FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

U.S. GAAP requires the categorization of fair value measurement into three broad levels which form a hierarchy based on the transparency of inputs to the valuation.

Level 1 – Quoted prices in active markets for identical instruments.

Level 2 – Valuations based principally on other observable market parameters, including:

•Quoted prices in active markets for similar instruments,

•Quoted prices in less active or inactive markets for identical or similar instruments,

•Other observable inputs (such as interest rates, yield curves, volatilities, prepayment rates, loss severities, credit risks and default rates), and

•Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3 – Valuations based significantly on unobservable inputs.

Rithm Capital follows this hierarchy for its fair value measurements. The classifications are based on the lowest level of input that is significant to the fair value measurement.

The carrying values and fair values of assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2022 were as follows:

	Principal Balance or Notional Amount		Carrying Value		Fair Value
					Level 1		Level 2		Level 3		Total
Assets:
Excess MSRs(A)	$	67,454,370	$	321,803	$	—	$	—	$	321,803	$	321,803
MSRs and MSR financing receivables(A)	539,897,324		8,889,403		—		—		8,889,403		8,889,403
Servicer advance investments	341,628		398,820		—		—		398,820		398,820
Real estate and other securities	25,370,934		8,289,277		—		7,338,417		950,860		8,289,277
Residential mortgage loans, held-for-sale	117,847		101,027		—		—		101,196		101,196
Residential mortgage loans, held-for-sale, at fair value	3,387,888		3,297,271		—		3,035,894		261,377		3,297,271
Residential mortgage loans, held-for-investment, at fair value	538,710		452,519		—		—		452,519		452,519
Residential mortgage loans subject to repurchase	1,219,890		1,219,890		—		1,219,890		—		1,219,890
Consumer loans	330,428		363,756		—		—		363,756		363,756
Derivative assets	33,174,574		52,229		—		36,214		16,015		52,229
Mortgage loans receivable(B)	2,064,028		2,064,028		—		349,975		1,714,053		2,064,028
Note receivable	63,114		—		—		—		—		—
Loans receivable	94,631		94,401		—		—		94,401		94,401
Cash and cash equivalents	1,336,508		1,336,508		1,336,508		—		—		1,336,508
Restricted cash	281,126		281,126		281,126		—		—		281,126
Other assets(C)	N/A		23,370		—		—		23,370		23,370
			$	27,185,428	$	1,617,634	$	11,980,390	$	13,587,573	$	27,185,597
Liabilities:
Secured financing agreements	$	11,260,242	$	11,257,737	$	—	$	11,257,737	$	—	$	11,257,737
Secured notes and bonds payable(D)	10,200,390		10,098,942		—		—		9,911,778		9,911,778
Unsecured senior notes, net of issuance costs	545,056		545,056		—		—		493,064		493,064
Residential mortgage loan repurchase liability	1,219,890		1,219,890		—		1,219,890		—		1,219,890
Derivative liabilities	1,062,894		18,064		—		10,835		7,229		18,064
			$	23,139,689	$	—	$	12,488,462	$	10,412,071	$	22,900,533

(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR Financing Receivables and Excess MSRs. Rithm Capital does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.

(B)Includes Rithm Capital’s economic interests in the VIEs consolidated and accounted for under the collateralized financing entity (“CFE”) election. As of December 31, 2022, the fair value of Rithm Capital’s interests in the mortgage loans receivable securitization was $45.8 million.

(C)Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of Rithm Capital’s investment. The investment had a fair value of $23.8 million as of December 31, 2022.

(D)Includes SAFT 2013-1, SCFT 2020-A and 2022-RTL1 mortgage-backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $632.4 million as of December 31, 2022.

The carrying values and fair values of assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2021 were as follows:

	Principal Balance or Notional Amount		Carrying Value		Fair Value
					Level 1		Level 2		Level 3		Total
Assets:
Excess MSRs(A)	$	80,461,630	$	344,947	$	—	$	—	$	344,947	$	344,947
MSRs and MSR financing receivables(A)	548,613,089		6,858,803		—		—		6,858,803		6,858,803
Servicer advance investments	369,440		421,807		—		—		421,807		421,807
Real estate and other securities	24,314,300		9,396,539		—		8,444,597		951,942		9,396,539
Residential mortgage loans, held-for-sale	144,967		132,921		—		—		134,655		134,655
Residential mortgage loans, held-for-sale, at fair value	10,955,534		11,214,924		—		9,361,520		1,853,404		11,214,924
Residential mortgage loans, held-for-investment, at fair value	623,937		569,933		—		—		569,933		569,933
Residential mortgage loans subject to repurchase	1,787,314		1,787,314		—		1,787,314		—		1,787,314
Consumer loans	449,875		507,291		—		—		507,291		507,291
Derivative assets	47,080,263		138,173		—		23,302		114,871		138,173
Mortgage loans receivable	1,473,894		1,515,762		—		—		1,515,762		1,515,762
Note receivable	60,373		60,549		—		—		60,549		60,549
Loans receivable	228,692		229,631		—		—		229,631		49,889
Cash and cash equivalents	1,332,575		1,332,575		1,332,575		—		—		1,332,575
Restricted cash	195,867		195,867		195,867		—		—		195,867
Other assets(B)	N/A		39,229		3,134		—		36,095		39,229
			$	34,746,265	$	1,531,576	$	19,616,733	$	13,599,690	$	34,747,999
Liabilities:
Secured financing agreements	$	20,596,842	$	20,592,884	$	—	$	20,596,842	$	—	$	20,596,842
Secured notes and bonds payable(C)	8,676,644		8,644,810		—		—		8,662,463		8,662,463
Unsecured senior notes, net of issuance costs	543,293		543,293		—		—		553,581		541,516
Residential mortgage loan repurchase liability	1,787,314		1,787,314		—		1,787,314		—		1,787,314
Derivative liabilities	1,275,793		34,583		—		31,490		3,093		34,583
Contingent consideration	N/A		4,951		—		—		4,951		4,951
			$	31,607,835	$	—	$	22,415,646	$	9,224,088	$	31,639,734

