Weekly Real Estate News
Summary
Two Harbors has filed counterclaims against UWM in federal court, seeking return of the $25.4 million termination fee from their failed merger and additional damages. The pleading alleges UWM withheld material information about its financial condition and hedging strategy, including a $27.5 billion notional derivatives position. The allegations are contested and have not been proven.
Two Harbors Investment Corp. has turned United Wholesale Mortgage’s lawsuit over their failed merger back on the lender, filing counterclaims that seek the return of a $25.4 million termination fee and accuse UWM of withholding material information about its financial condition and hedging strategy.
The counterclaims, filed Oct. 1 in the U.S. District Court for the District of Maryland, add a second front to litigation that UWM Holdings Corp. and its acquisition subsidiary brought in August. UWM’s case alleges Two Harbors breached the companies’ merger agreement before ultimately selling to CrossCountry Mortgage. Two Harbors denies wrongdoing and is now seeking affirmative relief of its own.
The allegations in the new pleading have not been proven. They are Two Harbors’ account of the failed transaction, and UWM is entitled to contest them as the case proceeds.
At the center of the counterclaims is Two Harbors’ assertion that UWM failed to disclose risks associated with a large interest-rate derivatives position it established while the companies were pursuing their combination. UWM reported $27.5 billion in notional “other interest rate derivatives” as of March 31, according to its first-quarter Form 10-Q filed with the SEC. Notional value is the reference amount underlying a derivatives contract; it is not the amount invested or a measure of realized loss.
Two Harbors alleges UWM’s statements and omissions concerning its finances, hedging and intentions under the merger agreement amounted to fraudulent misrepresentation and breach of contract. It is asking the court to order UWM to return the $25.4 million termination payment and award additional damages.
A failed $1.3 billion merger became a court fight
UWM and Two Harbors announced an all-stock transaction in December 2025 that valued the mortgage servicing rights-focused REIT at roughly $1.3 billion. The agreement unraveled after CrossCountry Mortgage made a competing proposal and Two Harbors’ board determined that bid was superior under the terms of the UWM agreement.
CrossCountry ultimately agreed to acquire Two Harbors for $12 per share in cash. WRE News reported in August that CrossCountry completed the acquisition, making Two Harbors a privately held CrossCountry subsidiary.
UWM sued before that closing, alleging Two Harbors violated the merger agreement and seeking damages that could exceed $500 million. UWM’s complaint alleges, among other things, that Two Harbors improperly handled the competing-bid process and breached contractual obligations governing negotiations and shareholder outreach. Two Harbors has previously characterized UWM’s claims as baseless.
The original merger agreement provided for a $25.4 million termination fee. Two Harbors paid that amount after terminating the UWM agreement, but UWM’s lawsuit contends the contractual cap does not protect Two Harbors from liability for willful breach or intentional fraud.
The Oct. 1 counterclaims now put UWM’s own conduct during the proposed combination directly before the court.
The derivatives position adds another layer
The litigation arrives after UWM reported a difficult second quarter. The company recorded a $451.9 million net loss for the quarter ended June 30 and disclosed $603.2 million in losses from derivatives in its second-quarter Form 10-Q. UWM has said its hedging position was affected by the anticipated Two Harbors acquisition.
During UWM’s Aug. 5 earnings call, Chairman and CEO Mat Ishbia said the company had been “over-hedged” because it had hedged in anticipation of acquiring Two Harbors’ mortgage servicing rights portfolio. The transaction never closed, leaving UWM with hedges established against assets it did not acquire.
The $27.5 billion notional derivatives position has since drawn scrutiny in separate shareholder litigation. Those cases and the Two Harbors counterclaims raise overlapping questions about UWM’s hedging and disclosures, but they are separate proceedings with different plaintiffs and legal theories.
Two Harbors’ pleading attempts to connect that financial episode directly to the merger dispute. Its position is that information about UWM’s financial condition and derivatives exposure was material to Two Harbors as a merger counterparty and that UWM did not provide an accurate picture while the transaction was pending.
That contention remains to be tested. UWM’s reported derivatives losses do not, by themselves, establish that it breached the merger agreement or committed fraud. The court will have to evaluate what UWM was contractually required to disclose, what it actually represented to Two Harbors and whether any alleged omission caused legally recoverable harm.
What comes next
The case is pending as UWM Holdings Corp. et al. v. Two Harbors Investment Corp. in the U.S. District Court for the District of Maryland. UWM filed the original action Aug. 10.
CrossCountry’s acquisition of Two Harbors has already closed, so the litigation will not determine which company ultimately owns the former REIT. The dispute is now principally about money and responsibility for the collapse of the UWM transaction.
UWM entered the case seeking substantial damages from Two Harbors. With the new counterclaims, Two Harbors is asking the same court to conclude that UWM was the party that breached its obligations and should give back the termination fee.
Neither side’s allegations resolve that question. The Oct. 1 filing makes clear, however, that the fight over one of the mortgage industry’s largest recent acquisition battles is likely to extend well beyond the closing of the deal that replaced it.
