UWM derivatives strategy under scrutiny after trade loss

United Wholesale Mortgage (UWM)’s strategy to protect assets is under scrutiny following recent analyses of public filings, which questions whether the lender’s derivatives book functioned as a true hedge or as a bet that amplified existing risks.Last week, UWM reported a $451.9 million net loss for the second quarter, including a $603.2 million derivatives loss. The financials were announced alongside a $2.05 billion capital raise, which included funding from distressed debt group Oaktree Capital Management.UWM first explained the hedge position was established mainly to mitigate the risk of acquiring Two Harbors Investment Corp. (TWO)’s mortgage servicing rights (MSRs), which would have nearly doubled its own book to $400 billion. But public filings reveal that the company maintained an oversized position despite uncertainty over whether the deal would close, and even though TWO already had its own hedge in place. (Two Harbors ended up closing a deal with CrossCountry Mortgage). Questioned about the recent analyses, UWM told HousingWire that hedging is decided based on “multiple factors within and outside the company,” including its “existing business, market conditions, interest...