(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR Financing Receivables and Excess MSRs. Rithm Capital does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.

(B)Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of Rithm Capital’s investment. The investment had a fair value of $28.7 million as of December 31, 2021.

(C)Includes the SAFT 2013-1, MDST Trusts and SCFT 2020-A mortgage backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $511.1 million as of December 31, 2021.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.

The following table summarizes assets measured at fair value on a recurring basis using Level 3 inputs:

	Level 3
	Excess MSRs(A)(B)		MSRs and MSR Financing Receivables(A)		Servicer Advance Investments		Non-Agency RMBS		Derivatives(C)		Residential Mortgage Loans		Consumer Loans		Notes and Loans Receivable		Mortgage Loans Receivable		Total
Balance at December 31, 2020	$	410,855	$	4,585,841	$	538,056	$	1,180,924	$	289,074	$	2,320,384	$	685,575	$	52,389	$	—	$	10,063,098
Transfers
Transfers to Level 3	—		—		—		—		—		2,386		—		—		—		2,386
Acquisitions (Note 3)	—		1,507,524		—		—		116,403		—		—		—		1,505,635		3,129,562
Gains (losses) included in net income
Reversal (provision) for credit losses on securities(D)	—		—		—		5,201		—		—		—		—		—		5,201
Change in fair value of excess MSRs(D)	(15,078)		—		—		—		—		—		—		—		—		(15,078)
Change in fair value of excess MSRs, equity method investees(D)	1,818		—		—		—		—		—		—		—		—		1,818
Servicing revenue, net(E)	—		(513,686)		—		—		—		—		—		—		—		(513,686)
Change in fair value of servicer advance investments	—		—		(9,076)		—		—		—		—		—		—		(9,076)
Change in fair value of consumer loans	—		—		—		—		—		—		(20,133)		—		—		(20,133)
Change in fair value of residential mortgage loans	—		—		—		—		—		155,758		—		—		—		155,758
Gain (loss) on settlement of investments, net	404		—		—		(28,550)		—		—		—		—		—		(28,146)
Other income (loss), net(D)	(326)		—		—		9,136		(293,699)		(1,357)		—		301		—		(285,945)
Gains (losses) included in other comprehensive income(F)	—		—		—		28,882		—		—		—		—		—		28,882
Interest income	20,296		—		1,678		13,740		—		—		18,925		9,433		—		64,072
Purchases, sales and repayments
Purchases, net(G)	—		10,949		1,286,526		174,340		—		4,128,097		29,002		6,688		—		5,635,602
Proceeds from sales	(984)		(63,451)		—		(164,630)		—		(3,675,071)		—		—		—		(3,904,136)
Proceeds from repayments	(72,038)		—		(1,395,377)		(267,101)		—		(487,830)		(206,078)		(28,631)		(60,867)		(2,517,922)
Originations and other	—		1,331,626		—		—		—		(19,030)		—		250,000		70,994		1,633,590
Balance at December 31, 2021	$	344,947	$	6,858,803	$	421,807	$	951,942	$	111,778	$	2,423,337	$	507,291	$	290,180	$	1,515,762	$	13,425,847
Transfers
Transfers from Level 3	—		—		—		—		—		(1,279,709)		—		(1,000)		(445,403)		(1,726,112)
Transfers to Level 3	—		—		—		—		—		313,559		—		—		—		313,559
Gains (losses) included in net income
Reversal (provision) for credit losses on securities(D)	—		—		—		(710)		—		—		—		—		—		(710)
Change in fair value of excess MSRs(D)	(2,962)		—		—		—		—		—		—		—		—		(2,962)
Change in fair value of excess MSRs, equity method investees(D)	1,526		—		—		—		—		—		—		—		—		1,526
Servicing revenue, net(E)	—		823,107		—		—		—		—		—		—		—		823,107
Change in fair value of servicer advance investments	—		—		(9,950)		—		—		—		—		—		—		(9,950)
Change in fair value of real estate securities			—		—		(16,076)		—		—		—		—		—		(16,076)
Change in fair value of consumer loans	—		—		—		—		—		—		(36,740)		—		—		(36,740)
Change in fair value of residential mortgage loans	—		—		—		—		—		(124,359)		—		—		—		(124,359)
Gain (loss) on settlement of investments, net	107		—		—		(1,560)		—		—		—		—		(43,868)		(45,321)
Other income (loss), net(D)	(65)		—		—		—		(102,992)		(35,020)		—		(64,459)		—		(202,536)
Gains (losses) included in other comprehensive income(F)	—		—		—		(45,709)		—		—		—		—		—		(45,709)
Interest income	38,035		—		42,005		15,114		—		—		13,891		12,936		—		121,981
Purchases, sales and repayments
Purchases, net(G)	—		(967)		988,847		256,500		—		2,099,549		29,615		9,000		—		3,382,544
Proceeds from sales	(997)		(14,282)		—		(11,960)		—		(2,405,531)		—		—		—		(2,432,770)
Proceeds from repayments	(58,788)		—		(1,043,889)		(196,681)		—		(272,224)		(150,301)		(152,256)		(1,234,444)		(3,108,583)
Originations and other	—		1,222,742		—		—		—		(5,706)		—		—		1,922,006		3,139,042
Balance at December 31, 2022	$	321,803	$	8,889,403	$	398,820	$	950,860	$	8,786	$	713,896	$	363,756	$	94,401	$	1,714,053	$	13,455,778

