Rithm expects ‘normalized’ refi levels to return after Q3 spike

New York-based asset manager Rithm Capital, the owner of multichannel lender Newrez, reported a 58% increase in refinances to $3 billion in the third quarter of 2024 after mortgage rates dropped due to the Federal Reserve’s 50 basis-point rate cut. But executives expect things to calm down moving forward. 

“I think we’re going to get ourselves more to what I’ll say is the market on a normalized basis,” Newrez President Baron Silverstein told analysts in an earnings call on Tuesday. “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 from July to September, compared to $213 million in the prior quarter. Executives said that servicing has been the bright spot in Rithm’s performance, providing opportunities for originating refinances.

In the third quarter, its servicing book generated total pretax income of $223 million, compared to $221 million in the previous quarter. This resulted from 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,” Silverstein told analysts. 

On the origination side, Rithm notched pretax income of $81 million in the third quarter, compared to $52 million in the second quarter. The lender originated $15.9 billion in mortgages in Q3 2024, higher than 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. This total dwarfed its volumes in the wholesale ($2 billion) and consumer direct ($2.1 billion) channel, 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 were $58 million in the third quarter, compared to $45 million in the second quarter. 

Rithm chairman, CEO and president Michael Nierenberg said that turning Newrez into a public company will be “a 2025 event.” The company’s estimated book value is $2.9 billion. 

“Candidly, we have to figure out a way to get our equity price to trade where it should,” Nierenberg told 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 said Rithm has funded its growth through its “operating businesses, balance sheet and a little bit of high-yield debt.” He mentioned that since 2021, the company has deployed $5.8 billion 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 said. “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 said borrowers who took out a mortgage in 2020 and 2021 are “in very good shape.” He added that, “You might see a tad higher in delinquencies, but overall, it still seems to us that the consumer is in reasonable shape.”

Rithm had $2 billion of total cash and liquidity at the end of September.