United Wholesale Mortgage Chairman and CEO Mat Ishbia attributed a $603.2 million derivatives loss in the second quarter to an unusually large hedge established around UWM’s failed pursuit of Two Harbors Investment Corp., calling it a transaction-specific mistake that the company does not expect to repeat.
The explanation came Thursday, Aug. 6, during UWM Holdings Corp.’s second-quarter earnings Q&A, one day after the company released its results and announced a $2.05 billion capital partnership with Oaktree Capital Management and the Ishbia family.
UWM reported a $451.9 million net loss for the quarter, reversing net income of $170.4 million in the first quarter and $314.5 million a year earlier.
The company originated $39.7 billion, essentially unchanged from the second quarter of 2025 but down from $44.9 billion in the first quarter. Its total gain margin improved to 133 basis points from 123 basis points sequentially and 113 basis points a year earlier.
Those production results were overshadowed by $725.9 million in other losses, including the $603.2 million loss on interest-rate derivatives and a $122.7 million decline in the fair value of mortgage servicing rights.
Ishbia said UWM typically relies on its origination operation as a natural hedge against changes in MSR values rather than placing a separate hedge on its servicing portfolio. But the company departed from that practice while preparing for the possibility of adding Two Harbors’ servicing assets.
“We were over-hedged, if you think of it that way, protecting against the Two Harbors transaction,” Ishbia said. “The market moved against us, and it’s a one-time event that won’t happen again.”
Rich Swerbinsky, a longtime mortgage industry executive and executive director of the Ohio Mortgage Bankers Association, challenged UWM’s characterization in a LinkedIn post.
“So they lost $603 million hedging a deal that never closed,” Swerbinsky wrote. “They lost the deal. Then they lost $603 million on the bet.”
UWM maintains that the loss resulted from a transaction-specific hedge established while the company anticipated adding Two Harbors’ MSR portfolio, rather than from its underlying mortgage-production operation.
UWM spent months pursuing Two Harbors, an MSR-focused real estate investment trust that owns RoundPoint Mortgage Servicing. Two Harbors terminated its original agreement with UWM after receiving a competing offer from CrossCountry Mortgage. UWM continued pressing for a deal before allowing a special engagement period to expire in June.
Ishbia said the hedge was established because acquiring Two Harbors would have approximately doubled the size of UWM’s servicing portfolio. The company had also become more sensitive to changes in MSR values because of its reduced equity cushion.
“It was a transaction-specific event, not a reflection of our operating business,” Ishbia said.
Purchase Volume Rebounds From Q1
UWM’s $39.7 billion in second-quarter production included $23.8 billion in purchase loans and $15.9 billion in refinances.
Purchase volume rose from $18.7 billion in the first quarter but remained below the $27.3 billion originated during the same period last year.
Refinance production declined sharply from $26.3 billion in the first quarter, when lower rates generated a temporary surge in activity, but exceeded the $12.4 billion recorded a year earlier.
Revenue totaled $888 million, down slightly from $901.4 million in the first quarter and up from $758.7 million in the second quarter of 2025.
Despite the net loss, UWM reported adjusted EBITDA of $185.9 million, compared with $160.9 million in the first quarter and $195.7 million a year earlier. Adjusted EBITDA is a non-GAAP measure that excludes the derivatives loss and certain changes in MSR value, among other items.
For mortgage brokers, the results show that UWM’s production operation continued generating substantial revenue, while derivatives losses and servicing-related valuation changes placed significant pressure on its reported earnings and equity.
UWM did not include formal third-quarter production or gain-margin guidance in its earnings release.
Capital Raise Addresses Leverage
UWM ended June with $985.3 million in total equity, down from $1.6 billion three months earlier and $1.75 billion a year earlier.
Non-funding debt increased to $6.04 billion, producing a non-funding debt-to-equity ratio of 6.13. That compares with 3.18 in the first quarter and 1.90 a year earlier.
The company is addressing that pressure through an initial $1.65 billion preferred-equity investment from Oaktree and the Ishbia family. It also plans a rights offering of up to $400 million to Class A shareholders, if needed, bringing the potential capital raised to $2.05 billion.