(A)Includes the recapture agreement for each respective pool, as applicable.

(B)Includes Rithm Capital’s portion of the Excess MSRs held by the respective joint ventures in which Rithm Capital has a 50% interest.

(C)For the purpose of this table, the IRLC asset and liability positions are shown net.

(D)Gains (loss) recorded in earnings during the period are attributable to the change in unrealized gain (loss) relating to Level 3 assets still held at the reporting dates and realized gain (loss) recorded during the period.

(E)The components of Servicing Revenue, Net are disclosed in Note 6.

(F)Gain (loss) included in Unrealized Gain (Loss) on Available-for-Sale Securities, Net in the Consolidated Statements of Comprehensive Income.

(G)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.

Liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:

	Level 3
	Asset-Backed Securities Issued
Balance at December 31, 2020	$	1,662,852
Gains (losses) included in net income
Included in other income(A)	(12,991)
Purchases, sales and payments
Payments	(1,138,754)
Balance at December 31, 2021	$	511,107
Gains (losses) included in net income
Included in other income(A)	(34,647)
Purchases, sales and payments
Payments	(156,974)
Balance at December 31, 2022	$	319,486

(A)Gains (loss) recorded in earnings during the period are attributable to the change in unrealized gain (loss) relating to Level 3 liabilities still held at the reporting dates and realized gain (loss) recorded during the period.

Excess MSRs, MSRs and MSR Financing Receivables Valuation

Fair value estimates of Rithm Capital’s MSRs and Excess MSRs were based on internal pricing models. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included expectations of prepayment rates, delinquency rates, recapture rates for Excess MSRs, the mortgage servicing amount or excess mortgage servicing amount of the underlying residential mortgage loans, as applicable, and discount rates that market participants would use in determining the fair values of mortgage servicing rights on similar pools of residential mortgage loans. In addition, for MSRs, significant inputs included the market-level estimated cost of servicing.

Significant increases (decreases) in the discount rates, prepayment or delinquency rates, or costs of servicing, in isolation would result in a significantly lower (higher) fair value measurement, whereas significant increases (decreases) in the recapture rates for Excess MSRs or mortgage servicing amount or excess mortgage servicing amount, as applicable, in isolation would result in a significantly higher (lower) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the prepayment rate.

The following tables summarize certain information regarding the ranges and weighted averages of significant inputs used:

	December 31, 2022
	Significant Inputs(A)
	Prepayment Rate(B)	Delinquency(C)	Recapture Rate(D)	Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)	Collateral Weighted Average Maturity (Years)(F)
Excess MSRs Directly Held	2.8% – 13.5% (7.3%)	0.2% – 10.1% (3.6%)	—% – 91.4% (55.4%)	6 – 31 (19)	11 – 29 (21)
Excess MSRs Held through Investees	8.4% – 11.0% (9.4%)	2.9% – 5.4% (3.9%)	45.4% – 64.0% (58.7%)	15 – 26 (21)	15 – 22 (19)
MSRs and MSR Financing Receivables (Note 6)(H)
Agency	2.6% – 97.8% (8.0%)	0.1% – 66.7% (2.0%)	—(I)	7 – 104 (30)	0 – 39 (23)
Non-Agency	1.3% – 93.2% (15.0%)	1.0% – 75.0% (21.1%)	—(I)	2 – 216 (46)	0 – 36 (24)
Ginnie Mae	2.8% – 81.2% (10.3%)	0.2% – 80.0% (8.9%)	—(I)	11 – 86 (41)	0 – 39 (27)
Total/Weighted Average—MSRs and MSR Financing Receivables	1.3% – 97.8% (9.2%)	0.1% – 80.0% (5.3%)	—(I)	2 – 216 (34)	0 – 39 (24)

