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at CNBC.com (Sep 11, 2013)
at MarketWatch.com (Jul 27, 2013)
at MarketWatch.com (Jun 14, 2013)
at CNBC.com (Apr 8, 2013)
at CNBC.com (Mar 21, 2013)
at CNBC.com (Dec 17, 2012)
at CNBC.com (Sep 12, 2012)
at CNBC.com (Aug 2, 2012)
at MarketWatch.com (Jul 19, 2012)
Update: Two Harbors Announces Dividends But They May Be Unsustainable
- Two Harbors Investment has just announced its latest quarterly dividend.
- Recent earnings were not strong and I did not expect the dividend would fail to be covered with lower earnings which had me concerned with the sustainability of its dividend.
- The present news is mildly bullish for the company and does not change my mildly bullish sentiment.
Two Harbors' Core EPS Expected To Flourish As Quarterly Dividends Remain Unsustainable
- Strategic investments in conduit loans, MSR, commercial real estate, and non-agency RMBS companies will help improve core EPS.
- Investments also help Two Harbors trade at premium valuations.
- Quarterly dividends not sustainable due to lower leverage and over-protection of balance sheet through heavy hedging.
Update: Two Harbors Appoints New Chief Risk Officer During A Critical Time For The CompanyChristopher F. Davis • Wed, Nov. 26
- Two Harbors Investment Corp. announced today that there will be changes to the key management position of Chief Risk Officer, effective January 1, 2015.
- While I did not predict that this management change would occur, I am very pleased with the choice of this still-relative newcomer to Two Harbors.
- This news does not change my bullish outlook, but it does give me confidence that the company has chosen someone who is a natural fit.
Update: Two Harbors Discloses Commercial Real Estate Plans - Much Needed Diversification
- Two Harbors Investment Corp. has just disclosed that it is planning to diversify into commercial real estate, marking a major shift in asset allocation for the company starting with $500,000,000.
- I previously called out its lack of real diversification, which would hamper its competitiveness and ability to adapt to a changing interest rate environment, but did not predict this move.
- This move is very exciting for the company and is very bullish for the stock in my opinion, reinforcing my prior bullish stance.
Update: Two Harbors Reports Q3 Earnings - Still A Buy But Watch That Dividend
- Two Harbors Investment has just reported its third quarter earnings.
- I predicted that book value would expand as the company could generate better core earnings to cover its dividends.
- I still like the company and rate it a buy, but watch that dividend coverage.
10.3% Dividend Two Harbors Is Looking Increasingly Challenged
- TWO produced a total economic return of 9.94% in 1H 2014 (or annualized 19.89%).
- The 10.3% dividend looks sustainable at this time.
- However, there are several new issues that may impact the non-Agency arena in the near future.
- Investors may wish to stand aside on TWO until it becomes more clear what the impact of these issues will be.
An In-Depth Look At Two Harbors' Portfolio Has Changed My Opinion
- This article was written in response to reader demand and follows-up on a recent article comparing key metrics of Two Harbors to Annaly Capital and American Capital Agency.
- I discuss portfolio composition, hedging strategies, risk management and strategic positioning of the company.
- Is Two Harbors right for your risk tolerance levels, or should you be positioned elsewhere?
Is Two Harbors Superior To Annaly And American Capital?
- I am often asked about Two Harbors and to date I have yet to opine.
- Two Harbors has several strengths and weaknesses relative to American Capital Agency and Annaly Capital.
- I provide a comparative analysis of critical mREIT metrics.
Two Harbors Remains A Hit With Its 17% Attractive Total Return
- The company’s strategic investments continue to paint an encouraging outlook.
- TWO has reduced its reliance on the repo market through FHLB membership.
- The company needs to reduce its hedged positions, as the macro-economic environment is stable with low interest rate volatility.
- Company’s significant exposure to non-agency RMBS and MSR investments will help increase earnings.
- TWO has low sensitivity of interest rates to book value.
- Compelling total return opportunity of 25%.
- Low prepayment risk.
Nearly A 10% Dividend And Appreciating Non-Agency RMBS Make Two Harbors A Buy
- TWO had a total economic return of 3.9% in Q1 2014 (about a 15.6% annual return).
- The 10 year US Treasury Note yield fell -19 bps in Q2 2014. Hence Agency fixed rate RMBS book values grew in Q2 2014.
- TWO has hedging that it expects to guard against interest rate moves. This makes TWO attractive even if rates go up in the near future.
- Other factors add to TWO's attractiveness. It is a buy.
Two Harbors Retains Attractiveness As An Investment Option Despite Tough Environment
- Stock retains benefit for dividend seekers with a dividend yield of 10%.
