America's Mortgage King Lost $600 Million and Needed a Bailout

Mat Ishbia made his fortune running the largest mortgage company in the U.S. He used his wealth to purchase the NBA team Phoenix Suns for $4 billion in cash and to build a mansion in Michigan that boasts a trampoline park and a climbing wall.

Last week, the businessman surprised investors when he revealed that a poorly timed bet left a $600 million hole in the balance sheet of his company, United Wholesale Mortgage (UWM). The company, based in Pontiac, Michigan, announced that it is suspending dividend payments on its common stock and receiving funding from Oaktree Capital Management, which provides loans to distressed companies. UWM stock plunged by 35%, completing a decline of about 70% since the beginning of the year.

Ishbia, 46, defended the deal and said it is a strategic partnership that gives his company access to Oaktree's expertise in the mortgage industry. He added that the capital injection removes any uncertainty regarding UWM's funding needs in the near term, and that if it were just about raising capital, he could have injected money himself or obtained it from "random people."

"Oaktree is getting a great deal, and I'm happy for them," Ishbia told investors on Thursday. "When they make a pile of money and are very successful, so will most of our shareholders."

Mat Ishbia

• Personal: 46 years old, grew up in Detroit, Michigan. Divorced, 3 children.

• Professional: Played basketball in college. In 2013, he was appointed CEO of United Wholesale Mortgage, succeeding his father, Jeff Ishbia. In January 2021, he took the company public. This year, Forbes estimated his net worth at $9 billion.

• Philanthropy: Donated $32 million to Michigan State University and $1 million to the V Foundation for Cancer Research.

To execute the deal, Ishbia had to give up some control. In exchange for an injection of $1.5 billion, Oaktree receives veto power over changes to senior management and the company's bylaws, as well as the right to force UWM to buy back its holdings after 7 years. It also receives two seats on the board of directors, warrants to purchase additional shares, and a guaranteed return of at least $600 million.

From a local company to a national powerhouse

Ishbia turned UWM from a local mortgage firm into a national powerhouse that originates more housing loans than the largest banks in the country. Through a special type of stock, he holds 79% of the voting rights. As part of the Oaktree deal, his family holding company is injecting $150 million and will not receive dividends on common stock.

UWM's situation worsened in the last quarter after it recorded a loss of $603 million related to interest rate hedges—bets that pay off if interest rates fall. According to Ishbia, UWM executed these hedges following a failed acquisition attempt of Two Harbors, a real estate investment trust. The $1.3 billion deal collapsed in March when Two Harbors preferred a cash offer from another buyer.

On Monday, UWM filed a lawsuit against Two Harbors in federal court for breach of contract and fraud, claiming the company sabotaged the merger and seeking damages of more than $500 million.

"It's very expensive to buy a basketball team"

Ishbia has already proven he is willing to spend his own money. In 2023, he purchased the Phoenix Suns in cash with his brother. He also pledged UWM shares as collateral for personal loans.

"He can be a good leader, but he tried to do too many things," said Tuan Nguyen, founder of the mortgage brokerage Loan Factory. "He loves basketball, and it's very expensive to buy a basketball team."

The deal with Oaktree imposes much stricter restrictions on the amounts UWM can transfer to its controlling owner. If UWM does not pay Oaktree the hundreds of millions of dollars due as dividends on time, Oaktree will receive a majority of the seats on the board of directors and effectively take over the company.