The Institutional Risk Analyst

Some observers think that United Wholesale Mortgage Corp (UWMC) collapsed into the arms of Oaktree Capital Management because they erroneously hedged Two Harbors, a company they ultimately did not buy. But this is wrong. UWMC collapsed because the CEO, Mat Ishbia, extracted hundreds of millions of dollars in cash from a company that was never really profitable. UWMC was run for volume, not profits. Indeed, his aggressive strategy compressed profits across the entire mortgage

People in the private credit trade will tell you that raising new money is almost impossible. Why? Because there are growing signs of contagion in the insurance sector after years of dubious business practices by insurers controlled by private credit firms. As details of some of these situations emerge, we suspect that the mainstream media will become more engaged.

We think the board of UWMC has a duty to ask for the resignation of the current CEO Mat Ishbia, should ask Howard Marks, Chairman of Oaktree, to chair the board, and should commence a search for a replacement CEO or pursue a sale. The magnificent loan funnel created by some refugees from Flagstar for Mat Ishbia has enormous value, but the current management instead seems intent upon destroying value at every turn.

Once again, the management of TWO seems to have managed to destroy shareholder value in great bloody chunks. Given that the mortgage servicing rights of TWO had a book value of $2.4 billion at the end of Q4, it seems fair to ask whether the best trade for TWO shareholders is to vote against the merger with UWMC and simply sell the MSR.