Two Harbors Reports $222M Loss in Q2
The mortgage REIT recorded a steep drop in book value and profitability despite resilient servicing income.
July 29, 2025
Two Harbors Investment Corp. (NYSE: TWO) closed the second quarter with a comprehensive loss of $221.8 million, or $2.13 per common share. The bulk of that figure stems from a one-time $199.9 million accrual tied to ongoing litigation with PRCM Advisers LLC. That charge dragged book value per common share down to $12.14 from $14.66 last quarter, translating to a negative 14.5% economic return.
If you strip out the litigation accrual, the loss narrows significantly. Adjusted figures point to a $21.9 million comprehensive loss and a negative 1.4% economic return for the quarter. But litigation or not, the decline in book value was real—and investors took notice.
Steady Performance in Core Operations
Even with the headline loss, the servicing side of the business held up. Net servicing income reached $156 million for the quarter, driven by a low delinquency rate of 0.8% and a gross coupon rate of 3.5% across the MSR portfolio. Prepayment speeds stayed manageable, and the MSR pipeline remained active.
TWO also continued to build momentum in originations:
- Funded $48.6 million in first lien loans
- Brokered $44 million in second lien activity
On the capital markets side, the firm issued $115 million of 9.375% senior notes due 2030, raising $110.8 million in net proceeds to strengthen its funding base.
The investment book closed the quarter at $14.4 billion. That includes:
- $8.4 billion in Agency RMBS
- $3.0 billion in MSRs
- $3.0 billion net long TBA position
While asset prices held steady, hedging activity added drag. Losses from interest rate swaps, swaptions, and other derivatives totaled over $150 million, making this a tough quarter for managing rate risk.
Capital Structure and Funding Activity
TWO’s debt profile shifted as leverage climbed. The quarter ended with a debt-to-equity ratio of 5.4x and an economic leverage ratio of 7.0x. Repurchase agreements, revolving credit facilities, and unsecured notes continued to form the bulk of the REIT’s liabilities. The average cost of financing landed at 4.43%, just under last quarter’s 4.49%, with marginal increases in MSR and unsecured borrowing costs.
The company’s MSR-backed facilities held stable, and the capital raise through senior notes provided additional flexibility. Agency RMBS and TBA positions remained the focus, with MSRs acting as a core anchor in the strategy.
Outlook and Strategy
Despite the noise, the broader market backdrop remains supportive. Spreads on Agency RMBS stayed wide during the quarter, giving Two Harbors a continued edge in terms of relative value. Management reiterated its focus on pairing low-coupon MSRs with these higher-yielding spread assets, positioning the firm to navigate ongoing volatility and shifting market cycles.
Two Harbors’ platform combines investment execution with operational capabilities across the mortgage finance space. As market conditions evolve, the company is leaning on that structure to stay flexible—ready to adjust allocations and risk posture as needed. The path ahead isn’t without challenges, but the firm is focused on maintaining long-term stability through active management and disciplined portfolio construction.
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