What's Happening?
Two Harbors Investment Corp, a real estate investment trust focused on mortgage servicing rights (MSR), announced its financial results for the third quarter of 2025. The company reported a comprehensive
loss of $80.2 million, or $0.77 per common share, largely due to a $175.1 million litigation settlement expense. This settlement resolved claims with the company's former external manager. Despite the loss, Two Harbors generated a 7.6% quarterly economic return on book value, excluding the litigation expense. The company also declared a third-quarter common stock dividend of $0.34 per share. Two Harbors successfully expanded its subservicing business, selling $30 billion in unpaid principal balance (UPB) of MSR on a servicing-retained basis. The MSR portfolio had a weighted average gross coupon rate of 3.58% and a 60+ day delinquency rate of 0.87%.
Why It's Important?
The financial results highlight the impact of significant litigation expenses on Two Harbors' profitability. The settlement expense underscores the challenges faced by companies in managing legal disputes, which can substantially affect financial performance. Despite these challenges, Two Harbors' ability to generate a positive economic return on book value and expand its subservicing business indicates resilience and strategic growth potential. The company's focus on MSR and residential mortgage-backed securities (RMBS) positions it to capitalize on opportunities in these markets, especially in a potentially favorable interest rate environment. Investors and stakeholders will be closely monitoring how Two Harbors navigates these financial and operational challenges while pursuing growth in its core business areas.
What's Next?
Two Harbors plans to focus on capitalizing on opportunities in the MSR and RMBS markets, aiming to drive growth in its servicing and originations businesses. The company anticipates attractive returns from its strategy of pairing low-rate MSR with Agency RMBS, particularly if interest rate cuts by the Federal Reserve materialize. The company will host a conference call to discuss its financial results and future strategies, providing further insights into its operational plans and market outlook. Stakeholders will be keen to understand how Two Harbors intends to leverage its clean slate post-litigation to enhance shareholder value.
