TWO HARBORS INVESTMENT CORP.
For the period ended Dec 31, 2025. Filed Feb 17, 2026.
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FY2025 · Filed Feb 17, 2026
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
of Two Harbors Investment Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Two Harbors Investment Corp. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Valuation of Mortgage Servicing Rights | |
| Description of the Matter | At December 31, 2025, the Company held $2.4 billion of mortgage servicing rights (MSR) which are reported at fair value. As more fully described in Note 12 to the consolidated financial statements, the Company determines the fair value of its MSR portfolio using a discounted cash flow model, which incorporates both observable and unobservable market data inputs. Significant unobservable inputs include prepayment speeds, option-adjusted spread, and cost to service.Auditing the Company’s valuation of the MSR portfolio was especially challenging because the valuation involved significant judgment with respect to the significant unobservable inputs used in the valuation of this portfolio. Selecting and applying audit procedures to address the estimation uncertainty involves auditor subjectivity and industry-specific knowledge of MSR, including the current market conditions considered by a market participant. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding of the MSR fair value measurement process and evaluated the design and tested the operating effectiveness of internal controls addressing the valuation of the MSR portfolio. This included testing controls covering both (1) management’s governance over the functionality of the discounted cash flow model utilized to estimate fair value and (2) management’s review of the reasonableness of the significant unobservable inputs used in the discounted cash flow model, including prepayment speeds, option-adjusted spread, and cost to service, through comparisons to available market data. Additionally, we tested controls over management’s review of Company-determined fair value relative to fair value ranges that management obtained from third-party pricing vendors in order to evaluate the reasonableness of the fair values developed by the Company. We also tested management’s controls over the completeness and accuracy of the significant inputs used in the valuation process, as well as their evaluation of the competence and objectivity of those third-party pricing vendors. To test the fair value of the Company’s MSR portfolio, our audit procedures included, among others, involving our internal valuation specialists to evaluate the reasonableness of the significant unobservable inputs, identify potential sources of contrary information, and independently develop a fair value range for the MSR based on consideration of available market information, comparing management’s estimates to our range. We also tested the completeness and accuracy of the significant inputs used in the fair value measurement process and evaluated the competence and objectivity of management’s third-party pricing vendors. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 2009.
Minneapolis, Minnesota
February 17, 2026
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