Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.
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| Statement |
|---|
| We are uniquely positioned to capitalize on opportunities in agency RMBS and MSR and our size allows us to be nimble enough to do so |
| The addition of Roundpoint improves our outlook as we expect to realize further operational and cost efficiencies as it becomes fully integrated into Two Harbors |
| So I think we're really excited about that |
| And then good job protecting your book value with all this volatility |
| We believe that we can grow this significantly |
| When we first envisioned acquiring a servicer, our goal was to achieve economies of scale, improve MSR economics, and be able to leverage a more expansive set of opportunities in the mortgage finance space |
| The team at Roundpoint has done an excellent job of facilitating these loan transfers |
| Roundpoint has been able to keep up with the expanding portfolio through successful recruiting, technology refinements, and a commitment to delivering exceptional service to every customer |
| We have an incredible opportunity to grow Roundpoint’s and Two Harbor’s businesses together |
| Most importantly, this acquisition results in a bottom-line benefit to stockholders |
| It gives us enough return potential, enough upside to as to a spread tightening event that we feel, that we will capture that |
| And also just the fact that if you aren't a higher for longer environment, the higher the current coupon should provide a lot of good return |
| The rotation was driven by several factors, including strong performance in the quarter by the upper belly coupons as we already discussed, the natural need to reset our current coupon hedged against our MSRs rates sold off |
| But if rate volatility moderates, spreads at this level are very attractive for investing our agency portfolio |
| And so, we've kind of built into the portfolio, the level of leverage and risk and composition between our MSR and our securities holdings that we know - that generates we think a very, very attractive return potential, and should spreads tighten and we get a cycle change |
| Our active management of our agency coupon positioning, our exposure to MSR and our disciplined risk management benefited returns to this quarter and protected the portfolio of additional downside |
| At quarter end, our weighted average days to maturity for our agency repo was 99 days, which helps us maintain stability in our financing |
| Despite the continued market volatility, this is an exciting time for Two Harbors |
| And I think that that, our positioning in the market and what we are, which is a large owner of servicing and a sub-servicer is not that many of those guys in the market where people can put their loans next to someone who is - as I wrote, as I said in my prepared remarks is eating their own cooking, right? And I think we're able to provide sub-servicing clients a lot of what they're looking for that is underserved in the marketplace |
| And our belief that into a higher for longer environment, higher coupon should outperform |
| Let's look at figure one, mortgage spreads performed well in July as rates and volatility remained stable |
| And the sellers, especially of large portfolios seem to be, strong hands that understand how the market works and isn't going to flood the market |
| But we can grow it a little bit, but we're happy with our capital allocation and the relative mix, given the opportunities in the market right now |
| These extra cash flows can be quite meaningful on a large and growing portfolio |
| What made us particularly interesting is that the FDIC successfully completed their sales of lower coupon MBS like two and a halves by early August, at which point the bonds had recovered almost all the widening that occurred since the banking crisis was touched off in March |
| Everything we have seen at Roundpoint in the last year from the announcement through the closing has given us confidence that our visions were not misplaced |
| As you will see on our return potential slide, we believe that our combined strategy can generate low-to-mid teens returns in this environment |
| But the main point is that, once we have such an entity and we're involved in those activities, it opens up the opportunities to be able to do other things as I said, in my prepared remarks, whether it's offering HELOCs or second liens or other products |
| Remember, as the owner of service, we not only receive the, the service fee, cash flows, but we also enjoy the benefit of the float earnings on the principal and interest and on the taxes of it and insurance |
| Additionally, with our MSR weighted average coupon at 3.4%, it is so far out of the money that we have a very low convexity, low duration asset with stable cash flows |
| Statement |
|---|
| Our book value at September 30th was $15.36 per share, representing a negative 3.5% total economic return |
| October has seen continued difficulties in the MBS and interest rate markets |
| Elevated rate and spread volatility can pose near-term challenges to the sector |
| IXM is lower quarter-over-quarter by $8.2 million |
| In fact, the primary driver of the overall decrease in IXM was a reduction in asset balances and the large move hiring rates which pushed the portfolio further out of the money |
| We expect prepayment rates to fall again in the fourth quarter, reflecting weaker seasonal factors, and the rise in primary rates |
| Our book value was $15.36 per share at September 30th, compared to $16.39 at June 30th including the $0.45 common dividend results in a quarterly economic return of negative 3.5% |
| The company incurred a comprehensive loss of $56.8 million or $0.61 per weighted average share in the third quarter |
| Although it appears that IXM was primarily impacted by increased funding costs |
| But given all that, we estimate that as of last Friday's close, that our book value or that our TR was down around 6% |
| The problem is they keep getting a little bit wider every quarter |
| This was down slightly from June 30th because of the conversion of approximately 1.2 basis points of MSR to IO securities, reducing the net servicing fee on MSR to 25.2 basis points |
| With the weighted average mortgage rate of our MSR close to 400 basis points lower than today's rates, prepayment speed should remain historically slow |
| There are, of course more factors that go into determining the markets reactions, but it all led to interest rates generally rising over the quarter with greater acceptance of Fed funds rates close to their peak and likely higher for longer along with concerns about greater treasury supply, and spillover effects from overseas central bank tightening, the SOFR interest rates swap market curve repeat materially bear steepened as the quarter progressed |
| Speeds on our MSR holdings paid 4.9% CPR declining 9.3% from the prior quarter |
| And should rates fall from here, we will not realize a degradation in our book value due to that because we will be hedging that, as well |
| At quarter end, the market's projection for short-term rates was that they should come down moderately through 2024 landing at around 4.7% at the end of next year, as seen in figure 2 on the right-hand side of this slide |
| As one measure of the capabilities of the Roundpoint team, the average 30 plus day delinquency rate, 90 days post transfer is 16 basis points lower than it was before the transfer |
| How do you – or how are you hedging that? And what's the risk to the extent that, I don't know the economy falters and there's a flight to quality and you start to see the 10-year fall again? Nicholas Letica Oh! there has been, I mean, good question |
| The Fed has been clear that interest rate cuts are not imminent, and it seems that the market has finally taken the Fed at face value |
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