What Chimera Investment (CIM) Said on Its Q3 Earnings Call

Key Points

• Chimera reported a $193.6 million GAAP net loss for Q3 2026, with earnings available for distribution of $0.38 per share and book value down 16.5% to $14.82 per share. Higher interest rates and wider mortgage spreads drove largely unrealized valuation losses.
• Chimera ended the quarter with $561 million in cash and unencumbered assets, while leverage increased to 6.5-to-1. Management said book value was up 5% quarter to date as rates and spreads tightened.
• HomeXpress’ margins came under pressure despite funding a record $1.12 billion in loans; management expects roughly flat profitability in Q4 and a return to profitability in Q1 2027. Chimera also completed its first Prism non-qualified mortgage securitization and plans to issue regularly if market conditions allow.

Chimera Investment NYSE: CIM reported a third-quarter net loss and a 16.5% decline in book value as rising interest rates and wider mortgage spreads weighed on asset valuations and squeezed margins at its mortgage origination business.

The company posted a GAAP net loss of $193.6 million for the third quarter of 2026, while earnings available for distribution, or EAD, totaled approximately $32 million, or $0.38 per share. GAAP book value fell to $14.82 per share.

President and CEO Phil Kardis said the speed of the rate increase was particularly difficult for HomeXpress Mortgage, which had loans locked at earlier rates that became less valuable as market yields rose. The business remained slightly profitable and funded a record $1.12 billion in loans during the quarter.

Looking ahead, Kardis said HomeXpress was locking and originating profitable loans, but he expects its profitability to be roughly flat in the fourth quarter as it continues to dispose of loans from its third-quarter pipeline. He expects the business to return to profitability in the first quarter of 2027.

Portfolio Valuations and Liquidity

Chief Investment Officer Jack Macdowell said consolidated loans and securitizations accounted for roughly half of the quarterly book value decline, while the agency portfolio represented about 40%. Non-agency assets accounted for the balance, partially offset by gains on the company’s mortgage servicing rights investment.

The valuation adjustments were largely unrealized and reflected higher rates, wider mortgage spreads and increased volatility rather than deteriorating credit fundamentals, Macdowell said. He added that cash received on hedges helped offset margin requirements, allowing Chimera to meet margin calls without selling assets.

Chimera ended the quarter with $561 million in cash and unencumbered assets, down from $656 million in the prior quarter. Total leverage rose to 6.5-to-1 and recourse leverage to 4.1-to-1, reflecting loans accumulated for securitization, CFO Subra Viswanathan said.

During the question-and-answer session, Viswanathan said book value was up 5% quarter to date as of the third, primarily because rates and spreads had tightened. The agency portfolio contributed more to that improvement than it had to the third-quarter decline, he said.

Macdowell said Chimera established a $2.4 billion short position in to-be-announced mortgage securities near the end of September to reduce risk, then unwound it during October as volatility moderated. He estimated current nominal returns on agency investments at about 16% to 17% and said the agency portfolio provides liquidity that can be redirected toward other opportunities.

HomeXpress Margins Under Pressure

HomeXpress’ $1.12 billion in funded loans was up 27% from a year earlier and 2% from the second quarter, according to Kyle Walker, the business’s president and CEO. Its correspondent channel accounted for 16.8% of quarterly production.

HomeXpress generated $430,000 in EBITDA for the quarter, while its net origination margin was negative 7 basis points, Walker said. The business had produced $3.1 million in EBITDA in July alone, before rising rates, wider bond spreads and changes in expected loan duration hurt the economics of loans already in its pipeline.

Walker said HomeXpress remained selective on pricing and did not compromise underwriting standards. The weighted-average credit score on third-quarter originations was 743, compared with 742 in the prior quarter, while the weighted-average loan-to-value ratio rose to 72.39% from 71.56%.

Asked about margins in a higher-rate environment, Walker said the transition had affected loans generally locked for 30 days. He said the current pipeline was believed to be profitable, with roughly one more pool of loans that might be only slightly profitable still to work through.

Prism Securitization and Capital Allocation

After quarter end, Chimera completed its first securitization under its Prism Capital conduit, backed by approximately $291 million of non-qualified mortgages originated by HomeXpress. Macdowell said the transaction’s AAA bonds priced at a spread of 160 basis points, within the 155-to-165-basis-point range for comparable transactions at the time.

The deal brought together HomeXpress’ origination business, Palisades’ asset management and oversight, and Chimera’s securitization capabilities. Subject to market conditions, Chimera intends to make Prism a regular issuer in the non-qualified mortgage securitization market, Macdowell said.

Kardis also cautioned that loans acquired or committed for the securitization program were exposed to higher rates and wider spreads while held ahead of securitization. He expects that exposure to affect fourth-quarter financial results, with the extent depending on market conditions through year-end.

During the quarter, Chimera refinanced approximately $280 million across two non-mark-to-market structured repurchase facilities, extending their maturities by two years and reducing funding costs, Macdowell said. The facilities were expanded to approximately $355 million.

Asked about potential share buybacks, Kardis said the company continues to view investing as preferable to repurchasing shares given its current opportunities.

About Chimera Investment (NYSE:CIM)

Chimera Investment Corporation NYSE: CIM is a real estate investment trust that invests primarily in residential mortgage assets and other real estate-related investments. The company seeks to generate income from a portfolio that may include residential mortgage loans, agency and non-agency residential mortgage-backed securities, and other mortgage-related assets.

Chimera's investments can include whole residential mortgage loans and securitized interests backed by mortgages. Its portfolio has historically included both agency assets, which carry guarantees from government-sponsored entities or government agencies, and non-agency assets, which generally involve greater credit exposure.

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