Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (June 2012)
20 slides from Two Harbors Investment's investor presentation, Jun 22, 2012
Slide 1: Investing in Sub-Prime
Two Harbors Investment Corp. Webinar Series June 2012 Investing in Sub-Prime
Slide 2: Two Harbors' Webinar: Investing in Sub-Prime
1 Two Harbors’ Webinar: Investing in Sub-Prime William Roth Co-Chief Investment Officer Christine Battist Managing Director, Investor Relations
Slide 3: Safe Harbor Statement
2 Safe Harbor Statement Forward-Looking Statements This presentation includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections an
Slide 4: Two Harbors' Company Overview
3 Two Harbors’ Company Overview Our mission is to be recognized as the industry-leading hybrid mortgage REIT. We’ll accomplish this goal by achieving excellence in four areas: ▪ Superior portfolio construction and fluid capital allocation through rigorous security selection and credit analysis ▪ Unp
Slide 5: U.S. Financial and Mortgage Markets
4 U.S. Financial and Mortgage Markets $ Billions Non-Agency RMBS $1,056 Agency RMBS $5,357 Unsecuritized 1st Liens Loans $3,007 Unsecuritized 2nd Liens Loans $873 Non-Agency residential mortgage-backed securities represents an extremely large asset class. Unsecuritized Product $3.9T Securitized prod
Slide 6: Non-Agency Origination
Non-Agency Origination 5 Non-Agency origination reached its peak $1.1 trillion in 2006. $0.1 $0.1 $0.1 $0.2 $0.3 $0.5 $0.7 $1.0 $1.1 $0.6 – $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Non-Agency Origination $ Trillion Source: Loan Performance.
Slide 7: Non-Agency Market Overview
6 Non-Agency Market Overview Prime $232 Alt-A $349 Sub-Prime $335 Option ARM $140 Non-Agency Market Non-Agency Loan Attributes $ Billions Non-Agency Collateral Current Balance Outstanding ($B) Average Loan Size ($K) Average FICO Score % Full Doc Prime $ 232 $ 514 735 49% Alt-A $ 349 $ 269 711 28% Op
Slide 8: Market Yields and Sub-Prime Performance
7 Market Yields and Sub-Prime Performance Sub-Prime 60+ Day Delinquencies Sub-Prime 12-Month Perfect Pay Rates Security Average Trailing Twelve Months Yield % Prime 5% Alt-A 7% Option ARM 8% Sub-Prime 10% High Yield1 7% Investment Grade1 2% 5-Year Treasuries 1% Non-Agency 60+ Day Delinquencies 42% 2
Slide 9: Two Harbors' Portfolio Composition
Two Harbors’ Portfolio Composition 8 Agency Portfolio1 $7.5B Non-Agency Portfolio $1.9B Sub-Prime 84% Option-ARM 11% Prime 1% Alt-A 4% Annualized Yields by Portfolio2 3.9% 4.7% 4.3% 3.5% 3.5% 9.7% 8.8% 9.8% 9.7% 9.7% 5.2% 5.4% 5.5% 4.8% 4.9% – 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q1-2011 Q2-2011 Q3-2011
Slide 10: Sub-Prime HEAT 2006-3 Capital Structure
Discount Sub-Prime Senior Bond - HEAT 2006-3 2A4 HEAT 2006-3 Capital Structure 9 Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advisers LLC,
Slide 11: Sub-Prime Underlying Loan and Borrower Characteristics
Discount Sub-Prime Senior Bond - HEAT 2006-3 2A4 Underlying Loan and Borrower Characteristics 10 Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRC
Slide 12: Sub-Prime Delinquencies and Potential Defaults
Discount Sub-Prime Senior Bond - HEAT 2006-3 2A4 Delinquencies and Potential Defaults 11 Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advise
Slide 13: Bond Recovery Example
12 Bond Recovery Example Initial House Value Amount House Value $ 200,000 Down Payment (10% of initial home value) (20,000) Initial Mortgage Amount $ 180,000 Today’s Value Recovery without Distressed Sale Recovery with Distressed Sale House Value (35% market depreciation) $ 130,000 $ 130,000 Distres
Slide 14: Sub-Prime Loss Severities
Discount Sub-Prime Senior Bond - HEAT 2006-3 2A4 Loss Severities 13 Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advisers LLC, and are provi
Slide 15: Subprime Yield Analysis: Base Case
Discount Subprime Senior Bond - HEAT 2006-3 2A4 Yield Analysis: Base Case Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advisers LLC, and are
Slide 16: Subprime Yield Analysis: Severe Stress Case
Discount Subprime Senior Bond - HEAT 2006-3 2A4 Yield Analysis: Severe Stress Case Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advisers LLC
Slide 17: Subprime Yield Analysis: Upside Case
Discount Subprime Senior Bond - HEAT 2006-3 2A4 Yield Analysis: Upside Case Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advisers LLC, and a
Slide 18: Subprime Yield Analysis Summary
Discount Subprime Senior Bond - HEAT 2006-3 2A4 Yield Analysis Summary Represents actual bond held in Two Harbors’ portfolio as of the date of this presentation. Collateral summary and yield analysis scenarios represent the views of Two Harbors and its external manager, PRCM Advisers LLC, and are pr
Slide 19: Summary
18 Summary Sub-prime sector currently presents attractive opportunities on a loss-adjusted basis. ▪ The sub-prime sector functions like a distressed market. We believe the mispricing of credit risk presents an opportunity for investors with strong expertise in credit analysis. ▪ Subordination and ex
Slide 20: For further information, please contact
19 For further information, please contact: Christine Battist Investor Relations Two Harbors Investment Corp. 612.629.2507 Christine.Battist@twoharborsinvestment.com Contact Information Anh Huynh Investor Relations Two Harbors Investment Corp. 212.364.3221 Anh.Huynh@twoharborsinvestment.com
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