Residential mortgage REIT Two Harbors Investment Corp.
has announced that it has sold its credit portfolio, retaining its government-guaranteed assets, according to The Motley Fool.
"Margin calls were the most immediate issue facing mortgage REITs, since the typical REIT uses its own assets as collateral for loans. As the value of the collateral falls, the REIT must come up with additional cash in accordance with the repurchase agreement. If the REIT doesn't have the cash, then it must sell assets," the report
The report stated that Two Harbors began the quarter with $3.6 billion in non-government-guaranteed assets. However, that diminished to almost nothing by the end of the quarter. In addition, Two Harbors agency mortgage-backed securities decreased from $27.8 billion to $17.8 billion. The company will also be facing challenges ahead in terms of servicing.
"When a borrower fails to make a payment, the servicer is required to reach into its own pocket and pay the missing payment to the ultimate owner of the mortgage. When defaults are low, this requirement can be handled easily, but if 15% of the mortgage book stops paying, it can ruin a non-bank servicer," the story said. "On the conference call
, Two Harbors mentioned it is in discussions for a credit line to fund these payments, and the company has the liquidity to survive even higher delinquency amounts."
to read more about the moves by Two Harbors Investment Corp.