Company: TWO-PC
Filing Date: 2025-04-29
Form Type: 10-Q
Source: 0001465740-25-000104
Chunk: 176

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-04-29
Form: 10-Q
Item: Item 8
Chunk 176
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 and remain locked in to their current mortgages. Seasonal factors in the housing market turn positive as we enter the spring and summer months, which is expected to lead to a modest uptick in prepayment speeds. However, prepayment rates on our low mortgage rate MSR are expected to remain very slow on a historical basis, which will remain a tailwind for the strategy.

RMBS funding markets remained stable and available during throughout the quarter, with repurchase spreads normalizing into a tighter historical context at SOFR plus around 20 basis points.

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Looking ahead, we expect the markets will continue to be choppy while the U.S. government implements its trade and economic policies. Being mindful of this backdrop, we plan to keep our portfolio leverage and risk at muted levels until there is more clarity on the economic path forward. Despite the high levels of realized volatility so far in 2025, we continue to anticipate attractive levered returns on our portfolio. With MSR at the core of our investment strategy, we believe that we have designed a portfolio that can deliver attractive risk-adjusted returns for our shareholders across a variety of market environments.

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

(dollars in thousands)March 31, 2025December 31, 2024Agency RMBS$8,627,708 74.4 %$7,376,965 71.1 %Mortgage servicing rights2,959,773 25.6 %2,994,271 28.9 %Other3,613 — %3,734 — %Total$11,591,094 $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 declined to 4.2% over the three months ended March 31, 2025, which is consistent with the universe of mortgage loans with similar coupon rates, primarily due to seasonal factors. In addition to changes in interest rates, changes in home price performance, key employment metrics and government programs,