Rithm Capital expects the return of originations profits by early 2023
Rithm Capital’s mortgage operations made a profit despite the industry slowdown. However, company leaders forecasted that originations growth would return in the first half 2023. Servicing income was the reason Rithm Capital’s mortgage operations made a profit. In Rithm Capital’s earnings call, President Michael Nierenberg stated that “on the originations side” he believes the company should return to profitability in either Q1 or Q2. The company profit for the real estate investment trust, formerly known under the name New Residential Investment Corp., was $81.8 million. This is a 34.3% drop from $124.5 million three months prior and a 49.4% decrease from $160.4 over that period in late 2021. The mortgage division’s servicing operations earned $89.3 million in pre-tax income during its fourth quarter. This was offset by $65.5 million in originations losses, as surging interest rate and a steep slowdown of refinances continued their grip on the home lending sector towards the end of the year. The unit’s $23.9million profit was 89% lower than its $209.8million earned during the third quarter. This was due to servicing. However, Rithm saw potential in the originations side to grow in the coming months after it cut expenses by 66%, which included staff reductions. Nierenberg stated that “we’ve taken actions on the retail side, a very difficult industry, and I feel like now we’re well placed there.” Profits from all divisions of the company, including mortgage operations and residential securities, were based on revenues of $762.4million in the fourth quarter, compared to $912.8 million for the third quarter. Full-year revenue was $4.73 billion, up from $3.62 billion 2021. Recent developments in the mortgage industry, such as Wells Fargo’s withdrawal from correspondent lending, have fueled speculation regarding possible deals. Nierenberg stated that while we believe some mortgage companies will need solutions and there could potentially be opportunities for M&A. However, he said that right now, Rithm is in all the channels that it needs to be. Eric Hagen, BTIG’s managing director, said that Rithm is in a good place to capitalize on the Wells Fargo decision. “Behind PennyMac we see [Rithm] being among the most competitive nonbanks in order to fill the space left last month by Wells Fargo exit from the correspondent channel,” he wrote in research note. He maintained a buy rating on the stock. Fourth-quarter originations production at Rithm fell to $7.9 Billion across wholesale, retail, and correspondent channels, compared to $13.8 Billion three months ago. However, gain-on-sale margins rose by 10 basis points to 1.81% from the third quarter. Funded originations are expected to fall further in the company’s first quarter. They are expected to be between $5 billion and $7.4 billion. “We’ve restructured our retail organization. Real earnings will be driven by, in our opinion, new home sales which plays extremely well on the retail side and then the recapture company around DTC,” Nierenberg stated. The portfolio balance, which Nierenberg described to be “very, very solid,” remained at $503.6 million quarter over quarter. This included $401.9 billion in-house volume. Rithm could also be offered mortgage servicing rights by Wells Fargo in the future. Nierenberg stated that “To the extent that Wells Fargo or anyone else comes out with large pool of MSR that we believe the risk-adjusted return are attractive, we will pounce on these opportunities.” Rithm leaders said that they were looking at ways to win and capture customers, including by adding non-mortgage products to the mix, as well as to compete with its competitors. Rithm’s CEO stated that they are currently working on how to roll out additional products to customers, including credit cards and consumer goods. It’s not necessary to make a mortgage transaction. If they don’t want to refinance, how can you keep them happy? How can you build brand awareness? Rithm beat the average estimate by Yahoo Finance of 31 cents per diluted share for the fourth quarter with earnings per diluted share of 33 cents. After closing the previous day at 9:25, Rithm’s stock rose 2% to $9.44 at the opening bell Wednesday.