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VARIABLE INTEREST ENTITIES

9 Months Ended

Sep. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

In the normal course of business, Rithm Capital enters into transactions with special purpose entities (“SPEs”), which primarily consist of trusts established for a limited purpose. The SPEs have been formed for the purpose of transactions in which the Company transfers assets into an SPE in return for various forms of debt obligations supported by those assets. In these transactions, the Company typically receives cash and/or other interests in the SPE as proceeds for the transferred assets. The Company retains the right to service the transferred receivables. The Company first evaluates whether it holds a variable interest in the entity. Where the Company has a variable interest, it is required to determine whether the entity is a VIE or a

Voting Interest Entity (“VOE”), the classification of which will determine the consolidation model that the Company is required to follow when determining whether it should consolidate the entity.

VIEs are defined as entities in which (i) equity at risk investors do not have the characteristics of a controlling financial interest, (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, or (iii) substantially all of the activities of the entity are performed on behalf of the party with disproportionately few voting rights. Where an entity does not have the characteristics of a VIE, it is a VOE. A VIE is required to be consolidated by the primary beneficiary, which is defined as the party that has the power to direct the activities of a VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

To assess whether Rithm Capital has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, Rithm Capital considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying (i) the activities that most significantly impact the VIE’s economic performance and (ii) which party, if any, has power over those activities. To assess whether Rithm Capital has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, Rithm Capital considers all of its economic interests and applies judgment in determining whether these interests, individually or in the aggregate, are considered potentially significant to the VIE. When an SPE meets the definition of a VIE and the Company determines that it is the primary beneficiary, the Company consolidates the SPE in its consolidated financial statements.

For certain consolidated VIEs that meet the definition of a CFE, which is a variable interest entity that holds financial assets, issues beneficial interests in those assets and has no more than nominal equity, Rithm Capital has elected to account for the assets and liabilities of these entities under the CFE measurement alternative. The CFE measurement alternative allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. The net equity in an entity accounted for under the CFE election effectively represents the fair value of the beneficial interests Rithm Capital owns in the entity. The assets of the consolidated CFEs can only be used to settle obligations and liabilities of these consolidated CFEs and are not available for general use by the Company. The liabilities of these consolidated CFEs are liabilities only of these entities and creditors have no recourse to the Company for the consolidated CFEs’ liabilities.

Consolidated VIEs

The assets of consolidated VIEs may only be used to settle obligations of these entities. There is no recourse to Rithm Capital Corp. for the consolidated VIEs’ liabilities.

Advance Purchaser

Rithm Capital, through a taxable wholly-owned subsidiary, is the managing member of Advance Purchaser and owns approximately 89.3% of Advance Purchaser as of September 30, 2024. Rithm Capital is deemed to be the primary beneficiary of Advance Purchaser as a result of its ability to direct activities that most significantly impact the economic performance of the entities and its ownership of a significant equity investment. See Note 14 for details.

Newrez Joint Ventures

A wholly-owned subsidiary of Newrez, Newrez Ventures LLC (formerly known as Shelter Mortgage Company LLC) (“Newrez Ventures”), is a mortgage originator specializing in Retail originations. Newrez Ventures operates its business through a series of joint ventures (“Newrez Joint Ventures”) and is deemed to be the primary beneficiary of such Newrez Joint Ventures as a result of its ability to direct activities that most significantly impact the economic performance of the Newrez Joint Venture entities and its ownership of a significant equity investment.

Mortgage-Backed Securitization

The Company securitizes, sells and services residential mortgage loans. Securitization transactions typically involve the use of VIEs and are accounted for either as sales or as secured financings. Certain of these activities may involve SPEs which, by their nature, are deemed to be VIEs.

Rithm Capital sells pools of conforming mortgage loans through GSE and Ginnie Mae sponsored programs with the servicing retained by Newrez. The Company has several financing vehicles in the form of mortgage loan participation and sale agreements with financial institutions, or Purchasers, to sell pools of agency residential mortgage loans.

Newrez Mortgage Participant LLC, Newrez Mortgage Participant II LLC, NPF Trust EBO I, Newrez Trust II and subsequently, Newrez Trust III were formed to acquire, receive, participate, hold, release and dispose of participation interests in certain of Newrez’s residential mortgage loans HFS (“MLHFS PC”). These facilities transfer the MLHFS PC in exchange for cash. Newrez is the primary beneficiary of the VIE and therefore consolidates the SPE. The transferred MLHFS PC is classified on the consolidated balance sheets as residential mortgage loans, HFS and the related warehouse credit facility liabilities as part of secured financing agreements. Newrez retains the risks and benefits associated with the assets transferred to the SPEs. As of September 30, 2024, Newrez Mortgage Participant LLC was terminated.

