Does Rithm's Computershare pick-up impact other deals?

Rithm Capital, already engaged in a takeover battle that could affect a potential mortgage spin-out, agreed to acquire Australian-based Computershare's servicing business in the midst of the first deal's uncertainty.

The servicing unit, Computershare Mortgage Services, includes affiliates like Specialized Loan Servicing, for which Rithm agreed to purchase at a price of approximately $720 million.

Rithm will use cash and other liquidity on its balance sheet as well as financing secured by mortgage servicing rights to pay for SLS. The company has a $136 billion servicing portfolio (of which $85 billion is for third parties), and the transaction includes SLS' mortgage origination services business.

Meanwhile, as of June 30, Rithm had a $598 billion MSR portfolio.

After the deal closes in the first half of next year, the SLS portfolio and business operations will transition to and be managed by NewRez.

"We view the acquisition as attractive since we think large services like Rithm should be able to accretively add servicing to their platforms as they benefit from scale," Bose George, an analyst at Keefe, Bruyette & Woods, said in a flash note. "Also…we believe higher rates should result in positive MSR marks for Rithm, so we see the company as well positioned going into earnings."

However, in picking up SLS, Rithm is adding another servicer to two it already owns, and their customer service scores are at or near the bottom of the most recent J.D. Power survey.

No matter how the businesses may be identified on the corporate level, Power uses the name the consumer refers to in their response.

Shellpoint Mortgage Servicing, a part of Rithm, had the lowest score, at 443. NewRez was eighth from the bottom at 555. SLS ranked one spot lower at 547. Both Shellpoint and SLS focus on non-agency subservicing.

The most recent Power survey, as well as others in the past, have identified issues with broader customer satisfaction around servicing transfers.

And it is the more credit-challenged consumers that are the likely customers for these companies that also have the lowest level of satisfaction, said Craig Martin, managing director and global head of wealth & lending intelligence at J.D. Power.

Rebranding can add to that, he said, adding "customers don't like change."

Having to "change my stuff, and you make me have extra effort, that's not a great experience," he continued. "So certainly it's a risk there that I've seen over the years."

And that is true across the spectrum from high-scoring companies to those lower ones. But for the low-scoring firms, it becomes an area to really have to manage. In general people are rarely happy their servicing is transferred to another entity.

Adding customers can help reduce costs by increasing scale. But if they have problems adopting the servicer's self-service tools, it adds to expenses because these are more calls coming in via telephone, Martin said.

The other thing to consider is how the transfer affects the loan production operation, especially when it comes to customer retention.

"If you're in the business of trying to originate loans, you don't want any baggage that drags you back down or prevents you from succeeding in that area," said Martin. "And the servicing side of the business and the broader brand reputation can play a part" in preventing that accomplishment.

BTIG analyst Eric Hagen strongly supports Rithm boosting scale as a servicer.

Especially since the real estate investment trust has an opportunity "to possibly spin certain strategies into new vehicles, and accrete value as an asset manager if it is able to close on its previously announced acquisition of Sculptor," Hagen said in a note. "We don't believe the Computershare acquisition would distract or derail the opportunity to buy Sculptor."

In July, Rithm agreed to buy Sculptor Capital Management for $639 million as part of a plan to shift its business more towards asset management. It has a confidential S-1 on file with the Securities and Exchange Commission to spin out the mortgage banking business.

Rithm looked to go that route in the past (including an S-1 filing) but put that on hold when it purchased Caliber Home Loans.

Requests for further comment from Rithm and Computerserve have not been returned.

Separately, Two Harbors Investment Corp. and its subsidiary Matrix Financial Services, have finally closed on the purchase of RoundPoint Mortgage Servicing that was first announced in August 2022.

Matrix paid $23.6 million, equal to RoundPoint's tangible net book value plus a premium of $10.5 million; subject to additional post-closing adjustments. The premium was unchanged from the original announcement.

"We believe this acquisition will add significant value for stakeholders of Two Harbors through increased cash flows, operational efficiencies and the ability to participate more fully in the mortgage-finance space as opportunities arise," Bill Greenberg, Two Harbors president and CEO, said in a press release.