Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (November 2015)
22 slides from Two Harbors Investment's investor presentation, Nov 4, 2015
Slide 1: Mortgage Loan Conduit & Securitization
N ove mb er 4 , 2 015 Mortgage Loan Conduit & Securitization
Slide 2: Safe Harbor: Forward-Looking Statements
Safe Harbor F O R W A R D - L O O K I N G S T A T E M EN T S 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 proj
Slide 3: Two Harbors Overview
Two Harbors Overview
Slide 4: Mission-Based Strategy
Mission-Based Strategy O U R M I S S I O N I S TO BE R E C O G N I Z E D A S T H E I N D U STRY - LE ADING M O RTG AG E R E I T: • Largest hybrid mortgage REIT investing in mortgage assets • Market capitalization of approximately $3.2 billion(1) • Provider of permanent capital to the U.S. mortgage m
Slide 5: Opportunity Set
Opportunity Set 5 FLEXIB IL IT Y TO TAKE ADVANTAGE OF OPPORTUNITIES ACROSS THE MARKET RATES STRATEGY Agency RMBS Mortgage Servicing Rights CREDIT STRATEGY Non-Agency RMBS Mortgage Loan Conduit COMMERCIAL Commercial Real Estate Assets
Slide 6: Webinar Objectives
Webinar Objectives
Slide 7: Webinar Objectives
7 Webinar Objectives SECURIT IZATION OVERVIEW • Mortgage-Backed Securities (MBS) • Creation of non-Agency Residential MBS • Senior/Subordinated Bond Structure • Credit Risk • Other Risk Considerations • The Role of Credit Enhancement • The Ingredients of a Transaction Rating • Benefits of Securitiza
Slide 8: Securitization Overview
Securitization Overview
Slide 9: Mortgage-Backed Securities
9 A MORTGAGE -BACKED SECURIT Y IS A BOND BACKED BY A POOL OF MORTGAG E LOANS • The principal and interest payments from borrowers on the underlying mortgages are passed through to bond holders • U.S. residential mortgage loans cover a wide spectrum of products, both with fixed or floating interest r
Slide 10: Creation of Non-Agency RMBS
10 Creation of Non-Agency RMBS PRIMARY MARKET Mortgage lending Loans (Unrated) SECONDARY MARKET Sale and securitization of mortgage loans Borrower fills out mortgage application Mortgage Originated by Lender (Mortgage Originator) RMBS bought by Investors Loans Deposited into Trust; RMBS Issued Loans
Slide 11: Senior/Subordinated Bond Structure
11 SUBORDINATED CLASSES PROVIDE CREDIT ENHANCEMENT TO SENIOR AAA CLASSES • Each subordinated class provides credit support to all the classes senior to it • Cash flows dispersed according to waterfall sequence (no extra money left at the end of the waterfall): 1) Trust Expenses 2) Interest to the Se
Slide 12: Credit Risk
12 CREDIT RISK IS THE POTENTIAL FOR PRINCIPAL LOSSES DUE TO DEFAULTS ON THE UNDERLY ING MORTGAGES • Defaults result from the borrower missing several scheduled monthly payments • Servicer may ultimately liquidate the loan to attempt to recover the principal and interest due ― Liquidation may be carr
Slide 13: Other Risk Considerations and Drivers
13 PREPAYMENTS: Actual yield on investment can differ from anticipated yield due to higher/lower prepayment rates • Housing turnover • Rate/term refinance (falling interest rates) • Cash-out refinance (increasing equity) • Partial prepayments (curtailments) LIQUIDIT Y : Ability or ease with which as
Slide 14: The Role of Credit Enhancement
14 CREDIT ENHANCEMENT DETERMINED BY RATING AGENCIES BASED ON EXPECT ED PORTFOLIO PERFORMANCE UNDER A WORST-CASE SCENARIO • Objective of credit enhancement is to protect investor principal against credit losses • A portfolio of mortgages cannot be AAA rated on a stand-alone basis – Credit needs to be
Slide 15: The Ingredients of a Transaction Rating
15 ELEMENTS EXAMINED BY RATING AGENCIES • Legal Structure • Collateral Review – Historical losses, projected prepayments, delinquencies and recoveries (i.e. historical experience with this type of collateral) – Geographic concentration – LTV, debt-to-income (DTI), FICO score – Estimates of frequency
Slide 16: Benefits of Securitization
16 A HEALTHY SECURITIZATION MARKET PROVIDES CAPITAL TO BORROWERS AN D L IQUIDIT Y TO THE HOUSING MARKET Benefits of Securitization CONSUMERS ISSUERS INVESTORS • Lowers cost of credit • Increases credit availability • Expands the variety of credit available to meet consumer needs • Encourages competi
Slide 17: Securitization at Two Harbors
Securitization at Two Harbors
Slide 18: Two Harbors' Conduit
Two Harbors’ Conduit 18 EFFIC IENT AND SCALABLE PROGRAM ALLOWS QUICK RESPONSE TO BROAD ARRAY OF OPPORTUNITIES • Transaction management team oversees: ― Due diligence ― Contract management ― Seller-servicer onboarding and implementation ― Core technology infrastructure and oversight groups provide ac
Slide 19: Illustrative Securitization Economics
Illustrative Securitization Economics 19 Note: The above scenario is intended to be illustrative. The numbers used in the scenarios are not projections of Two Harbors’ results. The above scenarios are provided for illustration purposes only and may not represent all assumptions used. Actual results
Slide 20: Evolution of Conduit at Two Harbors
$22 $222 $694 $438 $579 $646 $680 $642 $356 $575 $493 $606 $3,105 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $0 $500 $1,000 $1,500 Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Q2-2015 Q3-2015 Securitized 2013 - Q3-2015 Settled Securitized • Completed eleven Agate Bay Mortgage Trust securitizations
Slide 21: Closing Remarks
Closing Remarks 21 CONTACT INFORMATION Investor Relations 612-629-2500 investors@twoharborsinvestment.com
Slide 22: Two Harbors Investment Corp.
TWO HARBORS Investment Corp.
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