TWO - Earnings call transcript Q2 2019 | Two Harbors Investment Corp.

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Operator

Good morning, my name is Gerald and I will be your conference facilitator. At this time, I would like to welcome everyone to Two Harbors’ second quarter 2019 financial results conference call. All participants will be in a listen-only mode. After the speakers’ remarks, there will be a question and answer period.

I would now like to turn the conference over to Maggie Field with Investor Relations for Two Harbors. ahead. go Please

Maggie Field

Tom our good will call and items financial Thank for morning you With Mary and Bill and Thank Roth, our Riskey, discuss strategy, long our morning Two Tom our CFO; are this call to on XXXX our Mary my and from of Harbors’ and overview joining President me CEO; you portfolio will the everyone. Siering, introductory second results. After Bill an review our key our opportunity. term will financials, and comments, highlight CIO. provide investment quarterly results quarter

press yesterday tables with The associated filed SEC. call were financial and the with release today’s

the copy, may have you SEC.gov. on SEC’s not If on find website you do at our a them or website at

posted you release Investor may today’s conjunction this a location. this and reconciliation with website be earnings and the to mention webcast of same website, financial are accessed in call non-GAAP to would call. urge to that is I which slides, measures. we’ve being in our our our We on review the of provided also section like Relations in In information GAAP

remarks I this slides Before call the over you to forward-looking statements. management conference include may by like I to remind Tom, that call and turn supporting made during would the

unduly other such be rely not Forward-looking as believe, or statements statements Such such may of caution estimate, management words. on different and materially are with forward-looking risks factors. We investors results based associated on actual because and the variety current expect, of beliefs and other statements. are to and expectations anticipate, words a typically of

its the filings does of at be not SEC.gov. by year SEC law, website from risks the Except Two Harbors XX, and in ended fiscal Relations and XX-K on obligation are Two other required time and disclaims to may these Form report describes the statements available Harbors’ annual expressly on Harbors may so. as in which with time Investor to and or any December XXXX uncertainties section update the makes make forward-looking it in SEC’s website Two do for

turn call I over to the will now Tom.

Tom Siering

and earnings to and results. we Maggie, Slide Please our release morning turn hope presentation a our issued review you good X that everyone. to chance press last had that you Thank night. We to review

This quarter for return delivered value a strong on We XX.X% value value a highlighted was of half and by our X.X% first growth. quarterly book return XXXX. on book book the

was result both performance value active book a of hedging. Our positioning portfolio and

have compared in to has first for the bilateral financing competitive securitization flexibility gives facilities us which pleased our also completed MSR more are MSR. quarter, terms We to our and

a pressure Slide and In buyers lower and our sellers cut by interest turn which sector we created rates, X. curve, believe emergence stock faster as well driven under yield which inter-day Please as an volatility. second traded concerns, volume to and quarter, the dividend price of was flatter more money

short of compared cycles with to endeavoring As with while environments. you throughout of book the a term hedging our to believe value particular, rates. RMBS portfolio market through with is term variety of agency to impact strategy long we agencies focus a return market stable in In minimize swaps our changes in risk-adjusted deliver our We more stability pairing generates this know, goal construct only. MSR mind

XX% this legacy can since how replicated, slide, generate and of be to can’t inception. believe outperformance housing. non-agency is you On tailwinds have the give our securities strategy attractive this easily Additionally, our will see strong stockholder one in we differentiating total unique factors resulted these that continue portfolio in returns of

efforts. outcome it GSE could prior reform. election. anything to any the questions substance of received is have some XXXX that on reform happens unlikely we possible We Obviously Recently think greatly that influence

of on like would their Under congratulate Koeppen built co-Chief retirement I’d Greenberg his and Officers appointment behalf strong as I leadership, we congratulate at the Matt team Investment XXXX. like beginning Bill Two of have professionals. on to in a year. on Harbors the of investment Bill end his also Finally, to

great we a opportunities have team We Two at are excited very and ahead. Harbors the about

our I will to turn to Mary call now over the results. review financial

Mary Riskey

Thank you Tom.