	December 31, 2021
	Significant Inputs(A)
	Prepayment Rate(B)	Delinquency(C)	Recapture Rate(D)	Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)	Collateral Weighted Average Maturity (Years)(F)
Excess MSRs Directly Held	3.6% – 12.4% (6.8%)	0.1% – 9.6% (3.2%)	0% – 25.2% (7.3%)	6 – 32 (19)	11 – 28 (21)
Excess MSRs Held through Investees	5.4% – 8.5% (6.7%)	0.3% – 1.6% (0.9%)	3% – 9.5% (5.7%)	15 – 26 (22)	16 – 23 (19)
MSRs and MSR Financing Receivables (Note 6)(H)
Agency	6% – 14.6% (10.2%)	0.1% – 2.2% (0.9%)	0% – 31.4% (10.7%)	25 – 30 (28)	0 – 40 (23)
Non-Agency	6.7% – 50.4% (6.7%)	0.7% – 64.6% (11.8%)	4% – 27% (6.8%)	26 – 86 (48)	0 – 30 (24)
Ginnie Mae	5.3% – 14.3% (12.6%)	1.4% – 6.3% (4.1%)	4.8% – 24.5% (12.7%)	31 – 45 (39)	0 – 30 (28)
Total/Weighted Average—MSRs and MSR Financing Receivables	5.3% – 50.4% (10.2%)	0.1% – 64.6% (3.1%)	0% – 31.4% (10%)	25 – 86 (33)	0 – 40 (24)

(A)Weighted by fair value of the portfolio.

(B)Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.

(C)Projected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.

(D)Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.

(E)Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in bps. As of December 31, 2022 and 2021, weighted average costs of subservicing of $6.80 – $7.00 ($6.90) and $6.40 – $7.20 ($7.00), respectively, per loan per month was used to value the agency MSRs. Weighted average costs of subservicing of $7.30 – $17.20 ($8.70) and $10.60 – $15.80 ($10.70), respectively, per loan per month was used to value the non-agency MSRs, including MSR Financing Receivables. Weighted average cost of subservicing of $8.30 – $8.40 ($8.30) and $8.80 – $8.90 ($8.80), respectively, per loan per month was used to value the Ginnie Mae MSRs.

(F)Weighted average maturity of the underlying residential mortgage loans in the pool.

(G)For certain pools, the Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO). For these pools, no delinquency assumption is used.

(H)For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.

(I)Recapture is not considered a significant input for MSRs and MSR Financing Receivables.

With respect to valuing the Ocwen-serviced MSR Financing Receivables, which include a significant servicer advances receivable component, the cost of financing servicer advances receivable is assumed to be LIBOR plus 2.1%.

As of December 31, 2022 and 2021, weighted average discount rates of 8.3% (range of 8.0% – 8.5%) and 7.8% (range of 7.5% – 8.0%), respectively, were used to value Rithm Capital’s investments in Excess MSRs (directly and through equity method investees). As of December 31, 2022 and 2021, weighted average discount rates of 8.3% (range of 7.6% – 9.8%) and 7.4% (range of 6.9% – 12.5%) were used to value Rithm Capital’s MSRs and MSR Financing Receivables, respectively.

All of the assumptions listed have some degree of market observability, based on Rithm Capital’s knowledge of the market, relationships with market participants, and use of common market data sources. Rithm Capital uses assumptions that generate its best estimate of future cash flows for each investment in MSRs and Excess MSRs.

When valuing MSRs and Excess MSRs, Rithm Capital uses the following criteria to determine the significant inputs:

•Prepayment Rate: Prepayment rate projections are in the form of a “vector” that varies over the expected life of the pool. The prepayment vector specifies the percentage of the collateral balance that is expected to prepay voluntarily (i.e., pay off) and involuntarily (i.e., default) at each point in the future. The prepayment vector is based on assumptions that reflect macroeconomic conditions like home price appreciation, current level of interest rates as well as loan level factors such as the borrower’s interest rate, FICO score, loan-to-value ratio, debt-to-income ratio, vintage on a loan level basis. Rithm Capital considers historical prepayment experience associated with the collateral when determining this vector and also reviews industry research on the prepayment experience of similar loan pools. This data is obtained from remittance reports, market data services and other market sources.

•Delinquency Rates: For existing mortgage pools, delinquency rates are based on the recent pool-specific experience of loans that missed their latest mortgage payments. Delinquency rate projections are in the form of a “vector” that varies over the expected life of the pool. The delinquency vector specifies the percentage of the unpaid principal balance that is expected to be delinquent each month. The delinquency vector is based on assumptions that reflect macroeconomic conditions, the historical delinquency rates for the pools and the underlying borrower characteristics such as the FICO score and loan-to-value ratio. For the recapture agreements and recaptured loans, delinquency rates are based on the experience of similar loan pools originated by Rithm Capital’s servicers and subservicers, and delinquency experience over the past year. Rithm Capital believes this time period provides a reasonable sample for projecting future delinquency rates while taking into account current market conditions. Additional consideration is given to loans that are expected to become 30 or more days delinquent.

