Company: NLY-PF
Filing Date: 2025-10-30
Form Type: 10-Q
Source: 0001043219-25-000012
Chunk: 154

Company: ANNALY CAPITAL MANAGEMENT INC
Filing Date: 2025-10-30
Form: 10-Q
Item: Part I, Item 1
Chunk 154
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QM8 during the quarter, exercising the transaction’s three-year call as we expect there to be significant embedded value in our late 2022 vintage and 2023 vintage Non-QM issuances given current securitization cost of funds and pricing in the Non-QM whole loan market.

The housing market continues to experience little to slightly negative home price appreciation on a year-over-year basis, as consistently elevated mortgage rates weigh on affordability. We expect continued pressure on housing into the winter seasonals as “available for sale” inventory has increased, although cumulative depreciation should be modest given the longer-term, positive housing market fundamentals. For now, we intend to remain disciplined by maintaining a high credit quality portfolio with a continued focus on manufacturing proprietary assets through our market leading correspondent channel. Approximately 75% of our residential credit exposure is comprised of OBX securities and residential whole loans, providing full control over both the acquisition and management of the assets.

In our mortgage servicing rights (“MSR”) business, we purchased roughly $17 billion in UPB across three bulk packages and our flow network during the quarter. In addition, we announced a new partnership with PennyMac Financial Services (“Pennymac”), adding another industry leading mortgage originator and servicer to our existing set of “best-in-class” subservicing and recapture partners. As part of this new relationship, we agreed to purchase $12 billion of low note rate MSR from Pennymac, whereby Pennymac will perform all subservicing and recapture responsibilities for the portfolio sold.

Meanwhile, we believe our MSR portfolio should remain insulated against a potential spike in refinancing activity, as the aggregate borrower is approximately 300 bps out of the money with a 3.27% note rate and the portfolio continues to exhibit highly predictable, durable cash flows, paying 4.6 CPR over the last three months ended September 30, 2025.  The associated fundamentals remained positive as well, evidenced by the portfolio’s serious delinquencies being unchanged at 50 bps, escrow balances increasing 7% year-over-year, better-than-expected float income, and declining subservicing costs given increased technological investments across our servicing partners.

Looking ahead, we remain optimistic about our portfolio’s ability to deliver attractive risk-adjusted returns. We expect our investment strategies to be well-positioned for the balance of 2025 given declining macro-volatility, additional expected Fed interest rate cuts and healthy fixed income demand. While our outlook remains positive, we have carefully built our portfolio to guard