Two Harbors Investment Corp., a leading real estate investment trust (REIT) focused on mortgage servicing rights (MSR), has reported strong financial results for the third quarter of 2024. The company's strategic focus on MSR has enabled it to deliver consistent returns, even in a volatile market environment.

Unlocking Value Through Mortgage Servicing Expertise

Mortgage Performance Bolsters Quarterly Returns

Two Harbors' portfolio benefited from the net performance of mortgages in the third quarter, with the company reporting a 1.3% quarterly economic return on book value. This solid performance was driven by the stability of the company's MSR portfolio, which continues to generate consistent income and provide a hedge against interest rate fluctuations.

Expanding Servicing and Origination Capabilities

The company's direct-to-consumer origination activities, which it launched in the previous quarter, have gained traction, with Two Harbors funding $22.4 million in first lien loans and brokering $7.5 million in second lien loans during the third quarter. This diversification of revenue streams further enhances the company's ability to extract value from its MSR assets.

Capitalizing on Attractive MSR Acquisition Opportunities

Two Harbors remains focused on growing its MSR portfolio, having committed to the purchase of an additional $2.1 billion in unpaid principal balance (UPB) of MSR through a bulk acquisition in the post-quarter period. The company's deep expertise and in-house servicing and recapture operations position it well to identify and capitalize on attractive MSR acquisition opportunities.

Maintaining a Balanced Investment Approach

While MSR remains at the core of Two Harbors' investment strategy, the company has also built a portfolio of Agency residential mortgage-backed securities (RMBS) that is less exposed to changes in mortgage spreads than portfolios without MSR. This balanced approach allows the company to preserve upside potential from decreasing volatility and spread tightening, while still benefiting from the stability of its MSR assets.

Navigating Market Conditions with Agility

Two Harbors' Chief Investment Officer, Nick Letica, noted that the company has been able to adapt its investment strategy to changing market conditions. As interest rates declined during the quarter, the company shifted its TBA coupons lower to track the change in current coupon exposure coming from its MSR. This nimble approach has enabled Two Harbors to navigate the market environment and deliver strong results for its shareholders.

Enhancing Shareholder Value through Disciplined Capital Allocation

Two Harbors' focus on providing high-quality investment returns is reflected in its capital allocation strategy. The company declared a third-quarter common stock dividend of $0.45 per share, representing a 13.0% annualized dividend yield based on the closing share price as of the end of the quarter. This disciplined approach to capital management underscores the company's commitment to delivering value to its shareholders.