spread $XX.XX to also value book Turning income expected XX. value. million book coupon our in coupon of at value quarter. contributed outperformance the our was primarily The review compared X, generated agencies Slide $XX.XX offsetting and Credit for performing was $X.XX higher let’s specified financial per by comprehensive share, and book We and driven spreads improved increase MSR or the $XXX as in second per widening. share current results with of positive to pools March to

that of quarter the note for third value up book after between end is to I’d July, Finally, X% dividends. through our accruing X%

of quarter, equity core representing minor average Moving also impacted earnings, on in of a from prepayment expect our spread. the of earnings results. return impact compression in $X.XX we our both roll occurred Core to this cost Slide to common the we however spread widening was the see from We earnings Core effects review much in X, avoided share exposures. the per a let’s repo third by a this XX.X%. longer was first minimize managing realized primarily impact small including by maturities. income, actively however, second We of higher laddering that repo quarter, LIBOR the environment, dollar the maintaining to and year from are do half the repo

important that change modifications used like adjustment varies a amortization, better any rates. specifically allows carry on function I’d gain or brief MSR to MSR. recognize earned core an is in reflect investment We use metric to that the approach a the We MSR earnings. purchase earnings we an how to the new capital the change believe of core to calculate earnings discuss to as the take for community. our prepayment we quarter loss this moment to approach made The core a to involves

more we Further accurate such, improved generate. returns our As is of economic the XX. can much appendix the in are portfolio provided believe reflection it details and a Slide

amortization, ratio, X.X% that note X%, I’d other slightly in Finally, was down LTIP the our operating from quarter. non-cash first excluding expense

As we expenses the reminder, anticipate XXXX. remain a our will low stable in X’s in that

X, declined yields, This lower portfolio in quarter of primarily the Slide lower reflective environment. X.XX%. driven yield to by and Turning prepayment our was the agency to rates higher

returns discounted bonds purchased base also appreciation. yields; discounted time and legacy at generate the as combination through yields over in lower double-digit discussed price a We non-agencies past, anticipate of these we’ve both that we strong will total however,

X. let’s Now review financing our shown on Slide as profile

ratio, X.X includes June XX. economic which at to implied our debt equity the on positions, was Our debt times TBA

up debt was quarter at to X.X economic slightly quarter equity times. over from times average X Our

notes. mix diverse traditional debt, Our financing facilities, secured revolving convertible profile of includes MSR and repo, a credit term

repo active counterparties continues and the XX have function for to us. market efficiently We agency

spread to I repo exposure LIBOR mentioned we focused an managing in cost both to opportunity business. The As for earlier, presents financing are repo our maturities ongoing minimize of non-agencies MSR for laddering and improvement on our changes. the and

the With in spread structure The we we of financing $XXX have our June of include five-year quarter. securitization closed all scalability, quarter. advance first facilities. a be rates our pricing, respect bilateral XX-month total plus million benefits $XXX notes LIBOR protection front, MSR this consistent than as Across and spreads facilities, of were XXX. of greater favorable is million secured continued prepayment of haircuts term has MSR of bilateral this to On the XX. This capacity and of and quarter $XXX had term outstanding the non-agencies, over to a with length competitive and million securitization

With will our that, I now for the over call to turn Bill portfolio update.

Bill Roth

Please everyone. turn you good to Thank and Slide morning Mary, X.

second resulted yield in rates, with rally above term expectation interest rates. and rate up reflects latter in there Mexico, growth This anticipation XXXX. a July, half flatter Fed growth the in curve ended that further lower China three-month is will shape global will rates the quarter This LIBOR and especially of be the trade impacted in longer the curve cuts the concerns, and In expectations. which that economic issues occurring most fueled and the market’s

in with assets by pools perform declining the lower available a coupon offsetting of of expected LIBOR, forward and the would spread. with to while by three-eighths MSR to quite Residential In effect the Discounted coupon spread increasing point. duration in widened coupons in the performed only outperformed, point higher rally, performed expected, continued mortgages widening credit current about its about much a which benefited the of losses. basis cover widening. market, from as have basis Specified value non-agencies line widening well mortgage current well. excess future the agency legacy

by point. As one result, about were prices modestly a higher

XX% of credit. comprised Let’s of XX XX of rate allocation move TBA. to strategy June From our billion net was at XX% to and $XX portfolio, to about to which a capital allocated review perspective, and was billion our of long capital assets Slide $X

terms in part in portfolio our the take RMBS market the the to in we to of activity, agency available the but manage wider of market. advantage duration also In as spreads exposure rallied added quarter,

