With its earnings announcement, it had a few tricks up its sleeve.
By Wolf Richter for WOLF STREET.
The already shredded stock of UWM Holdings, the parent company of United Wholesale Mortgage, the largest home-mortgage lender in the US with $40 billion in mortgage originations in Q2, plunged another 35% today, into penny-stock territory of $1.20 a share.
The company, which exclusively originates home loans through mortgage brokers, had gone public in January 2021 via merger with a SPAC that gave it a $16 billion valuation. It was the largest SPAC deal at the time and made CEO and founder Mat Ishbia a multi-billionaire. True to SPAC form, it has been a bloodbath for public investors ever since.
Since the peak in January 2021, at around the time of the SPAC merger, shares of UWM Holdings [UWMC] have collapsed by 91% and have joined our pantheon of Imploded Stocks (to qualify, the stock must have dropped at least 70% from the more or less recent high).
The causes this time were a huge loss after an interest-rate hedge blew up, the suspension of its dividend, and a $2 billion equity infusion from Oak Tree Capital Management, the largest distressed-debt investor in the world, and from the Ishbia family, at a price that’s going to dilute the bejesus out of the public shareholders. The Ishbia family still owns a controlling stake, so no problem pulling that off.
When UWM announced its Q2 earnings, it had a few tricks up its sleeve:
1. A derivatives loss of $603 million as an interest-rate hedge blew up. Mat Ishiba attributed it to the failed attempt to acquire Two Harbors Investment Corp. “We were overhedged, if you think of it that way, protecting against the Two Harbors transaction. The market moved against us…” he said. So whatever.
2. A loss of $123 million due to the decline of the fair value of mortgage servicing rights.
3. A total net loss of $452 million, or $0.24 a share.
4. The suspension of the dividend (according to the old saw: don’t chase a high dividend yield).
5. An equity infusion of $2.05 billion that could dilute existing shareholders by over 50%. But that’s still better for existing shareholders than the company not making it. The initial part is a $1.65 billion infusion of preferred equity and warrants from Oaktree and an investment vehicle owned by the Ishbia family. A second part will be a $400 million rights offering (SEC filing).
UWM is in the middle of the housing market that has been in a massive slump for the past few years: Sales of existing homes have plunged, originations of purchase mortgages have plunged even more, and originations of refinance mortgages have collapsed from the heady days during the free-money pandemic.
Nonbank mortgage lenders, such as UWM and Rocket Companies, have responded by reducing their headcount, either through attrition or through layoffs or both since the employment peak in 2021. At the nonbank mortgage lenders overall, employment has plunged by 39% since 2021.
So the SPAC merger of UWM in January 2021, at the very peak of this mortgage bubble, at a $16 billion valuation, was a nice job on investors. But who cares, there are now fortunes to be made in memory chip stocks, such as Micron and SanDisk… Oops. Now we’re talking real money, trillions not a few lowly billions.
Here is Housing Bubble 1 and Housing Bubble 2 from the point of view of employment at nonbank mortgage lenders:
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My good friend has been in mortgages for 50 years. He’s with Rate right now. Last few weeks have seen mortgage originations getting crushed.
The underlying problem, that blew up, is the non bank mortgage lender scam that is failing because the properties are insanely overpriced and selling like a used porta potty.. Meanwhile, the Fed continues it’s policy of ample reserves, providing excess liquidity and fostering inflation.
I could be wrong, It wouldn’t be the first time.
Were the lessons of the 2007-2009 mess not learned and regulations over brokered mortgages not implemented? It appears that the only real difference is the bag holders are not the banks which got out of lending but largely the US government and its taxpayers though losses at FANNIE and FREDDIE. This will have a significant impact on the mass middle and lower housing markets as mortgage rates near 7%.
As long as the Fed continues to backstop everything with Congress doing the same with rent / mortgage relief, nobody has to learn any lessons except “don’t fight the fed”. That’s the only one that matters.
When we pass the Rubicon and things start to accelerate downhill, the reaction by the Fed / Congress / WH will make spring 2020 look like peanuts.
an interest rate hedge – so was this a real estate /mortgage person betting on falling interest rates? probably nothing like countrywide back in the gfc.
