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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2023

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 (“CPR”), loss severities, credit risks and default rates (“CDR”)), 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 September 30, 2023 were as follows:


	Principal Balance or Notional Amount		Carrying Value		Fair Value
					Level 1		Level 2		Level 3		Total
Assets
Excess MSRs(A)	$	61,988,328	$	282,976	$	—	$	—	$	282,976	$	282,976
MSRs and MSR financing receivables(A)	530,921,220		8,694,868		—		—		8,694,868		8,694,868

Servicer advance investments	314,165		387,669		—		—		387,669		387,669
Real estate and other securities(B)	26,859,938		10,193,596		992,183		8,300,246		901,228		10,193,657
Residential mortgage loans, held-for-sale	96,395		78,683		—		—		78,683		78,683
Residential mortgage loans, held-for-sale, at fair value	2,787,891		2,740,599		—		2,601,246		139,353		2,740,599
Residential mortgage loans, held-for-investment, at fair value	462,187		370,957		—		—		370,957		370,957
Residential mortgage loans subject to repurchase	1,443,546		1,443,546		—		1,443,546		—		1,443,546
Consumer loans	1,475,494		1,436,080		—		—		1,436,080		1,436,080
Mortgage loans receivable(C)	2,135,424		2,135,424		—		348,062		1,787,362		2,135,424
Notes receivable	103,082		33,250		—		—		33,250		33,250
Loans receivable	30,109		30,109		—		—		30,109		30,109
Cash, cash equivalents and restricted cash	1,585,730		1,585,730		1,585,730		—		—		1,585,730
Other assets(D)	N/A		19,626		—		—		19,626		19,626
Derivative assets	31,135,387		63,532		—		49,781		13,751		63,532
			$	29,496,645	$	2,577,913	$	12,742,881	$	14,175,912	$	29,496,706
Liabilities
Secured financing agreements	$	13,605,832	$	13,605,380	$	—	$	13,605,380	$	—	$	13,605,380
Secured notes and bonds payable(E)	10,071,997		9,964,855		—		307,228		10,029,723		10,336,951
Unsecured senior notes, net of issuance costs	546,374		546,374		—		—		523,133		523,133
Residential mortgage loan repurchase liability	1,443,546		1,443,546		—		1,443,546		—		1,443,546
Derivative liabilities	1,238,456		9,639		—		2,386		7,253		9,639
			$	25,569,794	$	—	$	15,358,540	$	10,560,109	$	25,918,649

(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 U.S. Treasury Bills classified as Level 1 and held at amortized cost basis of $992.1 million (see Note 7).

(C)Includes Rithm Capital’s economic interests in the VIEs consolidated and accounted for under the collateralized financing entity (“CFE”) election. As of September 30, 2023, the fair value of Rithm Capital’s interests in the mortgage loans receivable securitization was $50.6 million.

(D)Excludes the indirect equity investment in a commercial redevelopment project accounted for at fair value on a recurring basis based on NAV of Rithm Capital’s investment. The investment had a fair value of $0 as of September 30, 2023.

(E)Includes 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 $552.9 million as of September 30, 2023.

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


		Level 3																	Total
	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

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
Transfers
Transfers from Level 3		—		—			—		—		—		(41,430)		—		—		(253,885)		(295,315)
Transfers to Level 3		—		—			—		—		—		20,421		—		—		—		20,421



Gain (loss) included in net income
Credit losses on securities(D)		—		—			—		371		—		—		—		—		—		371
Servicing revenue, net(E)
Included in servicing revenue(E)		—		(99,338)			—		—		—		—		—		—		—		(99,338)
Change in fair value of:
Excess MSRs(D)		(11,862)		—			—		—		—		—		—		—		—		(11,862)
Change in fair value of excess MSRs, equity method investees(D)		—		—			—		—		—		—		—		—		—		—
Servicer advance investments		—		—			20,273		—		—		—		—		—		—		20,273
Residential mortgage loans		—		—			—		—		—		(9,548)		—		—		—		(9,548)
Consumer loans		—		—			—		—		—		—		(14,024)		—		—		(14,024)

Gain (loss) on settlement of investments, net		284		—			—				—		—		—		—		—		284
Other income (loss), net(D)		(134)		—			—		(3,028)		(2,288)		42,421		—		231		—		37,202
Gains (losses) included in OCI(F)		—		—			—		685		—		—		—		—		—		685
Interest income		16,733		—			16,257		21,121		—		—		21,281		4,422		—		79,814
Purchases, sales and repayments
Purchases, net(G)		—		—			644,594		32,600		—		38,335		1,317,347		35,000		146,631		2,214,507
Proceeds from sales		(900)		(704,657)			—		—		—		(239,446)		20,675		—		—		(924,328)
Proceeds from repayments		(42,948)		—			(692,275)		(101,381)		—		(69,718)		(272,955)		(70,695)		(1,286,661)		(2,536,633)
Originations and other		—		609,460			—		—		—		55,379		—		—		1,467,224		2,132,063
Balance at September 30, 2023		$	282,976	$	8,694,868		$	387,669	$	901,228	$	6,498	$	510,310	$	1,436,080	$	63,359	$	1,787,362	$	14,070,350

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

(B)Amounts include 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)Gain (loss) recorded in earnings during the period is 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)See Note 5 for further details on the components of servicing revenue, net.

