Cherry Hill Mortgage's Q2 2025: Key Contradictions on Servicing Costs, Leverage, and RMBS Strategy

Servicing costs and portfolio composition, leverage and investment strategy, capital allocation between RMBS and MSR, average balance size growth in RMBS portfolio, and leverage strategies are the key contradictions discussed in Cherry Hill Mortgage Investment Corporation's latest 2025Q2 earnings call.



Investment Portfolio Performance:
- Cherry Hill Mortgage Investment Corporation's (CHMI) MSR portfolio had a UPB of $16.6 billion and a market value of approximately $225 million at the end of Q2, with MSR and related net assets representing 43% of equity capital.
- The RMBS portfolio accounted for 36% of equity capital and 77% of investable assets. The MSR portfolio's net CPR averaged approximately 6% for the second quarter, with a low recapture rate.
- Performance was affected by market volatility, increased hedging costs, wider mortgage spreads, and significant swap spread tightening, primarily due to tariff announcements and macroeconomic uncertainties.

Earnings and Financial Performance:
- CHMI reported a GAAP net loss applicable to common stockholders of $0.03 per diluted share for Q2, with book value per common share at $3.34, a decrease from $3.58 at the end of Q1.
- Comprehensive loss attributable to common stockholders was $0.6 million or $0.02 per weighted average diluted share, while earnings available for distribution (EAD) were $3.2 million or $0.10 per share.
- The decrease in EAD was due to the maturity of a large hedge in Q1, while the Board considers market conditions, investment return potential, and hedge gain impacts for common dividend decisions.

Leverage and Liquidity:
- Financial leverage at the end of Q2 remained relatively consistent at 5.3x, with approximately $58 million of unrestricted cash on the balance sheet.
- CHMI raised approximately $9 million of capital through its common ATM program during the quarter. The company plans to maintain prudent leverage and strong liquidity as the economic environment stabilizes.

Strategic Partnerships:
- CHMI entered into a strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company, developing a direct-to-consumer platform for a fully online mortgage experience.
- The partnership is expected to contribute to profitability within the first 6 to 7 months, with CHMI receiving dividends from the investment within the first year.