in addition to our results as determined by U.S. GAAP, we disclose Adjusted EBITDA as a non-GAAP measure, which our management believes provides useful information on our performance to investors. This measure is not a measurement of our financial performance under U.S. GAAP and it may not be comparable to a similarly titled measure reported by other companies. Adjusted EBITDA has limitations as an analytical tool and it should not be considered in isolation or as an alternative to revenue, net income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity.

We define Adjusted EBITDA as earnings before interest expense on non-funding debt, provision for income taxes, depreciation and amortization, stock-based compensation expense, the change in fair value of MSRs due to valuation inputs or assumptions (for periods subsequent to the election of the fair value method accounting for MSRs - see Note 1 to the consolidated financial statements), and the impairment or recovery of MSRs (for periods prior to the election of the fair value method of accounting for MSRs), the impact of non-cash deferred compensation expense, the change in fair value of the Public and Private Warrants, the change in the Tax Receivable Agreement liability, and the change in fair value of retained investment securities. We exclude the change in the Tax Receivable Agreement liability, the change in fair value of the Public and Private Warrants, the change in fair value of retained investment securities, and the change in fair value of MSRs due to valuation inputs or assumptions, or impairment or recovery of MSRs prior to the election of the fair value method of accounting for MSRs, as these represent non-cash, non-realized adjustments to our earnings, which is not indicative of our performance or results of operations. Adjusted EBITDA includes interest expense on funding facilities, which are recorded as a component of interest expense, as these expenses are a direct operating expense driven by loan origination volume. By contrast, interest expense on non-funding debt is a function of our capital structure and is therefore excluded from Adjusted EBITDA. Non-funding debt includes the Company's senior notes, operating lines of credit, borrowings against investment securities, equipment note payable, and finance leases.

We use Adjusted EBITDA to evaluate our operating performance and it is one of the measures used by our management for planning and forecasting future periods. We believe the presentation of Adjusted EBITDA is relevant and useful for investors because it allows investors to view results in a manner similar to the method used by our management and may make it easier to compare our results with other companies that have different financing and capital structures.

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The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable U.S. GAAP financial measure.

(1)Reflects the change ((increase)/decrease) in fair value due to changes in valuation inputs or assumptions, including discount rates and prepayment speed assumptions, primarily due to changes in market interest rates. Refer to Note 5 - Mortgage Servicing Rights to the notes to the consolidated financial statements.

(2)Reflects temporary impairments recorded as a valuation allowance against the value of MSRs, and corresponding subsequent recoveries.

(3)Reflects management incentive bonuses under our long-term incentive plan that are accrued when earned, net of cash payments.

(4)Reflects the change ((decrease)/increase) in the fair value of the Public and Private Warrants.

(5)Reflects the change ((decrease)/increase) in the Tax Receivable Agreement liability. Refer to Note 1 - Organization, Basis of Presentation and Summary of Significant Accounting Policies to the consolidated financial statements for additional information related to the Tax Receivable Agreement.

(6)Reflects the change (decrease/(increase)) in the fair value of the retained investment securities.

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Results of Operations for the Years Ended December 31, 2021, 2020 and 2019

Loan production income

The table below provides details of the characteristics of our loan production for each of the periods presented:

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The components of loan production income for the periods presented were as follows:

Loan production income was $2.59 billion for the year ended December 31, 2021, a decrease of $1.97 billion, or 43.2%, as compared to $4.55 billion for the year ended December 31, 2020. The decrease in loan production income was primarily driven by a decrease of 135 basis points in gain margin, from 249 basis points during the year ended December 31, 2020 to 114 basis points for the same period in 2021. The decrease in gain margin was due to a decline in the primary/secondary mortgage interest rate spread, driven by a rising interest rate environment in 2021 as well as increased marketplace competition. The effects of the decrease in gain margin were partially offset by an increase of $44.0 billion, or 24%, in loan production volume (from $182.5 billion to $226.5 billion) during the year ended December 31, 2021, as compared to the same period in 2020.

Loan production income was $4.55 billion for the year ended December 31, 2020, an increase of $3.51 billion, or 336.2%, as compared to $1.04 billion for the year ended December 31, 2019. The increase in loan production income was primarily driven by a $74.8 billion, or 69%, increase in mortgage loan origination volume to $182.5 billion and an increase in gain margin stemming from lower interest rates in 2020.

