Why UWM Holdings Stock Dived by 20% Last Month

United Wholesale Mortgage (NYSE: UWMC) had an August to forget. An unsuccessful acquisition attempt impacted the quarterly results the mortgage originator reported that month, and the impact wasn't positive. Relatedly, it announced a large-scale fundraising effort that raised concerns about stock dilution.

Largely due to the strong investor sell-off these events engendered, UWM's stock fell by more than 20% over the course of August.

Second-quarter swoon

UWM's second-quarter results were unveiled on Aug. 5. For the period, it earned $888 million in revenue, up 17% year over year. The company's specialty is mortgage originations; these were essentially flat at $39.7 billion.

The bottom line looked uglier. UWM flipped hard to a net loss not under generally accepted accounting principles (non-GAAP, or adjusted) during the quarter, with a deficit of almost $367 million ($0.23 per share) against second quarter 2025's more than $137 million profit.

That must have come as a shock to analysts tracking the stock, as they were modeling an adjusted net profit of $0.09 per share. This surprise loss was mitigated to some degree by a solid beat on the top line; those pundits collectively estimated UWM's revenue would be under $743 million.

The year-over-year dive was due mainly to one line item, a steep $603 million accounting loss on interest rate derivatives. UWM had established a stand-alone interest rate hedge in anticipation of acquiring the real estate investment trust (REIT) Two Harbors; the idea was that the hedge would protect against potential losses on Two Harbors' mortgage servicing portfolio.

That might have worked out had Two Harbors agreed to be acquired; however, it opted to be purchased by privately held CrossCountry Mortgage instead. UWM closed that derivative position, but the consequence was the nine-digit loss.

One casualty of the awful second quarter was UWM's dividend. The company tersely announced within the earnings release that it suspended the payout, compounding the disappointment of the quarterly results.

Image source: Getty Images.

A $2 billion-plus move

Another stock-shaking announcement occurred on the same day that the earnings report was released. UWM announced what it described as a "capital partnership" with SFS Group Capital and Oaktree Capital Management. This is effectively a $1.65 billion sale by the company of preferred equity and 330 million warrants for its publicly traded Class A common stock.

Another part of this capital-raising effort is a rights offering. It aims to raise $400 million by floating 200 million shares of Class A stock to current holders of that equity. This should take place in early October.

While these moves help shore up its finances, they illustrate that the company is very much reeling from its ultimately scotched attempt to acquire Two Harbors. I feel it'll recover eventually, as originating mortgages in a massive country full of people eager to own homes is a lucrative endeavor.

Yet I think the road to recovery might be longer and more painful than some think, not least because the rights issue and the large pile of new warrants could be significantly dilutive. Also, the preferred stock pumps out a high-yield dividend, so I wouldn't expect a return of the common stock payout anytime soon. To me, it feels best to steer away from UWM's shares until these storms pass.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.