Two Harbors Reports Q3 Loss

Despite a headline loss, core business performance remained strong, supported by MSR expansion and stable RMBS returns.

October 28, 2025

Legal Settlement Drives Q3 Loss

Two Harbors closed out the third quarter with a headline loss—but a closer look shows strength underneath the surface. The company reported a net loss of $141.2 million, largely due to a $175.1 million settlement related to previously disclosed litigation. That charge pulled the quarter’s comprehensive loss down to $80.2 million, or $0.77 per share.

Strip out the one-time legal expense, and the picture shifts. Two Harbors generated $94.9 million in comprehensive income and delivered a 7.6% economic return on book value. Book value per share ended the quarter at $11.04, with a declared dividend of $0.34 per common share.

MSR and Subservicing Growth Takes Center Stage

Operationally, the team focused on execution in its core areas. The company settled $698.2 million in unpaid principal balance (UPB) through MSR acquisitions and recapture. It also brought on a new subservicing client, backing the relationship with the sale of $30 billion UPB in MSR—$19.1 billion of which settled within the quarter. That growth pushed total serviced mortgage assets to $206.3 billion across more than 850,000 loans.

In the MSR portfolio, performance remained stable. The weighted average gross coupon was 3.58%, and delinquencies edged slightly higher to 0.87%. Servicing income climbed to $155.7 million, outpacing costs and supporting the company's direct-to-consumer origination and recapture strategy.

Portfolio Adjustments Reflect a More Focused Approach

The investment portfolio totaled $13.5 billion, with Agency RMBS making up 71% of that balance. The firm also held $4.4 billion in net long TBA exposure. Agency RMBS prepayment speeds held steady, and loan characteristics—such as FICO and LTV—remained consistent quarter over quarter.

Key Metrics:

Agency RMBS weighted average coupon: 6.1%

Three-month CPR: 8.0%

Weighted average loan age: 28 months

Balance Sheet Moves Lower Risk Profile

On the funding side, Two Harbors cut total borrowings to $8.4 billion and reduced its debt-to-equity ratio to 4.8x. The economic debt-to-equity ratio, which includes implied leverage from TBA positions, came in at 7.2x. The company also lowered its cost of financing, bringing the blended annualized rate down to 3.94% after accounting for hedges.

With the settlement now behind it, Two Harbors is positioned to move forward with fewer constraints. The firm is focused on capturing new opportunities in MSR and RMBS, scaling its subservicing business, and managing through market shifts with a stable, hedged portfolio. The leadership team remains confident in the strategy and ready to act as the macro environment evolves.