Loan servicing income

The table below summarizes loan servicing income for each of the periods presented:

Loan servicing income was $638.7 million for the year ended December 31, 2021, an increase of $350.4 million, or 121.6%, as compared to $288.3 million for the year ended December 31, 2020. The increase in loan servicing income during

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the year ended December 31, 2021 was driven by the growing servicing portfolio as a result of the additional origination volume, offset slightly by one bulk sale of MSRs in 2021 (total UPB of $22.7 billion).

Loan servicing income was $288.3 million for the year ended December 31, 2020, an increase of $186.0 million, or 181.9%, as compared to $102.3 million for the year ended December 31, 2019. The increase in loan servicing income was primarily driven by the growing servicing portfolio size as a result of the additional origination volume.

For the periods presented below, our loan servicing portfolio consisted of the following:

Change in Fair Value of Mortgage Servicing Rights

Effective January 1, 2021, the Company adopted the fair value method of accounting for mortgage servicing rights. In connection with this accounting change, the Company recorded an approximate $3.4 million increase to MSR assets and retained earnings as of January 1, 2021. During the year ended December 31, 2021, the fair value of MSR assets declined by approximately $572.9 million, which was attributable to a decline of approximately $859.3 million due to realization of cash flows and decay (including loans paid in full), offset by an increase of approximately $286.3 million as a result of changes in valuation inputs or assumptions, driven primarily by increases in market interest rates. In addition, during the third quarter of 2021, the Company recorded a $14.9 million reserve for its estimated obligation for protection provisions granted to the buyer and transaction costs as part of a bulk sale of MSRs, which is reflected as part of the change in fair value of MSRs in the consolidated statement of operations for 2021.

Gain (loss) on sale of mortgage servicing rights

The gain on sale of MSRs was $1.8 million for the year ended December 31, 2021, compared to a loss on sale of MSRs of $62.3 million for the year ended December 31, 2020. The gain of $1.8 million in 2021 was due to the release of a hold-back reserve from sales that occurred in 2020, partially offset by a $2.4 million provision related to an uncollectible receivable from a single counterparty that arose in connection with 2020 MSR sale transactions. The loss on 2020 bulk MSR sale transactions was primarily driven by decreasing interest rates that adversely impacted fair values, or the amounts a buyer is willing to pay for MSRs.

The loss on sale of MSRs was $62.3 million for the year ended December 31, 2020, as compared to a loss of $22.5 million for the year ended December 31, 2019. The increase in the loss on sale of MSRs year over year was primarily driven by decreasing interest rates that adversely impacted fair values, or the amounts a buyer is willing to pay for MSRs.

Interest income

Interest income was $331.8 million for the year ended December 31, 2021, an increase of $170.6 million, or 106%, as compared to $161.2 million for the year ended December 31, 2020. This increase was primarily driven by increased loan production and longer loan hold times for certain loans during the fourth quarter (see discussion below under "2021 Developments"), which increased our average balances of loans at fair value, partially offset by a slight decline in average loan interest rates.

Interest income was $161.2 million for the year ended December 31, 2020, an increase of $6.1 million, or 3.9%, as compared to $155.1 million for the year ended December 31, 2019. The increase was primarily driven by increased loan production, which increased our average loan balances, offset by a decline in interest rates as well as a shorter hold period on loans produced.

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Expenses

Expenses for the periods presented were as follows:

Total expenses

Total expenses were $1.39 billion for the year ended December 31, 2021, a decrease of $161.6 million, or 10.4%, as compared to $1.55 billion for the year ended December 31, 2020. Effective January 1, 2021, we made an election to account for all classes of MSRs using the fair value method. Under this new accounting policy for MSRs, the change in fair value of MSRs is reported as part of total revenue, net, and MSRs are no longer amortized and subject to periodic impairment testing. Therefore, there is no similar amount recorded for the amortization, impairment and pay-offs of MSRs for the year ended December 31, 2021, as compared to amortization, impairment and pay-offs of MSRs of $573.1 million for the year ended December 31, 2020.

