UWM Holdings shares sink after failed Two Harbors hedge drives $603.2 million loss
The mortgage lender's second-quarter loss widened as a hedge tied to the abandoned acquisition backfired, while a dividend suspension, $2.05 billion capital raise and a securities-law probe added to pressure.
UWM Holdings shares fell $0.64, or 34.78%, to close at $1.20 on Aug. 6 after the company said a hedge put in place around its failed Two Harbors acquisition generated a $603.2 million derivatives loss, helping drive a $451.9 million second-quarter net loss and a 43.6% year-over-year drop in total equity. CEO Mathew Ishbia said UWM was "over-hedged" while trying to protect against risks tied to the transaction and that the company does not traditionally hedge its mortgage servicing rights. The disclosures add detail to an already weak quarter in which the parent of United Wholesale Mortgage suspended its dividend and secured a $2.05 billion equity investment from Oaktree Capital Management and SFS Group Capital LLC to shore up liquidity as high Treasury yields and elevated mortgage rates weighed on homebuying and refinancing. The stock decline also prompted the Law Offices of Frank R. Cruz to announce an investigation into possible federal securities law violations.
- Hedge: A position taken to offset potential losses from another exposure.
- Derivatives loss: A loss on contracts whose value is tied to an underlying asset, rate or benchmark.
- Mortgage servicing rights: Rights to collect payments and administer mortgages in exchange for fees.