Specifically, prices. protection We X% convexity pools. think excellent that of lower have specified we billion and these added reasonable approximately X.X% pay-up at $X.X coupon and prepayment bonds characteristics

pools more the risk declines $XXX since spread We million slightly felt balances, pay-up risk mortgage lower that also exposure Despite higher we at by mortgage spread had these as reduced our our interest to X.X% than coupon were fall. agency rates specified pool position and X% however, priced higher as approximately levels was reward. our

of our relative is recently than for to a as the our on higher been we our exposure. the outlook way rate leverage quarters. focus think In from just the similar standpoint, portfolio about nominal sensitivity mortgage value it on getting drifting short, number. in to We movements book is it more is in been leverage we’ve question exposure about past think One has the interest leverage few spreads risk

quarter increased our leverage, risk Although declined. agencies our mortgage this spread actually we added which

in that risk. agency agencies continue as us we on slide, allows discussed to to higher and have will but the with we’ve MSR overall believe lower the As with you leverage see next past pairing

from We comfortable our change and not are do current to it of materially here. with leverage expect level

packages purchase the criteria, likely wise. front, will wise transaction as pick-up an or see either the bulk increase in supply any in price did there driven as collateral higher we met servicing be in see do of our XXXX On a quarter didn’t expect We we volumes. second MSR by not to half any refinance the in that volume

$XXX upside approximately non-agency, legacy market credit million price our at $XX of added in the we potential value appreciation. strategy price believe which has discounted of an we in average Finally, for

Turning to risk discuss positioning. Slide our let’s XX,

this rates our either slide, portfolio higher on to of we against swaptions or and seen with in quarter second strong Consistent options our protect performance. mortgage of our utilized practice, to to the top lower. amount changes moves, practice contributed in This an rate As extensive our the exposure small. big typical remains hedging

exposures spread rates up our The and bottom XX to shows table of points. basis XX down this slide and

MSR this interest As hedges in negative spread we’ve and the has table. risk, which discussed you see past, duration both mortgage and rate in can

XX. Please Slide turn to

flat presented in curve, of because and hedging. activity. our the interesting positioning, environment second yield MSR, potential elevated rate relative of because specified Nonetheless, pools strong and we The quarter term with higher our delivered rates, an to holding also returns a dynamic increased refinance use coupons, portfolio options principally longer for and LIBOR of

the levered in Given believe we as returns rates rate we’ve credit risk-adjusted range. currently returns. view backdrop, long our that and market current strong low deliver agencies In strategies positioned we our term double-digit on to the both strategy,

MSR Returns of double on to continue with the slide, generate and but higher on we also our agency profile. will in a are coupons long the return. specified low as digits, lower pools discussed last risk attractive comes this We believe with term paired holdings

strategy. portfolio total housing our to credit believe the I’d highlighting will like opportunity our benefit moment of that return We continue the strengthening exists to a that legacy spend from non-agencies market. in

can lower have environment and, portfolio. this have Residential to in non-agency on charts the have tailwinds our strong you the beneficial been see is slide, come increased Additionally, down. loss sub-prime while discounted credit rate as metrics prepayments

prices strong increased result Continued will severities. total higher defaults and re-equification bond and lower persist, forward. over going dynamics time and these in delinquencies, continue favorable to believe generating We can in prepayments and has resulted returns driving

pockets that is have to portfolio sector of fact non-agency of to deeply the legacy opportunities we the bonds substantial and find holdings. discounted and value add and Despite our a to we unique shrinking, continue

security positioned active returns through the selection over In conclusion, portfolio both have we and that term. drive long to believe we strong hedging our

the in We XXXX about both excited very the latter strategies rate in opportunities our are credit and of half and beyond.

the now Operator call to the back I will for turn Q&A.

Operator

instructions] [Operator

will Doug first We take ahead, from Harter. is go our your question Please open. line

Doug Harter

August volatile. Thanks. Obviously the start been to quite has

of kind about you this changing of with seen magnitude your talk for and is see just positioning prepay could you move. If rate how rate this the declines how outlook we’ve

Tom Siering

are you? Doug. morning, good How Sure,

Doug Harter

I’m well, you. thank

Tom Siering

First, that, the I’ll glitch to morning. we had question turn technical this I’d to your for like apologize Bill. With

Bill Roth

are there. Hey in Doug, couple There questions a thanks joining for us.