Excluding the $573.1 million of amortization, impairment and pay-offs of MSRs in 2020, total expenses increased by $411.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to an increase in salaries, commissions and benefits of $145.5 million, or 26.4%, for the year ended December 31, 2021 as compared to the prior year, primarily due to increased average headcount to support our continued growth, as well as increased loan production. Interest expense increased $137.6 million primarily due to interest expense on the $800.0 million of 2025 Senior Notes issued in November of 2020, $700.0 million of 2029 Senior Notes issued in April 2021, and $500.0 million of 2027 Senior Notes issued in November 2021, as well as higher interest expense on warehouse facilities resulting from increased loan production and longer loan hold times during 2021, offset slightly by lower interest expense on the operating lines of credit which were paid off and terminated in 2021. Marketing, travel and entertainment increased $42.1 million during the year ended December 31, 2021 as compared to the same period in prior year, which was primarily attributable to increased advertising costs and brand marketing. Servicing costs increased $38.1 million during the year ended December 31, 2021 as compared to the same period in prior year due to the increase in the servicing portfolio, partially offset by gains from the repurchase, modification and re-delivery of Ginnie Mae loans eligible for repurchase. In addition, the Company recorded $23.1 million of other income for the year ended December 31, 2021 which represents a $36.1 million decrease in the fair value of the liability for the Public and Private Warrants from the closing date of the business combination transaction through

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December 31, 2021, partially offset by an increase of $11.9 million in the Tax Receivable Agreement liability resulting from sales of MSRs and the valuation of certain intangible assets for tax purposes in connection with the business combination transaction, and a $1.1 million decrease in the fair value of the retained investment securities.

Total expenses were $1.55 billion for the year ended December 31, 2020, an increase of $690.3 million, or 80.0%, as compared to $863.4 million for the year ended December 31, 2019. The increase in expenses was primarily due to an increase in amortization, impairment and pay-offs of MSRs, as well as increased salaries, commissions and benefits. Amortization, impairment and pay-offs increased by $435.3 million or 316.0% due to an increase in overall size of the MSR portfolio and impairment related to MSRs. The increase in salaries, commissions and benefits of $180.0 million or 48.4% was primarily due to an increase in headcount to support increased loan volume. Headcount increased by approximately 2,600 team members from approximately 4,900 at December 31, 2019 to approximately 7,500 at December 31, 2020. Servicing costs also increased by $39.9 million or 129.0% as compared to the year ended December 31, 2019 primarily due to the growing portfolio size as a result of the increased origination volume.

Income Taxes

We recorded a $9.8 million provision for income taxes during the year ended December 31, 2021 compared to a provision for income taxes of $2.5 million for the year ended December 31, 2020, and no provision for income taxes for the year ended December 31, 2019. The increase in the provision for income taxes in 2021 was primarily due to the change in the Company's tax status upon completion of the business combination transaction. The variations between the Company’s effective tax rate and the U.S. statutory rate in 2021 are primarily due to the portion (approximately 94%) of the Company’s earnings attributable to non-controlling interests, and the fact that the Company's interest in Holdings LLC was acquired as part of the business combination transaction on January 21, 2021. The effective tax rate calculation for year to date includes income only from January 21, 2021 to December 31, 2021, which represents the period in which the Company had an ownership interest in Holdings LLC.

Net income

Net income was $1.57 billion for the year ended December 31, 2021, a decrease of $1.81 billion or 53.6%, as compared to $3.38 billion for the year ended December 31, 2020. The decrease was primarily the result of the decrease in total revenue, net of $1.97 billion, partially offset by a decrease in total expenses of $161.6 million, as further described above.

Net income was $3.38 billion for the year ended December 31, 2020, an increase of $2.97 billion or 714.9%, as compared to $415.1 million for the year ended December 31, 2019. The increase was primarily the result of the increase in total revenue net, of $3.66 billion, partially offset by an increase in total expenses of $690.3 million, as further described above.

Net income attributable to the Company of $98.4 million for the year ended December 31, 2021 reflects the net income of UWM attributable to the Company due to its approximate 6% ownership interest in Holdings LLC from January 21, 2021 through December 31, 2021.

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Liquidity and Capital Resources

Overview

Historically, our primary sources of liquidity have included:

•borrowings including under our warehouse facilities and other financing facilities;

•cash flow from operations and investing activities, including:

◦sale or securitization of loans into the secondary market;

◦loan origination fees;

◦servicing fee income;

◦interest income on mortgage loans; and

◦sales of MSRs.

Historically, our primary uses of funds have included:

•origination of loans;

•retention of MSRs from our loan sales;

•payment of interest expense;

•payment of operating expenses; and

•dividends to our Class A common stockholders and distributions to SFS Corp.

We are also subject to contingencies which may have a significant impact on the use of our cash.

