Two Harbors Investments NYSE: TWO reported fourth-quarter 2025 results that management said reflected solid portfolio performance, alongside a strategic update centered on its recently announced merger with United Wholesale Mortgage (UWM). Executives described the transaction as a culmination of the company’s long-running effort to build a scaled mortgage servicing rights (MSR) platform supported by origination and servicing capabilities.

Merger with UWM framed as a scale-driven strategy

President and CEO Bill Greenberg said the merger with UWM is intended to address a shift in the mortgage finance landscape in 2025, where management believes scale has become “more important than ever.” Greenberg reviewed Two Harbors’ evolution in MSR investing, including obtaining GSE approvals and state licenses and buying its first MSR pool in 2013, then bringing servicing in-house through the 2023 acquisition of RoundPoint. He said the company added a direct-to-consumer (DTC) lending platform in 2024 to improve recapture, but concluded that origination needed to be “much, much bigger” to compete effectively.

According to Greenberg, the merger would pair Two Harbors with what he called the “number one mortgage originator in the country” and would double the size of the MSR portfolio to a pro forma $400 billion. Greenberg added that UWM would benefit from Two Harbors’ capital markets and asset management experience, while also leveraging RoundPoint’s servicing platform.

Management also addressed investor questions about whether Two Harbors might liquidate its securities portfolio after the merger. Greenberg said the company intends to manage the business “in the ordinary course” in the short term and that, while no decisions have been made, there are potential paths that could involve selling some or all of the assets over time, or alternatively maintaining or expanding positions depending on the combined company’s needs.

Quarterly economic return positive; book value edged higher

Greenberg said mortgage assets significantly outperformed hedges during the quarter and that the company’s “low-coupon MSR” behaved as designed by earning carry. For the fourth quarter, Two Harbors generated a total economic return of +3.9%.

Chief Financial Officer William Dellal reported book value of $11.13 per share at Dec. 31, 2025, up from $11.04 at Sept. 30. Including the company’s $0.34 common dividend, the quarter’s economic return was +3.9%.

For full-year 2025, Greenberg said Two Harbors generated a total economic return on book value of -12.6%. He added that excluding a previously recorded litigation settlement expense of $3.60 per share, the return would have been +12.1%.

GAAP results, funding, and balance sheet positioning

Dellal said the company generated comprehensive income of $50.4 million, or $0.48 per share. He noted that net interest and servicing income (defined on the call as GAAP net interest expense plus net servicing income before operating costs) decreased due to MSR sales and lower float income. Float income declined largely because of lower interest rates and seasonal factors that reduced balances, though the decline in portfolio asset yields was offset by lower financing costs.

Mark-to-market gains and losses were lower by $15.5 million in the quarter, which Dellal attributed to MSR portfolio runoff and “bull steepening” in rates.

On liquidity and financing, Dellal said Two Harbors ended the quarter with over $800 million of cash. He also said the company repaid $261.9 million of convertible senior notes in full on their Jan. 15, 2026 maturity date, consistent with previously disclosed plans. Dellal described RMBS funding markets as stable, with repurchase spreads around SOFR +23 basis points and a weighted average 54 days to maturity for Agency RMBS repo at quarter end.

For MSR financing, Dellal said the company had $1.6 billion of outstanding borrowings across five lenders under bilateral facilities and ended the quarter with $1.1 billion of unused MSR asset financing capacity. It also had $71.5 million drawn on a servicing advances facility and $78.5 million of additional available capacity.

Portfolio performance, spreads, and a more defensive posture

Chief Investment Officer Nick Letica said both MSR and RMBS returns benefited from a decline in interest-rate volatility and strong demand for spread assets. At Dec. 31, the portfolio totaled $13.2 billion, including $9.0 billion in settled positions and $4.2 billion in TBAs. Economic debt-to-equity was “slightly lower” at 7x.

Letica said interest-rate risks were kept low across the yield curve, while spread sensitivity increased marginally quarter over quarter. He also highlighted a continued decline in volatility during the quarter and said RMBS spreads tightened significantly, bringing mortgages to their tightest level since the second quarter of 2022, with additional tightening continuing into late January (as shown in company materials referenced on the call).

In Q&A, Letica said the company became “a little more defensive” as mortgage spreads moved to levels he described as symmetric to potentially asymmetric in risk/reward, given limited room for further tightening versus the potential for widening. He added that the administration had been explicit about trying to tighten spreads and reduce mortgage rates, and cited potential policy actions such as raising GSE portfolio caps. Letica said the company reduced leverage “a little bit” and lowered mortgage risk overall, while maintaining the firm’s paired MSR-and-Agency RMBS construction that is designed to rely less on directional spread bets.

MSR activity, DTC production, and outlook metrics

Operationally, management said Two Harbors settled on the sale of an additional $10 billion unpaid principal balance (UPB) of MSR, increasing third-party subservicing to $40 billion at year end from $30 billion the prior quarter, while reducing owned servicing to approximately $162 billion from $176 billion. Letica added that the company settled about $400 million UPB of MSR from flow acquisitions and recapture and sold $9.6 billion UPB on a servicing-retained basis. The price multiple was 5.8x and 60-plus-day delinquencies were under 1%, according to the call.

Greenberg said the company’s DTC platform had a record quarter, funding $94 million in first and second liens, up 90% from the third quarter, with an additional $38 million in the pipeline at quarter end. The company also brokered $58.5 million in second liens, roughly unchanged quarter over quarter.

Letica said only about 3% of the MSR portfolio was “in the money” at mortgage rates around 6.25%, rising to about 9% if mortgage rates were to drop to around 5%. He also said Two Harbors’ MSR portfolio CPR increased modestly by 0.4 percentage point to 6.4%, and that prepayments remained below projections for most of the portfolio, which he described as a tailwind.

Looking forward, Letica outlined a “static return” framework that reflects the convertible note repayment in January. He estimated that about 65% of capital is allocated to servicing (static return projection 10%–13%) and the remainder to securities (static return estimate 10%–14%). After expenses, he said the portfolio static return estimate would be 6.9%–10.2% before capital structure leverage, and potential static return on common equity of 5.8%–11.1%, or a prospective quarterly static return per share of $0.16–$0.31.

In Q&A, management said book value was up about 1.5%–2% as of Friday, Jan. 30. Letica also said further spread tightening in January would marginally reduce return potential versus Dec. 31 levels. Dellal said it was too early in the quarter to comment on the dividend, noting it would follow the company’s normal process with the board.

About Two Harbors Investments NYSE: TWO

Two Harbors Investments Corp. is a mortgage real estate investment trust (mREIT) that primarily invests in residential mortgage-backed securities (RMBS) issued or guaranteed by government-sponsored enterprises, as well as non-agency residential mortgage loans, mortgage servicing rights and credit risk transfer securities. The company seeks to generate attractive risk-adjusted returns for its shareholders by employing leverage to enhance net interest income derived from its portfolio of high-quality fixed-income assets.

Headquartered in Minneapolis, Minnesota, Two Harbors operates through a self-managed platform that combines portfolio management, risk-management and securitization expertise.

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