Cherry Hill Mortgage Investment NYSE: CHMI reported a first-quarter loss as management said geopolitical volatility, higher inflation expectations and wider mortgage spreads weighed on performance late in the period.
President and CEO Jay Lown said markets began the quarter with relative stability similar to the second half of 2025, but conditions changed quickly after the outbreak of war with Iran. He said oil and gas prices spiked, inflation expectations rose and expectations for future rate cuts this year diminished. Mortgage spreads widened and the yield curve flattened as volatility increased.
“Specific to Cherry Hill, as the geopolitical uncertainty unfolded, we acted quickly and we believe appropriately to protect the company by focusing on the risks that were within our control,” Lown said. He added that the company managed its interest rate exposure in March in a way that management believes helped mitigate the impact to book value.
First-quarter results
The mortgage REIT reported a GAAP net loss applicable to common stockholders of $2 million, or $0.05 per diluted share, for the first quarter. Comprehensive loss attributable to common stockholders, including mark-to-market changes on available-for-sale RMBS, was $4.4 million, or $0.12 per diluted share.
Earnings available for distribution, or EAD, attributable to common stockholders totaled $5.3 million, or $0.14 per share.
Book value per common share was $3.23 as of March 31, 2026, down from $3.44 at Dec. 31, 2025, a decline of 6.1%. Lown said the company’s economic return for the quarter was negative 3.2%. On an NAV basis, including preferred stock, NAV declined $7.9 million, or 3.3%, from year-end.
Cherry Hill ended the quarter with financial leverage of 5.5x, which Lown described as “prudently levered,” and $47 million in unrestricted cash. The company also said its strategic partnership and investment with Real Genius, a Florida-based digital mortgage technology company, continued to progress in line with expectations.
Portfolio affected by spread and rate volatility
Chief Investment Officer Julian Evans said first-quarter portfolio performance was driven by GSE policy signaling, mortgage spread volatility and changing central bank rate expectations, with geopolitical risk amplifying those factors late in the quarter. He said January performance was strong due to temporary mortgage spread tightening, but February and March reversed those gains as spreads widened, interest rates rose and the yield curve flattened.
Evans said tighter SOFR spreads also had a negative impact, as weaker investor sentiment and rising volatility pushed those spreads tighter throughout the quarter. The company largely maintained its portfolio positioning, but made adjustments in March to protect book value as the spread and rate environment changed.
The company said its mortgage servicing rights, or MSR, portfolio helped offset some pressure. At quarter-end, the MSR portfolio had unpaid principal balance of $15.6 billion and a market value of about $213 million. MSR and related net assets represented about 41% of equity capital and 21% of investable assets excluding cash.
The RMBS portfolio represented about 42% of equity capital and about 79% of investable assets excluding cash. The RMBS portfolio, including TBAs, stood at approximately $807 million at March 31, in line with the prior quarter-end.
- MSR net CPR averaged about 4.5% in the first quarter, down modestly from the prior quarter.
- RMBS prepayment speeds declined to 8% CPR for the three-month period ended March, compared with 8.5% in the prior quarter.
- RMBS net interest spread was 2.9%, higher than the prior quarter.
- RMBS financing rates declined to 3.78% from 3.99% at quarter-end.
Evans said the improvement in net interest margin was mainly due to lower interest expense tied to repo costs, as well as improved dollar roll income.
Management expects volatility to persist
Lown said markets had responded favorably after quarter-end to a potential end to the conflict, which has been positive for agency-focused REITs. However, he said Cherry Hill expects the market to remain volatile in the near term until there is stability in the Middle East.
Evans said mortgage rates averaged 6.1% during the three-month period, below the prior three-month average, and homeowners moved to take advantage of lower rates before the refinancing opportunity “quickly vanished” at the start of the Iran war. He said mortgage rates ended the quarter near 6.4%.
At that level, Evans said mortgage supply should be reduced, which could improve mortgage technicals, and consistent demand from GSEs should support mortgage spreads. However, he said geopolitical volatility remains an offsetting factor.
Evans said the mortgage universe was approximately 14% refinanceable at current rate levels. Before the war began, management had been monitoring a 5.5% mortgage rate, at which the refinanceable universe would have averaged about 30%.
Capital allocation and outlook
During the question-and-answer session, B. Riley Securities analyst Timothy D’Agostino asked how the company would fund potential additional investment opportunities. Lown said any new investment would come “at the expense of a different asset class,” given capital constraints, and would be evaluated based on risk-adjusted returns and potential impact on shareholder returns.
Asked about potential returns if markets stabilize, Evans said mortgages were attractive from a spread and yield perspective. He estimated a simple levered return for RMBS in the mid-teens to high-teens range, and MSR returns of roughly 10% to 12% on a levered basis. He said rate stabilization or spread tightening could benefit the portfolio.
In response to a question from Citizens JMP analyst Trevor Cranston, Evans said mortgage spreads versus seven-year swaps ended the quarter around 165 basis points and had retraced to about 150 basis points at the time of the call. He said spreads could potentially move toward 130 on the tighter side or revisit 180 in a widening scenario, depending on volatility and the geopolitical backdrop.
Apeksha Patel, the company’s chief financial officer, said book value per share had increased nearly 2% as of April 30 from March 31, excluding any second-quarter dividend accrual because the board had not yet approved one. She also noted that spreads had softened after mid-April.
Cherry Hill’s board declared a first-quarter common dividend of $0.10 per share, paid in cash on April 30, 2026. The company also declared dividends on its Series A and Series B preferred stock, which were paid on April 15.
About Cherry Hill Mortgage Investment NYSE: CHMI
Cherry Hill Mortgage Investment Corporation is a real estate investment trust that focuses on acquiring, financing and managing residential mortgage loans and mortgage-related securities. The company's portfolio consists primarily of agency and non-agency residential mortgage loans secured by single-family residences, together with mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
CHMI employs active portfolio management strategies intended to generate current income and total return for its shareholders.
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