To originate and aggregate loans for sale or securitization into the secondary market, we use our own working capital and borrow or obtain funding on a short-term basis primarily through uncommitted and committed warehouse facilities that we have established with large global banks, regional or specialized banks and certain agencies.

2021 Developments

In accordance with the National Housing Act (NHA), as amended by the Housing and Economic Recovery Act of 2008, the FHA is required to annually set single family forward mortgage loan limits at 115 percent of area median house prices, subject to a floor and a ceiling on the limits. To allow our Independent Mortgage Brokers to provide borrowers with higher loan amounts with better pricing, in anticipation of the increase for 2022, we raised the loan limits on conforming loans that we originated to $625,000 effective October 1, 2021. In December 2021, the FHA announced that it had increased the size of conforming loans that it would purchase commencing in 2022 to $647,200, an increase of nearly 18% and the maximum loan limit “ceiling” for high-cost areas at $970,800. As a result of our early adoption of the higher loan size limits, we held all conforming loans originated in the fourth quarter with principal balances between $548,250 (the 2021 cap) and $625,000 through January 2022 when these loans could be sold to the GSEs. As a result of this pro-active strategy, our outstanding loan balances and the amounts outstanding under our warehouse lines materially increased as of December 31, 2021, and in conjunction, our cash balance decreased. However, these amounts returned to more normalized levels, when these loans were sold to the GSEs. In addition, beginning in the second quarter of 2021, we began selling loans through private label securitizations, which results in longer average hold periods for certain loans as we aggregate these loans into pools which are securitized. As of January 31, 2022, our mortgage loans at fair value had decreased to $7.9 billion, as compared to $17.5 billion at December 31, 2021. In addition, the amounts outstanding under our warehouse lines of credit decreased to $7.0 billion as of January 31, 2022, as compared to $16.0 billion at December 31, 2021.

Loan Funding Facilities

Warehouse facilities

Our warehouse facilities, which are our primary loan funding facilities used to fund the origination of our mortgage loans, are primarily in the form of master repurchase agreements. Loans financed under these facilities are generally financed, on average, at approximately 97% to 98% of the principal balance of the loan, which requires us to fund the remaining 2-3% of

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the unpaid principal balance from cash generated from our operations. Once closed, the underlying residential mortgage loan is pledged as collateral for the borrowing or advance that was made under these loan funding facilities. In most cases, the loans we originate will remain in one of our warehouse facilities for less than one month, until the loans are pooled and sold. During the time we hold the loans pending sale, we earn interest income from the borrower on the underlying mortgage loan note. This income is partially offset by the interest and fees we have to pay under the warehouse facilities. Interest rates under the warehouse facilities are typically based on one-month LIBOR plus a spread. In January 2022, two of our warehouse facilities were amended to change the reference interest rate from LIBOR to variants of SOFR due to the pending discontinuation of LIBOR. We expect the remaining warehouse facilities to transition from LIBOR to a different reference interest at some point in 2022 due to the pending discontinuation of LIBOR.

When we sell or securitize a pool of loans, the proceeds we receive from the sale or securitization of the loans are used to pay back the amounts we owe on the warehouse facilities. The remaining funds received then become available to be re-advanced to originate additional loans. We are dependent on the cash generated from the sale or securitization of loans to fund future loans and repay borrowings under our warehouse facilities. Delays or failures to sell or securitize loans in the secondary market could have an adverse effect on our liquidity position.

From a cash flow perspective, the vast majority of cash received from mortgage originations occurs at the point the loans are sold or securitized into the secondary market. The vast majority of servicing fee income relates to the retained servicing fee on the loans, where cash is received monthly over the life of the loan and is a product of the borrowers’ current unpaid principal balance multiplied by the weighted average service fee. For a given mortgage loan, servicing revenue from the retained servicing fee declines over time.

The amount of financing advanced to us under our warehouse facilities, as determined by agreed upon advance rates, may be less than the stated advance rate depending, in part, on the fair value of the mortgage loans securing the financings and premium we pay the broker. Each of our warehouse facilities allows the bank extending the advances to evaluate regularly the market value of the underlying loans that are serving as collateral. If a bank determines that the value of the collateral has decreased, the bank can require us to provide additional collateral or reduce the amount outstanding with respect to the corresponding loan (e.g., initiate a margin call). Our inability to satisfy the request could result in the termination of the facility and, depending on the terms of our agreements, possibly result in a default being declared under our other warehouse facilities.

