New York-based asset manager Rithm Capital, the owner of multichannel lender Newrez, experienced a significant 58% increase in refinances, reaching $3 billion in the third quarter of 2024. This surge was attributed to a drop in mortgage rates following the Federal Reserve‘s 50 basis-point rate cut. However, executives anticipate a stabilization in the market going forward.
“I think we’re going to get ourselves more to what I’ll say is the market on a normalized basis,” stated Newrez President Baron Silverstein during an earnings call. “That said, we see our direct lending channels, as we continue to basically get momentum through our recapture investments, to continue to improve and increase.”
Rithm reported $97 million in GAAP net income in the third quarter, a decline from $213 million in the previous quarter. Servicing emerged as a bright spot in Rithm’s performance, offering opportunities for originating refinances.
During the third quarter, its servicing book generated total pretax income of $223 million, an increase from $221 million in the prior quarter. This was driven by a portfolio of $878 billion in unpaid principal balance (UPB), including $755 billion in mortgage servicing rights (MSRs) owned by the company.
“Year to date, we have recapture rates of 55% when including second liens as a retention tool, and 38% is just our overall aggregate refinance recapture rate through the third quarter,” shared Silverstein.
On the origination side, Rithm achieved pretax income of $81 million in the third quarter, up from $52 million in the second quarter. The lender originated $15.9 billion in mortgages in Q3 2024, surpassing the figures of $14.6 billion in Q2 2024 and $10.9 billion in Q3 2023.
The company’s origination volume in the correspondent space reached $11.8 billion in the third quarter, overshadowing its volumes in the wholesale ($2 billion) and consumer direct ($2.1 billion) channels, as per filings with the Securities and Exchange Commission (SEC).
Gain-on-sale margins improved to 1.23% in the third quarter, up from 1.05% in the previous quarter. The company’s mortgage business corporate expenses totaled $58 million in Q3, compared to $45 million in Q2.
Rithm’s chairman, CEO, and president Michael Nierenberg mentioned that the process of turning Newrez into a public company is expected to occur in 2025, with the company’s estimated book value at $2.9 billion.
“Candidly, we have to figure out a way to get our equity price to trade where it should,” Nierenberg expressed to analysts. “So, my guess is it will be a ’25 event if and when we take this company public, and we’ll evaluate that.”
In September, the company raised $300 million in equity. Nierenberg highlighted that Rithm has funded its growth through its operating businesses, balance sheet, and some high-yield debt, deploying $5.8 billion since 2021 without raising any equity.
“As we think about risk, there are multiple wars going on. We’re in the middle of what could be a highly contested election,” Nierenberg noted. “And as many of you know, we’re always engaged in activity to grow our platform through M&A, so I would say all of these factors are good reasons why we want to have more capital.”
Regarding customers’ financial health, Nierenberg reassured that borrowers who took out a mortgage in 2020 and 2021 are in good shape. He added, “You might see a tad higher in delinquencies, but overall, it still seems to us that the consumer is in reasonable shape.”
As of the end of September, Rithm held $2 billion in total cash and liquidity.