In May 2021, Newrez issued $750.0 million in notes through a securitization facility (the “2021-1 Securitization Facility”) that bear interest at 30-day SOFR plus a margin. The 2021-1 Securitization Facility is secured by newly originated, first-lien, fixed- and adjustable-rate residential mortgage loans eligible for purchase by the GSEs and Ginnie Mae. Through a master repurchase agreement, Newrez sells its originated residential mortgage loans to the 2021-1 Securitization Facility, which then issues notes to third-party qualified investors, with Newrez retaining the trust certificate. The loans serve as collateral with the proceeds from the note issuance ultimately financing the originations. The 2021-1 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial closing date, (ii) the Company exercising its right to optional prepayment in full or (iii) a repurchase triggering event. The Company is the primary beneficiary of the 2021-1 Securitization Facility as it has both (i) the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE. As of April 30, 2024, 2021-1 Securitization Facility was terminated.

In August 2022, Rithm Capital sponsored a securitization of mortgage loans (the “2022-SFR2 Securitization”) secured by certain single family rental properties owned by the Company (the “2022-SFR2 Properties”). The Company retained the most subordinate tranche trust certificate issued by 2022-SFR2 Securitization, classified as a VIE. During the third quarter of 2024, a related party of the Company, Adoor Property Management LLC (“APM”), became the property manager of the 2022-SFR2 Properties. Upon this reconsideration event, the Company reassessed its consolidation conclusion and concluded that it was now the primary beneficiary of 2022-SFR2 Securitization, as it has power to direct the activities that most significantly impact the 2022-SFR2 Securitization’s economic performance and has an obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE. As a result, the Company consolidated 2022-SFR2 Securitization during the third quarter of 2024.

Consumer Loan Companies

Rithm Capital owns a 100% interest in a portfolio of consumer loans held through certain limited liability entities (the “Consumer Loan Companies”) that are classified as VIEs. The Company is the primary beneficiary and consolidates the Consumer Loan Companies.

On September 25, 2020, the Company sponsored a securitization of a portfolio of consumer loans which issued $663.0 million of asset-backed notes (“SCFT 2020-A”). Rithm Capital retained a residual interest of securitized loans for risk retention purposes. The Company is the primary beneficiary of SCFT 2020-A, classified as a VIE, and therefore consolidates it, as it has power to redeem the notes issued by SCFT 2020-A and liquidate the structure at any time and has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

Sculptor Loan Financing Partners

In the second quarter of 2024, Sculptor launched a CLO equity investment platform to manage investments in the equity tranches of Sculptor managed CLOs in the US and Europe (“Sculptor Loan Financing Partners”). The Company is the primary beneficiary of the Sculptor Loan Financing Partners, as it has both (i) the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

Commercial Investments

Rithm Capital has investments in various commercial real estate entities classified as VIEs and held through wholly-owned subsidiaries. The Company has a controlling financial interest in these VIEs as it holds substantially all of the economic interests in such VIEs. The Company is the primary beneficiary and consolidates such VIEs.

Consolidated CFEs

Loan Securitizations - Mortgage Loans Receivable

Rithm Capital sponsored securitization trusts, classified as VIEs, that issue securitized debt collateralized by mortgage loans receivable and for which a wholly-owned subsidiary of Rithm Capital serves as asset manager. Rithm Capital acquired all of the most subordinated trust certificates. Rithm Capital concluded that the most subordinate tranche trust certificates absorb a majority of the trusts expected losses or receive a majority of the trusts’ expected residual returns. Rithm Capital also concluded that the securitization’s asset manager has the ability to direct activities that could impact the trusts’ economic performance. As a result, Rithm Capital consolidates such trusts.

The assets of these consolidated loan securitizations trusts may only be used to settle obligations of these entities and are not available to creditors of the Company. The investors in these consolidated loan securitizations have no recourse against the assets of the Company, and there is no recourse to the Company for the consolidated entities’ liabilities.

As of September 30, 2024, these trusts’ assets consist of pools of performing, adjustable-rate and fixed-rate, interest-only, mortgage loans (construction, renovation and bridge), secured by a first lien or a first and second lien on a non-owner occupied mortgaged property with original terms to maturity of up to 120 months, with an aggregate UPB of approximately $891.1 million and an aggregate principal limit of approximately $1.1 billion. Refer to Note 19 regarding the fair value measurements of consolidated loan securitizations.