•Recapture Rates: Recapture rates are based on actual average recapture rates experienced by Rithm Capital’s servicers and subservicers on similar residential mortgage loan pools. Generally, Rithm Capital looks to three to six months’ worth of actual recapture rates, which it believes provides a reasonable sample for projecting future recapture rates while taking into account current market conditions. Recapture rate projections are in the form of a “vector” that varies over the expected life of the pool. The recapture vector specifies the percentage of the refinanced loans that have been recaptured within the pool by the servicer or subservicer. The recapture vector takes into account the nature and timeline of the relationship between the borrowers in the pool and the servicer or subservicer, the customer retention programs offered by the servicer or subservicer and the historical recapture rates.

•Mortgage Servicing Amount or Excess Mortgage Servicing Amount: For existing mortgage pools, mortgage servicing amount and excess mortgage servicing amount projections are based on the actual total mortgage servicing amount, in excess of a basic fee as applicable. For loans expected to be refinanced by the related servicer or subservicer and subject to a recapture agreement, Rithm Capital considers the mortgage servicing amount or excess mortgage servicing amount on loans recently originated by the related servicer over the past three months and other general market considerations. Rithm Capital believes this time period provides a reasonable sample for projecting future mortgage servicing amounts and excess mortgage servicing amounts while taking into account current market conditions.

•Discount Rate: The discount rates used by Rithm Capital are derived from market data on pricing of mortgage servicing rights backed by similar collateral.

•Cost of subservicing: The costs of subservicing used by Rithm Capital are based on available market data for various loan types and delinquency statuses.

Rithm Capital uses different prepayment and delinquency assumptions in valuing the MSRs and Excess MSRs relating to the original loan pools, the recapture agreements and the MSRs and Excess MSRs relating to recaptured loans. The prepayment rate and delinquency rate assumptions differ because of differences in the collateral characteristics, refinance potential and expected borrower behavior for original loans and loans which have been refinanced. The assumptions for recapture and discount rates when valuing MSRs and Excess MSRs and recapture agreements are based on historical recapture experience and market pricing.

Servicer Advance Investments Valuation

Rithm Capital uses internal pricing models to estimate the future cash flows related to the Servicer Advance Investments that incorporate significant unobservable inputs and include assumptions that are inherently subjective and imprecise. Rithm Capital’s estimations of future cash flows include the combined cash flows of all of the components that comprise the Servicer Advance Investments: existing advances, the requirement to purchase future advances, the recovery of advances and the right to the basic fee component of the related MSR. The factors that most significantly impact the fair value include (i) the rate at which the servicer advance balance changes over the term of the investment, (ii) the UPB of the underlying loans with respect to which Rithm Capital has the obligation to make advances and owns the basic fee component of the related MSR which, in turn, is driven by prepayment rates and (iii) the percentage of delinquent loans with respect to which Rithm Capital owns the basic fee component of the related MSR. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included the assumptions used to establish the aforementioned cash flows and discount rates that market participants would use in determining the fair values of Servicer Advance Investments.

Significant increases (decreases) in the advance balance-to-UPB ratio, prepayment rate, delinquency rate, or discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the advance balance-to-UPB ratio.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:

	Significant Inputs
	Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans	Prepayment Rate(A)	Delinquency	Mortgage Servicing Amount(B)	Discount Rate	Collateral Weighted Average Maturity (Years)(C)
December 31, 2022	1.2% – 2.2% (2.1%)	3.4% – 4.6% (4.6%)	3.4% – 19.6% (19.1%)	18.0 – 19.8 (19.8) bps	5.7% – 6.2% (5.7%)	21.9
December 31, 2021	0.7% – 1.8% (1.7%)	6.5% – 7.7% (7.7%)	8.2% – 15.0% (14.8%)	17.6 – 19.8 (19.7) bps	5.2% – 5.7% (5.2%)	22.1

(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.

(B)Mortgage servicing amount is net of 10.8 bps and 10.6 bps which represent the amounts Rithm Capital paid its servicers as a monthly servicing fee as of December 31, 2022 and 2021, respectively.

(C)Weighted average maturity of the underlying residential mortgage loans in the pool.

The valuation of the Servicer Advance Investments also takes into account the performance fee paid to the servicer, which in the case of the Buyer is based on its equity returns and therefore is impacted by relevant financing assumptions such as loan-to-value ratio and interest rate as well as advance-to-UPB ratio. All of the assumptions listed have some degree of market observability, based on Rithm Capital’s knowledge of the market, relationships with market participants, and use of common market data sources. The prepayment rate, the delinquency rate and the advance-to-UPB ratio projections are in the form of “curves” or “vectors” that vary over the expected life of the underlying mortgages and related servicer advances. Rithm Capital

uses assumptions that generate its best estimate of future cash flows for each Servicer Advance Investment, including the basic fee component of the related MSR.

When valuing Servicer Advance Investments, Rithm Capital uses the following criteria to determine the significant inputs:

•Servicer advance balance: Servicer advance balance projections are in the form of a “vector” that varies over the expected life of the residential mortgage loan pool. The servicer advance balance projection is based on assumptions that reflect factors such as the borrower’s expected delinquency status, the rate at which delinquent borrowers re-perform or become current again, servicer modification offer and acceptance rates, liquidation timelines and the servicers’ stop advance and clawback policies.

