Company: TWO-PC
Filing Date: 2025-10-28
Form Type: 10-Q
Source: 0001465740-25-000152
Chunk: 90

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-10-28
Form: 10-Q
Item: Item 1
Chunk 90
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,746)$(32,029)

58

In the ordinary course of our business, we make investment decisions and allocate capital in accordance with our views on the changing risk/reward dynamics in the market and in our portfolio. We do not expect to sell assets on a frequent basis, but may sell assets to reallocate capital into new assets that we believe have higher risk-adjusted returns.

We use a discounted cash flow method to estimate and recognize an allowance for credit losses on AFS securities. Subsequent adverse or favorable changes in expected cash flows are recognized immediately in earnings as a provision for or reversal of provision for credit losses (within (loss) gain on investment securities).

The majority of the “other” component of (loss) gain on investment securities is related to changes in unrealized gains (losses) on certain AFS securities for which we have elected the fair value option. Fluctuations in this line item are primarily driven by the reclassification of unrealized gains and losses to realized gains and losses upon sale, as well as changes in fair value assumptions.

Loss On Servicing Asset

The following table presents the components of loss on servicing asset for the three and nine months ended September 30, 2025 and 2024:

Three Months EndedNine Months EndedSeptember 30,September 30,(in thousands)2025202420252024Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model$(38,686)$(70,868)$4,687 $29,085 Changes in fair value due to realization of cash flows (runoff)(66,210)(62,481)(181,698)(174,239)Other— — (8)(40)Loss on servicing asset$(104,896)$(133,349)$(177,019)$(145,194)

The decrease in loss on servicing asset for the three months ended September 30, 2025, as compared to the same period in 2024, was driven by less unfavorable change in valuation assumptions used in the fair valuation of MSR, primarily due to a lower average portfolio balance, partially offset by slightly higher portfolio run-off as a result of the lower interest rate environment. The increase in loss on servicing asset for the nine months ended September 30, 2025, as compared to the same period in 2024, was driven by lower favorable change in valuation assumptions used in the fair valuation of MSR, primarily due to a lower average portfolio balance, and higher portfolio run-off as