Mortgage Notes: UWMC Crashes, loanDepot Rebounds & Rocket Soars

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August 07, 2026 | This week in The Institutional Risk Analyst, we start with the latest edition of Mortgage Notes, one of our regular features. 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 Washington and on Wall Street.

Julia LaRoche

Interest Rates

As we noted in our last missive, it is pretty clear that the Federal Reserve is not going to be raising short-term interest rates in September or anytime soon. Did people really believe that Kevin Warsh was going to betray President Trump in his first year as Fed Chairman? Shall we talk about Fed independence with $40 trillion in debt? The following passage from CNBC’S “Squawk Box” earlier this week illustrates the point:

"JOE KERNEN: You know what wouldn’t help the yen is if Warsh and Co raised rates in September.”

"SCOTT BESSENT: Well, I think we have to look and think, what does an increase in the short-term rate actually do?"

"KERNEN: Because one thing we definitely don’t want is Japan selling treasuries to do this. So, you have encouraged the Federal Reserve to upsize. Can we call it a FIMARF? Is there an acronym for this? The Foreign and International Monetary Authorities Repo Facility. Have you ever called it a FIMARF? I, can I coin that? Can I trademark that?

BESSENT: Sorry, Joe, a day late and a yen short. It’s called the FIMA facility and the -- we’ll give you something. We’ll come up with something for you next time. And look, the -- what the facilities that the Federal Reserve has, whether it’s the FIMA facility or the swap lines, the purpose is to protect the U.S. economy and to keep any volatility offshore, prevent it from happening before it reaches our U.S. shores. And the FIMA facility was done in 2020, size of the bond market was much smaller then. So, I think it would be reasonable for the Fed to consider upsizing the facility. I’m happy that the Japanese government wants to use it and draw on it, and it’s a completely secure lending facility.

One of the odd things about the Federal Reserve’s repo transaction with the Bank of Japan is that the latter could have called a Japanese bank or Nomura and financed US Treasury debt. Why bother with a repo with the Fed? And for the record, the WSJ is wrong to suggest that the BOJ repo impacts the US economy. QE with a dealer grows bank deposits 1:1, but central bank repo trades not at all.

Meanwhile, we got some well informed pushback on our suggestion this week that the Treasury and/or the Fed may be encouraging the primary dealers to lean into a short-volatility trade. After all, if you give forward guidance to the dealers, they’ll go along, right?

But we suspect that the Fed's repo transaction with the Bank of Japan may be just the beginning of financial problems for the Trump Administration. Our fellow scribe Adam Josephson notes that foreign central bank holdings of US Treasury debt are falling fast, meaning that long-term rates are headed higher even if the Bessent Treasury engineers a squeeze on the short end.

Source: Federal Reserve

Housing Finance Blues

“Back in the first quarter of 2026, most mortgage lenders were anticipating lower interest rates and rising volumes,” we wrote in our latest column in National Mortgage News. Sadly, even just a couple weeks ago, we did know just how right that message turns out to be among mortgage lenders in Q2 2026.

“The reversal in the bond market now confronts mortgage firms with some difficult choices. Many firms that had maintained excess capacity and headcount in anticipation of another down interest rate cycle are now forced to cut expenses in order to survive. The release of second quarter earnings for mortgage firms over the next several weeks will be a must-read for global investors. Look for some truly shocking results.”

As it has turned out this week's crucial results for the mortgage industry are shocking and very institution specific, with some industry leaders faltering while others are consolidating positions of strength or monetizing assets to generate liquidity and reduce leverage. Of the four issuers discussed below, two are in strong positions and two are in varying degrees of operating crisis and even financial distress.

PennyMac Financial Services

PennyMac Financial Services (PFSI) reported weaker-than-expected Q2 2026 results on July 29, 2026, missing both top and bottom-line Wall Street consensus estimates. The miss was said to be due to rising interest rates and lower refinance demand. GAAP net income was just $22 million ($0.41 per diluted share), while adjusted net income reached $74 million ($1.39 per adjusted diluted share) on net revenues of $497 million.

PennyMac Financial | Q2 2026

Little Orphan Annie would say "Yikes!" You see, PennyMac reports first among mortgage firms in the mortgage sector. So when they drop the ball again, for the second time in six months, the whole sector gets pasted in the equity and especially the debt markets.

The institutional investors who want to own PFSI just look at earnings and volumes, that’s it. They don’t have the time or the desire to evolve an intimate understanding of mortgage finance. They just look at the earnings number and $22 million in Q2 2026 income does not cut it.

If you go through the numbers in the income statement, just about every line item is moving the wrong direction, expenses up, volumes down, hedge costs up, gain-on-sale down large.

Keep in mind that PFSI is the leading correspondent lender in the US and #2 behind United Wholesale Mortgage Corp (UWMC), yet somehow they lost two points of market share since 2025?

