Two Harbors is demanding $25.4 million from United Wholesale Mortgage as the fallout from the acquisition saga heats up.

Two is seeking the return of the hefty termination fee it paid UWM when it spurned the wholesale giant for CrossCountry Mortgage's offer earlier this year. The companies appear poised for a lengthy court battle, as the sides have slammed each other's conduct during the negotiations for control of the real estate investment trust and its Roundpoint subsidiary. 

In a lengthy filing last week, attorneys for Two accused UWM of breach of contract for failing to disclose its massive bet on the market. The lender placed a $27.5 billion position that resulted in $741 million in losses across the first and second quarters. 

While UWM and boss Mat Ishbia argued the hedge was in anticipation of acquiring Two, the REIT countered by explaining its own protection on its mortgage servicing rights. Two's own hedge limited its interest rate exposure to around $20 million for the relevant 35 basis point change in rates, a significant scale lower than UWM's gamble. 

"Anyone trained in the mechanics of hedging knows that UWM's derivative position was a one-directional, speculative bet that interest rates would fall, not a 'hedge,'" wrote attorneys for Two. 

A spokesperson for CrossCountry, which completed its approximately $1.26 billion acquisition in August, declined to comment Tuesday, while representatives for UWM didn't return requests for comment.

Why Two wants a refund

The filing recounts the negotiations which spanned back to late 2024, when Ishbia began first mulling a deal with Two president and CEO William Greenberg. Whereas Two says UWM knew of its hedging activity during their talks, the wholesale lender allegedly failed to disclose its big bet until after the deal was eventually called off. 

Two also notes UWM's changing tone, in lauding the REIT's bona fides at the deal's announcement last December before deriding potential operating synergies later on. The prospective buyer also allegedly failed to provide clear answers on how it would finance an all-cash deal, or how it would secure streamlined regulatory approval. 

"In what may be one of the most brazen lies perpetrated in modern corporate America, it appears that UWM never actually intended or had the ability to close a merger with TWO or to achieve any of the synergies it trumpeted," the suit read. 

Ishbia claims he could've funded the deal himself

UWM and Ishbia have accused Two of sabotaging their deal, and Two executives of trying to enrich themselves in the process. Two has denied the lender's allegations. 

The lawsuit includes a screenshot of emails between Ishbia and Greenberg in June, in which the company leaders discussed their penultimate negotiations following a phone call. The UWM CEO described Two's concerns about the proposed funding for the deal as ridiculous and "play for the media." 

"Mizuho has provided a line, UWM has existing lines, and if needed I personally could fund the whole deal myself," wrote Ishbia, referring to a bank's proposed funding. "It is a complete joke to suggest that is a real concern, thus I am happy we could talk and I look forward to reaching an agreement that is best for both parties."

Two then describes the structure of UWM's massive capital infusion from Oaktree Capital Management, which it characterizes as saving the lender from the brink of bankruptcy. 

UWM posted a $451.9 million net loss in the second quarter, driven by the hedge-related loss. 

In its final earnings report this summer, Two posted net income of $49.4 million, and reported a portfolio of $155.1 billion in unpaid servicing balance.