Warehouse lenders generally conduct daily evaluations of the adequacy of the underlying collateral for the warehouse loans based on the fair value of the mortgage loans. As the loans are generally financed at 97% to 98% of principal balance and our loans are typically outstanding on warehouse lines for short periods (e.g., less than one month), significant increases in market interest rates would be required for us to experience margin calls from a majority of our warehouse lenders. When considering the full fair value of the loans, the required decline is even more significant. Typically, we do not receive margin calls on a majority of our warehouse lines. Four of our warehouse lines advance based on the fair value of the loans, rather than principal balance. For those lines, we exchange collateral for modest changes in value. As of December 31, 2021, there were no outstanding exchanges of collateral.

The amount owed and outstanding on our warehouse facilities fluctuates based on our origination volume, the amount of time it takes us to sell the loans we originate, our cash on hand, and our ability to obtain additional financing. We reserve the right to arrange for the early payment of outstanding loans and advances from time to time. As of December 31, 2021, the self-warehouse amount was insignificant. As we accumulate loans, a significant portion of our total warehouse facilities may be utilized to fund loans.

The table below reflects the current line amounts of our principal warehouse facilities and the amounts advanced against those lines as of December 31, 2021.

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1 An aggregate of $251.0 million of these line amounts is committed as of December 31, 2021.

2 $750 million of available credit under this warehouse line of credit agreement was temporary and expired in early 2022.

3 $500 million of available credit under this warehouse line of credit agreement was temporary and expired in early 2022.

4 Amounts outstanding reflect early-rollout of the loan size limits during the fourth quarter as discussed above under “2021 Developments." As of January 31, 2022, the aggregate amount outstanding under the warehouse lines was $7.0 billion.

Early Funding Programs

We are an approved lender for loan early funding facilities with Fannie Mae through its As Soon As Pooled Plus (“ASAP+”) program and Freddie Mac through its Early Funding (“EF”) program. As an approved lender for these early funding programs, we enter into an agreement to deliver closed and funded one-to-four family residential mortgage loans, each secured by related mortgages and deeds of trust, and receive funding in exchange for such mortgage loans in some cases before the lender has grouped them into pools to be securitized by Fannie Mae or Freddie Mac. All such mortgage loans must adhere to a set of eligibility criteria to be acceptable. As of December 31, 2021, the amount outstanding through the ASAP+ program was approximately $516.9 million and $718.5 million was outstanding under the EF program.

In addition to the arrangements with Fannie Mae and Freddie Mac, we are also party to one early funding (or “gestation”) line with a financial institution. Through this arrangement, we enter into agreements to deliver certified pools consisting of mortgage loans securitized by Ginnie Mae, Fannie Mae, and/or Freddie Mac, as applicable, for the gestation line. As with the ASAP+ and EF programs, all mortgage loans under this gestation line must adhere to a set of eligibility criteria.

The gestation line has a transaction limit of $150.0 million, and it is an evergreen agreement with no stated termination or expiration date that can be terminated by either party upon written notice. As of December 31, 2021, no amount was outstanding under this line.

Covenants

Our warehouse facilities also generally require us to comply with certain operating and financial covenants and the availability of funds under these facilities is subject to, among other conditions, our continued compliance with these covenants. These financial covenants include, but are not limited to, maintaining (i) a certain minimum tangible net worth, (ii) minimum liquidity, (iii) a maximum ratio of total liabilities or total debt to tangible net worth, and (iv) pre-tax net income requirements. A breach of these covenants can result in an event of default under these facilities and as such would allow the lenders to pursue certain remedies. In addition, each of these facilities, as well as our unsecured lines of credit, includes cross default or cross

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acceleration provisions that could result in all facilities terminating if an event of default or acceleration of maturity occurs under any facility. We were in compliance with all covenants under these facilities as of December 31, 2021 and December 31, 2020.

Other Financing Facilities

Senior Notes

On November 3, 2020, we issued $800.0 million in aggregate principal amount of senior unsecured notes due November 15, 2025 (the “2025 Senior Notes”). The 2025 Senior Notes accrue interest at a rate of 5.500% per annum. Interest on the 2025 Senior Notes is due semi-annually on May 15 and November 15 of each year, beginning on May 15, 2021. We used approximately $500.0 million of the net proceeds from the offering of 2025 Senior Notes for general corporate purposes to fund future growth and distributed the remainder to SFS Corp. for tax distributions.