Their share of broker direct is up, but we are not sure that’s a good thing. Total expense were up 5% sequentially, but now we have a strategic cost cutting strategy underway. PFSI fell 10% following the earnings announcement. After a long and successful run at PennyMac, is it time for a leadership change?

loanDepot

Not only did loanDepot (LDI) grow volumes in Q2, but they have reportedly been selling MSRs at a premium and repurchasing corporate debt at a 20 point discount. Smart. Founder & CEO Anthony Hsieh apparently wants to survive the coming nuclear winter of 7% plus mortgage rates. Some details:

Originations: $8.0 billion in funded volume, unit volume increased 25% from first quarter 2026.

Total Revenue: increased 18% to $337.3 million on $6.6 billion of pull-through weighted lock volume; Adjusted revenue(1) of $307.6 million

Total Expenses: increased from $341.5 million in the first quarter of 2026 to $343.9 million primarily reflecting higher commission and direct origination expenses in line with higher origination volume.

Despite the MSR sales to retire debt, LDI actually increased the value of its servicing assets to $123 billion in UPB in Q2 2026 or ~ 142bp of fair value. The leverage on the MSR is up to 5.3x total equity but still very manageable.

LDI’s stock has been cut in half over the past year. This volatile low-priced stock trades over a 3x beta and is often a bellwether for the mortgage group, both up and down. Careful.

United Wholesale Mortgage Corp

When we read the earnings disclosure from UWMC, at first we were speechless, a rare occurance. For the past few weeks, the mortgage market has been rife with rumours about some dreadful financial event at UWMC in the wake of the loss of the auction for the mREIT Two Harbors (TWO). We can just hear our Russian grandma in her kitchen in Queens: "Jesus, Mary and Joseph."

The release of the Q2 earnings, however, goes far beyond the whispers and revealed a truly horrific management lapse that cost the company $600 million in losses and its independence.

The UWMC presentation begins with an absurd statement: “Abandonment of Two Harbors transaction provides optionality to deploy capital into alternative initiatives as they arise,” something that is manifestly untrue. Mat has handed the company to a private credit firm.

Then the IR firm of UWMC goes on to reveal that “UWM recognized a $603M Q2’26 derivative loss tied to exposure it expected to assume [emphasis added] in connection with the TWO transaction…”

What that second sentence means is that UWMC decided to speculate on the hedge for the TWO MSR before they actually owned the asset. UWMC will tell you that they were proactively hedging the servicing, but you don’t hedge something you don’t own. Indeed, even before the second quarter began, it was obvious to the observant that CEO Mat Ishbia had lost Two Harbors.

This latest fiasco at UWMC forced the company to seek a lifeline from Oaktree Capital Management, a firm well known to mortgage companies in need of new capital support. UWMC announced a $2.05 billion strategic capital partnership with Oaktree and the Ishbia Family.

Recall that Oaktree Capital Management initially invested up to $250 million in equity capital for a joint venture with then-Ocwen Financial (now Onity Group) on May 3, 2021. CEO Glenn Messina has valiantly rebuild the stock, but ONIT remains a subservicer with little owned MSR and a perfect partner of a predatory credit shop like Oaktree.

In exchange for the capital infusion, UWM issued $1.65 billion in preferred equity and arranged a $400 million rights offering, alongside issuing long-term business warrants and granting Oaktree seats on the UWM Board of Directors. UWM suspended its quarterly dividend “to prioritize liquidity and pay down the preferred equity.” But the reality is that Oaktree now effectively controls UWMC and the company arguably should be sold. Compared to Ishbia's astute investment in the Phoenix Suns, the mortgage company is an embarrassment.

Rocket Companies

Rocket Companies (RKT) reported very strong earnings in Q2 2026, doubling revenue from YTD 2025 and generating half a billion in net income. Compared to some of the other issuers in the mortgage sector, the comparison is stark. The combination of Rocket Mortgage, RedFin realty and Mr. Cooper loan servicing has proven to be a significant island of stability and growth.

“Rocket reached record levels of purchase and refinance market share in one of the toughest spring housing markets in years, while delivering our most profitable quarter in four years,” said Varun Krishna, CEO and Director of Rocket Companies. “We've spent the last several years building a fundamentally different company. Home search, origination and servicing now reinforce one another, with AI making every interaction smarter. Markets change. Systems endure.”

RKT’s total servicing portfolio unpaid principal balance was $2.0 trillion or 9.1 million loans serviced as of June 30, 2026, reinforcing the potential to drive significant recapture opportunity from the industry's largest portfolio. During Q2'26, mortgage servicing rights sales totaled $53 billion of UPB, generating $795 million of cash proceeds. Significantly, RKT retained subservicing and recapture services on nearly 80% of the MSRs sold during Q2 2026.

Overall, we are delighted to see the progress at loanDepot and unsurprised by the results for our friends are Rocket. Systems endure, but Mr. Cooper lives, and the proof is the continued acreation of book value for RKT. The results at PennyMac are disappointing, but the disaster at United Wholesale Mortgage Corp is almost beyond belief.

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 years ago by some refugees from Flagstar Bank for Mat Ishbia has enormous value, but the current management instead seems intent upon destroying value at every turn.