- Company looking to protect book value by repositioning its portfolio.
- Current valuations remain attractive.
- Interest rates are expected to increase as the Fed gets ready to slow its bond buying program.
- Two Harbors has ended a solid quarter with a substantial increase in its assets.
- TWO's move towards defensive cash flows from MSR, the share repurchase program and the reduction of fixed rate portfolio are all good long-term signs.
Tue, Dec. 9, 12:57 PM
- Unable to catch a bid for a few sessions, mortgage REITs (REM +1%) have turned higher in afternoon action, led by Annaly (NLY +0.7%) and American Capital Agency (AGNC +1.5%).
- Helping are jitters in the stock market (though U.S. averages are well off the lows), and a 10-year Treasury yield that's retreated all the way to 2.21% after hitting the mid-2.30s on the back of Friday's strong jobs number.
- Armour (ARR +1.1%), Two Harbors (TWO +0.9%), CYS Investments (CYS +1.4%), Invesco (IVR +1.8%), American Capital Mortgage (MTGE +1%), Hatteras Financial (HTS +2%), Capstead (CMO +2%).
- Other ETFs: MORT, MORL
- Also showing some green are the recently beaten-up BDCs, including Prospect Capital (PSEC +0.2%), Fifth Street Finance (FSC +0.2%), Ares Capital (ARCC +0.5%), FS Investment (FSIC), Triangle Capital (TCAP +1.7%).
- ETFs: BDCL, BDCS, BIZD
- Previously: Money flows back into fixed income (Dec. 9, 2014)
Tue, Sep. 2, 2:26 PM
- REITs and other so-called "shadow bankers" for the last several years have used captive insurers to join Federal Home Loan Banks, thus getting access to more dependable financing and better terms than they otherwise could.
- The FHFA for some time has voiced its concern over the practice, and under new rules just proposed, would sunset those existing memberships over a five year period.
- ETFs: REM, MORT, MORL
- Two Harbors (TWO -1.8%), Invesco Mortgage (IVR -1.9%), Hatteras Financial (HTS -1.2%), Dynex Capital (DX -1.1%), PennyMac Mortgage (PMT -1.5%), Annaly Capital (NLY -0.8%), American Capital Agency (AGNC -0.3%).
Thu, Jun. 26, 3:54 PM
- Enjoying the decline in interest rates even among some hawkish stomping of feet by St. Louis Fed boss Jim Bullard, the mortgage REIT sector (REM +0.9%) is broadly higher. Sector giants: Annaly Capital (NLY +0.6%) and American Capital Agency (AGNC +1.1%).
- Others: Two Harbors (TWO +1.9%), Chimera (CIM +1.8%), American Capital Mortgage (MTGE +1%), Cherry Hill Mortgage (CHMI +1.4%), New York Mortgage Trust (NYMT +1.1%).
- Other ETFs: MORT, MORL
Thu, May. 15, 1:13 PM
- In the red along with the rest of the stock universe all session, a bit of green begins to creep into the mortgage REIT sector (REM -0.4%) as the 10-year Treasury yield tumbles below 2.50%.
- Annaly Capital's (NLY +0.1%) Q1 results were a notable disappointment as management seemingly found itself overhedged while rates fell sharply. One wonders if the hedges were lifted at all for Q2.
- The sector's best performer today is CYS Investments (CYS +1.1%). Management indicated on the April 22 earnings call that it thought mortgages were too pricey, so instead had put a slug of money into Treasurys - a move looking pretty good so far.
- Others: Two Harbors (TWO), Chimera Investment (CIM +0.2%), Armour Residential (ARR -0.1%), AG Mortgage Investment (MITT +0.1%)
- ETFs: MORT, MORL
Thu, Apr. 10, 11:49 AM
- Lit up bright green as the market's momentum names again break down and lead the averages - and Treasury yields - lower are the mortgage REITs (REM +0.5%).
- The 10-year yield is off six basis points to 2.63% and Eurodollar futures in the last few sessions have rallied strongly, pricing out at least one rate hike between now and the end of 2016.
- CYS Investments (CYS +1.7%), Invesco Mortgage (IVR +1.3%), Hatteras Financial (HTS +1.3%), MFA Financial (MFA +1.4%), Two Harbors (TWO +0.8%), American Capital (AGNC +0.6%), (MTGE +0.5%).
- One day after making a number of additions to its management team - including a couple of hires from the New York Fed - Annaly (NLY +0.5%) is also posting gains.