On or after November 15, 2022, we may, at our option, redeem the 2025 Senior Notes in whole or in part during the twelve-month period beginning on the following dates at the following redemption prices: November 15, 2022 at 102.750%; November 15, 2023 at 101.375%; or November 15, 2024 until maturity at 100.000%, of the principal amount of the 2025 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest. Prior to November 15, 2022, we may, at our option, redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes originally issued at a redemption price of 105.500% of the principal amount of the 2025 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest with the net proceeds of certain equity offerings. In addition, we may, at our option, redeem the 2025 Senior Notes prior to November 15, 2022 at a price equal to 100% of the principal amount redeemed plus a “make-whole” premium, plus accrued and unpaid interest.

On April 7, 2021 we issued $700.0 million in aggregate principal amount of senior unsecured notes due April 15, 2029 (the “2029 Senior Notes”). The 2029 Senior Notes accrue interest at a rate of 5.500% per annum. Interest on the 2029 Senior Notes is due semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. We used a portion of the proceeds from the issuance of the 2029 Senior Notes to pay off and terminate the $400.0 million line of credit, effective April 20, 2021, and the remainder for general corporate purposes.

On or after April 15, 2024, we may, at our option, redeem the 2029 Senior Notes in whole or in part during the twelve-month period beginning on the following dates at the following redemption prices: April 15, 2024 at 102.750%; April 15, 2025 at 101.375%; or April 15, 2026 until maturity at 100.000%, of the principal amount of the 2029 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest. Prior to April 15, 2024, we may, at our option, redeem up to 40% of the aggregate principal amount of the 2029 Senior Notes originally issued at a redemption price of 105.500% of the principal amount of the 2029 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest with the net proceeds of certain equity offerings. In addition, we may, at our option, redeem the 2029 Senior Notes prior to April 15, 2024 at a price equal to 100% of the principal amount redeemed plus a “make-whole” premium, plus accrued and unpaid interest.

On November 22, 2021, we issued $500.0 million in aggregate principal amount of senior unsecured notes due June 15, 2027 (the "2027 Senior Notes"). The 2027 Senior Notes accrue interest at a rate of 5.750% per annum. Interest on the 2027 Senior Notes is due semi-annually on June 15 and December 15 of each year, beginning on June 15, 2022. We used the proceeds from the issuance of the 2027 Senior Notes for general corporate purposes.

On or after June 15, 2024, we may, at our option, redeem the 2027 Senior Notes in whole or in part during the twelve-month period beginning on the following dates at the following redemption prices: June 15, 2024 at 102.875%; June 15, 2025 at 101.438%; or June 15, 2026 until maturity at 100.000%, of the principal amount of the 2027 Senior Notes to be redeemed on the redemption date plus accrued and unpaid interest. Prior to June 15, 2024, we may, at our option, redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes originally issued at a redemption price of 105.75% of the principal amount of the 2027 Senior Notes redeemed on the redemption date plus accrued and unpaid interest with the net proceeds of certain equity offerings. In addition, we may, at our option, redeem the 2027 Senior Notes prior to June 15, 2024 at a price equal to 100% of the principal amount redeemed plus a “make-whole” premium, plus accrued and unpaid interest.

The indentures governing the 2025 Senior Notes, the 2029 Senior Notes, and the 2027 Senior Notes contain customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our ability to (1) incur additional non-funding indebtedness unless either (y) the Fixed Charge Coverage Ratio (as defined in the applicable indenture) is no less than 3.0 to 1.0 or (z) the Debt-to-Equity Ratio (as defined in the applicable indenture) does not exceed 2.0 to 1.0, (2) merge, consolidate or sell assets, (3) make restricted payments, including distributions, (4) enter into transactions with affiliates,

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(5) enter into sale and leaseback transactions and (6) incur liens securing indebtedness. We were in compliance with the terms of these indentures as of December 31, 2021.