UWM said the proceeds will primarily be used to repay existing debt and MSR financing facilities. The company also suspended its quarterly common-stock dividend to retain capital and strengthen the balance sheet.
Ishbia said UWM expects its equity to approach $3 billion following the capital transaction. He estimated its non-funding debt-to-equity ratio would decline to approximately 1.2.
The preferred capital carries a cumulative annual return of 10% when paid in cash. If UWM does not pay it in cash, the return increases to 13%, compounds quarterly, and is added to the preferred stock’s stated value.
The agreement also becomes more expensive to exit over time. UWM’s redemption premium begins at 10% of the liquidation preference during the first year and increases by 10 percentage points annually, reaching 60% beginning in the sixth year. It continues rising by 10 percentage points for each additional year the preferred stock remains outstanding.
Those terms create a financial incentive for UWM to repay the preferred capital quickly. Ishbia acknowledged that less expensive funding may have been available but said Oaktree offered mortgage and MSR expertise that another provider might not bring.
“I’m sure we could have gotten cheaper capital elsewhere,” Ishbia said. “But is that the right long-term benefit?”
Swerbinsky described the structure more bluntly: “The longer you keep it, the more it costs to get rid of.”
Repaying MSR lines and other obligations should save approximately $100 million in interest, Ishbia said, partially offsetting approximately $165 million associated with the preferred capital.
“I don’t really look at it as interest savings overall,” Ishbia said. “It’s slightly more expensive from that perspective, but not the full amount.”
Investors will also receive 330 million warrants. Ishbia said 165 million will carry an exercise price of $2 per share, while the other 165 million will have an exercise price of $6.
He acknowledged that the warrants could dilute existing shareholders but argued that issuing a large amount of common stock at UWM’s current valuation would have created greater immediate dilution.
Oaktree may nominate and elect two UWM board members and designate one nonvoting board observer while it maintains the required preferred-stock ownership.
Servicing Costs Remain Elevated During Transition
UWM’s MSR portfolio reached $247.6 billion in unpaid principal balance at the end of June, up from $229.5 billion in March and $211.2 billion a year earlier. Its weighted-average coupon was 5.93%.
Ishbia said UWM will retain servicing when it provides strategic value but may sell MSRs when buyers offer attractive pricing. Oaktree’s experience with servicing assets was one reason UWM selected the firm, he said.
The company is also absorbing overlapping expenses while transferring servicing from Senlar to its internal platform. Ishbia said UWM is currently paying internal servicing expenses, external servicing costs, and expenses related to moving loans off the third-party platform.
“The servicing cost is kind of getting double hit this year,” Ishbia said. “Next year, we’ll see those big benefits that we talked about.”
UWM first announced its move to in-house servicing in 2025. Ishbia said the change should help the company improve borrower retention and return more refinance opportunities to the brokers who originated the loans.
He rejected the suggestion that UWM is becoming primarily a servicing company.
“We are an origination machine,” Ishbia said. “We will continue to build our servicing, but we brought servicing in-house. We are dominating in that respect.”
What It Means For Brokers
The capital raise, dividend suspension, and debt-repayment plan show UWM prioritizing balance-sheet repair after the hedge loss and rapid expansion of its servicing assets.
Ishbia nevertheless said the company does not plan to pull back from the broker channel, pricing, technology, artificial intelligence, or product development. Second-quarter activity included $502 million in conventional loans using VantageScore 4.0, enhancements to UWM’s Mia AI assistant, and the addition of home equity loans.
Lower mortgage rates would reduce the value of UWM’s servicing portfolio, but Ishbia said the corresponding increase in refinances would activate what he described as the company’s natural hedge.
He said UWM’s current infrastructure could handle between $250 billion and $300 billion in production. In a significantly lower-rate environment, he said, the lender could potentially originate $60 billion to $80 billion in a quarter.
“Rates go up, our MSRs are worth more,” Ishbia said. “Rates go down, we give you a lot more loans.”
For independent brokers and Loan Originators, UWM’s core message is that the capital transaction should allow the lender to keep investing through the current cycle. The balance-sheet repair comes at a substantial cost, however, and UWM will now have to demonstrate that its production earnings, in-house servicing strategy, and broker investments can justify that expense.
