United Wholesale Mortgage (UWM)’s strategy to protect assets is under scrutiny following recent analyses of public filings, which questions whether the lender’s derivatives book functioned as a true hedge or as a bet that amplified existing risks.
Last week, UWM reported a $451.9 million net loss for the second quarter, including a $603.2 million derivatives loss. The financials were announced alongside a $2.05 billion capital raise, which included funding from distressed debt group Oaktree Capital Management.
UWM first explained the hedge position was established mainly to mitigate the risk of acquiring Two Harbors Investment Corp. (TWO)’s mortgage servicing rights (MSRs), which would have nearly doubled its own book to $400 billion.
But public filings reveal that the company maintained an oversized position despite uncertainty over whether the deal would close, and even though TWO already had its own hedge in place. (Two Harbors ended up closing a deal with CrossCountry Mortgage).
Questioned about the recent analyses, UWM told HousingWire that hedging is decided based on “multiple factors within and outside the company,” including its “existing business, market conditions, interest rate exposure and the anticipated impact of the Two Harbors transaction.”
“The importance of each factor individually and relative to each other changes day-to-day,” the spokesperson said. “The acquisition of Two Harbors was one of the factors, but not the only factor, UWM considered when securing the hedge and after Two Harbors breached the merger agreement.”
What happened in the past
This is not the first time UWM has taken a hit tied to derivatives.
In 2024, the lender reported a loss on “other interest rate derivatives” of $215.4 million. This was the net result of a $469.5 million loss in Q3 and a $254 million gain in Q4, which stemmed from “increases in relevant market interest rates” and partially offset the increase in the fair value of MSRs, according to Securities and Exchange Commission (SEC) filings.
When asked about these positions during earnings calls, Mat Ishbia, UWM’s president and CEO, stated stated that “those weren’t really even hedges.” In fact, analysts often refer to UWM as an “outlier” for not hedging its MSR risks to the same degree that most of its peers do.
“We wanted to make sure we had some security and some safety in both ways, up and down, during the volatility of the markets. And that’s smart business and we’ll continue to do that type of stuff,” Ishbia said at the time. “We looked at it as protecting the business, understanding the markets, understanding volatility — who knew what would happen with presidential elections along with other regulatory things?”
During the company’s Q3 2024 earnings call, Ishbia said this approach was decided upon alongside UWM’s risk committee and chief financial officer. The strategy did not draw much attention at the time, and UWM was able to reverse the loss in 2025. In 2026, however, the situation was markedly different.
The Hunterbrook analysis
Public filings show that, in the first quarter of 2026, UWM held an “other interest rate derivatives” position with a notional size — the cash amount of the portfolio protected against price swings — of $27.5 billion. That amount was larger than UWM’s entire market capitalization, according to an analysis from Hunterbrook Media, which has previously investigated the lender.
As of March 31, the position was a $288 million liability and resulted in a related loss of $138.2 million. Meanwhile, counterparties held $670 million of UWM’s cash as margin, representing more than 40% of the company’s total equity, Hunterbrook reported.
The trade was positioned to lose about $360 million if interest rates rose by 25 basis points, and to profit if rates fell — the same direction that inherently benefits UWM’s core loan origination business.
In the second quarter, the 10-year Treasury yield climbed from roughly 4.3% toward what eventually became an 18-month high. UWM’s position lost an additional $603 million during the quarter, bringing its six-month losses on the trade to about $741 million before it reduced its exposure. According to the analysis, UWM’s book equity fell 38% in Q2 2026, dropping from $1.6 billion to $985 million.
UWM’s spokesperson told HousingWire that Hunterbrook is not “an independent news organization,” and the company, which has been transparent, “do not view it as credible or objective source for determining the facts.”
“Considering Hunterbrook’s history of publishing inaccurate allegations that have spawned multiple litigation matters, many of the claims have been resolved in UWM’s favor, it is difficult to view this inquiry as a legitimate journalistic exercise,” the spokesperson said.
Dividends strategy
The Hunterbrook report also connects these derivative losses to UWM’s broader capital strategy, pointing that UWM has paid out roughly $3 billion in dividends since 2021, with more than 80% going to the Ishbia family. To support these payouts alongside other needs, the firm’s secured credit lines surged from zero in September 2025 to nearly $3 billion by June 2026.
The UWM spokesperson said that the quarterly dividend paid since it became public was based on its “long-term view of the business and its earnings potential” as well as “the context of an industry that has operated through five years of mortgage volumes that were well below historical averages.”
“The anticipated Two Harbors transaction was expected to strengthen UWM’s balance sheet by adding capital, liquidity and equity while supporting the company’s long-term strategy. It would have further enhanced UWM’s ability to continue creating value for shareholders,” the spokesperson said. “When Two Harbors unexpectedly breached the merger agreement, it materially changed the company’s situation.”
The dividends are also connected by reports to Mat Ishbia’s need to finance the acquisition of the NBA‘s Phoenix Suns in 2023. Public filings have shown that certain loans issued by J.P. Morgan have been secured by shares of UWMC owned by SFS Holdings Corp, with an original value of $2.3 billion.
The UWM spokesperson said that only a portion of debt was loaned to or on behalf of Mat Ishbia. UWM denied that the bank requested additional capital following the deal between Oaktree and the Ishbia family.
The TWO deal
Jennifer McGuinness-Lubbert, CEO at Pivot Financial, independently examined the first half of the year using UWM’s public disclosures. She pointed out that UWM knew by March 27 that it no longer had a contractual right to acquire TWO’s assets, as the merger agreement had been terminated. Yet just four days later, on March 31, UWM still reported $27.5 billion in outstanding “other interest-rate derivatives.”
Based on her reading of UWM’s rate disclosures, the derivatives book appeared to be sized to match something close to the anticipated combined gross MSR exposure of both UWM and Two Harbors.
“Once Two Harbors terminated the merger agreement, why did UWM continue carrying a derivative position whose rate sensitivity materially exceeded that of the MSRs UWM actually owned?” she asked in a social media post. “And equally important: how much of the $741.4 million first-half derivative loss occurred after UWM no longer had a contractual right to acquire Two Harbors?”
In her view, this is where the issue evolves beyond a simple hedge losing money. Instead, it becomes a broader discussion about risk management, position sizing, corporate governance and capital preservation.
Amid a legal battle regarding the failed deal, Two Harbors said earlier this week that UWM”s hedge was “13x the total interest rate exposure of TWO’s MSR portfolio assuming it was unhedged, which UWMC knew full well it wasn’t.”
Bose George, an analyst at Keefe, Bruyette and Woods (KBW), believes there is not enough public information to draw a definitive conclusion. When companies buy servicing rights, they typically hedge the purchase before the deal closes because the expectation is that the transaction will be completed.
“This was obviously an unusual situation because you’re buying a company – maybe you have to build in some expectation you might not close it, or maybe there were other ways to hedge it to protect against that possibility,” George said. “All that is probably fair, but this is an asset that they could have felt that they needed to hedge because they thought there was a very high probability that they would win.”
Investors’ focus, however, has shifted toward what happens next. “Hopefully, risk management will prevent things like this from happening in the future,” George said.
Hunterbrook noted that UWM’s investor rights agreement with Oaktree includes a provision requiring Oaktree’s approval of UWM’s “capitalization and hedging policy.”