Borrowings Against Investment Securities

In 2021, the Company's consolidated subsidiary, UWM, began selling some of the mortgage loans that it originates through private label securitization transactions. In executing these transactions, the Company sells mortgage loans to a securitization trust for cash and, in some cases, retained interests in the trust. The securitization entities are funded through the issuance of beneficial interests in the securitized assets. The beneficial interests take the form of trust certificates, some of which are sold to investors and some of which may be retained by the Company due to regulatory requirements. The Company entered into sale and repurchase agreements for a portion of the retained beneficial interests in the securitization trusts established to facilitate its private label securitization transactions which have been accounted for as borrowings against investment securities. As of December 31, 2021, we had $118.8 million outstanding under individual trades executed pursuant to a master repurchase agreement with a counterparty which is collateralized by the investment securities (beneficial interests in the trusts) that we retained due to regulatory requirements. The borrowings against investment securities have remaining terms ranging from seven to eleven months as of December 31, 2021, and interest rates based on twelve-month LIBOR plus a spread. We intend to renew these sale and repurchase agreements upon their maturity during the required holding period for the retained investment securities.

The counterparty under these sale and repurchase agreements conducts daily evaluations of the adequacy of the underlying collateral based on the fair value of the retained investment securities. As these investment securities are financed on average at approximately 80% of the outstanding principal balance, significant declines in the fair value of the investment securities would be required for us to experience margin calls from the counterparty. As of December 31, 2021, there were no outstanding exchanges of collateral under these sale and repurchase agreements.

Equipment Note Payable

As of December 31, 2021, we had $2.0 million outstanding under four equipment finance term notes, which are primarily collateralized by computer-related hardware. One of the equipment finance term notes that was outstanding as of December 31, 2020, with a balance of $24.6 million, was paid off and terminated in April 2021.

Finance Leases

As of December 31, 2021, our finance lease liabilities were $58.0 million, $29.1 million of which relates to leases with related parties. The Company’s financing lease agreements have remaining terms ranging from two to fifteen years.

Cash flow data for the years ended December 31, 2021, 2020 and 2019

Net cash used in operating activities

Net cash used in operating activities was $10.0 billion for the year ended December 31, 2021 compared to net cash provided by operating activities of $56.4 million for the same period in 2020. The decrease in cash flows from operating activities was primarily driven by the early roll-out of the increased loan size limits and the aggregation of loans for private label securitization transactions discussed above which materially increased our mortgage loans at fair value as of December 31, 2021, as well as a decrease in net income in 2021, adjusted for non-cash items, including an increase in the capitalization of MSRs (due to increased loan sale volume).

Net cash provided by operating activities was $56.4 million for the year ended December 31, 2020 compared to cash used in operating activities of $3.5 billion for the same period in 2019. The increase in cash flows provided by operating activities was primarily driven by increased net income for the period adjusted for non-cash items including a decrease in the

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non-cash adjustment for mortgage loans at fair value, an increase in the non-cash adjustment for capitalization of MSRs, and an increase in the non-cash adjustment for amortization and pay-offs of mortgage servicing rights.

Net cash provided by investing activities

Net cash provided by investing activities was $199.8 million for the year ended December 31, 2021 compared to $231.9 million of net cash provided by investing activities for the same period in 2020. The decrease in cash flows provided by investing activities was primarily driven by an increase in purchases of premises and equipment, and a decrease in proceeds from the sale of MSRs.

Net cash provided by investing activities was $231.9 million for the year ended December 31, 2020 compared to $577.4 million for the same period in 2019. The decrease in cash flows provided by operating activities was primarily driven by a decrease in proceeds from the sale of MSRs, offset by an increase in purchases of premises and equipment.

Net cash provided by financing activities

Net cash provided by financing activities was $9.3 billion for the year ended December 31, 2021 compared to cash provided by financing activities of $802.3 million for the same period in 2020. The increase in cash flows provided by financing activities in 2021 was primarily driven by an increase in net borrowings under warehouse lines of credit (due to increased mortgage loans at fair value as a result of increased loan production and the early roll-out of the increase in loan size limits discussed above), additional net proceeds from the issuance of Senior Notes in 2021, proceeds from borrowings against investment securities in 2021, net proceeds from the business combination transaction in 2021, and a decrease in distributions to SFS Corp. in 2021, partially offset by 2021 dividends paid to Class A common stockholders, an increase in net repayments under operating lines of credit, Class A common stock repurchases, and increases in net repayments under equipment notes payable and finance lease liabilities.

Net cash provided by financing activities was $802.3 million for the year ended December 31, 2020 compared to cash provided by financing activities of $3.0 billion for the same period in 2019. The decrease in cash flows provided by financing activities in 2020 was primarily driven by a decrease in net borrowings under warehouse and operating lines of credit, and an increase in member distributions, partially offset by the net proceeds from the issuance of the Senior Notes.