•Prepayment Rate: Prepayment rate projections are in the form of a “vector” that varies over the expected life of the pool. The prepayment vector specifies the percentage of the collateral balance that is expected to prepay voluntarily (i.e., pay off) and involuntarily (i.e., default) at each point in the future. The prepayment vector is based on assumptions that reflect macroeconomic conditions and factors such as the borrower’s FICO score, loan-to-value ratio, debt-to-income ratio, and vintage on a loan level basis. Rithm Capital considers collateral-specific prepayment experience when determining this vector.

•Delinquency Rates: For existing mortgage pools, delinquency rates are based on the recent pool-specific experience of loans that missed recent mortgage payment(s) as well as loan- and borrower-specific characteristics such as the borrower’s FICO score, the loan-to-value ratio, debt-to-income ratio, occupancy status, loan documentation, payment history and previous loan modifications. Rithm Capital believes the time period utilized provides a reasonable sample for projecting future delinquency rates while taking into account current market conditions.

•Mortgage Servicing Amount: Mortgage servicing amounts are contractually determined on a pool-by-pool basis. Rithm Capital projects the weighted average mortgage servicing amount based on its projections for prepayment rates.

•LIBOR: The performance-based incentive fees on Mr. Cooper-serviced Servicer Advance Investments portfolios are driven by LIBOR-based factors. The LIBOR curves used are widely used by market participants as reference rates for many financial instruments.

•Discount Rate: The discount rates used by Rithm Capital are derived from market data on pricing of mortgage servicing rights backed by similar collateral and the advances made thereon.

Real Estate and Other Securities Valuation

Rithm Capital’s securities valuation methodology and results are further detailed as follows:

					Fair Value
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Multiple Quotes(A)		Single Quote(B)		Total		Level
December 31, 2022
Agency RMBS	$	7,463,522	$	7,290,473	$	7,338,417	$	—	$	7,338,417	2
Non-Agency RMBS(C)	17,907,412		947,346		950,846		14		950,860		3
Total	$	25,370,934	$	8,237,819	$	8,289,263	$	14	$	8,289,277
December 31, 2021
Agency RMBS	$	8,399,343	$	8,663,693	$	8,444,597	$	—	$	8,444,597	2
Non-Agency RMBS(C)	15,914,957		886,643		951,942		—		951,942		3
Total	$	24,314,300	$	9,550,336	$	9,396,539	$	—	$	9,396,539

(A)Rithm Capital generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold Rithm Capital the security) for Non-Agency RMBS. Rithm Capital evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if Rithm Capital receives two or more quotes on a particular security that come from non-selling brokers

or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for Non-Agency RMBS, there is a wide disparity between the quotes Rithm Capital receives. Rithm Capital believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on Rithm Capital’s own fair value analysis, it selects one of the quotes which is believed to more accurately reflect fair value. Rithm Capital has not adjusted any of the quotes received in the periods presented. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price. Rithm Capital’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.

The third-party pricing services and brokers engaged by Rithm Capital (collectively, “valuation providers”) use either the income approach or the market approach, or a combination of the two, in arriving at their estimated valuations of RMBS. Valuation providers using the market approach generally look at prices and other relevant information generated by market transactions involving identical or comparable assets. Valuation providers using the income approach create pricing models that generally incorporate such assumptions as discount rates, expected prepayment rates, expected default rates and expected loss severities. Rithm Capital has reviewed the methodologies utilized by its valuation providers and has found them to be consistent with GAAP requirements. In addition to obtaining multiple quotations, when available, and reviewing the valuation methodologies of its valuation providers, Rithm Capital creates its own internal pricing models for Level 3 securities and uses the outputs of these models as part of its process of evaluating the fair value estimates it receives from its valuation providers. These models incorporate the same types of assumptions as the models used by the valuation providers, but the assumptions are developed independently. These assumptions are regularly refined and updated at least quarterly by Rithm Capital, and reviewed by its valuation group, which is separate from its investment acquisition and management group, to reflect market developments and actual performance.

For 50.4% of Non-Agency RMBS, the ranges and weighted averages of assumptions used by Rithm Capital’s valuation providers are summarized in the table below. The assumptions used by Rithm Capital’s valuation providers with respect to the remainder of Non-Agency RMBS were not readily available.

	Fair Value		Discount Rate	Prepayment Rate(a)	CDR(b)	Loss Severity(c)
Non-Agency RMBS	$	479,406	3.5% – 15.0% (6.5%)	0.0% – 25.0% (11.1%)	0.0% – 12.0% (0.6%)	0.0% – 88.0% (10.3%)

(a)Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.

(b)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.

(c)Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.

(B)Rithm Capital was unable to obtain quotations from more than one source on these securities.

(C)Includes Rithm Capital’s interest-only notes for which the fair value option for financial instruments was elected.