I depiction think end were Slide of XX is of a June. the at we relatively where good

slightly We in use talked more I continue one know, duration, around, substantial--you is as in Certainly bias important extensive markets use by portfolio benefited call quarter to of mortgage--the maintain but whip that a become options of second things the long a protecting options. that volatile the very on have effective. and we us is and the of the

stay primary we’ve rate in hard rate think continue we down, on we but a collateral. down, little sense pick-up reasonable depends the it’s a to it on rate If on seen what sticky see primary comes to at, settle prepays, you’ll generic of so it’s pretty the comes of prepays what’s I guess August, far terms in I if In to what and then make going but been close level home. generic

call, reasons easier to because that One off stability the be coupons on I of in the and we’ve there’s lower pools, it’s the there, that volatility discussed is as to we been less of more hedge, specified active, so creates in continue move that portfolio, direction. especially adding in prepay continue active to

Tom Siering

good has Yes, into a done job really that this, Doug, team and August the well. as managing continues

Doug Harter

have see is but where increased today, of likely given that, pools pay-ups relative to the specified On substantially. to Great. do attractiveness increase that you generic obviously continue commentary speed going obviously

Bill Roth

question. Great

value lower positioning we call buy talked representative the We’ve we the trying on think to X.Xs. of, think is of I that is. off where been about pay-up say,

pools we continue premium lower risk performed and seen very We had haven’t pursue of by better higher we off we’ve went up and the pay-ups quite but at sold those yet, so value we bit well lower to the up into as much and coupon, off less off Xs a represent that those. come good convexity think with recycling coupons, with and pay-ups

Doug Harter

Bill thank Great, Tom. and you,

Operator

you. Thank

DeVries. We will Mark now take our from next question

Mark DeVries

thanks. Yes,

congratulate pleasure years. I it’s you quarter, be the for another Let we been the retirement. me you, working first to may but with on Bill, over have know your a

noted in implications more manage in quarter, leverage from quarter you as like remarks, question, up in prepared of half efforts to First both a the the spread was went than it although sounds turn and part earnings any there the think the leverage the Are for should end about, higher at risk. duration the though, average versus of higher we power the terms of quarter? that

Bill Roth

enjoyed for Hey and well. Mark, the as working you thanks appreciate good with I wishes. it

because economic The of in average that is quarter we net X.X, mind from TBAs went for keep and in leverage. of leverage terms think the that including economic leverage to X

we dramatically because we have our to actually spread we as which helps on Slide think think agencies, moves. discussed MSR risk spread talked hedge about mortgage metrics we risk more really the even we more which call, on XX, is I though frankly have so have about risk, MSR, we less

materially leverage the been to levels we’ve said, being do see expect we from change running not that recently. That

Tom Siering

sort headline metric, Mark. Yes, over kind isolation risk is in it leverage number, an important mean hollow Obviously leverage think Really, that that’s of we in terms in but metrics. a isolation of doesn’t all much. of

Mark DeVries

fair you. enough. Thank Okay,

normalizes, the in from of noted on that of of spread. of mitigated of also we that much sorry, core that earnings, might on laddering we��ve you’ve of a levering maturities if much lift dislocation repo, that impact some a at least the LIBOR bit You how drag see the your through How and some or--I’m earnings? is seen of repo

Tom Siering

to question. one. answer great that Mary’s going a That’s

Mary Riskey

Mark. Good morning,

share one maturities. cent the per repo small yes, a we maintaining impact realized to our longer in QX, So due about just

term down the think obviously really I like really come availability the it’s rest the but of costs repo haven’t short and rates, not pricing.

on it We to expect passes. are our normalize eyes as keeping and it time

Mark DeVries

Thank Okay, got it. you.

