Cherry Hill Mortgage Investment Corporation (CHMI): 5 FORCES Analysis [Nov-2025 Updated]

You're assessing a mortgage REIT like Cherry Hill Mortgage Investment Corporation in late 2025, and the competitive landscape is definitely tighter than ever. Honestly, the core tension is stark: suppliers, those large financial institutions providing short-term repurchase agreements (repo), are holding the cards, pushing your cost of financing to about 4.5% in Q2 2025, while your customers-the yield-hungry investors-demand a massive 17.0% annualized dividend yield as of Q3 2025 just to stick around. This squeeze is why the company's GAAP net income was just \$2.0 million that quarter, even while running a 5.3x leverage ratio. To understand if this high-wire act is sustainable, we need to break down precisely where the pressure is coming from across the entire industry structure, so read on to see the full five-force analysis below.

Cherry Hill Mortgage Investment Corporation (CHMI) - Porter's Five Forces: Bargaining power of suppliers

You're assessing the leverage Cherry Hill Mortgage Investment Corporation (CHMI) faces from its funding sources, which is a critical lens for any mortgage REIT. The suppliers here are primarily the large financial institutions that provide the short-term funding necessary to finance the asset portfolio, often through repurchase agreements (repo).

The power of these suppliers is amplified by CHMI's reliance on short-term, rolled-over debt. For instance, the average repo maturity hovered around 26 days in Q2 2025. That short duration means Cherry Hill Mortgage Investment Corporation must constantly re-engage with its lenders, giving them leverage on renewal terms.

This dynamic creates a significant rollover risk. Furthermore, these lenders hold the contractual right to issue sudden margin calls, which forces Cherry Hill Mortgage Investment Corporation into potentially disadvantageous asset sales to meet collateral requirements, leading to forced deleveraging. The cost of this funding is not fixed; it's volatile. The average cost for repo financing was approximately 4.5% in Q2 2025, a figure that directly impacts net interest income.

To give you a clearer picture of the funding environment and CHMI's position, look at the key financing metrics as of mid-2025:

The concentration of access to certain funding types further tips the scales toward the suppliers. Specifically, access to bank loans for Mortgage Servicing Rights (MSRs) is concentrated among a few large banks. This lack of diversification in specific asset classes means Cherry Hill Mortgage Investment Corporation has fewer alternatives when negotiating terms for those particular assets.

The hedging strategy, while necessary, also ties the company to counterparties in the derivatives market. As of June 30, 2025, Cherry Hill Mortgage Investment Corporation held derivative instruments with a combined notional amount of approximately $446,000,000, primarily interest rate swaps, TBAs, and Treasury futures, all designed to mitigate interest rate risk on future borrowings.

Here are a few other relevant figures showing the scale of operations that rely on these suppliers:

• RMBS portfolio book value: $1.1 billion (June 30, 2025).
• Unrestricted cash position: $55 million (September 30, 2025).
• Total US REITs raising capital via ATM programs in Q2 2025: $4.85 billion aggregate.
• Mortgage REIT loan portfolios contracted by over 18% since Q4 2022, totaling $80.6B as of Q2 2025.

The power of these suppliers is high, driven by short-term funding structures and concentration risk in specialized lending facilities. Finance: draft 13-week cash view by Friday.

Cherry Hill Mortgage Investment Corporation (CHMI) - Porter's Five Forces: Bargaining power of customers

You're looking at Cherry Hill Mortgage Investment Corporation (CHMI) from the perspective of its common stockholders, and honestly, their power is significant because their primary motivation is straightforward: high yield and liquidity. These investors treat capital as highly fungible, meaning they can move it quickly to the next best opportunity without much friction.

Investor switching costs are near zero for publicly traded securities like Cherry Hill Mortgage Investment Corporation shares. If a better risk-adjusted return appears elsewhere, capital flight is as easy as clicking a sell button and then a buy button. This lack of lock-in means Cherry Hill Mortgage Investment Corporation is constantly under pressure to justify its cost of capital by offering a premium return.

To keep this capital invested, Cherry Hill Mortgage Investment Corporation must maintain a dividend profile that competes aggressively with alternatives. While the prompt mentioned an annualized figure of 17.0% for Q3 2025, the actual reported data shows the pressure is even higher. The annualized payout based on the latest declared dividend suggests a yield that significantly outpaces the broader market, which is the direct result of this customer power.

