Mortgage Bundles Boosts Two Harbors

09/22/2016 7:00 am EST


David Fried

Editor, The Buyback Letter

The latest addition to our Premium Buyback model portfolio a real estate investment trust that invests in residential mortgage-backed securities and other financial assets, explains David Fried, editor of The Buyback Letter.

Two Harbors Investment (TWO) qualifies as a REIT for federal income tax purposes. As a REIT, the company would not be subject to federal income tax, if it distributes at least 90% of net taxable income to its stockholders.

Two Harbors is headquartered in New York, and is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P.

The objective is to provide “attractive risk-adjusted returns to our stockholders over the long term, primarily through dividends and secondarily through capital appreciation.

Two Harbors focuses on various sectors within the mortgage market including agency and non-agency RMBS; prime nonconforming residential mortgage loans and mortgage servicing rights (MSR); commercial real estate; and other financial assets.

TWO was in the news recently for closing a unit that bundles home loans into bonds to sell to investors.

These are high-quality mortgages that are too big to be guaranteed by the government -- known as jumbo loans -- that were packaged into bonds.

The company has a long-term expected EPS growth rate of 4.8%. Q2 results included a reported book value of $9.83 per common share, representing a 3.7% total return on book value after accounting for a dividend of $0.23 per share.

The firm delivered a return on average equity of 14.3%, reported core earnings of $76.2 million, or $0.22 per weighted average common share. TWO has also reduced shares outstanding by 5.186% in the past 12 months.

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