Operator

open. now line question George. you. is take your Please We’ll Thank Bose next ahead, our go from

Bose George

morning. Hey, good

you I’m the returns, numbers curious you’re incremental compare how the In that, to gave level terms on the in of getting you that us incremental quarter. spreads some were just but

Bill Roth

wasn’t sure-- rephrase Could Bose? I you that,

Bose George

that on the had new Sure, point and quarter spread investments guys to spreads end. XXX the just at you how compares basis

Bill Roth

say Well, things. I’d couple a

as the the return thing, low generally total and sort our clearly in total will about lower this we the--you know, baseline expected digits, being we first that The then call, non-agency can we talked past, be. about the what think realize the talked double the we think return on on of the than we’ve in is

it, about at of our on about are book we it really don’t the assets, NIM, manage keeping we terms know, thinking portfolio obviously We NIM. about value the spreads, in generate where return a but we prepays, If then you purchases really yields total think can the as talked repo lower while stable. some based you the and best of

today it’s that we potentially that. kind talk the than hard spread, total the of non-agencies returns about and double I then better call rather think the we versus strong on digits, - to vis-à-vis discussed spread low on think accounting about returns being historical

Bose George

So then characterize generated ROE the the have you ROE of it this the lower, there. you is low from double digit would similar terms or just it quarter? there’s versus an maybe a returns how you portfolio, bit a just what in little standpoint, a in Is of to that range

Bill Roth

well this this quarter, we and our think as I relatively with last quarter, consistent talked Mary far specifieds, what the in things Well, you I one saw which coupons we’ve did think it’s higher obviously pretty been the probably the about quarter. I so that’s saw. positioned this been mean, what well to has to similar July quarter. continued so They’ve do through of in performance

Tom Siering

very when have instance a Bose, performance. our forward hat for But generated the so you lot our hand, know in we’re in us going us. think in was and firmly opportunities about our our great quarter this are people for we abundant, we’re the fourth of of disappointment quarter, Yes, excited. alpha a We honest the that for we we’re kind

Bose George

Okay, should the funding just more on think the great. structure that or guys that? did, better there because just of as MSR from as Actually term securitization we of Thanks. benefit well is any you that a funding,

Mary Riskey

The We ability definitely the number scalability, it’s additional there’s beneficial, add a to notes in term Bose. term it. and future, benefits non-recourse. of morning the the from Good think is

Bose George

great. the Actually on regulatory Thanks. Okay, just one side.

but is unlikely, just reform take patch gets GSE issue that QM noted is curious how resolved. your what the You on

Bill Roth

that’s a good one. Oh yeah,

we think sort bow, initial an the shot you saw of across was I what if will.

I FHFA, like think--it is would get at a accomplished of to might and lot yet sounds legislation. same time, like they a also there’s aware number the seems Mr. things that like of this it that need Calabria

and think out have but with a but is QM discussion to expire I expiring, to necessarily and have how can a So it dialog the patch should the look what housing footprint. on there modified like by support to continue not something it maybe putting GSEs the idea a as

beginning I going amount decent is probably how think out, this and take I QM--how that is time. how patch of just will to it of the a the of discussion that think and play the

Bose George

Okay, that helps, thanks.

Let Greenberg me retirement, well. their congratulations Matt on Bill, as Bill to on add and my you, your to promotions and

Bill Roth

Bose. Thanks

Operator

Thank you.

from our will We Cranston. take next now Trevor question

Trevor Cranston

maybe assumed you’re updated you’re modeling little better. Bill. by understand add think a going you’re want using we forward. of cost, agency A your in my using amortization. to on or for make the multiplying lifetime on think morning. what method should market, about the as congratulations just guess I the change that to good exactly sure we change would amortized and on I MSR Thanks, retirement, I the MSR a Is there earnings similar the I’ll calculation methodology on that that you using your bit expand was core the new question on the can MBS what like how yield the

Mary Riskey

Hi is Mary. this Trevor,

RMBS used return As portfolio our on purchase include or I portfolio on or in this included the details, so and accurate the to not really more our the of are my discussed at in core the remarks, gain gains is as MSR, and to earnings. this the MSR. amortization amortized for think can you of the the hedging pricing yield, did is we rest loss the about losses adjustment think where with consistent capital modify the core original a an MSR Appendix we but reflection believe more Slide on I XX and the provides of beginning economic period income carry the cost times

Trevor Cranston

the be am think so that wouldn’t or about, I that have Okay, example, to significant hasn’t new not imply where correctly? pricing we does when uptick I about this quarter date for guess--so in yield rates thinking the third dropped original changed, because amortization a methodology significantly, there

Mary Riskey

Yes, that’s correct.

