The past year has been rough for the mortgage sector. The Federal Reserve has been hiking rates aggressively, which has dented mortgage-backed securities (MBS) valuations, and mortgage originators have struggled with declining volume. Mortgage-backed securities -- bundles of mortgages combined to form bond-like securities -- have underperformed Treasuries and are the culprit behind some of the regional bank failures. Two Harbors (NYSE: TWO), a mortgage real estate investment trust (REIT), recently reported a large loss and offered investors few assurance that things will get better anytime soon or that its sky-high dividend -- which it just cut -- is safe from further reductions. 

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Two Harbors is a mortgage REIT that invests in mortgage-backed securities and mortgage servicing rights. Mortgage-backed securities are basically where most newly originated mortgages go. If you bought a house last year with a Fannie Mae or FHA loan, chances are your mortgage ended up in a mortgage-backed security, which might in turn have ended up in a mortgage REIT's investment portfolio. 

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Source Fool.com