Two Harbors Investment Corp. announces it will form a founding unit to balance its
The real estate investment trust reported a fourth-quarter net loss of $444.69 million and comprehensive income of $38.9 million, compared with net income of $194.1 million and comprehensive income of $56.9 million in the previous quarter.
The company’s performance and strategic moves highlight the potential need for companies more reliant on services to reposition themselves to cope
In response to signals from monetary policymakers, long-term mortgage rates fell a full percentage point during the quarter, with the average Freddie Mac rate as high as 7.79% in the fourth quarter and at 6.61% at the end of the year. Last year it was 6.69%.
Generally speaking, falling interest rates tend to weaken the value of mortgage servicing rights because they may cause the borrower to refinance from the existing holder.
That could be a challenge for Two Harbors, as executives said on the earnings call that the company’s acquisition of Roundpoint Mortgage made it the eighth-largest traditional service provider. The company said in a press release that it was able to transfer the majority of its services to the new service provider. – Platforms acquired during this fiscal year are expected to be fully resolved in June.
One thing that has eased concerns about interest rates in the two ports and the market as a whole is that a large portion of outstanding loans were issued at extremely low interest rates, so relatively few loans have incentives to refinance.
The weighted average coupon rate of the two-port service portfolio is 3.45%, according to a company press release.
Additionally, by building a direct-to-consumer origination arm, Two Harbors may be able to re-engage some existing borrowers in its refinance loan portfolio, keeping them with the company. The division will offer first lien and home equity products.
In response to an analyst’s question about the extent of the investment to develop the original equipment, Chief Executive Bill Greenberg emphasized that its primary role is to protect service operations from runoff.
“We’re really focused on portfolio defense,” he said.
The company’s shares opened down 31 cents at $13.34 on Tuesday after reporting earnings late Monday night, with analysts at Keefe, Bruyette & Woods describing the stock as “weak” but noting that “the downside may be limited.” Shares are trading just above $13 mid-term. – Tuesday morning.