Trevor Cranston

if significantly, volatility the thoughts continue Okay, and question, do would guys Fed programs, think was second continue or great. on for potentially we we’ve lower side, I think Thank the might had you the the macro you. growth if in dropping with move focused Fed reinstitute this curious things the and be quarter market. to seen any market, QE whether expectations see likelihood the to on or rates A the rates on more that the MBS if you likely sheet you balance not likely to be pretty

Tom Siering

Koeppen that Great question. answer one you. for is he’s Matt going to here,

Matt Koeppen

weigh room That’s people the question. in. some Hello. interesting other Maybe want an in to

pressure. definitely--you I market in back and the think a the here, see we a transitioning volatility mortgages be Fed under expect to We to you in in of were where to continuing is rate higher world a would the cutting. definitely We’re environment midst low know, environment

with looking to--like we that. in think about past. we road, but the continuing QE of are in think a That’s how to terms I to again, that probably continuing the really discussing portfolio we earlier, down I ways don’t consistent have is we forward said talking are anybody manage or the

an times, in we low well. we’re the for like spread is holding risk. maintaining of fairly talk that like low low to and environment in This certainly about this be exposures, risk and lots environment we We’re so duration prepare feel

Trevor Cranston

Okay, comments. Thank great. you. the Appreciate

Operator

Thank you.

ahead, your line next our go Please We from is Rick Shane. will take open. now question

Rick Shane

for is you taking giving looks Congratulations. are everybody jealousy. question. thanks my at table those the Bill, that guys, Hey

Bill Roth

Appreciate Rick. you, Thank it.

Tom Siering

one, good a That’s Rick.

Rick Shane

have in the the and quarter moments. I it stands Tom, my guys really you out. quarter, talked you created challenging the that alpha about given

I think lot of we it. understand a

think look these I swaps. side, well, the gains and details, through significant gains realized MSR on on when prepayment agency the protected some are did call obviously there but some protected MBS the or very challenges we are really sense $XX to and help That takes this What realized on makes about us. you the the outperformance and gains what There’s of Just understand alpha us puts that? is million the quarter think when derivatives. other were.

Tom Siering

Thanks to Rick. is Bill for one. question, that Greenberg going take that

Bill Greenberg

Rick. to Yes, talk you. to hi Good

causes being really obviously You One--if mentioned some is the coupons our focus quarter, selection exposed pulled on have, I outperformance to our we higher for and this they’re it’s threefold. that asset one, existence our lastly, one. our and active strategy then and on as spread which risk The another, MSR mortgage to was experience. portfolio of overall hedging reduces our is call, the alluded in

three I lot. contributed those think all of a things really

realized about, I those going market the the gains further that money, those money and from benefit, convexity them roll in reduced and expect are the those than of with you’re gains keeping talking out at there order the I what result rather when to result into expect ones options much we say, into on those realizing will on options money for hedge those would detail that that buy, to we out Typically without exactly think the in of gains from options money. that options we had. too I derivatives risk tail rallies, that. or become

Rick Shane

didn’t to why the the the change much, swaptions the it you Got took it. was seem and swaps on and swaptions notionals Is rolled them? that that

Bill Greenberg

right. that’s Yes,

Rick Shane

thank Great, guys. you

Bill Greenberg

the little So maintain equal then we up and value, you’ve that then their starts some--again, sell the and decrease, go portfolio order the of got in they protection for buy price, swaptions other reset want forget for the and the it rallies, and we will value at at notionals ones, convexity the convexity portfolio while convexity basically in effect, characteristics. oftentimes benefit, those continued protection to will the increases about at market a some rallies, to and rate

Rick Shane

Perfect, you okay. much. Got it, thank very

Operator

you. Thank

take We ahead, from line Matthew Howlett. will now Please our question next Matthew, open. go is your

Matthew Howlett

congrats. a thanks Bill, guys, Hey lot, and

questions. two Just

First on to and you UPB said I a you’re what market, the to, with it again of portfolio third on you out flow to UPB that think the that it start would MSR, just would hear speeds just you would going grow basis up, what bulk more up? arrangements, did take--you is correctly the Is to said where quarter start the get down Bill, an come then would it outlook take or more where of to active? end of the are more prices ultimately pick

