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EXCESS MORTGAGE SERVICING RIGHTS | 6 Months Ended
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Jun. 30, 2024
Transfers and Servicing [Abstract] |
EXCESS MORTGAGE SERVICING RIGHTS | MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES The following table summarizes activity related to MSRs and MSR financing receivables:
Balance as of December 31, 2023 | $ | 8,405,938 |
Purchases, net | — |
Transfers | — |
Acquisition | 697,494 |
Originations(A) | 580,244 |
Sales | 2,404 |
Change in fair value due to: |
Realization of cash flows(B) | (284,189) |
Change in valuation inputs and assumptions | 291,440 |
Balance as of June 30, 2024 | $ | 9,693,331 |
(A)Represents MSRs retained on the sale of originated residential mortgage loans. (B)Based on the paydown of the underlying residential mortgage loans. The following table summarizes components of servicing revenue, net:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2024 |  | 2023 (As Restated) |  | 2024 |  | 2023 (As Restated)
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables | $ | 453,989 |  |  | $ | 432,750 |  |  | $ | 884,103 |  |  | $ | 871,800 |
Ancillary and other fees | 44,989 |  |  | 32,597 |  |  | 84,766 |  |  | 63,204 |
Servicing fee revenue, net and fees | 498,978 |  |  | 465,347 |  |  | 968,869 |  |  | 935,004 |
Change in fair value due to: |  |  |  |  |  |  |
Realization of cash flows(A) | (165,138) |  |  | (139,410) |  |  | (281,977) |  |  | (245,101) |
Change in valuation inputs and assumptions, net of realized gains (losses)(B) | 97,240 |  |  | 161,442 |  |  | 298,254 |  |  | 124,829 |
Servicing revenue, net | $ | 431,080 |  |  | $ | 487,379 |  |  | $ | 985,146 |  |  | $ | 814,732 |
(A)Net of $2.2 million of realization of cash flows related to excess spread financing (Note 12). (B)Net of $6.8 million of change in valuation inputs and assumptions related to excess spread financing (Note 12). The following table summarizes MSRs and MSR financing receivables by type as of June 30, 2024:
| UPB of Underlying Mortgages |  | Weighted Average Life (Years)(A) |  |  |  | Carrying Value(B)
Agency | $ | 381,516,738 |  |  | 6.6 |  |  |  | $ | 6,079,335 |
Non-Agency | 72,106,898 |  |  | 5.4 |  |  |  | 885,053 |
Ginnie Mae(C) | 133,419,752 |  |  | 6.3 |  |  |  | 2,728,943 |
Total/Weighted Average | $ | 587,043,388 |  |  | 6.4 |  |  |  | $ | 9,693,331 |
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment. (B)Represents fair value. As of June 30, 2024, weighted average discount rates of 8.9% (range of 8.7% – 10.3%) were used to value Rithm Capital’s MSRs and MSR financing receivables. (C)As of June 30, 2024, Rithm Capital holds approximately $1.9 billion in residential mortgage loans subject to repurchase and the related residential mortgage loans repurchase liability on its Consolidated Balance Sheets. Residential Mortgage Loans Subject to Repurchase Rithm Capital, through Newrez, is an approved issuer of Ginnie Mae mortgage-backed securities (“MBS”) and originates and securitizes government-insured residential mortgage loans. As the issuer of the Ginnie Mae-guaranteed securitizations, Rithm Capital has the unilateral right to repurchase loans from the securitizations when they are delinquent for more than 90 days. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. As a result, once the delinquency criteria have been met and regardless of whether the repurchase option has been exercised, the Company recognizes delinquent loans as if they had been repurchased with a corresponding liability. As of June 30, 2024, Rithm Capital reflected approximately $1.9 billion in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Consolidated Balance Sheets. Rithm Capital may re-pool repurchased loans into new Ginnie Mae securitizations upon re-performance of the loan or otherwise sell to third-party investors. The Company does not change the accounting for MSRs related to previously sold loans upon re-recognizing loans eligible for repurchase. Rather, upon repurchase of a loan, the MSR is written off. As of June 30, 2024, Rithm Capital holds approximately $0.4 billion of such repurchased loans presented within Residential mortgage loans, held for sale on its Consolidated Balance Sheets. Onity MSR Financing Receivable Transactions In July 2017, Onity Group Inc. (formerly known as Ocwen Financial Corporation) (collectively with certain affiliates, “Onity”), and subsequently PHH Mortgage Corporation (“PHH”) (as successor by merger to Onity) and Rithm Capital entered into an agreement to transfer to Rithm Capital Onity’s remaining interests in the MSRs relating to loans with an aggregate UPB of approximately $110.0 billion and with respect to which Rithm Capital already held certain rights (“Rights to MSRs”). Additionally, in January 2018, Onity sold and transferred to Rithm Capital certain Rights to MSRs and other assets related to MSRs for loans with a UPB of approximately $86.8 billion, of which approximately $10.9 billion UPB, as June 30, 2024, of underlying loans consents have not been received and all other conditions to transfer have not been met and, accordingly, are recorded as MSR financing receivables, at fair value. Geographic Distributions The table below summarizes the geographic distribution of the underlying residential mortgage loans of the MSRs and MSR financing receivables:
