Two Harbors Calls UWM Lawsuit Frivolous, Cites $600M Hedge Loss

Two Harbors Investment Corp. has formally responded to a lawsuit filed by UWM Holdings Corp., characterizing the complaint as "frivolous," "meritless," and "illogical." This legal action stems from Two Harbors' decision to abandon a previously agreed-upon stock-for-stock merger with UWM in favor of an all-cash acquisition by CrossCountry Mortgage (CCM). Two Harbors' defense heavily emphasizes UWM's precarious financial state, pointing to a substantial $600 million derivatives loss that had reportedly been circulating as a rumor since May 19. This loss, according to UWM's own disclosures, resulted in a $451.9 million negative impact in the second quarter of 2026. This hedge position was intended to mitigate the financial risks associated with UWM's potential acquisition of Two Harbors' mortgage servicing rights (MSRs). Following this disclosure, UWM's stock value has seen a significant decline, dropping nearly 70% year-to-date. To address its financial shortfall, UWM secured $2.05 billion in funding, which included a capital injection from Oaktree Capital Management. Two Harbors stated that this significant loss "highlights the dire condition of UWMC’s balance sheet, liquidity, and also casts doubt on its risk management and other governance practices." Two Harbors further asserted that its own portfolio was already adequately hedged and was under a binding agreement to be sold to CCM, indicating that UWM's claims of damages are "demonstrably false." The company argued that UWM's assertions about the $600 million loss being related to a risk position approximately 13 times the total interest rate exposure of Two Harbors' unhedged MSR portfolio were misleading, as UWM was aware the portfolio was not unhedged. UWM's lawsuit alleges breach of contract and fraud, seeking over $500 million in damages. Two Harbors contends that the failed merger was primarily driven by UWM's poor market performance and concerns regarding its corporate governance, rather than any actions by Two Harbors. A spokesperson for UWM did not immediately provide comment when contacted by HousingWire. The original merger agreement between Two Harbors and UWM was structured as a stock-for-stock transaction, a deal that was first announced earlier.