Residential Mortgage Loans Valuation

Rithm Capital, through its Mortgage Company, originates residential mortgage loans that it intends to sell into Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securitizations. Residential mortgage loans held-for-sale, at fair value are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. Residential mortgage loans held-for-sale, at fair value are valued using a market approach by utilizing either: (i) the fair value of securities backed by similar residential mortgage loans, adjusted for certain factors to approximate the fair value of a whole residential mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these

prices are derived from market observable inputs, Rithm Capital classifies these valuations as Level 2 in the fair value hierarchy.

Residential mortgage loans held-for-sale, at fair value also includes certain nonconforming mortgage loans originated for sale to private investors and seasoned mortgage loans acquired and identified for securitization, which are valued using internal pricing models to forecast loan level cash flows based on a potential securitization exit using inputs such as default rates, prepayments speeds and discount rates, and may include adjustments based on consensus pricing (broker quotes). As the internal pricing model is based on certain unobservable inputs, Rithm Capital classifies these valuations as Level 3 in the fair value hierarchy.

For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and estimated home price levels. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Rithm Capital classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:

Performing Loans	Fair Value		Discount Rate	Prepayment Rate	CDR	Loss Severity
Acquired	$	52,467	8.5% – 8.7% (8.5%)	9.3% – 11.4% (9.7%)	4.3% – 8.3% (5.0%)	20.0% – 37.1% (24.1%)
Originated	183,985		N/A	N/A	N/A	N/A
Residential mortgage loans held-for-sale, at fair value	$	236,452

Non-Performing Loans	Fair Value		Discount Rate	Annual change in home prices	Liquidation Timeline (in years)	Current Value of Underlying Properties
Acquired	$	20,759	8.7% – 55.9% (9.0%)	33.2% – 55.9% (40.7%)	2.2 – 3.8 (2.8)	191.6% – 260.6% (214.5%)
Originated	4,166		N/A	N/A	N/A	N/A
Residential mortgage loans held-for-sale, at fair value	$	24,925

Residential mortgage loans held-for-investment, at fair value includes residential mortgage loans underlying the SAFT 2013-1 securitization, which are valued using internal pricing models using inputs such as default rates, prepayment speeds and discount rates. As the internal pricing model is based on certain unobservable inputs, Rithm Capital classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:

	Fair Value		Discount Rate	Prepayment Rate	CDR	Loss Severity
Residential mortgage loans held-for-investment, at fair value	$	452,519	3.8% – 8.7% (8.5%)	9.3% – 16.3% (12.3%)	0.1% – 13.7% (6.7%)	23.2% – 55.0% (40.3%)

Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in the fair value of residential mortgage loans. Increases in discount rates, default rates, loss severities, or liquidation timelines, either in isolation or collectively, would generally result in a lower fair value measurement, whereas increases in the current or expected value of the underlying properties, in isolation, would result in a higher fair value measurement. In practice, changes in valuation assumptions may not occur in isolation and the changes in any particular assumption may result in changes in other assumptions, which could offset or amplify the impact on the overall valuation.

Consumer Loans Valuation

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing consumer loans held-for-investment, at fair value classified as Level 3:

	Fair Value		Discount Rate	Prepayment Rate	CDR	Loss Severity
Consumer loans held-for-investment, at fair value	$	363,756	8.3% – 9.3% (8.6%)	6.8% – 33.2% (28.7%)	0.0% – 7.1% (4.3%)	56.8% – 56.8% (56.8%)

Mortgage Loans Receivable Valuation

The estimated fair value approximates carrying value as most loans are variable-rate that reprice frequently and with no significant change in credit risk. Rithm Capital classifies mortgage loans receivable as Level 3 in the fair value hierarchy.

Rithm Capital has securitized certain mortgage loans receivable which are held as part of a collateralized financing entity (“CFE”). A CFE is a variable interest entity that holds financial assets, issues beneficial interests in those assets and has no more than nominal equity and the beneficial interests have contractual recourse only to the related assets of the CFE. GAAP allows entities to elect to measure both the financial assets and financial liabilities of the CFE using the more observable of the fair value of the financial assets and the fair value of the financial liabilities of the CFE. Rithm Capital has elected the fair value option (“FVO”) for initial and subsequent recognition of the debt issued by its consolidated securitization trust and has determined that the consolidated securitization trust meets the definition of a CFE. See Note 20 for further discussion regarding variable interest entities and securitization trusts. Rithm Capital determined the inputs to the fair value measurement of the financial liabilities of its CFE to be more observable than those of the financial assets and, as a result, has used the fair value of the financial liabilities of the CFE to measure the fair value of the financial assets of the CFE. The fair value of the debt issued by the CFE is typically valued using external pricing data, which includes third-party valuations. The securitized mortgage loans receivable, which are assets of the CFE, are included in Mortgage Loans Receivable, at Fair Value, on the Company’s Consolidated Balance Sheets. The debt issued by the CFE is included in Secured Notes and Bonds Payable on the Company’s Consolidated Balance Sheets. Unrealized gain (loss) from changes in fair value of the debt issued by the CFE is included in Other Income (Loss), Net in the Company’s Consolidated Statements of Income. The securitized mortgage loans receivable and the debt issued by the Company’s CFE are both classified as Level 2.