Yup, nothing like countrywide back in the gfc! That was incredible to see…
What is the SEC going to do about this new serious mortgage matter?
I thought the primary role of SEC was the determination of what gambling tokens and derivatives were asshats vs crony-oddities?
They’re the hype-man for the Greatest Bigly Yuuge casino guys!
The SEC is in year one of a four-year sabbatical. We’re back to the 1900’s.
Well I certainly admire your optimism that there is a morally motivated SEC which the current state of our beloved country says that the SEC is corrupt
And just think …. The solution to ALL of this is simply a reduction in home prices. 30% would do it and all of these problems would go away in a heartbeat.
I’m so old I lived through such an event two decades ago. New problems arose.
Let’s say there is a significant recession in the next couple years.
Millions of people would lose the jobs.
How would companies respond in terms of their AI implementation?
I’d bet most of what I’ve got that they would take the opportunity to ramp up AI spending / implementation within their organizations in order to keep from having to hire back labor.
I did a lot of business with UWM back in the low rate era. Had to say goodbye to them when they gave Brokers an ultimatum to choose them over Rocket. I wouldn’t use either of them now. Uwm was always gimmicky in those days.
.com was the silliest . Now we do have chips lots of chips . Chip bargains at every isle of the grocery store until Super Bowl time .
Inflated home prices for sure affordability is the term used . There are three single family homes new builds on awful lots 2 miles down the street from me that about a year old as spec builds 1400 sq ft .
No one touching them at 300k.
At 7 percent mtg no money down so PMI close to 24000 a year for 30 years .
Property taxes brings the total to 30000 a year .
Average wage of a person in East Texas probably 50k so 100k for a couple.
In today’s inflationary example just does not work.
I must say that I’m shocked that Oak Tree could pull something off lend to such a toxic environment for a home mtg broker
The home mortgage industry is on the brink of a repeat of 2007/2008 disaster. All we need is the bond market to collapse like it is doing now, and it is game over. No one will qualify for a mortgage, prices will plummet, foreclosures will accelerate, Realtors will start pumping gas or looking for jobs as Walmart greeters. We just had to quit doing RE Appraisals as Fannie Mae has litterally destroyed the entire industry. You need an entire box to hold all the paperwork required to get an appraisal on a property through a corrupt lender. The net salary after expenses is less than $5/hour, below the minimum wage. Screw em all.
Really good article, wolf. Thanks. Saved me some money.
Were you about to buy UWMC because of the 33% trailing twelve months dividend yield or the forward PE of 3?
I was going to buy a house. The present owner bought it July 30, 2026 and put it back on the market August 6, 2026 for 25k more. Wolf’s market analysis might just explain why this happened. I will now just wait and see.
Do TTD next lol
It makes you wonder about the business model of Oak Tree Capital Management (the largest distressed-debt investor in the world).
How on earth do they make their money?
They buy stuff for cents on the dollar. When they buy “distressed debt,” they might pay 40 cents on the dollar, or even less. It’s a high-risk business, but if the bet works out, it makes a lot of money.
I am not surprised that this didn’t occur sooner. I was on the Appian Team that oversaw the dismantling of HomePoint Financial, selling off it’s assets in different iterations back in 2022. Now, Planet Home (the entity that acquired the HPF wholesale’s portfolio) is having issues. Of course, Planet Home is re-branded as “Planet”… nothing to see here, they keep acquiring other illiquid mortgage institutions at lightning speed to stave off their own execution. Being a prior CCO back in 2002-2009 of the third largest mortgage lender, I thoroughly see the bigger picture… fasten your seatbelts!
“The already shredded stock of UWM Holdings, the parent company of United Wholesale Mortgage, the largest home-mortgage lender in the US with $40 billion in mortgage originations in Q2, plunged another 35% today, into penny-stock territory of $1.20 a share.”
We are screwed, so screwed. The largest mortgage (now it’s number two, apparently) lender in the U.S. and the stock craters? Wow, just wow. Now imagine if those derivative loses spread to some other financial institutions like some of the recent wildfires.
@Wolf – Is this going to impact the housing market in a significant way in the coming 1 to 3 years ? If not, then it just sounds like any other imploded stock trade.