7 Reasons to Sell Two Harbors
Investment Corp.
Plain-vanilla risk
Two Harbors’ investment strategy relies on buying very unique
assets. In particular, these assets help to keep prepayment ...
Limited competitive advantage
There is nothing proprietary about mortgage-backed securities, and
little stopping competitors from targeting similar asse...
Tighter spreads
While Two Harbors has less exposure to interest rates than its
peers, the company isn’t immune to changes in rates impacti...
Winding down GSEs
Following the financial crisis, and the enormous bailout of Fannie Mae
and Freddie Mac, several bills have been introduced...
FHLB financing
Two Harbors subsidiary, TH Insurance Holdings, was given
membership to the Federal Home Loan Bank (FHLB) in December
2013....
Holding risky assets
As of last quarter Two Harbors was holding more than $2 billion in
subprime mortgages. Despite these assets not having a g...
Lack of experience
Recently, Two Harbors has been aggressively pursuing mortgage
servicing rights, or MSRs. These assets have gained consider...
Top dividend stocks for the
next decade
Upcoming SlideShare
Loading in...5
×

7 Reasons to Sell Two Harbors Investment Corp.

2,889

Published on

No business is without risk, and mREIT Two Harbors has plenty. Here are the top 7 reasons to sell.

Published in: Economy & Finance, Business
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
2,889
On Slideshare
0
From Embeds
0
Number of Embeds
14
Actions
Shares
0
Downloads
6
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide

7 Reasons to Sell Two Harbors Investment Corp.

  1. 1. 7 Reasons to Sell Two Harbors Investment Corp.
  2. 2. Plain-vanilla risk
  3. 3. Two Harbors’ investment strategy relies on buying very unique assets. In particular, these assets help to keep prepayment rates low and cash flows consistent. However, if the company continues to grow its portfolio there may not be enough supply of these assets, forcing Two Harbors to make more “plain-vanilla” investments, and losing some of what differentiates the business.
  4. 4. Limited competitive advantage
  5. 5. There is nothing proprietary about mortgage-backed securities, and little stopping competitors from targeting similar assets. Increases in competition would have a negative impact on prices and valuations. Ultimately, this would make returns less attractive.
  6. 6. Tighter spreads
  7. 7. While Two Harbors has less exposure to interest rates than its peers, the company isn’t immune to changes in rates impacting its returns. Most importantly, since 2009, the difference between short and longer-term interest rates, or spreads, have tightened. If this trend continues it would have a negative impact on the company’s profitability.
  8. 8. Winding down GSEs
  9. 9. Following the financial crisis, and the enormous bailout of Fannie Mae and Freddie Mac, several bills have been introduced to reform the mortgage market. If government sponsored entities, or GSEs, are reformed or eliminated it could have a significant impact on supply of guaranteed-against- default mortgage products, which would increase competition, and raise prices on Two Harbors target assets.
  10. 10. FHLB financing
  11. 11. Two Harbors subsidiary, TH Insurance Holdings, was given membership to the Federal Home Loan Bank (FHLB) in December 2013. This comes with two big perks, stable and very low borrowing costs. However, in May, the Director of the Federal Housing Finance Agency, Mel Watt, suggested he has concerns about this type of borrowing. Two Harbors noted in June, “FHLB financing [will be] important over the long-term.” If Two Harbors is denied access in the future, it would increase the borrowing costs, and concentrate its funding options.
  12. 12. Holding risky assets
  13. 13. As of last quarter Two Harbors was holding more than $2 billion in subprime mortgages. Despite these assets not having a guarantee against default, having a high rate of default, and being backed by low credit score borrowers, if they’re price correctly they aren’t necessarily more risky. However, if they’re priced wrong, as they were before the financial crisis, it would have a damaging impact on Two Harbors’ portfolio.
  14. 14. Lack of experience
  15. 15. Recently, Two Harbors has been aggressively pursuing mortgage servicing rights, or MSRs. These assets have gained considerable attention due to their durability in a rising interest rate environment. However, MSRs aren’t without risks, and Two Harbors’ management has limited experience investing in these assets. While the company has added new and more experienced personnel, its far from certain they will be successful competing in this market.
  16. 16. Top dividend stocks for the next decade
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×