Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Investor Presentation (September 2012)
21 slides from Two Harbors Investment's investor presentation, Sep 12, 2012
Slide 1: Webinar Series September 2012 Part One: Primer on Agency Prepayments
Two Harbors Investment Corp. Webinar Series September 2012 Part One: Primer on Agency Prepayments
Slide 2: Welcoming Remarks
2 Welcoming Remarks William Roth Co-Chief Investment Officer July Hugen Director of Investor Relations
Slide 3: Safe Harbor Statement
3 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
4 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 ― U
Slide 5: Mortgage Amortization Example
$0 $20,000 $40,000 $60,000 $80,000 $100,000 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 Principal ($) Interest ($) Outstanding Principal Balance ($) Mortgage Amortization Example 5 Mortgage Terms -Amount: $100,000 -Years: 30 -Mortgage Rate: 4.0% Fix
Slide 6: Prepayment Example
Prepayment Example 6 Fannie Mae $100 Million Pool with 4% Coupon ($ Million) Year One Beginning Outstanding Principal Balance $ 100.0 Scheduled Interest Payments $ 4.0 Scheduled Principal Payments $ 1.7 Total Scheduled Principal and Interest Payments $ 5.7 Outstanding Principal Balance After Schedul
Slide 7: Impact of Prepayments on Cash Flows
Impact of Prepayments on Cash Flows 7 Fannie Mae $100 Million Pool with 4% Coupon ($ Million) 6% CPR 15% CPR 30% CPR Total Interest Payments Over the Life of the Bond $ 40.2 $ 21.4 $ 10.8 Total Principal Payments Over the Life of the Bond $ 100.0 $ 100.0 $ 100.0 Total Principal and Interest Payments
Slide 8: Primary Sources of Prepayments
8 Primary Sources of Prepayments ▪ Curtailments ▪ Delinquencies and defaults ▪ Housing turnover ▪ Refinancing
Slide 9: Curtailments
9 Curtailments ▪ Payment made by the borrower in an amount that is greater than the scheduled payment and less than the outstanding principal balance ▪ Incremental amount over the scheduled payment reduces the outstanding balance and subsequently shortens the life of the loan Example: $100,000, 30-y
Slide 10: Delinquencies and Defaults
10 Delinquencies and Defaults Source: Bloomberg Finance LP. (1) Freddie Mac delinquency data based on loans that are three or more monthly payments past due or loans in the process of foreclosure. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-
Slide 11: Determinants of Housing Turnover
11 Determinants of Housing Turnover ▪ Life events ― Marriage, children, divorce, retirement and death ▪ Homeowner’s general desire to upgrade to a better home ▪ Economic conditions ― Labor market, home price appreciation and housing inventory ▪ Seasonality ― Peaks in months between May through Augus
Slide 12: Refinancing Overview
12 Refinancing Overview ▪ Securing a lower mortgage rate ▪ Changing the terms of the mortgage ▪ Cashing out to access the equity in a home ▪ Credit curing
Slide 13: Relationship Between Mortgage Rates and CPR
Relationship Between Mortgage Rates and CPR 13 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 F re d d ie Ma c 3 0 -Y ea r C o mmitmen t R ates ( % ) C P R ( % ) CPR (%) Freddie Mac 30-Year Commitment R
Slide 14: Impact of Rate Movements on Agency Securities
14 Impact of Rate Movements on Agency Securities Fannie Mae $100 Million Pool with 4% Coupon Interest Rate Scenario Borrower Response Impact to CPR CPR Assumption Weighted Average Life Impact to Weighted Average Life Risk to RMBS Investor Impact to Bond Price on a Relative Basis Unchanged No Action
Slide 15: Refinancing S-Curve
Refinancing S-Curve2 Borrower Refinancing Incentive 15 Refinancing Incentive and Pool Seasoning Scenario: 50 Basis Points Decrease For $200,000 Mortgage Loan Monthly Mortgage Payment @ 5.0% $ 1,074 Monthly Mortgage Payment @ 4.5% $ 1,013 Monthly Savings $ 61 Refinancing Costs1 $ 3,724 Monthly Saving
Slide 16: Role of Loan Balances
16 Role of Loan Balances Scenario: 50 Basis Points Decrease $50,000 Mortgage Loan $200,000 Mortgage Loan $500,000 Mortgage Loan Monthly Mortgage Payment @ 5.0% $ 268 $ 1,074 $ 2,684 Monthly Mortgage Payment @ 4.5% $ 253 $ 1,013 $ 2,533 Monthly Savings $ 15 $ 61 $ 151 Refinancing Costs1 $ 2,252 $ 3,7
Slide 17: Agency Seasoned Bond Example
17 Agency Seasoned Bond Example Historic CPR2 Security and Collateral Summary1 Weighted Average Life 8% CPR 11% CPR 14% CPR 6% CPR 15% CPR 30% CPR Fannie Mae Seasoned 7% Pool 7.1 yrs 6.0 yrs 5.1 yrs Fannie Generic 4% Pool 10.1 yrs 5.3 yrs 2.7 yrs ▪ Fannie Mae 7.0% coupon ▪ Gross Weighted Average Bor
Slide 18: Loan Origination Characteristics
18 Loan Origination Characteristics Mortgage Prepayment Ratio by State Characteristics ▪ Product type ▪ Origination year and month ▪ Credit quality ▪ Mortgage servicer ▪ Geography Mortgage Prepayments by State1 Fannie Mae 30-Year 4% 1-month State to Cohort Ratio 2011 2010 2009 3-year Average Califor
Slide 19: Two Harbors' Agency Strategy and Portfolio
Prepayment Protected Securities7 Two Harbors’ CPR vs. Cohorts8 19 Two Harbors’ Agency Strategy and Portfolio 92% 94% 96% 97% 97% 97% 0% 20% 40% 60% 80% 100% Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Prepayment Protected Securities (%) Agency Portfolio Composition As of June 30, 2012 $9.0B Agen
Slide 20: Summary
20 Summary Managing prepayment risk is essential to the Agency RMBS investor ▪ Prepayments impact the cash flows and the expected average life of our investments ▪ The RMBS investor is exposed to extension risk in a rising rate environment and reinvestment risk in a declining interest rate environme
Slide 21: For further information, please contact
21 For further information, please contact: Contact Information Anh Huynh Investor Relations Two Harbors Investment Corp. 212.364.3221 Anh.Huynh@twoharborsinvestment.com July Hugen Investor Relations Two Harbors Investment Corp. 612.629.2514 July.Hugen@twoharborsinvestment.com
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