Rithm Capital might spin off its mortgage biz

REIT executives say the company is undervalued and would benefit from creating a separate entity

Investors haven’t exactly treated publicly traded mortgage companies very kindly over the past 12 months. To that end, Rithm Capital, the real estate investment trust that operates NewRez, Caliber and several other businesses, is considering spinning off the mortgage division to aid its flagging stock, which company executives described as “extremely undervalued.”

“Our third-party fund business continues to be a major focus as we transition to growing our business as an alternative asset manager,” President and CEO Michael Nierenberg said during the REIT’s Thursday earnings call. “With that in mind, we are evaluating alternatives for our mortgage company and will likely file an S1 in the coming month. This will allow us to create other pools of liquidity to the extent we create a public entity and further diversify our business model.”

He added: “So what we’re doing now is when I look at the way our stock trades or how poorly our stock trades, I should say. I think for us, when I look at the mortgage company and the business that’s been created there, we will likely explore, there’s no guarantee which way we’re going to take this thing, but we’re likely going to file an S1 [a prelude to taking a company public]. We’ll look at the possibility creating a public entity out of it, which, over time, could allow us to really further diversify our business model.”

Rithm, one of the largest originators and services in the mortgage industry, saw net income drop 15% from the fourth quarter to $89.9 million. Those profits were propelled by the company’s significant servicing portfolio, which, while down 1% from the end of 2022, tallied an unpaid principal balance of $603.0 billion at the end of the first quarter. Rithm has 3 million customers through its servicing portfolio.

The company’s originations business lost $24.4 million in the first quarter, and gain-on-sale margins fell to 1.61% from 1.81% at the end of the fourth quarter. Nierenberg said originations were down in January and February largely due to seasonality, but were at a “breakeven” in March.

Nick Santoro, the company’s chief financial officer, told analysts that they expect Wells Fargo’s exit from correspondent lending to help them boost margins in future quarters.

The company remains opportunistic given the challenging economic landscape and its cash position, which remains strong at $1.43 billion.

“When we look at the space today, and we look at the opportunities around potential M&A or potential assets, there’s plenty of activity going on,” Nierenberg said. “So I think the look of the company today won’t be the look of the company as we go forward down the road.”

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