Here's a quick look at how Cherry Hill Mortgage Investment Corporation's current yield stacks up against its historical requirements and the general sector environment as of late 2025:

The necessity for Cherry Hill Mortgage Investment Corporation to offer a high dividend yield is clear when you see the competition. Investors aren't just looking at other mortgage REITs (mREITs); they are comparing Cherry Hill Mortgage Investment Corporation against a vast universe of fixed-income products, many of which offer more stable, albeit lower, yields. If Cherry Hill Mortgage Investment Corporation's yield premium shrinks, investors will exit.

The alternatives available to these common stockholders are plentiful and often less volatile:

• Alternative mREIT sector average yield (end of 2024 proxy): 12.05%
• Equity REIT sector average yield (end of 2024 proxy): 3.96%
• The 10-Year T-Note has sometimes outperformed the equity REIT sector by over 0.26 percentage points
• The company's own preferred stock offers fixed rates, such as the Series A at 8.20%
• The company's own preferred stock offers fixed rates, such as the Series B at 8.250%

So, Cherry Hill Mortgage Investment Corporation is definitely competing for capital that has many other places to go. Finance: draft 13-week cash view by Friday.

Cherry Hill Mortgage Investment Corporation (CHMI) - Porter's Five Forces: Competitive rivalry

Competition is intense among numerous publicly traded mREITs. You see major players like Annaly Capital Management Inc (NLY) with a market capitalization around $14.171B and MFA Financial (MFA) around $1.039B still operating in the space as of late 2025.

Agency RMBS assets are largely fungible and commodity-like, which naturally pushes competition toward price. Cherry Hill Mortgage Investment Corporation's focus on these securities means margins are constantly under pressure. For instance, the company's RMBS portfolio had a net interest spread of approximately 2.87% in Q3 2025. This thin spread is a direct consequence of competing on the yield derived from these standardized assets.

The company's Q3 2025 GAAP net income was only $2.0 million, indicating tight margins. To be fair, the comprehensive income was higher at $4.5 million, reflecting unrealized gains, but the bottom-line GAAP profitability is what truly shows the day-to-day squeeze from rivalry.

Rivalry is heightened by the need to maintain a high leverage ratio to generate meaningful returns on equity in this low-spread environment. Cherry Hill Mortgage Investment Corporation's aggregate portfolio leverage was 5.3x at the end of Q3 2025.

Here's a quick look at the Q3 2025 figures that illustrate the competitive dynamic:

The pressure to maintain scale and yield manifests in several ways:

• Maintaining a dividend of $0.10 per share.
• Holding $55.4 million in unrestricted cash for tactical positioning.
• RMBS portfolio book value of approximately $1.2 billion.
• Weighted average coupon on RMBS at 5.8% or 4.98% depending on the report segment.
• Net servicing income contribution of $8.5 million in Q3 2025.

Cherry Hill Mortgage Investment Corporation (CHMI) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Cherry Hill Mortgage Investment Corporation (CHMI) is substantial because income-seeking investors have numerous avenues to deploy capital that offer comparable or superior risk-adjusted returns, effectively bypassing the mortgage REIT (mREIT) structure entirely.

Fixed-income products like Treasury bills and corporate bonds are direct substitutes for income-seeking investors. You can look at the yield on a 1-Month U.S. Treasury Bill, which stood at 4.06% as of November 26, 2025. Even the 3-Month T-Bill yield was near 3.49% on the same day. Compare that to the high yield Cherry Hill Mortgage Investment Corporation offers; the annual dividend payout was $0.40 per share, translating to a yield around 16.84% to 17.0% based on recent stock prices. Still, the availability of Investment Grade Corporate Bonds with yields ranging up to 5.66% as of November 26, 2025, presents a clear, lower-volatility alternative for a portion of the capital chasing yield.

Other high-yield investments, including Equity REITs, offer an alternative to mortgage debt exposure. For context, as of September 5, 2025, publicly traded U.S. equity REITs posted a one-year average dividend yield of 3.88%. Even specialized products like the Invesco KBW Premium Yield Equity REIT ETF (KBWY) yielded 9.86% as of November 25, 2025. This shows that even within the broader real estate sector, many equity-focused vehicles offer yields significantly lower than Cherry Hill Mortgage Investment Corporation, but potentially with different risk profiles related to property type and leverage.

Private credit funds and direct real estate investments bypass the mREIT structure entirely. These alternatives allow sophisticated investors to negotiate terms directly or invest in physical assets, avoiding the public market vehicle, management fees specific to mREITs, and the associated public market volatility that Cherry Hill Mortgage Investment Corporation experiences. For instance, Cherry Hill Mortgage Investment Corporation's Book Value Per Share was reported at $3.46 for the quarter ending September 2025. Direct investment avoids the Price-to-Book ratio dynamics inherent in the mREIT structure, which was trading around 0.68 at that time.

