Servicing income led Rithm Capital's mortgage operations to a profit amid the ongoing industry slowdown, but company leaders predicted originations growth to return in the first half of 2023.
"On the originations side, I think we should be back to profitability either Q1 or early Q2," said Rithm Capital CEO and President Michael Nierenberg in the company's earnings call.
The real estate investment trust formerly known as New Residential Investment Corp. posted a company-wide profit of $81.8 million in the fourth quarter, reflecting a 34.3% decrease from $124.5 million earned
For the full year, which
Within its mortgage division, servicing operations brought in $89.3 million worth of pretax income during the fourth quarter. That was offset by a loss of $65.5 million in originations, as surging interest rates and a steep slowdown in refinances continued to roil the home lending industry toward the end of the year. The unit's $23.9 million profit came in 89% lower than the $209.8 million earned during the third quarter, which was also thanks to servicing.
But while mortgage volumes continue to come in well below early 2022 levels, Rithm saw potential for the originations side of the business to grow again in coming months after it cut back expenses by 66%, including through staff reductions.
"We've taken actions, obviously, on the retail side, which is a very difficult business, and I feel like we're well positioned now there," Nierenberg said.
Profits across the company, including from mortgage operations, residential securities and other divisions, were based off revenues of $762.4 million in the fourth quarter, down from $912.8 million in the third. Full-year revenue came in at $4.73 billion, increasing from $3.62 billion in 2021.
While Rithm has in the past grown through mergers or acquisitions in the past, it struck a more tempered note in the earnings call, without ruling out the possibility. Recent mortgage industry developments, like Wells Fargo's departure from correspondent lending, have
"While saying that we do think some mortgage companies are going to need some solutions and there could be opportunities for M&A, I think, right now, we're in all the channels that we need to be," Nierenberg said.
However, Rithm sits in a good position to capitalize on the recent Wells Fargo decision, according to Eric Hagen, managing director at BTIG.
"Behind PennyMac, we see [Rithm] as being among the more competitive nonbanks to fill the space left by Wells Fargo's exit from the correspondent channel last month," he wrote in a research note. He maintained a buy rating for its stock.
Fourth-quarter originations production at Rithm decreased to $7.9 billion across retail, direct-to-consumer, wholesale and correspondent channels from $13.8 billion three months prior. But gain-on-sale margins increased by 10 basis points from the third quarter to 1.81%.
The company anticipates funded originations to fall further in the first quarter, coming in somewhere between $5 billion and $7 billion.
"We've right-sized our retail organization. Real earnings will be driven around, in our view, new home sales, which plays extremely well for the retail side, and then the recapture business around DTC," Nierenberg said.
Within the mortgage unit's servicing business, which Nierenberg described as "very, very strong," unpaid portfolio balance remained at $503.6 billion quarter over quarter. The total included $401.9 billion of in-house volume.
Future opportunities for Rithm may also come in the form of Wells Fargo's mortgage servicing rights.
"To the extent that Wells or anybody else comes out with large pools of MSR that we think the risk-adjusted returns are attractive, we're going to pounce on those opportunities," Nierenberg said.
Rithm leaders also said they were exploring ways to win and recapture customers, including through additions of nonmortgage products, similar to what
"How we roll out other products to them, whether it be consumer things, credit cards and other things is something we are working hard on," Rithm's CEO said. "It's not necessarily to do a transaction on the mortgage side because if they're not going to refinance, how do you keep them? How do you develop brand awareness?"
With earnings per diluted share at 33 cents for the fourth quarter, Rithm beat the average estimate of 31 cents of analysts polled by Yahoo Finance. The company's stock climbed 2% at opening bell Wednesday to $9.44 after closing the previous day at $9.25.