Derivative Valuation

Rithm Capital enters into economic hedges including interest rate swaps, caps and TBAs, which are categorized as Level 2 in the valuation hierarchy. Rithm Capital generally values such derivatives using quotations, similarly to the method of valuation used for Rithm Capital’s other assets that are classified as Level 2 in the fair value hierarchy.

As a part of the residential mortgage loan origination business, Rithm Capital enters into forward loan sale and securities delivery commitments, which are valued based on observed market pricing for similar instruments and therefore, are classified as Level 2. In addition, Rithm Capital enters into IRLCs, which are valued using internal pricing models (i) incorporating market pricing for instruments with similar characteristics, (ii) estimating the fair value of the servicing rights expected to be recorded at sale of the loan and (iii) adjusting for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and therefore, IRLCs are classified as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing IRLCs:

	Fair Value		Loan Funding Probability	Fair Value of Initial Servicing Rights (bps)
IRLCs, net	$	8,786	0.0% – 100.0% (82.5%)	(150.2) – 324.6 (185.6)

Asset-Backed Securities Issued

Rithm Capital and Newrez were deemed to be the primary beneficiaries of the MDST Trusts, SAFT 2013-1 securitization entity, and SCFT 2020-A, and therefore, Rithm Capital’s Consolidated Balance Sheets include the asset-backed securities issued by the MDST Trusts, SAFT 2013-1, and SCFT 2020-A, respectively. Rithm Capital elected the fair value option for these financial instruments and the asset-backed securities issued were valued consistently with Rithm Capital’s Non-Agency RMBS described above.

The following table summarizes certain information regards the ranges and weighted averages of inputs used in valuing asset-backed securities issued:

	Fair Value		Discount Rate	Prepayment Rate	CDR	Loss Severity
Asset-backed securities issued	$	319,486	3.3% – 6.3% (6.1%)	13.7% – 21.8% (21.3%)	0.1% – 4.2% (3.9%)	44.0% – 94.7% (91.6%)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment. For residential mortgage loans held-for-sale, single-family rental properties, and foreclosed real estate accounted for as REO, Rithm Capital applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment. Upon the occurrence of certain events, the Company re-measures the fair value of long-lived assets, including property, plant and equipment, operating lease ROU assets, intangible assets and goodwill if an impairment or observable price adjustment is recognized in the current period.

As of December 31, 2022 and 2021, assets measured at fair value on a nonrecurring basis were $102.3 million and $130.6 million, respectively. The $102.3 million of assets at December 31, 2022 include approximately $91.8 million of residential mortgage loans held-for-sale and $10.5 million of REO. The $130.6 million of assets at December 31, 2021 include approximately $115.5 million of residential mortgage loans held-for-sale and $15.1 million of REO. The fair value of Rithm Capital’s residential mortgage loans, held-for-sale is estimated based on a discounted cash flow model analysis using internal pricing models and is categorized within Level 3 of the fair value hierarchy. The following table summarizes the ranges and weighted averages of significant inputs used in valuing these residential mortgage loans:

	Fair Value and Carrying Value		Discount Rate	Weighted Average Life (Years)(A)	Prepayment Rate	CDR(B)	Loss Severity(C)
December 31, 2022
Performing	$	72,595	5.3% – 8.7% (8.5%)	5.0 – 7.2 (5.2)	9.3% – 11.4% (9.4%)	4.3% – 8.3% (4.5%)	20.0% – 37.1% (23.9%)
Non-performing	19,219		8.7% – 9.1% (8.9%)	2.2 – 3.8 (2.9)	16.3% – 31.1% (24.6%)	13.7% – 27.5% (21.5%)	39.5% – 39.8% (39.6%)
Total/weighted average	$	91,814	8.6%	4.7	12.6%	8.0%	27.2%
December 31, 2021
Performing	$	113,196	3.8% – 7.0% (6.8%)	4.8 – 8.8 (4.9)	4.8% – 7.4% (6.0%)	0.9% – 9.4% (5.9%)	40.9% – 54.7% (45.5%)
Non-performing	2,287		7.5% – 7.5% (7.5%)	4.7 – 4.7 (4.7)	1.7% – 1.7% (1.7%)	16.7% – 16.7% (16.7%)	41.9% – 41.9% (41.9%)
Total/weighted average	$	115,483	6.8%	4.9	5.9%	6.1%	45.4%

(A)Based on the expected timing of the receipt of cash flows.

(B)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.

(C)Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.

The fair value of REO is estimated using a broker’s price opinion discounted based upon Rithm Capital’s experience with actual liquidation values and, therefore, is categorized within Level 3 of the fair value hierarchy. These discounts to the broker price opinion generally range from 10%–25%, depending on the information available to the broker.

The total change in the recorded value of assets for which a fair value adjustment has been included in the Consolidated Statements of Income for the year ended December 31, 2022 consisted of a valuation allowance of $8.3 million for residential mortgage loans and a reversal of valuation allowance of $0.7 million for REO.

The total change in the recorded value of assets for which a fair value adjustment has been included in the Consolidated Statements of Income for the year ended December 31, 2021 consisted of a reversal of valuation allowance of $38.2 million for residential mortgage loans and a reversal of valuation allowance of $4.3 million for REO.