Loan Securitizations - Residential Mortgage Loans

Rithm Capital sponsors the formation of certain mortgage securitization trusts, considered VIEs, to securitize performing Non-QM loans and seasoned mortgage loans. The Company consolidates certain trusts for which it is the primary beneficiary. The Company acts as the primary servicer for such trusts and therefore has the ability to direct activities that could impact these trusts’ economic performance. Generally, the Company retains a vertical tranche of notes issued by these trusts for risk retention purposes in addition to the most subordinated tranches and “interest only” interests. Such retained interests were eliminated in consolidation. Depending on the type of the securitization, the underlying pool of assets may consist of performing, amortizing and interest only, fixed rate and adjustable rate mortgage loans secured by first liens on single family residential properties, planned unit developments and condominiums.

The assets of these consolidated loan securitizations may only be used to settle obligations of these entities and are not available to creditors of the Company. The investors in these consolidated loan securitizations have no recourse against the assets of the Company, and there is no recourse to the Company for the consolidated entities’ liabilities.

During the third quarter of 2024, the Company sold “interest only” securities in two seasoned mortgage loan securitization trusts, and it now only holds securities for risk retention purposes. The Company is not the primary beneficiary as it no longer holds significant interests in these trusts. As a result of deconsolidation, the Company derecognized $371.5 million of assets and $352.9 million of liabilities of consolidated CFEs and recognized a loss of $0.9 million presented in Realized and unrealized gains (losses), net in the consolidated statements of operations. The Company continues to retain $18.7 million of notes held at fair value.

As of September 30, 2024, the notes payable, at fair value of consolidated CFEs due to third parties had a fair value of $2.5 billion. Rithm’s retained interest in the consolidated CFEs was $0.4 billion. Refer to Note 19 regarding the fair value measurements of consolidated loan securitizations.

Funds

In the ordinary course of business, Sculptor sponsors the formation of consolidated funds that are considered VIEs. The Company consolidates certain VIEs for which it is the primary beneficiary either directly or indirectly through a consolidated entity. The assets of these consolidated funds may only be used to settle obligations of these entities and are not available to creditors of the Company or Sculptor. The investors in these consolidated funds have no recourse against the assets of the Company or Sculptor. There is no recourse to the Company or Sculptor for the consolidated funds’ liabilities.

The Company, through Sculptor, consolidates a structured alternative investment solution, which issued notes in the aggregate principal amount of $350.0 million, of which approximately $127.8 million were retained by Sculptor and eliminated in consolidation. The retained notes consists of $20.0 million Class A notes, $20.0 million of Class C notes and $87.8 million of subordinated notes. As of September 30, 2024, the consolidated notes payable due to third parties had a fair value of $217.3 million.

Sculptor’s structured alternative investment solution entered into a $52.5 million credit facility maturing March 18, 2025. This credit facility is capped at $20.0 million of total borrowing capacity per quarter, bearing interest of SOFR plus margin of 3.0%. The facility is also subject to an annual 1.15% unused commitment fee. As of September 30, 2024, the consolidated funds have not drawn on the facility.

See Notes 18 and 19 regarding the financing and fair value measurements of consolidated funds, respectively.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on the consolidated balance sheets:


	Advance Purchaser		Newrez Joint Ventures		Residential Mortgage Loans		Consumer Loan Companies		Sculptor Loan Financing Partners		Commercial Investments		Consolidated CFEs(A)						Total
													Loan Securitizations - Mortgage Loans Receivable		Loan Securitizations - Residential Mortgage Loans		Consolidated Funds
September 30, 2024
Assets:

Servicer advance investments, at fair value	$	341,304	$	—	$	—	—		$	—	$	—	$	—	$	—	$	—	$	341,304

Residential mortgage loans, HFS, at fair value	—		—		378,707		—		—		—		—		—		—		378,707
Consumer loans	—		—		—		231,039		—		—		—		—		—		231,039
Assets of consolidated CFEs - investments	—		—		—		—		—		—		916,906		2,956,663		350,623		4,224,192
Cash and cash equivalents	5,153		21,762		—		—		4		492		—		—		—		27,411
Restricted cash	7,610		—		5,864		6,098		—		—		14,104		28,101		15,135		76,912
Other assets	1,929		456		—		11,332		64,939		45,973		33,457		—		428		158,514
Total Assets	$	355,996	$	22,218	$	384,571	$	248,469	$	64,943	$	46,465	$	964,467	$	2,984,764	$	366,186	$	5,438,079
Liabilities:
Secured financing agreements	—		—		295,790		—		—		—		—		—		—		295,790
Secured notes and bonds payable	259,451		—		—		197,234		—		—		—		—		—		456,685
Notes payable of consolidated CFEs	—		—		—		—		—		—		862,380		2,520,164		217,259		3,599,803
Accrued expenses and other liabilities	3,994		3,258		—		44		288		1,251		1,029		28,435		8,191		46,490
Total Liabilities	$	263,445	$	3,258	$	295,790	$	197,278	$	288	$	1,251	$	863,409	$	2,548,599	$	225,450	$	4,398,768

