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

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.

But the greater risk to borrowers and investors is the widely held illusion that the valuations for rental properties grow to the sky. Take the example of China, where two decades of home price appreciation has been reversed and home prices have now fallen steadily for the past three years. How did this happen? Because the Chinese foolishly imitated the US methodology for tracking home prices, giving their citizens a false image of the actual conditions in the housing market

The contest to see who will acquire the mortgage REIT Two Harbors (TWO) seems to have ended in a defeat for United Wholesale Mortgage Corp (UWMC) and a win for CrossCountry Mortgage, the #2 retail lender in the US behind Rocket Companies (RKT). The TWO Board of Directors unanimously recommended a vote for the proposed transaction with CrossCountry Mortgage at the Special Meeting on June 23, 2026.

The aggressive behavior of some issuers is distorting pricing for loans in the secondary market and may be creating the circumstances for the next systemic “surprise” in the nonbank sector. To us, Exhibit A in the category of a potential nonbank default event is United Wholesale Mortgage (UWMC), aka “Countrywide II.”

Institutional investors can and do abide by limits on redemptions for private equity and credit, at least for a while. Retail investors cannot and do not, and will run when there are clear signs of distress and illiquidity. Remember the deposit run at Silicon Valley Bank.

But the key factor that generated investor angst was under-performance in terms of loan recapture, an illustration of the hyper-competitive market in residential mortgages. True retention = Retained fundings divided by total run off. On that basis, we figure that PFSI retained less than 1/3 of mortgages that prepaid in Q4 2025. After touching $160 in late January, PFSI closed yesterday below $95 per share.

And as we predicted several months ago, Fannie Mae and Freddie Mac are at the bottom of the list now instead of the top, reflecting the fact that release from conservatorship has been shelved in favor of the GSEs buying back their own debt. Using the balance sheets of the GSEs to buy MBS basically makes them instruments of public policy, but this does not preclude President Trump from directing an equity offering after the midterm elections.

“The delinquency rate for commercial mortgages increased in the second quarter of 2025 across most major capital sources,” said Reggie Booker, MBA’s Associate Vice President of Commercial Real Estate Research. “The largest increase was among CMBS loans, driven by rising delinquencies in both multifamily and office properties. Delinquency trends continue to reflect differences in property type, loan structure, geography, and borrower profile.”

The surprise pre-release of Q4 results led to a significant drop in JPMorgan's stock price and took down the entire sector along with it. But is this the only negative surprise likely to come from JPM? We think not. CNBC’s Jim Cramer said on X yesterday that investors should buy JPM on the dip, but we disagree. In fact, the markets seem to know something about JPM. Maybe this explains why Citigroup (C) has outperformed the House of Morgan all year.

The latest statements about a possible stock offering for the GSEs seem to be designed to boost the share price in the near-term and do not provide any more information than we had when such statements were made previously. Given the management changes announced yesterday and the other requirements for a successful offering, we have a hard time believing that a GSE stock offering will occur this year. Notice how the shares of Fannie Mae popped for a couple of days this week

So why would a firm like CrossCountry or UWMC be a buyer of higher coupon MSRs? The short answer is that they believe their ability to retain the borrower by recapturing a prepayment will offset the obvious negative of high prepayments that comes with a lower interest rate environment. These firms, it seems, would rather try to recapture prepayments on higher rate MSRs than own lower coupons and benefit from the stable cash flow from the servicing.

We expect to see continued consolidation in the world of residential mortgage finance in coming months. The sad fact is that many less competitive businesses in mortgage finance have been waiting for the FOMC to ride to the rescue with lower interest rates. If rate cuts do not materialize in 2025, however, then many of these businesses may not survive.

While GHLD provides a lot of good information about their business, the investor disclosure provided by UWMC is a bad joke, especially when you remember that UWMC is the largest nonbank lender in the US. The Q1 2025 press release is just 9 pages in length and lacks some of the most basic financial information available from UWMC’s peers.

COOP and RKT, plus RDFN, creates an integrated business of realty, lending, servicing and asset management that is impressive

How will the sudden shift in Fed policy impact financials? Are we headed for a recession?

Axos continues to rebound after the bear raid by Hindenburg Research. AX ranked 18th in the WGA Bank Top Index in Q3 2024 vs 98th for SOFI

If the run-of-the-mill Republic First interest rate mark is 13.3% of assets that is not just wiping out one bank’s 8% capital but also FDIC

Industry leaders believe that the FHFA wants the GSEs to offer issuers "repurchase insurance" to the tune of 25bps per loan.

If we are marking balance sheet assets to actual market in the age of deflation, what of the heavily modeled world of servicing assets?