Company: TWO-PC
Filing Date: 2025-07-29
Form Type: 10-Q
Source: 0001465740-25-000140
Chunk: 115

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-07-29
Form: 10-Q
Item: Item 1
Chunk 115
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 last fall. Overall prepayment rates for 30-year Agency RMBS increased by 1.8 percentage points quarter-over-quarter to 7.3% conditional prepayment rate, or CPR, in the second quarter. Nationally, existing home sales continue to run at a historically low volumes and are flat on a year-over-year basis. Inventory has begun to climb in the weakest markets and there have been some home price declines in select metropolitan areas. 

The MSR market remains very well supported, with bank and non-bank servicers aggressively bidding for a declining amount of supply. The volume of MSR available in the bulk market has continued to trend lower from the peak years of 2022 and 2023, with supply about 30% lower year-over-year. Quarter-over-quarter, our MSR portfolio experienced a 1.6 percentage point pickup in prepayments rate to 5.8%. The increase was anticipated due to stronger seasonal factors, though the speed was slower than model expectations. Overall, 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 portfolio.

RMBS funding markets remained stable and available during throughout the quarter, with repurchase spreads normalizing into a tighter historical context at SOFR plus around 17 to 20 basis points.

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Looking ahead, we will continue to be mindful of the many sources of volatility that can impact markets, and believe that it is premature to expect volatility to fall meaningfully. That said, the resilience that markets demonstrated in the second quarter is a reminder of the global demand for investments, be it in equities or fixed-income spread products like corporate bonds or mortgage-backed securities. Spreads for Agency RMBS, particularly when hedged with interest rate swaps, remain historically wide. Our core strategy of low mortgage rate MSR paired with Agency RMBS benefits not only from wide Agency spreads but also slow and stable prepayment rates, and RoundPoint’s direct-to-consumer platform provides us with the recapture to protect the return of the MSR in fast prepayment environments. Taken together, we are optimistic that our portfolio construction should generate attractive risk-adjusted returns over a wide range of market scenarios.

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

(dollars in thousands)June 30, 2025December 31, 2024Agency RMBS$8,387,068 73.5 %$7,376,965 71.1 %Mortgage servicing rights