UWM sues Two Harbors as shareholders launch securities probe

On the same day that United Wholesale Mortgage Holdings Corp. (UWMHC) sued Two Harbors Investment Corp. (TWO) alleging willful breach of contract and fraud resulting in their failed merger, the wholesale lending giant found itself facing scrutiny from its own shareholders.

Shareholders of UWMHC, parent of United Wholesale Mortgage (UWM), announced Monday they had enlisted the help of securities litigation attorneys to investigate UWM for possible violations of federal securities law, citing a roughly $603 million derivatives loss reported by the company in second-quarter financials released last week.

Mat Ishbia, CEO and chairman of UWMHC, explained the loss during an earnings call as the consequence of an “over-hedged” position that became costly after the company’s planned acquisition of TWO and its servicing assets collapsed, which would have roughly doubled the size of UWM’s own servicing book.

“The market moved against us,” said Ishbia, describing the fallout as a “one-time event” that would not happen again. “We feel like our hedging policies are much stronger now, but also we’re not acquiring another company that has an MSR book like that, at least that’s not the plan as of now.”

Ishbia also said during the call that UWM planned to pursue litigation against TWO over “some things they did inappropriately” that contributed to the collapse of UWM’s deal. UWM has been in the process of bringing servicing in-house since early 2026.

Neither UWM nor TWO returned requests for comment by time of publication.

TWO, a real estate investment trust (REIT), owns RoundPoint Mortgage Servicing and its massive portfolio of mortgage servicing rights (MSRs), which UWM first publicly stated its intent to acquire in December. The all-stock transaction was valued at $1.3 billion.

But one of the largest retail U.S. mortgage lenders, CrossCountry Mortgage (CCM), submitted an unsolicited, competing bid in mid-March. A fractious, months-long bidding war ended in early July with TWO shareholders accepting a revised offer from CCM.

UWMHC walked away from the contest after taking on a monumental hedging loss, having effectively purchased an insurance policy for what UWM’s servicing portfolio would have looked like had its acquisition of TWO and RoundPoint’s MSRs succeeded.

UWM claimed in its lawsuit filed against TWO on Monday in the Northern Division of the U.S. District Court for the District of Maryland that the REIT’s executive leadership torpedoed the planned merger with UWM by encouraging CrossCountry to make a competing offer, in violation of non-solicitation terms in the UWM-TWO merger agreement.

CCM, along with other bidders, had been involved in a competitive auction process to acquire TWO from Oct. 2025 to Dec. 2025, court records indicate. Ishbia mentioned on the earnings call last week that UWM could possibly take legal action against CCM.

A spokesperson for CCM declined to provide additional information or comment to Scotsman Guide.

“TWO’s chicanery, backroom dealing, and prioritization of management self interest (sic) over its contractual and other legal obligations inflicted significant financial harm on UWM,” reads the UWM lawsuit. Stated harms include lost profits and business opportunities as well as financing, regulatory and third-party costs incurred in negotiations.

But as UWM sues for damages, its own shareholders are scrutinizing the company.

The collapse of the UWM-TWO merger coincided with a hole in UWM’s balance sheet, with the company reporting a roughly $452 million loss in the second quarter. Total equity fell more than 43% year over year.

Alongside its second-quarter earnings, UWM announced the suspension of quarterly shareholder dividends and a $2 billion capital injection by Oaktree Capital Management, a distressed credit and high-yield debt investment firm, through a capital partnership with the Ishbia family.

UWMHC’s corporate leverage ballooned to 6.1x in the second quarter from 3.2x in the first quarter, leading global ratings firm Fitch Ratings to downgrade the company’s issuer default rating to B+ from BB-. Fitch cited “increased borrowings to fund originations and operations” and the $603 million hedging loss while maintaining a “stable” forward outlook for UWM.

Glancy Prongay Wolke and Rotter LLP, the firm retained by UWM shareholders to investigate the company for possible securities law violations, did not return a request for comment by time of publication.

“The silver lining is Oaktree has so much better partnership for us than Two Harbors or anything else would have been, and so I think of it as a long-term upside for UWM the way it all played out,” added Ishbia in last week’s earnings call. “We’ll go through the litigation process with Two Harbors and CrossCountry and some of the inappropriate things that happened in that deal at that time.”