Contractual Obligations

Cash requirements from contractual and other obligations

As of December 31, 2021, our material cash requirements from known contractual and other obligations include interest and principal payments under our Senior Notes, principal payments under our borrowings against investment securities, and payments under our financing and operating lease agreements. Annual cash payments for interest under our Senior Notes total approximately $111.3 million and the Senior Notes are due in 2025 ($800.0 million), 2027 ($500.0 million), and 2029 ($700.0 million). The principal amount of the borrowings against investment securities of $118.8 million is due within one year of December 31, 2021, but we intend to renew the applicable sale and repurchase agreements upon their maturity during the required holding period for the retained investment securities. Our weighted average remaining lease term for operating leases is approximately 15 years, and remaining contractual operating leases payments totaled $182.3 million as of December 31, 2021, of which $12.4 million is due in 2022. Our weighted average remaining lease term for financing leases is approximately 8 years, and remaining contractual financing lease payments totaled $67.1 million as of December 31, 2021, of which $18.8 million is due in 2022. We do not have material commitments for capital expenditures as of December 31, 2021 given the nature of our business.

We declared dividends of $0.10 per share on its Class A common stock each quarter in 2021. In connection with its decision to declare a dividend on its Class A common stock, our Board of Directors, in its capacity as the Manager of Holdings LLC, under the Holdings LLC Second Amended and Restated Operating Agreement, can determine whether to (a) make distributions from Holdings LLC to only UWM Holdings Corporation, as the owner of the Class A Units of Holdings LLC with the proportional amount due to SFS Corp. as the owner of the Class B Units of Holdings LLC, being distributed upon the sooner to occur of (i) the Board making a determination to do so or (ii) the date on which Class B Units of Holdings LLC are converted into shares of our Class B common stock or (b) make proportional and simultaneous distributions from Holdings LLC to UWM Holdings Corporation, as the owner of the Class A Units of Holdings LLC and to SFS Corp. as the owner of the Class B Units of Holdings LLC.

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During 2021, the Company paid cash dividends of $30.6 million to its Class A common stockholders, representing $0.10 per share of Class A Common Stock in each of the first, second and third quarter and declared a dividend for the fourth quarter of $0.10 per share of Class A common stock which was paid on January 6, 2022. For each of the first and second quarters of 2021, the Board determined to make proportional and simultaneous distributions to SFS Corp. and consequently made distributions of $300.4 million to SFS Corp., representing a simultaneous distribution of $0.10 per Holdings LLC Class B Unit for each of the first and second quarter. As of December 31, 2021, cumulative proportional distributions related to the third and fourth quarter 2021 Class A common stock dividends of approximately $300.4 million had yet to be declared by Holdings LLC to SFS Corp. In early January 2022, the Board declared and Holdings LLC paid these cumulative proportional distributions to SFS Corp. simultaneously with the payment of the fourth quarter 2021 Class A common stock dividend of approximately $9.2 million.

The sources of funds needed to satisfy these cash requirements include cash flows from operations and investing activities, including cash flows from sales of MSRs, sale or securitization of loans into the secondary market, loan origination fees, servicing fee income, and interest income on mortgage loans.

Repurchase and indemnification obligations

Loans sold to investors which we believe met investor and agency underwriting guidelines at the time of sale may be subject to repurchase in the event of specific default by the borrower or subsequent discovery that underwriting or documentation standards were not explicitly satisfied. We establish a reserve which is estimated based on our assessment of its contingent and non-contingent obligations, including expected losses, expected frequency, the overall potential remaining exposure, as well as an estimate for a market participant’s potential readiness to stand by to perform on such obligations. See Note 11 - Commitments and Contingencies in the notes to the consolidated financial statements for further information.

Interest rate lock commitments, loan sale and forward commitments

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit to borrowers at either fixed or floating interest rates. IRLCs are binding agreements to lend to a borrower at a specified interest rate within a specified period of time as long as there is no violation of conditions established in the contract. Forward commitments generally have fixed expiration dates or other termination clauses which may require payment of a fee. As many of the commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In addition, we have contracts to sell mortgage loans into the secondary market at specified future dates (commitments to sell loans), and forward commitments to sell MBS at specified future dates and interest rates.

Following is a summary of the notional amounts of commitments as of dates indicated:

As of December 31, 2021, we had sold $1.5 billion of loans to a global insured depository institution and assigned the related trades to deliver the applicable loans into securities for end investors for settlement in January 2022.