Ishbia Raises $2B & Kills the Dividend 🥵

Wednesday wasn't supposed to be one of the biggest mortgage news days of the year. Then Mat Ishbia released earnings a day early alongside a $2B capital infusion from the Ishbia family & Oaktree Capital Management(!). He also suspended UWM's dividend for the first time since going public.

Those weren't separate announcements. They were the same story!

Today's edition of The Mortgage Scoop — for paid subscribers — breaks down what actually caused UWM's $452M quarterly loss, why management insists this isn't a bailout but an offensive move, & what the recap says about the company's balance sheet.

Plus: Valon has officially shed its skin as a mortgage servicer. The unicorn 🦄 startup is now all-in on becoming the software company that challenges ICE's dominance in servicing. After winning Carrington, NewRez & ServiceMac, one of mortgage tech's most fascinating battles may just be beginning.

Here’s a 10% discount on a paid subscription to read the full edition.

On Aug. 1, Valon woke up as something it hadn't been in its entire existence: a pure-play mortgage tech firm, not a servicer. The Carrington deal, which was announced in May & just closed, hands Valon Mortgage's ~800K-loan, ~$197B UPB book to Carrington, which also becomes a key software client.

The dual identity that confused VCs in '19 & made mortgage execs laugh Linda Du & Andrew Wang out of the room — are you a servicer or a software company? — is now resolved, & I think the real intrigue 🕵️in the servicing tech space is just beginning. 

After all, Valon just picked up a top-5 Ginnie servicer (one that is Ginnie’s literal backup servicer, no less). It’s as conservative a counterparty as this industry has. That such a shop is moving loans off legacy tech (Sagent) & onto a venture-backed platform is a big deal IMO. (FWIW, NewRez entertained Sagent & MSP before signing w/ Valon & I previously reported that ServiceMac is also switching over, so they’ve captured three pretty big logos.) 

It’s worth noting how these deals get done, too. This is still a founder-led sales effort — Valon execs fly out, open up their own servicing book & margins, & say, in effect: here's how many people it takes us to service a loan; what else would you like to know? The pitch is the operation itself, which was only possible b/c they ‘dog-fooded’ 🐶the software for years. Valon also prices on incentives, earning more when it creates more value. 

What makes mortgage servicing so tricky is that much of the knowledge is disparate i.e. – there’s a guy named Henry in Default who is the only one who knows how to do this specific thing. Other times there are extremely detailed standard operating procedures. Increasingly, all that work will be able to be read by machines, & if Valon is able to legitimately architect a system that is ready to do that & improve itself continuously, they arguably have a big head start w/ AI’s compounding effects.

Can that model prove compelling enough to overcome a relationship-based golf-and-steak model that has worked for decades (alongside the incumbent’s promises that it is modernizing)? I think we’re close to finding out — a few more prominent logos at Valon would force the rest of the industry to really take notice. That’s all provided Valon can execute. It always comes down to execution; I think they have to show a smooth transition w/ ServiceMac, Carrington & NewRez to climb the ICE Mountain.

For its part, ICE has committed huge money to modernizing & stitching together Encompass & MSP, & says it is ahead of schedule. My sources said ICE probably has about 100 clients on MSP & can put together sales packages combining Encompass, MSP & other software. 

If ICE can execute on a major tech overhaul, successfully integrate AI & keep increasing prices w/o losing big clients (no biggie), we’ll probably continue to see the same level of dominance. But it’s not guaranteed. Servicing executives tell me ICE/Black Knight hasn’t faced such a serious threat on the servicing side in a very long time, if ever. I’m certain that no mortgage exec is laughing Du & Wang out of the room these days.

UWM wasn't supposed to report until Thursday morning. Instead, Wednesday afternoon brought both earnings & one of the largest capital raises the mortgage industry has ever seen. Look, you don't announce a nine-figure quarterly loss & a $2B recapitalization on the same day unless you want investors to connect the dots.

I’m not an investor, but I’m gonna take a stab 🔪 at it. This one’s just for paid subscribers 👇