- Related ETFs: MORT, MORL
Wed, Mar. 19, 3:13 PM
- A check of sectors following the FOMC statement and updated projections suggesting a quickened pace of rate hikes in the future finds the banks and life insurers notably moving higher. Both groups have struggled earning a spread amid ZIRP and are positively levered to higher rates.
- Lenders: Bank of America (BAC +1%), Citigroup (C +1%), JPMorgan (JPM), Regions (RF +1.7%), KeyCorp (KEY +0.9%), SunTrust (STI +0.7%).
- Life insurers: MetLife (MET +1%), Prudential (PRU +0.7%), Lincoln National (LNC +1%).
- Related ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, KIE, SEF, IYG, IAK, FXO, PFI, KBWB, FNCL, FINU, RWW, RYF, PSCF, KBWP, KBWI, FINZ, KBE, KRE
- Not necessarily positively levered to higher rates are the mortgage REITs (REM -1.6%): Annaly (NLY -1.8%), American Capital (AGNC -1.7%), (MTGE -1.9%), Armour (ARR -1.3%), Two Harbors (TWO -2%) CYS Investments (CYS -3.3%), Capstead (CMO -1.3%), MFA (MFA -1.8%).
- Related ETFs: MORT, MORL
Fri, Mar. 7, 12:46 PM
- The mortgage REITs are maybe the poorest performing sector amid a big move higher in interest rates, and formerly bullish Deutsche Bank ringing the register on New York Mortgage Trust, CYS Investments, and American Capital Mortgage after nice runs for all have pulled them close to (or above in NYMT's case) book value.
- There's also an earnings miss this morning from one of the last of the players to report Q4, Western Asset Mortgage.
- Annaly (NLY -2.1%), American Capital Agency (AGNC -2.3%), Armour (ARR -1.4%), Two Harbors (TWO -1.8%), Invesco (IVR -2.7%), Capstead (CMO -1.2%), MFA Financial (MFA -2%), Apollo Residential (AMTG -1.7%)
Mon, Jan. 13, 3:08 PM
- What might pull the mREIT sector out of its brutal slump? A slide in the broad equity market for one. An out of nowhere 1%-plus dive in the major averages is being felt in the bond market, where the 10-year yield is off another 3 basis points to 2.83%, and mortgage REITs (REM +0.4%) - whose book values have been savaged by the big jump in interest rates since last spring - are responding.
- Annaly (NLY +1.2%), American Capital (AGNC +1.4%), (MTGE +1.1%), Two Harbors (TWO +1.4%), CYS (CYS +1.9%), Western Asset (WMC +1.5%), AG Mortgage (MITT +1.1%), and Ellington Residential (EARN +0.8%) are leading. This just in: Sector giants American Capital Agency and Annaly are ahead 6% and 4% YTD, respectively.
- The iShares 20+ Year Treasury Bond ETF (TLT +0.6%) is up 3.2% for the year.
Dec. 19, 2013, 10:30 AM
- Win-win. Both Flagstar Bancorp (FBC +2.1%) and Two Harbors (TWO +2.5%) fade mostly red action in their sectors following Flagstar's sale of MSRs with $40.7B of UPB to Two Harbors last night.
- The sale represents 55% of Flagstar's mortgage loans serviced-for-others portfolio. Importantly, Flagstar will continue to receive income and fees as it will act as sub-servicer to the loans underlying the MSRs - in other words, the bank has unloaded the MSRs and the capital requirements they come with, but will still receive some income from the assets.
- Flagstar's press release
Dec. 18, 2013, 5:31 PM
- Two Harbors' (TWO) Matrix Financial unit is acquiring a "bulk pool" of mortgage servicing rights (MSRs) from Flagstar Bancorp (FBC) for $500M. The pool consists of Fannie Mae and Ginnie Mae loans largely originated after 2010, and has an aggregate unpaid principal balance of $40.7B. (PR)
- As part of the deal, Two Harbors and Flagstar have formed a subservicing agreement under which Flagstar "will act as the subservicer of the mortgage loans underlying the MSRs." The agreement will stay in effect as long as the MSRs are outstanding.
Nov. 26, 2013, 1:54 PM
- At what point do you just liquidate the portfolio? Habits die hard and traders used to hitting the sell button on the mREITs (REM -0.5%) are doing so again today even as interest rates slide a bit.
- Hitting another multi-year low today, Annaly (NLY -1.3%) - with a portfolio of very liquid assets heavily hedged against rising rates - is now selling for 20% less than September 30's reported book value.
- American Capital Agency (AGNC -0.8%) - with an equally liquid hedged portfolio - is also at about a 20% discount. Previous: CIO Kain promises to continue buybacks at this discounted level.