December 31, 2023
Assets:

Servicer advance investments, at fair value	$	367,803	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	367,803
Residential mortgage loans, HFS, at fair value	—		—		1,112,097		—		—		—		—		—		—		1,112,097
Consumer loans	—		—		—		285,632		—		—		—		—		—		285,632
Assets of consolidated CFEs - investments	—		—		—		—		—		—		353,594		3,038,587		321,856		3,714,037
Cash and cash equivalents	5,381		18,159		—		—		—		—		—		—		8,213		31,753
Restricted cash	8,273		—		6,113		6,301		—		—		7,572		6,263		9,800		44,322
Other assets	9		688		—		4,325		—		—		4,532		—		1,060		10,614
Total Assets	$	381,466	$	18,847	$	1,118,210	$	296,258	$	—	$	—	$	365,698	$	3,044,850	$	340,929	$	5,566,258
Liabilities:
Secured financing agreements	—		—		996,845		—		—		—		—		—		—		996,845
Secured notes and bonds payable	274,404		—		—		235,770		—		—		—		—		—		510,174
Notes payable of consolidated CFEs	—		—		—		—		—		—		318,998		2,618,082		218,157		3,155,237
Accrued expenses and other liabilities	2,606		2,240		5,382		1,507		—		—		371		6,263		1,763		20,132
Total Liabilities	$	277,010	$	2,240	$	1,002,227	$	237,277	$	—	$	—	$	319,369	$	2,624,345	$	219,920	$	4,682,388

(A)Reflect assets of consolidated CFEs - investments, at fair value and other assets and liabilities of consolidated CFEs - notes payable, at fair value and other liabilities on the consolidated balance sheets.

Non-Consolidated VIEs

The Company transfers residential mortgage loans to securitization trusts, classified as VIEs and retains the right to service the transferred loans. The Company also retains interest in such VIEs pursuant to required risk retention regulations. The Company does not consolidate such VIEs as it is not considered the primary beneficiary. The following table summarizes the carrying value of notes issued by unconsolidated VIEs and retained by the Company, which reflects the Company’s maximum exposure to loss, as well as the UPB of transferred loans. The retained notes are presented as Non-Agency RMBS, at fair value within other assets on the consolidated balance sheets:



	September 30, 2024		December 31, 2023
Residential mortgage loan UPB and other collateral	$	8,153,399	$	8,237,692
Weighted average delinquency(A)	5.0%		5.3%
Net credit losses	160,824		162,061
Face amount of debt held by third parties	7,531,381		7,596,408

Carrying value of bonds retained by Rithm Capital(B)(C)	$	545,172	$	543,447
Year to date cash flows received by Rithm Capital on these bonds	68,421		91,401

(A)Represents the percentage of the UPB that is 60+ days delinquent.

(B)Includes real estate bonds retained pursuant to required risk retention regulations.

(C)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 19 for details on unobservable inputs.

The following table summarizes the Company’s involvement, through Sculptor, with VIEs that are not consolidated and is generally limited to providing asset management services and, in certain cases, investments in the VIEs. The maximum exposure to loss represents the potential loss of current investments or income and fees receivables from these entities, as well as the obligation to repay unearned revenues, primarily incentive income subject to clawback, in the event of any future fund losses, as well as unfunded commitments to certain funds that are VIEs. The Company does not provide, nor is it required to provide, any type of non-contractual financial or other support to its VIEs that are not consolidated beyond its share of capital and other commitments described in Note 25.



	September 30, 2024		December 31, 2023
Maximum Risk of Loss as a Result of the Company’s Involvement with Unconsolidated VIEs:
Unearned income and fees	$	21,755	$	37,468
Income and fees receivable	14,902		43,250
Investments	553,638		533,026

Unfunded commitments(A)	202,255		207,575
Other commitments	25,057		—
Maximum Exposure to Loss	$	817,607	$	821,319

(A)Includes commitments from certain current and former employees and executive managing directors in the amounts of $122.2 million and $97.5 million as of September 30, 2024 and December 31, 2023, respectively.

