Company: TWO-PC
Filing Date: 2025-02-18
Form Type: 10-K
Source: 0001465740-25-000083
Chunk: 74

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-02-18
Form: 10-K
Item: Item 7
Chunk 74
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 begun to climb, though homes available for sale and turnover in the housing market remain at historically low levels. Home prices finished the year with a small gain and we expect another small but steady increase in 2025.

The MSR market remained stable and well supported, with bulk deals consistently receiving double digit competitive bids. Some large scale bids/acquisitions in the fourth quarter lifted 2024 transfers to $622 billion UPB, approximately the same amount as 2023, though the number of bulk bid opportunities dropped by 25% year-over-year.

RMBS funding markets remained stable and available throughout the fourth quarter of 2024. Spreads for repurchase agreements widened with financing for RMBS between SOFR plus 25 to 35 basis points. The increased spreads were the result of several factors including potential year-end funding pressures and uncertainty around Fed actions at their November and December meetings. In retrospect, year-end was uneventful in the funding markets and early indications for 2025 are that spreads are normalizing into a tighter historical context.

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Looking forward, given the fluidity of expectations on how the Fed will be managing rates, market participants are expected to remain keenly focused on incoming data on inflation and employment. New policy proposals and implementation by the incoming U.S. administration could add to market volatility. Nonetheless, driven by the rise in mortgage rates in the fourth quarter of 2024 plus weaker winter turnover seasonal factors, we anticipate prepayment rates will slow down in the near term. We expect our low mortgage rate MSR holdings, which remain hundreds of basis points below prevailing rates, to prepay below 4% CPR in the first quarter of 2025. Our portfolio is comprised primarily of lower interest rate mortgages, with less than 1% of the portfolio having incentive to refinance at current rates. We expect there to remain ample opportunities to add MSR at attractive spreads even as MSR transfer volume continues to normalize to pre-COVID levels. Nominal current coupon spreads remain wide compared to long-term history, and when either paired with MSR or hedged with rates, generate attractive levered returns. Though there are good reasons to believe that elevated interest rate volatility will persist for the short- to medium-term, the level of mortgage spread volatility has materially declined from early parts of this interest rate cycle, improving the risk adjusted return profile.

The following table provides the carrying value of our investment portfolio by asset type:

(dollars in thousands)December 31,2024December 31,2023Agency RMBS$7,376