Company: TWO-PC
Filing Date: 2025-07-29
Form Type: 10-Q
Source: 0001465740-25-000140
Chunk: 252

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-07-29
Form: 10-Q
Item: Item 8
Chunk 252
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urchase spreads normalizing into a tighter historical context at SOFR plus around 17 to 20 basis points.

49

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 rights3,015,643 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,