|  | Percentage of Total Outstanding Unpaid Principal Amount
State Concentration |  | June 30, 2024 |  | December 31, 2023
California |  | 16.7 | % |  | 17.1 | %
Florida |  | 8.4 | % |  | 8.6 | %
Texas |  | 6.5 | % |  | 6.2 | %
New York |  | 5.8 | % |  | 6.0 | %
Washington |  | 5.3 | % |  | 5.8 | %
New Jersey |  | 4.1 | % |  | 4.3 | %
Virginia |  | 3.6 | % |  | 3.6 | %
Maryland |  | 3.4 | % |  | 3.4 | %
Illinois |  | 3.3 | % |  | 3.3 | %
Georgia |  | 3.1 | % |  | 3.0 | %
Other US |  | 39.8 | % |  | 38.7 | %
|  | 100.0 | % |  | 100.0 | %
Geographic concentrations of investments expose Rithm Capital to the risk of economic downturns within the relevant states. Any such downturn in a state where Rithm Capital holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the MSRs. Residential Mortgage Loan Servicing and Subservicing Newrez performs servicing of residential mortgage loans for unaffiliated parties under servicing agreements. The servicing agreements do not meet the criteria to be recognized as a servicing right asset and, therefore, are not recognized in the Consolidated Balance Sheets. The UPB of residential mortgage loans serviced for others as of June 30, 2024 and 2023 was $213.7 billion and $95.6 billion, respectively. Rithm Capital earned servicing revenue of $89.1 million and $69.1 million for the six months ended June 30, 2024 and 2023, respectively, related to unaffiliated serviced loans presented within Servicing revenue, net in the Consolidated Statements of Operations. In relation to certain owned MSRs, Rithm Capital engages unaffiliated licensed mortgage servicers as subservicers to perform the operational servicing duties, including recapture activities, in exchange for a subservicing fee, which is recognized as subservicing expense and presented as part of General and administrative expenses in the Consolidated Statements of Operations. As of June 30, 2024, PHH and Valon Mortgage, Inc. (“Valon”) subservice 7.4% and 4.3%, respectively. The remaining 88.3% of owned MSRs are serviced by Newrez (Note 1). Servicer Advances Receivable In connection with Rithm Capital’s ownership of MSRs, the Company assumes the obligation to serve as a liquidity provider to initially fund servicer advances on the underlying pool of mortgages (Note 25) it services. These servicer advances are recorded when advanced and are included in servicer advances receivable on the Consolidated Balance Sheets. The table below summarizes the type of advances included in the servicer advances receivable:
| June 30, 2024 |  | December 31, 2023
Principal and interest advances | $ | 624,563 |  |  | $ | 616,801 |
Escrow advances (taxes and insurance advances) | 1,358,320 |  |  | 1,442,697 |
Foreclosure advances | 891,268 |  |  | 767,171 |
Gross advance balance(A)(B) | 2,874,151 |  |  | 2,826,669 |
Reserves, impairment, unamortized discount, net of recovery accruals | (99,641) |  |  | (66,419) |
Total servicer advances receivable | $ | 2,774,510 |  |  | $ | 2,760,250 |
(A)Includes $550.8 million and $585.0 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies. (B)Includes $367.8 million and $405.6 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from either the borrower or Ginnie Mae. Expected losses for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair value through a non-reimbursable advance loss assumption. Rithm Capital’s servicer advances receivable related to Non-Agency MSRs generally have the highest reimbursement priority pursuant to the underlying servicing agreements (i.e., ranks “top of the waterfall”), and Rithm Capital is generally entitled to repayment from the respective loan or REO liquidation proceeds before any interest or principal is paid on the notes issued by the trust. In most cases, advances in excess of the respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by Rithm Capital as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, Rithm Capital has a contractual right to be reimbursed by the subservicer. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has provisioned $99.5 million, or 3.5%, and $93.7 million, or 3.3%, for expected non-recovery of advances as of June 30, 2024 and December 31, 2023, respectively. The following table summarizes servicer advances provision activity during the quarter:
Balance at December 31, 2023 | $ | 93,681 |  |  |  |  |  |  |  |  |  |
Provision | 20,652 |  |  |  |  |  |  |  |  |  |
