UWM sued for allegedly misleading investors on hedge strategy

United Wholesale Mortgage investors are accusing the company and its leaders of securities fraud over their public statements, or lack of, regarding the lender's ill-fated hedge. 

Shareholder Doug Bond filed a class action lawsuit against UWM Holdings Thursday in a Michigan federal court, seeking to cover investors who bought the company's securities between March 9 and Aug. 5. It is one of two lawsuits announced by investor plaintiff firms this week, as the fallout of UWM's failed acquisition of Two Harbors begins to heat up. 

The new lawsuit focuses on the time between a March UWM press release projecting annual revenue and the Aug. 5 second quarter earnings report, in which the lender disclosed its $603.2 million interest rate derivatives loss. UWM also then announced a $2.05 billion cash infusion from Oaktree Capital Management, while its stock price tumbled in response to under $2 per share.

The complaint focuses on Chairman, President and CEO Mat Ishbia's comments during an Aug. 6 earnings call, a Zoom meeting in which he answered pre-submitted questions from analysts. Ishbia addressed the Two Harbors ordeal and the hedge loss repeatedly, stating that UWM doesn't traditionally hedge its mortgage servicing rights but did so to "protect" against the risk in acquiring Two and its large MSR book. 

"We were over-hedged, if you think of it that way, protecting against the Two Harbors transaction," he said on the call. 

Bond's lawsuit argues UWM failed to tell investors that it over-hedged itself in anticipation of the Two Harbors deal. The lender, in a first-quarter earnings filing in May, quietly noted that it occasionally hedges to mitigate MSR risk, and that it held $27.5 billion in notional "other interest rate derivatives." 

The complaint, which names Ishbia and Chief Financial Officer Rami Hasani as defendants, accuses the firm of misleading investors with positive statements, causing significant shareholder losses. 

The filing also claims UWM isn't shielded by the statutory safe harbor provided for forward-looking statements, as executives knew the financial disclosures were misleading. 

UWM's stock was trading at $4.04 per share on March 10. It fell to approximately $1.20 per share following last week's earnings, and was trading at $1.62 mid-afternoon Friday. 

A spokesperson for UWM didn't respond to a request for comment on the lawsuit. 

UWM continues its fracas with Two Harbors

While Two Harbors is on the verge of finally being acquired by retail giant CrossCountry Mortgage, it is fending off accusations from its spurned suitor. 

UWM sued Two Harbors in a Maryland federal court this week, seeking over $500 million in damages over the real estate investment trust's alleged breach of contract during their negotiations. The wholesale leader specifically accuses rival executives of sabotaging the deal first agreed to last December. 

Two Harbors fired back this week, denying the accusations. The rival firm pointed to UWM's own fading stock, and raised similar questions over its financial disclosures. 

"The loss highlights the dire condition of UWMC's balance sheet, liquidity and also casts doubt on its risk management and other governance practices," Two Harbors said.