Two Harbors Investment Corp. Expects $198.9 Million Contingency Liability for Federal Complaint

Two Harbors Investment Corp., a real estate investment trust (REIT), expects a $198.9 million contingency liability for a federal complaint. The REIT invests in mortgage servicing rights, residential mortgage-backed securities, and other financial assets. It operates through RoundPoint Mortgage Servicing LLC and holds approvals from Fannie Mae and Freddie Mac to own and manage mortgage servicing rights.

Two Harbors Investment Corp. (NYSE: TWO), a real estate investment trust (REIT), has disclosed an anticipated $198.9 million contingency liability for a federal complaint. The REIT, which invests in mortgage servicing rights, residential mortgage-backed securities, and other financial assets, operates through RoundPoint Mortgage Servicing LLC and holds approvals from Fannie Mae and Freddie Mac to own and manage mortgage servicing rights.

The liability arises from legal proceedings involving the company's former external manager, PRCM Advisors. According to a filing on Thursday, the contingency liability includes a $139.8 million termination fee that Two Harbors believes would have been payable to PRCM Advisors for the termination on the basis of unfair compensation under its management agreement. Additionally, the liability accounts for applicable prejudgment interest on the termination fee that would have accrued through May 31, 2025. The defense or ultimate resolution of the matters could involve significant monetary costs and could have a significant impact on the company [1].

On March 31, 2025, a magistrate judge recommended that Two Harbors' motion for summary judgment be denied and that the plaintiffs' motion for summary judgment be granted in part. Two Harbors objected to the report and recommendation, but the objections were overruled on May 23, 2025. The plaintiffs' motion for summary judgment was granted to the extent that the company did not have a basis on which to base the management agreement for cause. The rest of the plaintiffs' motion was denied [1].

This development comes as investors closely monitor the company's financial performance and legal exposure. Two Harbors has been facing challenges related to its management agreement and the potential termination costs associated with it. The company's ability to manage these legal expenses will be crucial for its ongoing operations and future growth prospects.

References:
[1] https://seekingalpha.com/news/4453678-two-harbors-expects-to-record-199m-contingency-liability