Analysts from Keefe, Bruyette & Woods (KBW) say that United Wholesale Mortgage (UWM) may be better off after losing its bid for Two Harbors Investment Corp. They argue that the failed acquisition removes leverage risk and increases the likelihood of a dividend cut that could strengthen the company’s balance sheet.

In a flash note released July 5, KBW analysts Bose George and Frankie Labetti wrote that Two Harbors‘ mortgage servicing rights portfolio would have been a strategic fit for UWM by expanding its servicing business and adding a low-coupon servicing portfolio with opportunities to recapture borrowers through refinancing. But they added that the revised structure of UWM’s bid — which shifted away from its original all-stock proposal — could have materially increased the company’s debt if shareholders largely elected cash.

“Not winning this deal eliminates this risk,” the analysts wrote, adding that there is “limited downside to UWMC from not acquiring TWO.”

The flash note came just days after Two Harbors shareholders approved the company’s sale to CrossCountry Mortgage (CCM), ending a months-long bidding war with UWM.

KBW reiterated its “Outperform” rating on UWM with a $3.75 price target, citing the stock’s depressed valuation and the potential for the company to improve its balance sheet. The firm said UWM’s debt-to-equity ratio stands at roughly 3.1x, “well above” many of its peers, and argued that reducing its dividend could accelerate deleveraging.

KBW estimates that if UWM cut its quarterly dividend by at least half, the company could reduce its debt-to-equity ratio from 3.1x presently to about 2.4x by the end of 2027.

The firm’s base-case forecast assumes an even steeper cut — about 70%, lowering the quarterly dividend from 10 cents per share to 3 cents. The analysts say this would bring leverage down to roughly 2.2x over the same period.

Analysts said a dividend cut would allow UWM to keep more cash and reduce debt. They noted the company currently pays about $640 million in dividends each year, more than it is expected to earn for the rest of 2026.

KBW also pointed to UWM’s recent share price decline, noting the stock has fallen about 50% year to date compared with roughly 19% for Rocket Companies. The firm said UWM is trading at about five times its estimated 2027 earnings, which it described as historically low.

The completed acquisition also significantly expands CrossCountry Mortgage‘s servicing footprint.

“Post-deal, CCM would meaningfully grow its roughly $200 billion existing servicing book to over $360 billion. Based on Inside Mortgage Finance data, this would make CCM the 8th-largest servicer in the country, up from 14th. The company is also the 2nd-largest retail originator (after RKT) and top distributed retail originator,” the analysts wrote.

The shareholder approval concludes a merger contest that began in December when UWM announced an all-stock agreement to acquire Two Harbors. The process included multiple competing bids from CrossCountry, several postponed shareholder meetings and revised offers before the Two Harbors board ultimately recommended the acceptance of the CCM proposal.

This article was written by Sarah Wolak and generated with the assistance of HousingWire Automation, then reviewed by a HousingWire editor before publication.

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