DERIVATIVES

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Rithm Capital enters into economic hedges including interest rate swaps and to-be-announced forward contract positions (“TBAs”) to hedge a portion of its interest rate risk exposure. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, as well as other factors. Rithm Capital’s credit risk with respect to economic hedges is the risk of default on Rithm Capital’s investments that results from a borrower’s or counterparty’s inability or unwillingness to make contractually required payments.

Rithm Capital may at times hold TBAs in order to mitigate Rithm Capital’s interest rate risk on certain specified mortgage-backed securities and MSRs. Amounts or obligations owed by or to Rithm Capital are subject to the right of set-off with the TBA counterparty. As part of executing these trades, Rithm Capital may enter into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements and various other provisions. Changes in the value of derivatives designed to protect against mortgage-backed securities and MSR fair value fluctuations, or hedging gains and losses, are reflected in the tables below.

As of September 30, 2023, Rithm Capital also held interest rate lock commitments (“IRLCs”), which represent a commitment to a particular interest rate provided the borrower is able to close the loan within a specified period, and forward loan sale and securities delivery commitments, which represent a commitment to sell specific residential mortgage loans at prices which are fixed as of the forward commitment date. Rithm Capital enters into forward loan sale and securities delivery commitments in

order to hedge the exposure related to IRLCs and residential mortgage loans that are not covered by residential mortgage loan sale commitments.

Derivatives are recorded at fair value on the Consolidated Balance Sheets as follows:


	Balance Sheet Location	September 30, 2023		December 31, 2022
Derivative assets
Interest rate swaps(A)	Other assets	$	350	$	449
Interest rate lock commitments	Other assets	13,751		16,015
TBAs	Other assets	49,431		35,765
Options on treasury futures	Other assets	—		—
		$	63,532	$	52,229
Derivative liabilities

Interest rate lock commitments	Accrued expenses and other liabilities	$	7,253	$	7,229

TBAs	Accrued expenses and other liabilities	2,386		10,835
		$	9,639	$	18,064

(A)Net of $1.1 billion and $1.2 billion of related variation margin balances as of September 30, 2023 and December 31, 2022, respectively.

The following table summarizes notional amounts related to derivatives:


	September 30, 2023		December 31, 2022

Interest rate swaps(A)	$	22,565,000	$	23,085,000
Interest rate lock commitments	2,704,543		2,647,747

TBAs, short position(B)	7,104,300		8,473,221
TBAs, long position(B)	—		31,500

(A)Includes $20.2 billion notional of receive Secured Overnight Financing Rate (“SOFR”)/pay fixed of 2.5% and $2.4 billion notional of receive fixed of 3.4%/pay SOFR with weighted average maturities of 38 months and 40 months, respectively, as of September 30, 2023. Includes $23.1 billion notional of receive SOFR/pay fixed of 1.9% and $0.0 billion notional of receive fixed of 0.0%/pay SOFR with weighted average maturities of 35 months and 0 months, respectively, as of December 31, 2022.

(B)Represents the notional amount of Agency RMBS, classified as derivatives.

The following table summarizes gain (loss) on derivatives and the related location on the Consolidated Statements of Operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Servicing revenue, net(A)
TBAs	$	—	$	(18,505)	$	—	$	(15,205)
Treasury futures	—		—		—		(1,746)
Options on treasury futures	—		—		—		5,635
	$	—	$	(18,505)	$	—	$	(11,316)
Gain on originated residential mortgage loans, held-for-sale, net(A)
Interest rate lock commitments	(8,630)		(104,440)		(2,288)		(154,644)
TBAs	15,574		233,673		28,803		250,661
Interest rate swaps	330		—		(1,601)		—
	$	7,274	$	129,233	$	24,914	$	96,017
Realized and unrealized gains (losses) on investments, net(B)(C)
Interest rate swaps	191,527		465,269		263,347		1,145,196
TBAs	3,066		(651)		(3,808)		357,987
	$	194,593	$	464,618	$	259,539	$	1,503,183

Total gain (loss)	$	201,867	$	575,346	$	284,453	$	1,587,884

(A)Represents unrealized gain (loss).

(B)Excludes no loss and $2.2 million loss for the three months ended September 30, 2023 and 2022, respectively, and no loss and $79.0 million loss for the nine months ended September 30, 2023 and 2022, respectively, included within Servicing revenue, net (Note 5).

(C)Excludes $67.4 million gain and $57.4 million gain for the three months ended September 30, 2023 and 2022, respectively, and $65.8 million gain and $1.1 billion gain for the nine months ended September 30, 2023 and 2022, respectively, included within Gain on originated residential mortgage loans, held-for-sale, net (Note 8).