Newrez stock offering to drive Rithm's 2025 prospects

The long-awaited initial public offering of Rithm Capital's mortgage banking business is likely to take place in 2025, analysts at Keefe, Bruyette & Woods predict.

It could put a 20% stake in Newrez on the market at some point, with the initial public offering being the "main catalyst" for Rithm's business prospects next year, a report from KBW analyst Bose George said.

"As the mix of assets and business has grown at Rithm, the valuation has not benefited; in fact, the [price to tangible book value] multiple has trended down," George said. "To the extent that persists and the valuations of mortgage servicing-heavy peers such as Mr. Cooper and Pennymac remain in the 1.4 times [tangible book value] range, we would expect the company to explore a listing of up to 20% of Newrez shares in 2025."

Rithm, then known as New Residential, acquired Shellpoint Partners, the parent company of New Penn Financial, in 2018. New Penn was later rebranded as Newrez.

In November 2020, New Residential filed a confidential draft registration statement with the Securities and Exchange Commission for a potential IPO of Newrez.

However, in April 2021, New Residential signed a deal to buy Caliber Home Loans that shelved its own IPO as well as that of its target.

In 2023, Rithm, which has been shifting its business model to be more of an asset manager, filed a new confidential statement with the SEC. Rithm has acquired Sculptor Capital Management and Specialized Loan Servicing, along with an affiliate becoming the external manager of what was formerly known as Great Ajax.

Michael Nierenberg, Rithm CEO, chairman and president, told analysts on the company's third quarter earnings call that a Newrez IPO could take place in 2025.

Mortgage industry consolidation should continue and Newrez should remain among the handful of winners, which also includes Mr. Cooper and Pennymac, and "potentially Rocket," George said.

"Large non-bank mortgage originators/servicers have significantly benefited from the reduced role of banks and the liquidity needs of smaller non-banks," George said. "Further, the larger servicers have benefited from a lower cost to service and increasingly from a lower cost of funds as well."

The MSR portfolio is the largest asset that Rithm owns. It had an unpaid principal balance of $755 billion at the end of the third quarter. KBW expects that to grow to $785 billion at the end of 2024. Next year it should reach $918 billion and $1.05 trillion in 2026.

The mortgage business accounts for 56% of Rithm's total capital, KBW has calculated, with the investment portfolio allocated 41%.