Nation’s largest mortgage lender shorted by Park Avenue hedge fund


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Shares in the nation’s biggest mortgage lender, United Wholesale Mortgage (UWM), were rebounding Wednesday following the publication of sensational allegations that a growing number of mortgage brokers who send business to UWM aren’t shopping around for the best deal for their clients.

Pontiac, Michigan-based UWM denies the allegations, which were published Tuesday by Hunterbrook Media LLC — a newly-launched company affiliated with a hedge fund that has taken a short position in UWM.

The hedge fund, New York-based Hunterbrook Capital, has also taken a long position in UWM’s biggest rival, Rocket Companies Inc., and “raised $100 million to trade on reporters’ scoops,” the Financial Times reported.

In order to “short” UWM, Hunterbrook Capital borrowed shares in the company and sold them to investors who are hoping their value will increase. Hunterbrook Capital will only make a profit if the value of UWM’s shares instead drop, allowing the fund to buy back the shares it borrowed at a lower price.

In going “long” in Rocket Companies — the parent company of Rocket Mortgage, which UWM surpassed as the nation’s biggest mortgage lender in 2022 — Hunterbrook Capital has purchased and is holding shares in the company in the hopes that their value will increase.

UWM characterized the accusations leveled against it as unethical, and possibly fraudulent.

“As you would expect a hedge fund masquerading as journalism would knowingly mislead the public, the report itself is riddled with inaccuracies and incorrect information,” UWM said in a statement to Inman. “A hedge fund scheme using journalists to short a stock is not only unethical, it may be fraudulent.”

Shares in UWM had just touched a new 52-week high of $7.75 on March 25. After dipping to $5.86 on Wednesday — just two cents above a 2024 low of $5.82 registered on Feb. 28, when the company announced its 2023 results — UWM’s share price rebounded above $6 in heavy trading.

Shares in Rocket Mortgage parent company Rocket Companies Inc. were trading at $13.31 Wednesday, down 11 percent from a 2024 high of $15.01 registered on March 28.

Shares of many other publicly-traded companies and broad indexes including the S&P 500 were down Monday and Tuesday after recent readings on both job gains and inflation came in higher than expected, diminishing expectations that the Federal Reserve may begin cutting rates in June.

Report spawns lawsuit on behalf of UWM borrowers

Hunterbrook Media said that before making its report public, it provided its data analysis and research — and the date that it would publish its report — to the New York City-based law firm Boies Schiller Flexner.

Attorneys at Boies Schiller Flexner filed a complaint Tuesday seeking class action status to represent borrowers allegedly harmed by UWM’s practices.

The lawsuit claims that UWM touts mortgage brokers who work with wholesale lenders “as the best way for borrowers to obtain the most affordable mortgages because, unlike in the retail channel, borrowers in the wholesale channel are represented and guided by ‘independent’ mortgage brokers who survey options on their behalf and shop for the most competitive prices and rates.”

But UWM has “corrupted mortgage brokers, to cheat hundreds of thousands of borrowers out of billions of dollars in excess fees and costs that they paid to finance their homes,” the lawsuit alleged.

In its quest to overtake Rocket, UWM issued a controversial “All In” ultimatum in 2021 that required mortgage brokers who wanted to do business with UWM not to send loan applications to rivals Rocket Mortgage or Fairway Independent Mortgage.

UWM CEO Mat Ishbia took to Facebook to announce the initiative, claiming Rocket and Fairway were attempting to poach mortgage brokers’ clients through their direct and retail channels (Fairway announced last month that it was closing down its wholesale mortgage department and “pivoting the company’s business model to 100 percent retail originations”).

The ultimatum to mortgage brokers had previously led to UWM becoming entangled in litigation with mortgage brokers as both a defendant and a plaintiff.

The new lawsuit, filed on behalf of consumers in U.S. District Court for the Eastern District of Michigan, alleges that UWM’s “All In” ultimatum has led more mortgage brokers to “artificially steer loans to UWM.”

Citing publicly available data, the lawsuit alleged that mortgage brokers who send 99 percent or more of their business to UWM accounted for 14 percent of the lender’s business last year, up from 4 percent in 2020. Brokers who sent more than 75 percent of their loans to UWM allegedly accounted for 48 percent of the lender’s business in 2023, up from 24 percent in 2020.

The lawsuit also claims that the lender has been charging borrowers higher closing costs — an average of $865 above median last year, compared to $211 in 2020.

In a statement provided to Inman, UWM called the lawsuit “a sham,” and vowed to “defend these allegations to the fullest extent permitted by law and stands with the thousands of independent mortgage brokers who serve the unique needs of borrowers across the country.”

In the past, UWM has said its ability to offer borrowers a better deal is one reason for growth in its market share.

In the summer of 2022, UWM announced a “Game On” pricing initiative that brought its rates down by 50 to 100 basis points (0.5 to 1 percentage point) across all loan types.

With profit margins shrinking, UWM posted a $69.8 million 2023 net loss — its first annual loss since going public in 2020. But UWM originated a record $93.9 billion in purchase loans, and the loss was largely driven by an $854.1 million write-down in the value of the lender’s $300 billion mortgage servicing rights portfolio.

Hunterbrook’s approach differs from traditional journalism

The publication of allegations against UWM by a media company associated with a hedge fund are reminiscent of reports by a “short-seller’s research firm,” Citron Research, that dogged Zillow a decade ago.

Trading on the kind of non-public information that journalists often dig up “could constitute securities fraud,” the Financial Times reported. Hunterbrook Media said its reports are only provided to its affiliate, Hunterbrook Capital, when they do not include such “material non-public information” (MNPI).

“While our approach differs in key ways from traditional journalism — for instance, by seeking to avoid inside sources — we are deeply inspired by the tools and values of both intrepid reporting and open-source intelligence,” the company says on its website.

While founders Nathaniel Horwitz and Sam Koppelman “have limited backgrounds in journalism or stock trading,” they’ve hired three full-time reporters and freelancers who have written for traditional news outlets, and count industry veterans including ProPublica founder Paul Steiger as advisers, the Financial Times reported.

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