Company: TWO-PC
Filing Date: 2025-02-18
Form Type: 10-K
Source: 0001465740-25-000083
Chunk: 171

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-02-18
Form: 10-K
Item: Item 8
Chunk 171
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. The Company reported 100% of its TBAs and futures as Level 1 as of December 31, 2024. The Company did not hold any options on futures at December 31, 2024.The Company also enters into IRLCs and forward mortgage loan sale commitments in connection with its origination activities. The Company determines fair value of its IRLCs based on valuation models that use the market price for similar loans sold in the secondary market, net of costs to close the loans, subject to the estimated loan funding probability or pull-through rate. Given the significant and unobservable nature of the pull-through rate assumption, the Company classified 100% of its IRLCs as Level 3 at December 31, 2024. The valuation model for forward mortgage loan sale commitments utilizes the fair value of related mortgage loans determined using observable market data, and therefore, the Company reported 100% of its forward mortgage loan sale commitments as Level 2 as of December 31, 2024.

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Table of ContentsTWO HARBORS INVESTMENT CORP.Notes to the Consolidated Financial Statements

The Company’s policy is to minimize credit exposure related to financial derivatives used for hedging by limiting the hedge counterparties to major banks, financial institutions, exchanges, and private investors who meet established capital and credit guidelines as well as by limiting the amount of exposure to any individual counterparty.The Company has netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by ISDA or central clearing exchange agreements. Additionally, both the Company and the counterparty or clearing agency are required to post cash margin based upon the net underlying market value of the Company’s open positions with the counterparty. Posting of cash margin typically occurs daily, subject to certain dollar thresholds. Due to the existence of netting arrangements, as well as frequent cash margin posting at low posting thresholds, credit exposure to the Company and/or to the counterparty or clearing agency is considered materially mitigated. Based on the Company’s assessment, there is no requirement for any additional adjustment to derivative valuations specifically for credit.The following tables display the Company’s assets and liabilities measured at fair value on a recurring basis. The Company often economically hedges the fair value change of its assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items, and therefore do not directly display the impact of the Company’s risk management activities:Recurring Fair Value MeasurementsDecember 31, 2024(in thousands)Level