CHMI Q1 2026 Earnings Call Transcript

Cherry Hill Mortgage reported a $2 million GAAP net loss, or $0.05 per diluted share, with comprehensive loss of $4.4 million and book value per common share falling 6.1% to $3.23 at quarter-end. The company maintained leverage at 5.5x and liquidity of $47 million, while EAD remained positive at $5.3 million and the quarterly dividend was held at $0.10 per share. Management said geopolitical volatility widened mortgage spreads and pressured performance, but book value had rebounded nearly 2% by April 30 and hedges totaled $396 million notional.

Analysis

CHMI is effectively a volatility carry vehicle with two different convexities: MSR acts as a natural hedge when rates/back-up spreads rise, while RMBS/TBA is the return engine when spreads tighten. The key second-order effect is that the current environment rewards balance-sheet patience more than capital deployment; with spreads already off their wides and management explicitly willing to fund new risk only by rotating out of existing assets, incremental upside is likely to come from mark-to-market recovery rather than asset growth.

The near-term winner in a calmer geopolitical tape is not just CHMI’s book value, but the entire agency mortgage complex via lower hedging drag and tighter repo funding conditions. The loser is duration-sensitive mortgage originators and rate-refi-dependent servicers: if volatility stays elevated, origination volumes remain suppressed, keeping MSR cash flows resilient but limiting recapture and overall monetization of the servicing platform.

The market may be underestimating how much of CHMI’s rebound is already in the tape after the post-quarter book value bounce. A near-2% April recovery off a 6.1% quarterly drop suggests the stock is trading more on spread beta than on fundamental earnings power; if spreads merely stabilize, upside is incremental, but a renewed volatility spike could quickly give back multiple quarters of EAD. The real catalyst is not earnings quality, but whether agency spreads hold the mid-140s versus 7-year swaps; if they drift back to 130, the portfolio can re-rate, but if they revisit 180, leverage becomes the enemy.

The contrarian angle is that management’s upbeat return math may be too optimistic because it assumes stable financing and limited basis shock. A levered mid-teens RMBS return is plausible only if repo stays benign and hedge slippage remains contained; in a worsening tape, MSR helps but likely not enough to offset convexity losses on the mortgage book.

Key Decisions for Investors

• Long CHMI only on spread weakness: accumulate under book value if agency spreads widen back toward ~160-170 vs 7y swaps; trim into any move above prior-quarter book value given limited organic growth and leverage at 5.5x.
• Pair trade: long REM / short IWM for 1-3 months if the geopolitical backdrop continues to normalize; lower vol and tighter funding should help agency REIT beta more than cyclical small caps.
• If already long CHMI, buy short-dated downside protection via common-stock puts into the next quarter: 3-4 month puts financed by selling out-of-the-money calls to protect against a renewed spread-widening shock.
• Prefer MSR-heavy peers over pure agency RMBS names for the next 1-2 quarters; if rates stay choppy, servicing duration and lower refi incentives should preserve book value better than higher-beta mortgage portfolios.
• Avoid chasing the April book value rebound: wait for either a confirmed tightening trend in mortgage spreads or a clear decline in implied rate volatility before adding risk; otherwise the risk/reward is asymmetric to the downside.