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TWO Q1 Deep Dive: Mortgage Spreads, Risk Management, and Evolving Servicing Strategy

By: StockStory

June 24, 2025 at 02:20 AM EDT

TWO Cover Image

Mortgage REIT Two Harbors Investment (NYSE: TWO) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 110% year on year to -$28.33 million. Its non-GAAP profit of $0.24 per share was 39.7% below analysts’ consensus estimates.

Is now the time to buy TWO? Find out in our full research report (it’s free).

Two Harbors Investment (TWO) Q1 CY2025 Highlights:

Adjusted EPS: $0.24 vs analyst expectations of $0.40 (39.7% miss)
Market Capitalization: $1.08 billion

StockStory’s Take

Two Harbors Investment’s first quarter results fell well short of Wall Street expectations, with both revenue and adjusted earnings missing consensus estimates. Management attributed the underperformance to ongoing volatility in mortgage spreads and the broader macroeconomic environment, which led the company to maintain lower risk exposures throughout the quarter. CEO Bill Greenberg noted, “We kept our risk exposures low, which proved to be prudent,” as both the company’s agency mortgage-backed securities (RMBS) and mortgage servicing rights (MSR) segments contributed positively, but were impacted by market dislocations and heightened economic uncertainty.

Looking ahead, Two Harbors’ management is focused on scaling its direct-to-consumer mortgage origination platform, expanding offerings in second-lien products, and exploring diversification into additional mortgage markets such as Ginnie Mae and non-agency sectors. The company expects continued market volatility and is keeping portfolio leverage and risk at muted levels until there is more clarity on macroeconomic trends. Greenberg stated, “We are keeping our portfolio leverage and risk at muted levels until there is more clarity on the economic path forward,” highlighting a cautious approach while remaining optimistic about future opportunities created by market dislocations.

Key Insights from Management’s Remarks

Management pointed to ongoing market volatility, portfolio repositioning, and operational investments as key influences on the quarter’s performance and shaped their outlook for the rest of the year.

Risk reduction amid volatility: The company actively lowered portfolio risk and leverage in response to significant market uncertainty, especially around interest rates, tariffs, and global trade policies. This cautious approach limited downside but also reduced potential upside during the quarter.
Shift to higher-coupon RMBS: Two Harbors rebalanced its RMBS holdings by reducing exposure to lower-coupon securities and increasing positions in higher-coupon specified pools. This was done to capture better risk-adjusted returns in a volatile yield curve environment.
Servicing platform expansion: Management emphasized scaling the RoundPoint direct-to-consumer platform and broadening the company’s mortgage servicing offerings, including increased focus on second liens and third-party subservicing. The company is also considering entry into the Ginnie Mae market for further diversification.
Stable MSR performance: The MSR portfolio continued to generate steady cash flows due to low prepayment activity and strong demand, supporting overall economic returns. However, organic recapture rates remain low as few borrowers have incentive to refinance at current mortgage rates.
Operational cost pressures: Operating expenses increased primarily due to higher non-cash equity compensation, a seasonal factor in the first quarter. Management is seeking additional cost efficiencies through technology and artificial intelligence applications.

Drivers of Future Performance

Management expects ongoing macroeconomic uncertainty and mortgage market volatility to remain central themes impacting results in the next few quarters.

Macro volatility and risk management: Elevated interest rate and spread volatility, driven by changing trade policies and Federal Reserve actions, will continue to influence portfolio decisions. Management stated they plan to keep risk and leverage lower until markets stabilize, which could limit near-term returns but protect capital.
Servicing and origination platform scaling: Scaling the direct-to-consumer origination platform and expanding into new servicing markets are seen as key growth initiatives. Management believes these efforts will drive incremental revenue over time, especially as the mortgage refinancing environment eventually improves.
Diversification and technology adoption: The company’s exploration of new segments, such as Ginnie Mae servicing and non-agency markets, along with adopting technology and AI for process efficiencies, is expected to help offset margin pressures and create new opportunities for stable cash flow.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) progress in scaling the direct-to-consumer origination platform and related revenue contributions, (2) Two Harbors’ ability to maintain or grow its MSR portfolio despite low refinancing activity, and (3) the impact of macroeconomic policy changes on leverage, risk appetite, and asset allocation. Further adoption of technology and entry into new servicing markets will also be important signposts.

Two Harbors Investment currently trades at $10.50, down from $11.99 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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Symbol	Price	Change (%)
AMZN	213.04	-1.43 (-0.67%)
AAPL	252.29	+4.84 (1.96%)
AMD	233.08	-1.48 (-0.63%)
BAC	51.28	+0.84 (1.67%)
GOOG	253.79	+1.91 (0.76%)
META	716.91	+4.84 (0.68%)
MSFT	513.58	+1.97 (0.39%)
NVDA	183.22	+1.41 (0.78%)
ORCL	291.31	-21.69 (-6.93%)
TSLA	439.31	+10.56 (2.46%)

Symbol

Price

Change (%)

AMZN

213.04

-1.43 (-0.67%)

AAPL

252.29

+4.84 (1.96%)

AMD

233.08

-1.48 (-0.63%)

BAC

51.28

+0.84 (1.67%)

GOOG

253.79

+1.91 (0.76%)

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