While a spinoff of mortgage lending subsidiary Newrez remains in sight, a clear time frame for it has yet to emerge, leaders of parent company Rithm Capital said in its latest earnings call.
Almost two years after it filed a confidential S-1 for a potential Newrez initial public offering, Rithm’s CEO said work still needed to be done to build up capital structure for the parent real estate investment trust before any public listing of the lender and servicer could occur.
“We’re not there yet on listing the company,” said Rithm Capital CEO and President Michael Nierenberg. “I’m hopeful at some point down the road that we’ll get there, but we need to grow some scale in the REIT right now,” he added.
Still, a separation this year remains a possibility, Nierenberg continued. “I’d like to do it in 2024 but that’s gone. I think if we can get it done in ’25, we absolutely will.”
Nierenberg’s comments came as the Newrez subsidiary saw profits surge in the fourth quarter, with pre-tax income sitting at $484.7 million, inclusive of a $204.5 million boost in the fair value of mortgage servicing rights. The latest number jumped from $15.2 million in the third quarter, which was weighed down by a $235.5 million fair-value loss. Rithm made changes in the reporting process of its Newrez segment with the latest earnings report folding in MSRs previously reported as “serviced by others” as well as hedging.
Excluding fair value changes, Newrez income increased quarter to quarter by 11.8% to $280.2 million from $250.7 million.
Total servicing balance jumped to $843.9 billion, consisting of approximately $590 billion in owned MSRs and $254 billion belonging to third parties. The balance was up 2.7% from $821.7 billion in the third quarter and 31.9% from $639.5 billion at the end of 2023.
Loan production also finished 8.8% higher with $17.3 billion originated in the quarter, with the correspondent channel accounting for over two-thirds of the total. Volume climbed up from $15.9 billion reported over the prior three months and almost doubled from 2023’s fourth quarter, which saw $8.9 billion in production.
Rithm’s profits also benefited from increased gain on sale margins, which accelerated to 131 basis points from 123 in the third quarter. Newrez attributed the boost to pricing discipline across origination channels as well as capital market execution.
While Rithm doesn’t see a stand-alone Newrez business in the near term even as it maintains profits, it didn’t rule out further merger-and-acquisition activity to bolster the brand, as well as elsewhere across the REIT. Any addition to the mortgage unit, though, would likely be in the form of assets rather than full-on mergers with other lenders.
“We don’t need anything else,” Nierenberg said. “Obviously, we love the MSR asset. That’s been very good to us, and our shareholders will continue to look at that,” he said.
Potential for growth also exists via the Shellpoint subsidiary subservicing arm, according to Newrez President Baron Silverstein.
“There are opportunities with banks and existing relationships that we take market share based upon how they’re positioning,” he said. “I think you’re going to continue to see us taking market share, especially given a lot of the dislocation you saw last year in, what I’ll say, in third-party servicing.”
The latest updates came just days after Rithm announced the formation of a special purpose acquisition company that could take other parts of the company public in a continued effort to expand its business focus. As it seeks to position itself as an alternative asset investment firm, Rithm also said in the earnings call it would soon launch a global-energy infrastructure platform with third-party capital partners aimed to meet increased demand from data centers for power supply.
The latest move follows Rithm’s successful acquisition of hedge fund firm Sculptor Capital Management in addition to other deals in 2023.
Across all segments of the company, including asset management and investment portfolio arms, New York-based Rithm Capital reported adjusted net income of $263.2 million, up 171.1% from $97 million in the third quarter. Fourth-quarter profits represented year-over-year improvement from an $87.5 million loss one year earlier.
Most recent quarterly revenue totaled $2.1 billion, up from $619.5 million in the prior reporting period and $709.5 million a year ago, largely driven by the changes in fair value.
