UWM faces class-action suit over hedge strategy
A UWM Holdings Corp. shareholder filed a proposed class-action lawsuit alleging the wholesale mortgage lender misled investors about its hedging strategy tied to a failed bid for Two Harbors Investment Corp., in violation of the Securities Exchange Act of 1934.
The complaint, filed last week in the U.S. District Court for the Eastern District of Michigan, claims UWM deviated from its traditional hedge strategy and “over-hedged” in anticipation of acquiring TWO. That alleged shift created “excess hedging risk” that contradicted the company’s public statements about its business, operations and prospects, according to the filing.
“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” the lawsuit states.
A spokesperson for UWM did not immediately reply to HousingWire’s request for comments.
Defendants named in the suit include UWM Holdings and executives — including chairman, president and CEO Mat Ishbia and chief financial officer Rami Hasani.
The plaintiff alleges that while UWM’s public filings disclosed an occasional use of hedges to mitigate risks in its mortgage servicing rights (MSR) portfolio — and that it held $27.5 billion in notional “other interest rate derivatives” — the company did not disclose an over-hedged position connected to the potential Two Harbors transaction.
The hedging exposure became visible when UWM reported a $451.9 million net loss in the second quarter and a 43.6% year-over-year decline in equity, driven in large part by a $603.2 million loss on interest rate derivatives.
On the company’s Aug. 5 earnings call, Ishbia told analysts that UWM “were over-hedged, if you think of it that way, protecting against the Two Harbors transaction.”
Following the earnings release and call, UWM’s stock price fell $0.64, or 34.78%, to close at $1.20 on Aug. 6, on unusually heavy trading volume, according to the complaint. The lawsuit contends that the drop reflects the market’s reaction to newly revealed hedging risks and the company’s derivatives loss.
The alleged class period runs from March 9 through Aug. 5.
On March 9, UWM issued a press release ahead of the TWO stockholder meeting, assuring investors that even without the deal, its total 2026 revenue would be between $3.5 billion and $4.5 billion. The complaint argues these assurances and other statements were misleading because they did not fully describe the hedging strategy or associated risks.
UWM and TWO — which owns RoundPoint Mortgage Servicing and a servicing portfolio that would have nearly doubled UWM’s book — in December entered into an all-stock merger agreement valued at $1.3 billion.
But in March, TWO terminated the agreement after receiving a cash proposal from CrossCountry Mortgage, which also agreed to pay UWM’s termination fee. UWM tried to salvage the deal by raising its proposals, but TWO ultimately chose CrossCountry’s offer.
The plaintiff, identified as investor Doug Bond, seeks to represent purchasers of UWM securities during the March 9 to Aug. 5 class period. Investors who bought shares in that window can seek to join the case, subject to court approval of class certification.
The suit asserts that the statutory safe harbor for forward-looking statements does not shield the challenged disclosures in this case. It alleges violations of the Securities Exchange Act of 1934 and related Securities and Exchange Commission (SEC) rules, and seeks a jury trial.
Plaintiffs are asking the court to certify the case as a class action and award compensatory damages plus interest, along with costs, attorneys’ fees and expert fees, and any other relief the court deems proper.
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