Two Harbors, who backed out of an agreement with UWM to merge with CrossCountry Mortgage, calls lawsuit ‘frivolous’
Despite a July shareholder vote seemingly settling matters among United Wholesale Mortgage (UWM), Two Harbors Investment Corp. and CrossCountry Mortgage, it seems things are not quite finished yet.
UWM sued Two Harbors this week in a Maryland federal court for $500 million, claiming Two Harbors participated in “fraudulent conduct and deliberate breaches” in the failed deal between the two.
On Wednesday, UWM provided a statement to Mortgage Professional America explaining the lawsuit.
“This week, UWM sued Two Harbors in Maryland federal court seeking more than $500 million based on Two Harbors’ fraudulent conduct and deliberate breaches,” a company spokesperson said. “We exhausted every reasonable alternative before taking this step, but Two Harbors' actions made litigation unavoidable. We intend to prove our claims and pursue full accountability through the judicial process.”
Late Tuesday afternoon, Two Harbors offered a statement of its own in a press release.
"The lawsuit filed by UWMC is frivolous and raises serious questions about UWMC's public disclosures," Two Harbors said in a statement. "UWMC's assertions that its now-terminated merger agreement with TWO was breached and that it has suffered damages is demonstrably false, and is consistent with its familiar refrain to blame others for its own shortcomings."
UWM, through a company spokesperson, responded to the Two Harbors statement Wednesday afternoon.
“UWM's lawsuit details how Two Harbors breached a binding merger agreement with UWM," a company spokesperson said. "Two Harbors' statement does not deny the facts set forth in the complaint and instead resorts to finger pointing about later events that have nothing to do with Two Harbors' willful breaches and fraud. UWM is confident in its case. Ultimately, this will be decided in a court of law.”
The cost of a failed deal
The lawsuit was filed days after UWM’s latest quarterly financial report. UWM posted a $451.9 million net loss for the second quarter of 2026, driven largely by a $603.2 million derivatives loss the company tied to hedges it had established around the anticipated Two Harbors acquisition. The quarter also brought a $2.05 billion capital raise from Oaktree Capital Management, a suspended common-stock dividend, and a balance sheet that needed urgent attention.
Ishbia had telegraphed the litigation was coming when UWM reported those results. He had raised the legal question publicly months earlier. Speaking to Mortgage Professional America at UWM Live in May, he said Two Harbors' conduct may have crossed a line.
"That's against the law, what they did," Ishbia said. "But it's okay. We'll see how that plays out."
Two Harbors’ response took direct aim at the derivatives loss, arguing that the hedge UWM built made no sense given that Two Harbors had already hedged its own MSR portfolio and was under a binding contract to sell it to CrossCountry.
"UWMC now says that this loss was related to a 'hedge' of TWO's MSR portfolio," Two Harbors said, "a portfolio that was already expertly hedged by TWO, not owned by UWMC, and under a binding contract to be sold to CCM."
Two Harbors also pointed to Ishbia's own words on UWM's earnings call, delivered just before the stock dropped another 35%, in which he called the Oaktree deal "so much better partnership for us than Two Harbors or anything else would have been."
What UWM was chasing
UWM and Two Harbors announced their original deal in December, an all-stock merger that would have given UWM control of the RoundPoint Mortgage Servicing platform and significantly expanded its portfolio.
The deal fell apart in March when CrossCountry surfaced with a competing all-cash offer and absorbed a $25.4 million termination fee on Two Harbors' behalf. The board switched its recommendation, and UWM spent the next several months trying to win the vote back, but was unsuccessful.
When Ishbia spoke to MPA at UWM Live, he noted that what he thought he was acquiring didn’t line up with expectations.
"I originally did a deal, thought I was buying a servicing book along with some expertise in capital markets, along with a servicing platform that was pretty good," Ishbia said. "When we did due diligence, we found out it was just a really great servicing book."
Two Harbors stockholders approved the CrossCountry merger on July 2. The deal was expected to close in August, though so far, that hasn’t happened.
Two Harbors says the lawsuit will not survive contact with the facts, and suggested the discovery process would expose more than UWM bargained for.
"If the action ever proceeds to the discovery stage, TWO is confident that communications between and among UWMC, Mizuho Bank and Oaktree, among others, will shed much-needed light on what truly was animating UWMC to publicly tout in repeated SEC filings that UWMC had the intent, ability and financing to consummate a transaction with TWO, while failing for months to publicly disclose a $600 million derivatives loss," the company said.
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