Two Harbors calls UWM lawsuit ‘frivolous,’ slams management for $600M hedge loss

Two Harbors Investment Corp. is pushing back on a lawsuit filed this week by UWM Holdings Corp., calling the complaint “frivolous,” “meritless” and “illogical” while defending its decision to abandon a stock-for-stock merger with the wholesale lender in favor of an all-cash deal with rival CrossCountry Mortgage (CCM).

TWO’s response focuses heavily on UWM’s financial condition, noting that the lender’s stock is down nearly 70% year to date following the disclosure of a $600 million derivatives loss — a loss that Two Harbors said had been rumored since May 19.

UWM said the hedge position, designed to mitigate the risks of acquiring TWO’s mortgage servicing rights (MSRs), caused a $451.9 million loss in the second quarter of 2026. The lender ended up raising $2.05 billion, including a capital injection from Oaktree Capital Management.

“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 said in a statement on Tuesday.

TWO added that its portfolio was already expertly hedged, not owned by UWMC, and under a binding contract to be sold to CCM.

“UWMC wishes the market to believe that its $600 million loss is related to a risk position that was approximately 13x the total interest rate exposure of TWO’s MSR portfolio assuming it was unhedged, which UWMC knew full well it wasn’t,” the statement said.

UWM has sued TWO, alleging breach of contract and fraud while seeking more than $500 million in damages. Two Harbors responded by saying assertions that UWM suffered damages are “demonstrably false, and consistent with its familiar refrain to blame others for its own shortcomings.”

The REIT argued that the failed deal was actually driven by UWM’s market performance and governance concerns.

A spokesperson for UWM did not immediately respond to HousingWire‘s request for comments.

The shareholder vote

The TWO-UWM merger, structured as a stock-for-stock transaction, was first announced in December 2025 and terminated in March 2026 after failing to secure enough shareholder support. In the lawsuit, UWM alleged TWO sabotaged the vote by withholding retail investor information.

But TWO countered that by the time of the scheduled March vote, UWM’s declining share price left the proposed consideration at about 20% below its book value. It also pointed to proxy advisory firm ISS, which issued a recommendation against the deal, citing valuation and governance concerns.

After the merger was terminated, TWO said UWM publicly expressed relief and referred to the REIT as a “melting ice cube.” On UWM’s most recent earnings call, just before its stock fell another 35%, CEO Mat Ishbia highlighted a financing deal with Oaktree as superior to any transaction with TWO, the REIT added.

TWO said its board repeatedly invited UWM to revise its proposal, but the lender did not present a bid that addressed the board’s publicly stated concerns.

“It now appears the reason UWMC was unable to do so was because of its undisclosed financial position,” TWO said.

This article was written by Flávia Furlan Nunes and generated with the assistance of HousingWire Automation, then reviewed by a HousingWire editor before publication.