Rithm Capital profits surge higher in the first quarter

Mortgage operations at Rithm Capital propelled the company to a profitable start in 2024, as leaders emphasized the segment's significant role in overall business strategy in its latest earnings call. 

The New York-based real estate investment trust posted net income of $261.6 million, equivalent to 54 cents per share in the first quarter. The bottom line represented a turnaround from a fourth-quarter loss of $87.5 million, which had largely been driven by decreases in the fair value of mortgage servicing rights. Year-over-year, profits grew by 281% from $68.9 million in the first quarter of 2023.

The mortgage originations and servicing segment at Rithm, the parent company of Newrez, brought in $311.9 million in net income during the quarter as loan production and fair value of MSRs both improved.

While a mortgage-unit spinoff, which was considered almost exactly a year ago, remains on the table as the REIT pursues expansion in other lines of business, any new emerging residential home lending entity was described by CEO Michael Nierenberg as currently a "work in progress."

"If you think about the power of our franchise, the earnings from our overall investment business, including the mortgage company, creates significant advantages for us to be able to make investments and other things that we may want to do that are nonmortgage related," Nierenberg said. 

"To give that up today, we're not sure that's the right thing, but we continue to evaluate that and work with our advisors on which way we're going to go with it."

Both originations and servicing at Newrez provided some momentum to company earnings after a period of struggle for many lenders last year. While still muted, total funded production volume between January and March increased 21.3% quarter-over-quarter to $10.8 billion from $8.9 billion and improved by 54.3% from $7 billion compared to a year earlier. Both production as well as margins increased mostly thanks to the business' correspondent channel, said Newrez President Baron Silverstein. 

"We have strong momentum in our nonagency products, originating over $185 million of non-QM loans in the first quarter, almost back to levels we were seeing in 2022," Silverstein added. 

Gain on sale margins increased to 129 basis points, up from 123 in the fourth quarter. But margins shrank from 161 basis points a year earlier.

Mortgage volume increased, even as the company sought to pull back from retail operations over the past several months, a retreat that has brought it into legal conflict with former loan officers and a new competitor.             

Unpaid servicing balance within Newrez came out to $577.5 billion. The number includes totals from Specialized Loan Servicing, a pending acquisition from 2023 and grew by 1.7% from $568 billion at the end of 2023, and 14.6% from $504 billion 12 months prior. Total servicing revenue during the quarter was $490.8 million. 

Across the entire servicing portfolio at Rithm Capital, unpaid balance stood at $857 billion. 

Within servicing, the company anticipates current trends to bring further growth, including increased wallet share from its existing third-party customer base, as it also continues to evaluate other opportunities, Silverstein said. It should also see a boost after its acquisition of SLS closes later this year. 

"We continue to evaluate MSR bulk packages, but there's also other strategic acquisitions that we look at as well," Silverstein said. "Overall, the consumer also performs well with muted prepayment speeds and historically low delinquencies across it all." 

Rithm also touted success in some of its other subsidiaries, notably its real estate investor financing platform, Genesis Capital, following industry upheaval in 2023. 

"With the regional banks retreating, our Genesis business had a record quarter and they're on target to do about $3 billion in origination. When we first started the platform, I think we were around $2 billion," Nierenberg said.

Rithm earnings exceeded the average consensus estimates from analysts, according to Yahoo Finance. Quarterly results led its stock to open at $11.26 on Tuesday morning after closing at $11.22 the previous day. It rose to $11.31 toward midday.