The Company Behind Your Mortgage Just Lost 38.5% in a Day While Turning a Profit?

UWMC just reported a $452 million quarterly loss, suspended its dividend, and announced a $2 billion rescue investment from Oaktree and SFS Group Capital, a newly formed vehicle owned by the founder’s family. The stock blew up and fell 38.5% yesterday and yet, the operating business was profitable. So how in the world does that happen?

UWMC, United Wholesale Mortgage does something very straightforward. They make mortgage loans. But you’ve probably never dealt with them because they don’t deal with you. Brokers find the homes and the borrowers. UWMC underwrites you, funds the loan, closes it, and then sells your loan off to Fannie, Freddie, and Ginnie to be pooled into mortgage bonds and sold to investors.

They keep two things: the gain on sale, and usually the right to service your loan. Collecting your payments every month for a fee. This second item is called a Mortgage Servicing Right, or MSR, and it’s an asset. It’s a long stream of payments put on the books as an asset. Remember this, this asset will become a villain later. The point being, the fundamentals of the company were strong coming into this and through the bad quarter.

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