Bill Roth

Matt, the things. a couple thank Appreciate so good wishes. Yes, Hey you.

up, have seen that refinancing we First, come not in. is pick flow given volumes started which surprising we seeing higher

the saying, but Just any to you the and of not packages as at bulk of trading of was that out we was quarter, a like we collateral. at. that prices the bought we are didn’t It and available we see be number clear, quarter, did know, second prices any--close and more were was bonds more what function We the first market. not buy liked any the a they in

be down year. to a the volumes the prices bulk volatility there’s up, Obviously in year in half We from volumes of of bit, volumes, lot clearly if participating make do a but we given pick-up to the a an remainder sellers see little to second so us. there that refi we and eventually might are of expect sense anticipate would picking of potential our the the lately, until the market a pause settles a see expect bulk through increase bit

Matthew Howlett

have coming sale that second sell MSRs? margins explains of Got it improved they it, just the in packages lack or quarter? don’t the gain the okay. Was What on out sellers need to prices didn’t like

Bill Roth

and and loans they But did we as have they I they keep maybe see can earlier might didn’t see keep the was originate we One makes that well, tell that what wanted of don’t a to line with the first, yesterday’s people thought, were just and packages well, in so we market that doing, them Well, there price the were should thing certain rallied servicing substantial. whether get because but hold or look traded. if did year at trade who you not, quit effectively, a duration volumes off market’s we hedge they the might wanted wait. don’t say, in lot somebody I’ll price

I of combination think a was it factors.

certain get and bid there’s once call up clarity, volume. transaction know, more you more visibility a you’ll I’ll rates you tighten if offer, a and will, see As the and and point stabilize what lot will to

Matthew Howlett

okay. Got you [indiscernible], one down. know just The I question. Bill, that quick it, took official

decided you why to that on curious Just take down.

Mary Riskey

a off. million term. maintained relationship, what market. the Sure. get We agency much were with can longer that with in still the We had We that position than rates in not repo are a $XX book, the we but better rolling advances advances value

Tom Siering

[Indiscernible] short most is answer. economically, the

Matthew Howlett

July stable, like of have in X.X%. When yields that going swap rates spread were XQ? the are prepays the MSRs was where lower, guys spread, sort better bit we look in on thing, together? financing did that the little Right, spread dynamic XQ, we yet a market and looked you of agency. a about you This be the Then last and this the where realized aside up spread know, taken agency, can just were for - sort could Is on was okay. know the at just on look double XX% said you I they in the--you better sort the it to at Fed expect wholesale of--if the head is putting low down, digit Any second. color there the everything cut

Bill Roth

Sure.

if we which there’s on as we can definitely arguably to obviously That’s you what things going prepays we the look When pools. surveying when a specified what long we the the up, side, best it’s deploying necessarily you kind is the side coupons, are nearly as which of sort say yields question attractive specified accessing of of were returns, to types, is TBA, think as Some attractive. of our or to deliver cheapest so and etc., cheapest deliver, we’re returns, the all is at at certain what jobs the purchase, a what will. be basically drive term what is etc. agency pool of or looking most think all we really as, those we’re we types, in view across cite to and credit result not all collateral not whether capital, the the in the about

Matthew Howlett

what Right, as the comes just all to look got it you asset very selection, it, really at down really portfolio. so it’s literally,

Tom Siering

exactly correct. the name of the That’s game. That’s

Matthew Howlett

on Great. Thanks again, a Well, congrats and really Bill. solid quarter. congrats,

Bill Roth

Thanks Matt.

Tom Siering

Thank you very much.

Operator

Thank you.

there the to for back call no I turn further concluding As comments. are Field will questions, Ms.

Maggie Field

presentation day. for be to us Thank conference webcast Presentations wonderful plan September forward today. you, in you under joining to you Have and the and our We our Services live our Global call and website Barclays with on link. Events then. Financial on participate a XX the Conference will on speaking thank look We

Operator

Thank this your conference gentlemen, call. Ladies concludes and today’s you for participation.

You may disconnect. now

Two Harbors Investment (TWO) 7 Aug 192019 Q2 Earnings call transcript