- Other agency players: Hatteras (HTS -1%), CYS (CYS -1.4%), Capstead (CMO -1%).
- Non-agency mREITs are slipping as well - even as Case-Shiller reports continued solid gains in home prices (which should boost portfolio values). Two Harbors (TWO -1.5%), MFA (MFA -1.4%), Western Asset (WMC -1.1%).
- ETFs: MORT, MORL
Nov. 22, 2013, 3:11 PM
- A nice backup in rates (the 10-year Treasury yield is off 4 bps to 2.75%) is of no help to the mortgage REITs (REM -0.3%), with sector kingpins Annaly (NLY -1.4%) and American Capital Agency (AGNC -1.2%) both hunkered down (NLY earnings call, AGNC earnings call) for the Fed taper, and both hitting 52-week lows today.
- Earlier this week, AGNC and MTGE CIO Gary Kain took his case all the way to Asia at the Citi financial services conference in Hong Kong (transcript). Yes, book value has been hit by higher rates, but also by how much the market is willing to pay for it. Whereas AGNC traded at an average of 110%-120% of book over the past 4-5 years, it's now at sub-90%.
- Discounts can last for awhile, he admits, but also reminds this isn't some opaque bank balance sheet, but instead an easily valued, highly liquid portfolio of assets trading at $0.85-$0.90 on the dollar. As long as it persists, American Capital will continue selling MBS for $1 and buying back stock at a discount.
- Previous: Kain makes a similar case
- Related ETFs: MORT, MORL
- Other sector stocks: Armour (ARR), Two Harbors (TWO -0.8%), CYS (CYS +0.1%), AG Mortgage (MITT -0.5%)
Sep. 18, 2013, 2:29 PM
- Most stocks are partying in wake of the Fed not commencing its QE taper today, but one sector of note is the beaten down mortgage REIT (REM +2.8%) group.
- Annaly (NLY +3.2%), American Capital (AGNC +3.5%), (MTGE +2.4%), Armour (ARR +3.4%), Two Harbors (TWO +3.4%), CYS Investments (CYS +3.7%), Anworth (ANH +2.8%), Western Asset (WMC +2.2%), Javelin (JMI +2%), AG Mortgage (MITT +2.1%), Arlington Asset (AI +1.6%).
- Yesterday, KBW called out CYS Investments as one of the more aggressive plays for those believing rates might head lower.
- ETFs of note: MORT, MORL.
Sep. 16, 2013, 8:48 AM
- Compass Point upgrades Western Asset Mortgage (WMC) to Buy with $17.50 price target.
- Shares +2.5% premarket, but it's likely more about Summers withdrawing from the Fed chairman's race. NLY, AGNC, ARR, IVR, and TWO are all up more than 2% in early action.
- Earlier: Compass point initiates coverage on several non-agency mREIT names, starting them all at Buy.
- Related ETFs: REM, MORT, MORL.
Aug. 21, 2013, 12:05 PM
- The big picture view says better entry points are coming soon - perhaps after the taper actually begins (September?) and a new Fed chief is announced (October?).
- The team's favorite names are those associated with the sector that really aren't mREITs, but instead have more-specialized business models: Newcastle Investment (NCT +0.5%), its spinoff New Residential (NRZ +1.8%), and PennyMac Mortgage Investment Trust (PMT -0.1%).
- In the security-focused names, top picks are Two Harbors (TWO -0.8%) and Ellington Financial (EFC +0.1%), and American Capital Mortgage (MTGE).
- Thus far in Q3, CS sees sector book values off 4% amid a 40 bp increase in rates. The good news is credit spreads haven't continued to widen, but a coming taper announcement could blow them out again.
- Sector ETFs: REM, MORT, MORL.
- Earlier: Two Harbors gets an upgrade.
Aug. 13, 2013, 10:11 AM
- Ellington Residential Mortgage (EARN +1.3%) follows through on yesterday's late-day surge, with earnings set to be released tomorrow morning.
- David Schawel speculates book value could come in north of $18 per share (after the big run, the stock is currently at $16.21).
- Pine River Capital (the managers of Two Harbors TWO, and investors in a number of other REITs) disclosed a 5.5% stake in EARN on Friday.
- EARN (a REIT) is managed by the same group who runs Ellington Financial (EFC, a partnership/hedge fund). EFC - which reported its Q2 last week - thus far has navigated its way through the MBS rout as well as anyone.
TWO vs. ETF Alternatives
Two Harbors Investment Corp is engaged in investing in, financing and managing residential mortgage-backed securities, or RMBS, residential mortgage loans, mortgage servicing rights, or MSR, and other financial assets.
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