The Institutional Risk Analyst

Bank of America CIO Michael Hartnett notes that it is imperative for the Bessent/Warsh combo to stop higher US Treasury yields, since long duration trades are working ”too well.” We view such talk as wishful thinking from the Sell Side of the market. There is no way for the Treasury to force LT yields down, thus the only alternative is for the Fed to 1) raise ST interest rates and 2) restart quantitative easing (QE), an eventuality that will signal surrender on the fight aga

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.”

Of course, in the muddled markets at present, there are a number of low-scoring banks which have done relatively well in recent weeks. The parent company of tiny Merchants Bank of Indiana, Merchants Bancorp (MBIN), for example, saw its stock price rise significantly in early 2026, 2x the S&P 500 over the past year, driven primarily by its inclusion in a major index and strong financial performance.

Whereas in the early part of the year, mortgage lenders were looking forward to lower interest rates and higher lending volumes, the start of hostilities in Iran suddenly reversed this narrative. As we discussed this week in our podcast with Julia LaRoche, the war with Iran will likely keep inflation and interest rates elevated for months or years to come.

When we want to know what is happening in the world of energy, John Dizard is our first call. His views on the approaching economic collapse due to the US-Israeli war against Iran are disturbing but also suggest some investment themes that we address at the end of the discussion. "Unless there's some miracle within the next few days, we're heading towards diesel rationing in Europe, jet fuel rationing, serious shortages."

In this week’s edition of “The Wrap,” we feature our view of the top-ten key events in Washington and on Wall Street over the past week. Don’t forget to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. March 20, 2026 | Gold and silver prices continued to pare gains from the past 90 days, even as deliverable supplies of both metals are shrinking

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.

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.

We expect the shares of the GSEs to lose ground this week given last week’s bizarre announcement by Federal Housing Finance Agency Director Bill Pulte that the GSEs will not be released from conservatorship after all. After pumping the two stocks for months with the prospect of release from conservatorship, Pulte said Friday that the GSEs would stay under federal control for now, reinforcing their conservatorship status while exploring a limited public offering option.

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.

As and when the home price correction finally arrives ~ 2028, many of the conventional loans written since 2020 are likely to be underwater vs the collateral. The GSEs will be looking for reasons to reject loans. After all, FHFA Director Bill Pulte is in the loan insurance business.

The number of very late people running into Bitcoin and other tokens over the past year only makes us realize that there is nothing new in the world of finance. Had Jim Fisk and Jay Gould traded crypto tokens like Bitcoin over the past decade, they'd have gotten out in 2013.

Truth is, it’s hard to see the leadership of either RITM or UWMC combining with another entity, but the cost pressures in the industry today are driving radical change.

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.