With its earnings announcement, it had a few tricks up its sleeve.

By Wolf Richter for WOLF STREET.

The already shredded stock of United Wholesale Mortgage (UWM), the largest home-mortgage lender in the US with $40 billion in mortgage originations in Q2, plunged another 35% today, into penny-stock territory of $1.20 a share.

The company, which exclusively originates home loans through mortgage brokers, had gone public in January 2021 via merger with a SPAC that gave it a $16 billion valuation. It was the largest SPAC deal at the time and made CEO and founder Mat Ishbia a multi-billionaire. True to SPAC form, it has been a bloodbath for investors ever since.

Since the peak in January 2021, at around the time of the SPAC merger, shares of UWM Holdings [UWMC], the parent of United Wholesale Mortgage, have collapsed by 91% and have joined our pantheon of Imploded Stocks (to qualify, the stock must have dropped at least 70% from the more or less recent high).

The causes this time were a huge loss after an interest-rate hedge blew up, the suspension of its dividend, and a $2 billion equity infusion from Oak Tree Capital Management, the largest distressed-debt investor in the world, and from the Ishbia family, at a price that’s going to dilute the bejesus out of the public shareholders. The Ishbia family still owns a controlling stake, so no problem pulling that off.

When UWM announced its Q2 earnings, it had a few tricks up its sleeve:

• A derivatives loss of $603 million as an interest-rate hedge blew up. Mat Ishiba attributed it to the failed attempt to acquire Two Harbors Investment Corp. “We were overhedged, if you think of it that way, protecting against the Two Harbors transaction. The market moved against us…” he said. So whatever.
• A loss of $123 million due to the decline of the fair value of mortgage servicing rights.
• A total net loss of $452 million, or $0.24 a share.
• The suspension of the dividend.
• An equity infusion of $2.05 billion that could dilute existing shareholders by over 50%. But that’s still better for existing shareholders than the company not making it. The initial part is a $1.65 billion infusion of preferred equity and warrants from Oaktree and an investment vehicle owned by the Ishbia family. A second part will be a $400 million rights offering (SEC filing).

The housing market has been in a massive slump for the past few years, as sales of existing homes have plunged, and originations of purchase mortgages have plunged even more, and originations of refinance mortgages have collapsed from the heady days during the free-money pandemic.

Nonbank mortgage lenders, such as UWM and Rocket Companies, have responded by reducing their headcount, either through attrition or through layoffs or both since the employment peak in 2021. For the nonbank mortgage industry overall, headcount has plunged by 39%.

So the SPAC merger of UWM in January 2021, at the very peak of this mortgage bubble, at a $16 billion valuation, was a nice job on investors. But who cares, there are now fortunes to be made in memory chip stocks, such as Micron and SanDisk… Oops. Now we’re talking real money, trillions not a few lowly billions.

Here is Housing Bubble 1 and Housing Bubble 2 from the point of view of employment at nonbank mortgage lenders:

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