The following table summarizes the carrying value of the Company’s unconsolidated commercial real estate projects which reflects the Company’s maximum exposure to loss. See Note 25 regarding certain guarantees provided in connection with the investments. These investments are presented as part of equity investments within other assets on the consolidated balance sheets:


	September 30, 2024		December 31, 2023
Carrying value of commercial real estate held within unconsolidated VIEs	$	167,487	$	66,652
Carrying value of Rithm Capital’s investments in unconsolidated commercial real estate VIEs	49,289		29,210

The Company holds a 70% membership interest in a credit risk transfer LLC, a VIE that holds exposures in warehouse lines collateralized by residential mortgage loans. The Company does not have power to make significant decisions unilaterally over the VIE; therefore, it is not the primary beneficiary and does not consolidate the VIE. The following table summarizes the

carrying value of the Company’s membership interest, which reflects the Company’s maximum exposure to loss. This equity investment is presented within other assets on the consolidated balance sheets:


	September 30, 2024		December 31, 2023
Membership interest in unconsolidated VIEs	$	194,450	$	—

Noncontrolling Interests

Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Rithm Capital and it is presented as a separate component of equity on the Company’s consolidated balance sheets. These interests are related to noncontrolling interests in consolidated entities that hold servicer advance investments (Note 14), the Newrez Joint Ventures, consumer loans (Note 8), Sculptor investments, excess MSRs and commercial investments.

Others’ interests in the equity of consolidated subsidiaries is computed as follows:


	September 30, 2024						December 31, 2023
	Total Consolidated Equity		Others' Ownership Interest		Noncontrolling Interest in Equity of Consolidated Subsidiaries		Total Consolidated Equity		Others' Ownership Interest		Noncontrolling Interest in Equity of Consolidated Subsidiaries
Advance Purchaser	$	92,551	10.7	%	$	9,896	$	104,458	10.7	%	$	11,157
Newrez Joint Ventures	18,960		49.5	%	9,385		16,607		49.5	%	8,220
Consumer Loan Companies(A)	51,191		—	%	—		72,361		46.5	%	33,748
Excess MSRs	139,519		20.0	%	27,904		—		—	%	—
Commercial Investments	45,214		10.0	%	4,521		—		—	%	—
Asset Management	760,373		n/m(B)		43,161		673,523		n/m(B)		40,971

Others’ interests in the net income (loss) is computed as follows:


	Three Months Ended September 30,
	2024						2023
	Net Income (Loss)		Others’ Ownership Interest as a Percent of Total		Noncontrolling Interest in Income (Loss) of Consolidated Subsidiaries		Net Income (Loss)		Others’ Ownership Interest as a Percent of Total		Noncontrolling Interest in Income (Loss) of Consolidated Subsidiaries
Advance Purchaser	$	(9,584)	10.7	%	$	(1,026)	$	13,229	10.7	%	$	1,414
Newrez Joint Ventures	1,712		49.5	%	847		544		49.5	%	269
Consumer Loan Companies(A)	2,991		—	%	—		6,806		46.5	%	3,165
Excess MSRs	(547)		20.0	%	(109)		—		—	%	—
Commercial Investments	120		10.0	%	12		—		—	%	—
Asset Management	(2,538)		n/m(B)		2,115		—		—	%	—


	Nine Months Ended September 30,
	2024						2023
	Net Income (Loss)		Others’ Ownership Interest as a Percent of Total		Noncontrolling Interest in Income (Loss) of Consolidated Subsidiaries		Net Income (Loss)			Others’ Ownership Interest as a Percent of Total		Noncontrolling Interest in Income (Loss) of Consolidated Subsidiaries
Advance Purchaser	$	(1,212)	10.7	%	$	(131)	$	19,786		10.7	%	$	2,113
Newrez Joint Ventures	3,874		49.5	%	1,918		1,238			49.5	%	613
Consumer Loan Companies(A)	(2,136)		46.5	%	(2,384)		16,582			46.5	%	7,711
Excess MSRs	22,635		20.0	%	4,527		—		0	—	%	—
Commercial Investments	120		10.0	%	12		—			—	%	—
Asset Management	(2,551)		n/m(B)		4,310		—			—	%	—

(A)On June 28, 2024, Rithm Capital purchased the remaining 46.5% interest in the Consumer Loan Companies from Blackstone for a total purchase price of $22.0 million. Following the acquisition, Rithm Capital owns 100% interest in the Consumer Loan Companies.

(B)Percentage in the table above deemed “n/m” are not meaningful. Noncontrolling interests related to Sculptor represents the ownership interests in certain funds held by entities or persons other than the Company. These interests substantially relate to interests held by Sculptor employees in real estate funds managed by the Company adjusted for their capital activity and allocated earnings in such funds. Such employees’ portion of carried interest is expensed and recorded within compensation and benefits expense on the consolidated statements of operations and therefore excluded in the calculation of noncontrolling interests.