Rithm delivers $261M profit in Q1, continues to evaluate mortgage biz spinoff 

Company originated $10.8B in Q1 2024, up from $7B the same quarter in 2023

New York-based asset manager Rithm Capital delivered a profit in the first quarter of 2024, with a positive performance from multichannel lender Newrez in the servicing and origination segments. Top executives at Rithm said they continue to evaluate taking the mortgage business public

On Tuesday, Rithm announced a $261.6 million in GAAP net income from January to March, compared to $87.5 million loss in the prior quarter, per Securities and Exchange Commission (SEC) filings. Earnings available for distribution reached $233.2 million in Q1 2024, lower than the $247.4 million in Q4 2023. 

According to Michael Nierenberg, the company chairman, CEO, and president, Rithm had a “terrific quarter hitting on all cylinders” as its “well-balanced business lines all contributed in a positive way.”  

In its mortgage division, Rithm recorded a total pretax income of $408.1 million in the first quarter, compared to a loss of $120.9 million in the previous quarter. 

The first quarter’s earnings were mainly due to the servicing portfolio, which delivered $219.9 million in pretax income. At the end of March, Rithm had $587 billion in unpaid principal balance, relatively unchanged from the end of December and up 15% year over year. Including third-party servicing, the volume increases to $857 billion. 

“This is not a race to get bigger. This is a race to generate more earnings,” Nierenberg told analysts.  

According to Nierenberg, the company hedged most of the of its mortgage servicing rights (MSRs) risk in the first quarter, creating stability and book value on a forward basis. Rithm’s MSRs mark to market contributed $194.5 million to the quarter’s earnings, compared to a hit of $296 million the previous quarter.  

The company lost $48.6 million with corporate structure in the first quarter amid a restructuring of its origination business at the beginning of 2024. 

Meanwhile, the origination business notched a $42.3 million in pretax income in the first quarter. The lender originated $10.8 billion in Q1 2024, higher than $8.9 billion in Q4 2023 and $7 billion in Q1 2023. 

Gain-on-sale margins marginally recovered to 1.29% in the first quarter, up from 1.23% in the previous quarter. However, margins are still low compared to the 1.61% recorded a year ago. 

Most of the company’s origination comes from the correspondent channel, with $7.9 billion in the first quarter, followed by retail and joint ventures ($1.2 billion), wholesale ($1.1 billion), and direct-to-consumer ($700 million). 

Newrez president Baron Silverstein told analysts the company had a “strong momentum” on non-agency products and home equity. Meanwhile, its retail and joint venture business broke even in the quarter after the restructuring implemented at the beginning of the year.

Regarding a potential spin-off of the mortgage business or taking it public, Nierenberg said, “That’s a work in progress” because the company is “not sure that that’s the right thing.” “But we continue to evaluate and work with our advisors on which way we’re going to go,” he added. 

Sculptor Capital Management, an asset manager acquired in 2023, brought $32 billion of assets under management. In the first quarter, it expanded its institutional credit strategies with the launching of a captive CLO equity investment platform called Sculptor Loan Financing Partners, which had an anchor investment from Rithm. 

The deal with Computershare Mortgage Services, which adds Specialized Loan Servicing (SLS) to the mix, included nearly $45 billion of MSRs and $104 billion of third-party servicing UPB to the company.   

Rithm had $2 billion of total cash and liquidity at the end of March. Regarding its debt, the company issued in March $775 million in senior unsecured notes due in 2029 for qualified institutional buyers.

The company’s stock traded at $11.27 on Tuesday morning, down 0.44% after the earnings report.

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