TWO Harbors Investment (TWO) risk factors, FY2025 10-K

Risks Related to Our Business and Operations

1. 01Difficult conditions in the residential mortgage and real estate markets, the financial markets and the economy generally may adversely impact our business, results of operations and financial condition
2. 02Our business model depends in part upon the continuing viability of Fannie Mae and Freddie Mac, or similar institutions, and any changes to their structure or creditworthiness could have an adverse impact on us
3. 03We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations
4. 04Federal and state regulation of the mortgage industry is complex and constantly evolving, and changes to applicable rules, regulations and guidance may adversely impact our business
5. 05We operate in a highly competitive market and we may not be able to compete successfully
6. 06Our business could suffer if we fail to attract and retain a skilled management team and workforce
7. 07We may change any of our strategies, policies or procedures without stockholder consent
8. 08Our risk management policies and procedures may not be effective
9. 09Maintaining our exemptions from registration as an investment company under the 1940 Act imposes limits on our operations
10. 10Loss of our 1940 Act exemptions would adversely affect us, the market price of shares of our common stock and our ability to distribute dividends, and could result in the termination of certain of our financing or other agreements
11. 11The lack of liquidity of our assets may adversely affect our business, including our ability to value, finance and sell our assets
12. 12We may not be able to grow or realize the benefits of our direct-to-consumer loan origination platform, which could adversely impact our business, results of operations and financial condition
13. 13We use leverage in executing our business strategy, which may adversely affect the return on our assets and may reduce cash available for distribution to our stockholders, as well as increase losses when economic conditions are unfavorable
14. 14We depend on repurchase agreements and other credit facilities to execute our business plan and any limitation on our ability to access funding through these sources could have a material adverse effect on our business, results of operations and financial condition
15. 15If our warehouse lines of credit are terminated or reduced, we may be unable to find replacement financing on favorable terms, or at all, which could adversely affect our business, results of operations and financial condition
16. 16Our inability to meet certain financial covenants related to our repurchase agreements, revolving credit facilities or other credit facilities could adversely affect our financial condition, results of operations and cash flows
17. 17If a counterparty to a repurchase agreement defaults on its obligation to resell the underlying security back to us at the end of the repurchase agreement term, or if we default on our obligations under the repurchase agreement, we may incur losses
18. 18Our rights under our repurchase agreements are subject to the effects of bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders under the repurchase agreements
19. 19The impairment or negative performance of other financial institutions could adversely affect us
20. 20An increase in our borrowing costs relative to the interest that we receive on our leveraged assets may adversely affect our profitability
21. 21We are highly dependent on information technology, and system failures or security breaches could disrupt our business
22. 22We enter into hedging transactions that expose us to contingent liabilities in the future, which may adversely affect our financial results or cash available for distribution to stockholders
23. 23Our financial results may experience greater fluctuations due to our decision not to elect hedge accounting treatment on our derivative instruments
24. 24We are subject to risks associated with the use of third-party service providers
25. 25Our ability to own and manage MSR and service mortgage loans is subject to terms and conditions established by the GSEs, which are subject to change
26. 26If our ability to sell loans in the secondary market is impaired, it could affect our volume and margins and we may not be able to continue to originate mortgage loans
27. 27We are directly subject to risks associated with mortgage servicing, including risks related to previous mortgage loan servicers
28. 28Our servicing and origination activities expose us to risk of litigation, which may materially and adversely affect our business and financial condition
29. 29We depend on the accuracy and completeness of information about mortgage loan borrowers and any misrepresented information could adversely affect our business, results of operations and financial condition
30. 30We may be subject to representation and warranty risk in our capacity as an owner of MSR as well as in connection with our prior securitization transactions and our sales of MSR and other assets

Risks Related to Our Assets

1. 31Declines in the market values of our assets may adversely affect our results of operations and financial condition
2. 32Changes in mortgage prepayment rates may adversely affect the value of our assets
3. 33Our delayed delivery transactions, including TBAs, subject us to certain risks, including price risks and counterparty risks
4. 34It may be uneconomical to roll our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts, which could negatively affect our financial condition and results of operations
5. 35Increases in interest rates could adversely affect the value of our assets and cause our interest expense to increase
6. 36An increase in interest rates may cause a decrease in the availability of certain of our target assets, which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends
7. 37The value of our Agency RMBS and MSR may be adversely affected by deficiencies in servicing and foreclosure practices, as well as related delays in the foreclosure process
8. 38We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable

Risks Related to Our Organization and Structure

1. 39Certain provisions of Maryland law could inhibit changes in control
2. 40Our authorized but unissued shares of common and preferred stock and the ownership limitations contained in our charter may prevent a change in control
3. 41Our charter contains provisions that make removal of our directors difficult, which could make it difficult for stockholders to effect changes in management
4. 42Our rights and stockholders’ rights to take action against directors and officers are limited, which could limit recourse in the event of actions not in the best interests of stockholders
5. 43Our amended and restated bylaws designate certain Maryland courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders

Risks Related to Our Securities

1. 44Future issuances and sales of shares of our common stock may depress the market price of our common stock or have adverse consequences for our stockholders
2. 45Any future offerings of our securities could dilute our existing stockholders and may rank senior for purposes of dividend and liquidating distributions46% rewritten
3. 46We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future
4. 47The market price of our common stock could fluctuate and could cause you to lose a significant part of your investment

Tax Risks

1. 48Our failure to qualify as a REIT would subject us to U.S. federal income tax and potentially increased state and local taxes, which would reduce the amount of our income available for distribution to our stockholders
2. 49Complying with REIT requirements may cause us to forego otherwise attractive investment opportunities or financing or hedging strategies
3. 50Complying with REIT requirements may force us to liquidate otherwise profitable assets
4. 51Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax exempt investors
5. 52Complying with REIT requirements may limit our ability to hedge effectively
6. 53The failure of our Agency RMBS that are subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT
7. 54REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt, sell assets or take other actions to make such distributions
8. 55Our qualification as a REIT may depend on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets we acquire, including with respect to the treatment of our TBA securities and transactions for tax purposes
9. 56Our ownership of, and relationship with, our TRSs will be restricted and a failure to comply with the restrictions would jeopardize our REIT status and may result in the application of a 100% excise tax
10. 57Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our shares

Risks Related to the Proposed Merger

1. 58The exchange ratio for the Merger consideration is fixed. Because the market price of UWM Common Stock may fluctuate, our common stockholders cannot be sure of the market value of the stock consideration they will receive in exchange for their Company common stock in connection with the MergerNew
2. 59The Merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the Merger or adversely impact UWM’s and our ability to complete the transactionNew
3. 60Failure to consummate the Merger as currently contemplated or at all could adversely affect the price of our common stock and our future business and financial resultsNew
4. 61The Merger Agreement contains provisions that could discourage a potential competing acquirer or could result in any competing acquisition proposal being at a lower price than it might otherwise beNew
5. 62The pendency of the Merger could adversely affect our business and operationsNew
6. 63Our common stockholders will have a significantly reduced ownership and voting interest after the Merger and will exercise less influence over the policies of UWM following the transaction than they now have on our policiesNew
7. 64An adverse judgment in any litigation challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframeNew