Company: NLY-PF
Filing Date: 2025-07-30
Form Type: 10-Q
Source: 0001628280-25-036724
Chunk: 5

Company: ANNALY CAPITAL MANAGEMENT INC
Filing Date: 2025-07-30
Form: 10-Q
Item: Part I, Item 2
Chunk 5
---
 same factors, the housing market equilibrium has shifted as sellers now materially outweigh prospective homeowners. Higher supply has now led to four consecutive months of negative month-over-month home price appreciation according to Zillow indices. We expect home prices to potentially soften further, with home prices turning modestly negative on a year-over-year basis in the next couple of months. Balancing the deceleration of the housing market is a stable labor market, low consumer delinquencies, expansionary fiscal policy and elevated asset prices, including the equity markets. We believe we should remain well positioned into a modestly decelerating housing market as we control all aspects of our loan manufacturing strategy. 

Our mortgage servicing rights (“MSR”) business saw its portfolio relatively unchanged for a second consecutive quarter as we added just $2 billion in unpaid principal balance during the quarter, which largely offset portfolio declines from prepayments.  Bulk MSR supply in recent quarters has been met by robust demand, attracting strong bids from many market participants. In light of this environment, we have focused on building out flow MSR, subservicing and recapture partnerships and expect to participate more meaningfully in the bulk market as relative value improves. Annaly’s MSR valuation improved modestly quarter-over-quarter to a 5.9 multiple as interest rate volatility declined and the yield curve steepened. Although prepayment speeds on the portfolio increased marginally in line with seasonal expectations, the underlying note rate of the portfolio remained very low relative to current mortgage rates at 3.24% as of Q2 2025, which we believe should help insulate us from a more material increase in prepayments. The credit characteristics of the portfolio remained strong and serious delinquencies on the portfolio were relatively unchanged at 50 basis points.

Economic return, earnings available for distribution, and economic leverage are non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” for additional information, including a reconciliation to their most directly comparable GAAP results.

Economic Environment

U.S. real economic growth rebounded in Q2 2025, as gross domestic product rose 3.0% SAAR after falling 0.5% SAAR in the first quarter. Despite the sound quarterly growth rate, consumer spending is moderating in 2025, rising 1.0% SAAR in the first six months of the year, a notable decline from the 2.8% SAAR expansion in 2024. Consumers appear to be growing more cautious as elevated short-term interest rates, lower savings rates,