How a bad trade pushed a US mortgage giant into a $2bn lifeline
Billionaire finance executive and Phoenix Suns owner Mat Ishbia forged a last-minute deal with Oaktree
Phoenix Suns NBA team owner and mortgage finance billionaire Mat Ishbia took to YouTube last Monday to deliver an upbeat analysis of the housing market from his company’s office basketball court.
Three days later, the head of United Wholesale Mortgage revealed a bad bet tied to falling interest rates dealt it a $603mn loss. UWM, one of America’s two biggest mortgage lenders by originations, also revealed that it had agreed a $2.1bn capital injection led by distressed debt investor Oaktree Capital Management, with Ishbia stumping up at least $150mn.
The swiftly arranged deal failed to stem selling in the company’s shares, which fell 30 per cent last week and are down nearly 90 per cent since its 2021 US public market listing.
“We just had to make the call to cut our losses and take the hit,” UWM board member Robert Verdun told the FT, referring to the crunch decision to raise fresh capital. He stressed he had “zero concerns about the future of the business”. Verdun is also the chief executive of Scaling Up, an executive coaching company.
The series of events, which also prompted UWM to cede two board seats to Oaktree, has laid bare the strains in a company at the heart of America’s $13tn mortgage market and the vehicle that has transformed Ishbia from a financial executive to the owner of a high-profile NBA franchise.
It also marked a personal setback for Ishbia, an eccentric executive known for his heated rivalry with Dan Gilbert, the billionaire founder of UWM’s arch-rival Rocket Mortgage.
UWM, once a small lender founded in the Detroit area, has expanded rapidly since Ishbia took over from his father in 2013, as specialist mortgage firms filled the gap left by banks in the wake of the 2008 financial crisis. As it aggressively pursued market share, the company reshaped industry dynamics by forcing mortgage brokers to choose between doing business with them or Rocket.
In 2021, Ishbia took his company public through a blank-cheque merger to shore up its finances after wild swings in government debt markets triggered by the Covid-19 pandemic nearly upended UWM.
After the listing, Ishbia used his roughly 80 per cent ownership of UWM to back an even bolder bet. His new wealth helped him in 2023 lead a $4bn purchase of the Phoenix Suns, who have struggled on the court despite expensive stars such as Kevin Durant, whom Ishbia signed for his team.
The Detroit Pistons’ former standout player, Isiah Thomas, also serves on the UWM board.
Ishbia had also pledged UWM shares as part of five loans from JPMorgan totalling $2.3bn, according to US regulatory filings. After last week’s sell-off, JPMorgan requested additional collateral from Ishbia, according to a person familiar with the matter. JPMorgan declined to comment.
The hundreds of millions of dollars in annual dividends Ishbia earned from his stake in UWM have also been crucial to investments in the Phoenix Suns, according to a person familiar with its finances.
Those quarterly dividends, which remained at 10 cents per share from the time the company went public until they were suspended last week, have proven a sticking point for investors. Oaktree now has the ultimate say over the dividend policy as part of its agreement to inject capital into UWM.
A “big part of the problem” at UWM was its large dividends, said Bose George, managing director at Keefe, Bruyette & Woods — of which “more than 80 per cent went to the owner Mat Ishbia”.
The recent wobbles have raised the stakes for Ishbia, a 46-year-old Michigan native known for his motivational speeches, as he seeks to dominate the world’s biggest mortgage market.
UWM posted a slight year-on-year drop in loan origination volumes in the second quarter at a time when persistently high interest rates and elevated home prices are weighing on house sales.
With that backdrop, mortgage lenders have sought to grow their servicing businesses, which handle day-to-day management of home loans, in recent years as those tend to become more lucrative when rates are higher.
Rocket Mortgage last year acquired the country’s largest servicing business, Mr Cooper Group, in a $14.2bn transaction.
Ishbia had plotted a similar deal earlier this year, with UWM’s plans to buy Two Harbors, a large mortgage servicer.
As part of that effort, UWM assembled a portfolio of derivatives set to gain value in the event of falling interest rates. This was designed as a way to protect UWM’s eventual takeover of Two Harbors, since mortgage-servicing companies lose out when rates fall.
But the strategy backfired when UWM lost the deal to rival bidder CrossCountry Mortgage in March, and as US bond yields have risen sharply this year as President Donald Trump’s war in Iran stokes a fresh bout of inflation.
UWM this week filed a lawsuit against Two Harbors in US federal court, seeking $500mn in damages over an alleged breach of the merger contract. Two Harbors did not immediately respond to a request for comment on the matter.
“The market moved against us, and it’s a one-time event that won’t happen again,” Ishbia told investors last week.
UWM posted a net loss of $452mn in the second quarter.
“They were hedging an asset they hadn’t purchased yet, the deal fell apart so they ended up with a hedge that had no offset,” said George.
The deal’s collapse left Ishbia in a precarious position. The company agreed to Oaktree’s financing terms, which did not come cheap. Oaktree and Ishbia purchased $1.5bn and $150mn of preferred stock, respectively. In exchange, the investors are set to receive 10 per cent in cash annually or 13 per cent if the company prefers to pay interest in more preferred stock.
Oaktree and Ishbia will also get warrants allowing them to purchase hundreds of millions of shares at a premium to the current UWM trading price. Oaktree and Ishbia also separately agreed to backstop a $400mn common stock offering.
Verdun said UWM had held talks with other investors and considered a limited $500mn capital injection from Ishbia, but decided on Oaktree to “fortify for the next decade instead of right now” and because of the firm’s knowledge of mortgage-servicing rights.
Oaktree has secured various “consent” rights that give the firm specific oversight over the management of the mortgage-servicing rights, according to securities filings and persons familiar with the deal.
“It’s market [rate] for where we’re at and the situation,” said board member Verdun. “It’s not inexpensive financing, I won’t sugarcoat it.”