Write-offs | (14,793) |  |  |  |  |  |  |  |  |  |
Balance at June 30, 2024 | $ | 99,540 |  |  |  |  |  |  |  |  |  |
See Note 18 regarding the financing of MSRs and servicer advances receivable. EXCESS MORTGAGE SERVICING RIGHTS Excess MSR assets include Rithm Capital’s ownership of Excess MSRs, and associated recapture agreements, acquired from and serviced by Mr. Cooper. Prior to June 20, 2024, Rithm Capital owned certain pools of excess MSR directly and certain pools through a joint venture with the Former Manager (the “Fortress Excess MSR JV”). On June 20, 2024, Rithm Capital, together with certain Sculptor nonconsolidated funds, acquired an Excess MSR portfolio from the Former Manager (including the Former Manager’s ownership in the Fortress Excess MSR JV for approximately $124 million. A new joint venture with such Sculptor nonconsolidated funds was formed for the acquisition. Rithm Capital owns an 80.0% interest in and manages the joint venture, and as a result, consolidates the joint venture. Following the acquisition from the Former Manager, all of Rithm Capital’s ownership in pools of excess MSRs is consolidated on its Consolidated Balance Sheet and is presented in Other Assets at fair value. See Note 20 for noncontrolling interests related to these excess MSRs. Mr. Cooper, as servicer, performs all of the servicing and advancing functions on the Company’s Excess MSR assets, retains the ancillary income and assumes servicing obligations and liabilities as the servicer of the underlying loans in the portfolio. As part of the Computershare Acquisition (Note 3), Rithm Capital acquired MSRs owned by SLS underlying certain Excess MSRs owned by Rithm Capital. Accordingly, those Excess MSRs have been reclassified to full MSRs on Rithm Capital’s Consolidated Balance Sheets. The table below summarizes the components of Excess MSRs: Investments in Excess MSRs The following table presents activity related to the carrying value of investments in Excess MSRs:
| Total(A)
Balance as of December 31, 2023 | $ | 208,385 |
Purchases | 122,887 |
Interest income | 10,522 |
Other income | (656) |
Proceeds from repayments | (19,122) |
Proceeds from sales | — |
Change in fair value | 19,430 |
Acquisition of assets from Fortress Excess MSR JV | 55,192 |
Reclassification of SLS serviced Excess MSRs to Full MSRs | (1,032) |
Balance as of June 30, 2024 | $ | 395,606 |
(A)Underlying loans serviced by Mr. Cooper Group Inc. (“Mr. Cooper”) and SLS (Excess MSRs with underlying loans serviced by SLS were reclassified to full MSRs upon the acquisition of Computershare on May 1, 2024). The following summarizes investments in Excess MSRs:
| June 30, 2024 |  | December 31, 2023
| Interest in Excess MSR |  | Weighted Average Life Years(A) |  | Amortized Cost Basis |  | Carrying Value(B) |  | Carrying Value(B)
| Rithm Capital(C, D) |  |  |  | Mr. Cooper |  |  |  |  |  |  |  |
Total | 65.0% – 80.0% (69.9%) |  |  |  | 20.0% – 35.0% |  | 6 |  | $ | 339,048 |  |  | $ | 395,606 |  |  | $ | 208,385 |
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment. (B)Carrying value represents the fair value of the pools and recapture agreements, as applicable. (C)Amounts in parentheses represent weighted averages. (D)Rithm Capital also invested in related servicer advance investments, including the basic fee component of the related MSR as of June 30, 2024 (Note 14) on $14.0 billion UPB underlying these Excess MSRs. Changes in fair value of Excess MSR investments consist of the following:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Original and Recaptured Pools | $ | 21,352 |  |  | $ | (599) |  |  | $ | 19,430 |  |  | $ | (10,417) |
As of June 30, 2024, a weighted average discount rate of 8.8% was used to value Rithm Capital’s investments in Excess MSRs. Excess MSR Joint Ventures As set forth above, Rithm Capital, together with certain Sculptor nonconsolidated funds, formed a new joint venture which acquired the Former Manager’s ownership in the Fortress Excess MSR JV and is consolidated on Rithm Capital’s Consolidated Balance Sheets. As a result, Rithm Capital’s investment in the former Excess MSR JV is now included in Rithm Capital’s direct investments in Excess MSRs. The following table summarizes the activity of Rithm Capital’s investments in Excess MSR equity method investees:
Balance at December 31, 2023 | $ | 62,765 |
Distributions of earnings from equity method investees | (344) |
Distributions of capital from equity method investees | (8,846) |
Change in fair value of investments in equity method investees | 1,617 |
Equity method investees transferred to direct excess MSR | (55,192) |
Indirect Excess MSR at June 30, 2024 | $ | — |

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 210 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(11)) -Publisher 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