Newrez parent company reports strong Q2 results fueled by MSR growth
Rithm Capital Corp. has reported strong second-quarter earnings, driven primarily by growth in its mortgage servicing rights (MSRs) portfolio.
The investment trust giant posted GAAP net income of $213.2 million, or $0.43 per diluted common share, for the quarter ended June 30. Earnings available for distribution reached $231.1 million, or $0.47 per diluted common share.
A key driver of Rithm’s performance was its mortgage servicing rights (MSRs) portfolio, which grew to $645 billion in unpaid principal balance (UPB) at the end of the quarter.
Newrez, Rithm’s mortgage origination arm, contributed significantly to this growth, originating $14.6 billion in home mortgages during the quarter, a 35.1% increase from the first quarter. Despite a drop in the gain-on-sale margin to 105 basis points from 129 bps in Q1, servicing revenue grew 6.2% to $499 million.
“Newrez, our mortgage company, Genesis, our RTL lender, and our portfolio of assets generated very strong returns,” Michael Nierenberg, chairman, CEO, and president of Rithm Capital, said during an earnings call. “The scope to business, which we have owned since November of last year, is seeing excellent performance in credit, real estate, and in the multi-strat fund. AUM is stable, and the teams are having great conversations with LPs.”
The company closed two new collateralized loan obligations (CLOs) totaling approximately $780 million in assets under management (AUM) and added $100 million to its Real Estate Credit Fund II. As of June 30, 2024, Rithm managed approximately $32 billion in assets.
Rithm’s MSR gains were also bolstered by its acquisition of Specialized Loan Servicing, part of a broader $708 million purchase from Computershare Mortgage Services Inc. The acquisition included $56 billion in UPB of MSRs and $98 billion in third-party servicing UPB.
“We completed the previously announced acquisition of the Management Contract of Great Ajax, which was a residential mortgage REIT, which is now we’re going to transition that into an opportunistic commercial mortgage REIT, which will help generate fee-related earnings for shareholders as we reposition the company and grow it,” Nierenberg said.
Rithm’s origination and servicing segment reported a pre-tax income of $247.7 million, reflecting a 23% pre-tax return on equity (ROE) on $4.0 billion of equity. The Genesis segment achieved a pre-tax income of $31.7 million, with an 18% pre-tax ROE on $710 million of equity.
Read next: Rithm Capital lands $639 million deal to buy Sculptor Capital Management
“We also added 40 billion of excess MSRs, where we partnered with Sculptor on this acquisition. This shows the power of our franchise,” Nierenberg added. “Looking at the macro picture, we are extremely well-positioned for the future and the expectations, and with the expectations of the Fed lowering rates beginning in September, this bodes very well for our company.
“This will help lower our borrowing costs and hopefully lead to higher earnings. We do believe a steeper curve will lead to higher prices and tighter spreads as the cost of finance from mortgage-related assets comes down with SOFR going lower on a nominal rate basis. This will generate solid returns and earnings for the business and good returns for our LPs and shareholders.”
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