Company: TWO-PC
Filing Date: 2025-07-29
Form Type: 10-Q
Source: 0001465740-25-000140
Chunk: 116

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-07-29
Form: 10-Q
Item: Item 1
Chunk 116
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3,015,643 26.5 %2,994,271 28.9 %Other3,449 — %3,734 — %Total$11,406,160 $10,374,970 

Prepayment speeds and volatility due to interest rates 

Our portfolio is subject to market risks, primarily interest rate risk and prepayment risk. We pair our MSR and interest-only Agency RMBS portfolio with a portion of our Agency pool portfolio to offset risk. During periods of decreasing interest rates with rising prepayment speeds, the market value of our Agency pools generally increases and the market value of our interest-only securities and MSR generally decreases. The inverse relationship occurs when interest rates rise and prepayments fall. Prepayment rates for the MSR portfolio increased to 5.8% over the three months ended June 30, 2025, which is consistent with the universe of mortgage loans with similar coupon rates, primarily due to stronger seasonal factors. In addition to changes in interest rates, changes in home price performance, key employment metrics and government programs, among other macroeconomic factors, can affect prepayment speeds. We believe our active portfolio management approach, including our asset selection process, positions us to respond to a variety of market scenarios. Although we are unable to predict future interest rate movements, our strategy of pairing MSR with Agency RMBS, with a focus on managing various associated risks, including interest rate, prepayment, credit, mortgage spread and financing risk, is intended to generate stable performance, relative to RMBS portfolios without MSR, with a low level of sensitivity to changes in the yield curve, prepayments and interest rate cycles. 

The following table provides the three-month average CPR experienced by our Agency RMBS and MSR during the three months ended June 30, 2025, and the four immediately preceding quarters:

Three Months EndedJune 30,2025March 31,2025December 31,2024September 30,2024June 30,2024Agency RMBS8.4 %7.0 %7.5 %7.2 %7.3 %Mortgage servicing rights5.8 %4.2 %4.9 %5.3 %5.3 %

Our Agency RMBS are primarily collateralized by pools of fixed-rate mortgage loans. Our Agency portfolio also includes securities with implicit prepayment protection, including lower loan balances (securities collateralized by loans of less than $300,000 in