Rising interest rates can make risk-free assets, like government bonds, more attractive than the company's 17.0% yield. When the 10-Year Treasury Note finished at 4.06% on November 21, 2025, the perceived risk premium required to move capital into a mortgage REIT like Cherry Hill Mortgage Investment Corporation must be substantial to compensate for credit, extension, and prepayment risks. Here's the quick math: if a risk-free 10-year rate is 4.06%, an investor demands a significant premium over that to take on the risks associated with Cherry Hill Mortgage Investment Corporation's portfolio, which is heavily weighted toward residential mortgage-backed securities (RMBS) at 78% of assets as of Q3 2025.

The comparison of yields highlights the substitution pressure:

The primary substitutes for Cherry Hill Mortgage Investment Corporation investors include:

• Government securities like 4-Week T-Bills yielding 4.01%.
• Corporate bonds offering yields up to 5.66%.
• Equity REITs with average yields near 3.88%.
• Direct investment in private credit vehicles.

What this estimate hides is the market's perception of the risk differential. If investor confidence in the mortgage market drops, the required premium for Cherry Hill Mortgage Investment Corporation's yield must increase, making even lower-yielding substitutes more appealing on a risk-adjusted basis.

Cherry Hill Mortgage Investment Corporation (CHMI) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers to entry in the mortgage REIT space, and honestly, they are quite high for anyone trying to compete directly with an established player like Cherry Hill Mortgage Investment Corporation. Setting up shop isn't like buying a few shares of a public REIT, which you could start doing with just the price of one share. A new entrant aiming for a competitive portfolio size needs serious, institutional-level capital right out of the gate.

Initial capital requirements are substantial for establishing a competitive portfolio size. Consider Cherry Hill Mortgage Investment Corporation's scale as of September 30, 2025: total assets stood at approximately $1.52 billion, supported by an aggregate portfolio leverage of 5.3x. A new firm would need to raise comparable equity and debt capacity to deploy a portfolio that could meaningfully impact market pricing or secure favorable counterparty terms. The capital needed is far beyond the retail investor level, often requiring access to private placements reserved for accredited investors, defined by a minimum net worth of $1 million (excluding their primary residence) or an annual income of $200,000.

Here's a quick look at the scale Cherry Hill Mortgage Investment Corporation operated with in Q3 2025, which sets the bar for a new entrant:

New entrants must secure access to the specialized, relationship-driven repo financing market. This isn't a simple bank loan; it involves complex repurchase agreements (repo) collateralized by assets like residential mortgage-backed securities (RMBS). Cherry Hill Mortgage Investment Corporation, for example, paid an average of 4.5% on its repurchase agreements during the second quarter of 2025. A new, unproven entity would likely face higher haircuts (the discount applied to collateral value) and wider funding spreads than an established firm with deep, long-standing relationships with primary dealers and the Federal Reserve system.

Sophisticated hedging infrastructure is immediately required to manage interest rate and prepayment risk. You can't just hold RMBS without protection; the market demands it. Cherry Hill Mortgage Investment Corporation, as of Q3 2025, held interest rate swaps with a notional amount of $828.7 million to manage duration and interest rate risk on its portfolio. Building and maintaining this level of derivative infrastructure, complete with the necessary collateral management systems and regulatory compliance, requires significant upfront investment in technology and specialized personnel, which adds a major fixed cost burden for any startup.

The need to comply with the strict REIT tax distribution rule (90%+ of taxable income) is a structural barrier. To maintain its tax-advantaged status, Cherry Hill Mortgage Investment Corporation must distribute most of its earnings. This creates a constant pressure to generate distributable income, which new entrants may struggle to do consistently while simultaneously building scale and managing initial operational inefficiencies. The structural requirements for a mortgage REIT include:

• Distribute at least 90% of taxable income as dividends.
• Invest at least 75% of total assets in real estate assets or cash.
• Derive at least 75% of gross income from mortgage interest or real estate sources.
• Maintain at least 100 shareholders after the first year.

Still, the overall market shows some capital inflow, with publicly traded U.S. equity REITs raising approximately $10.92 billion through capital offerings as of June 2025, suggesting that capital is available for the sector, but it flows to proven operators or highly differentiated strategies, not easily to a brand new, unproven entity.

Finance: draft 13-week cash view by Friday.