(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, 2022	$	319,486




Gains (losses) included in net income








Other income(A)	(200)


Purchases, sales and repayments

Proceeds from sales	—
Payments	(73,591)

Balance at September 30, 2023	$	245,695

(A)Gain (loss) recorded in earnings during the period is 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

The following table summarizes certain information regarding the ranges and weighted averages of inputs used as of September 30, 2023:

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

2.3% – 11.0%

(5.9%)

0.2% – 8.9%

(4.4%)

0.0% – 90.7%

(55.3%)

7 – 59 (20)

11 – 27 (21)

Excess MSRs Held through Investees

6.3% – 9.0%

(7.8%)

2.2% – 5.6%

(3.5%)

45.1% – 64.3%

(59.0%)

16 – 25 (21)

15 – 21 (19)

MSRs and MSR Financing Receivables(G)

Agency

3.0% – 83.7%

(6.4%)

0.1% – 66.7%

(2.1%)

—(H)

7 – 108 (26)

0 – 40 (23)

Non-Agency

0.1% – 84.4%

(11.8%)

0.7% – 70.0%

(22.2%)

—(H)

10 – 188 (46)

0 – 40 (24)

Ginnie Mae

5.4% – 81.5%

(8.9%)

0.2% – 71.4%

(8.6%)

—(H)

18 – 116 (43)

0 – 40 (27)

Total/Weighted Average—MSRs and MSR Financing Receivables

0.1% – 84.4%

(7.6%)

0.1% – 71.4%

(5.7%)

—(H)

7 – 188 (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 a 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 basis points (“bps”). A weighted average cost of subservicing of $6.91 – $7.18 ($6.96) per loan per month was used to value the agency MSRs. A weighted average cost of subservicing of $7.47 – $9.55 ($9.14) per loan per month was used to value the Non-Agency MSRs, including MSR financing receivables. A weighted average cost of subservicing of $8.36 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, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.

(H)Recapture is not considered a significant input for MSRs and MSR financing receivables.

With respect to valuing the PHH-serviced MSRs and MSR financing receivables, which include a significant servicer advances receivable component, the cost of financing servicer advances receivable is assumed to be SOFR plus 4.1%.

As of September 30, 2023, a weighted average discount rate of 8.8% (range of 8.5% – 9.0%) was used to value Rithm Capital’s Excess MSRs (directly and through equity method investees). As of September 30, 2023, a weighted average discount rate of 8.5% (range of 7.9% – 10.8%) was used to value Rithm Capital’s MSRs and MSR financing receivables.

Servicer Advance Investments Valuation

The following table summarizes certain information regarding the ranges and weighted averages of 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)

September 30, 2023

1.1% – 2.2% (2.2%)

2.6% – 4.4% (4.4%)

3.3% – 20.5% (20.1%)

18.2 – 19.9 (19.8)

bps

6.2% – 6.7% (6.2%)

21.2 – 21.9 (21.9)

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

(B)Mortgage servicing amount is net of 2.7 bps which represents the amount Rithm Capital paid its servicers as a monthly servicing fee.

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

Real Estate and Other Securities Valuation

As of September 30, 2023, real estate securities valuation methodology and results are detailed below. Treasury securities are valued using market-based prices published by the U.S. Department of the Treasury and classified as Level 1.


					Fair Value
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Multiple Quotes(A)		Single Quote(B)		Total		Level
Agency RMBS	$	8,731,597	$	8,554,197	$	8,300,246	$	—	$	8,300,246	2
Non-Agency RMBS(C)	17,128,341		899,828		901,228		—		901,228		3
Total	$	25,859,938	$	9,454,025	$	9,201,474	$	—	$	9,201,474

(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, 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 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 62.2% 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

560,081

5.7% – 15.0% (9.3%)

0.0% – 40.7% (7.1%)

0.0% – 2.4% (0.4%)

0.0% – 75.9% (13.0%)

(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 investments in 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. The Mortgage Company also originates non-qualified mortgage loans that it intends to sell to private investors. 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 mortgage loans, adjusted for certain factors to approximate the fair value of a whole 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. Originated residential mortgage loans held-for-sale for which there is little to no observable trading activity of similar instruments are valued using Level 3 measurements based upon dealer price quotes or historical sale transactions for similar loans.

Residential mortgage loans held-for-sale, at fair value also includes nonconforming 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 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 loans	$	43,697	8.7% – 9.2% (9.0%)	1.9% – 7.7% (5.4%)	2.3% – 10.0% (5.4%)	12.1% – 61.0% (21.3%)
Originated loans(A)	65,822		6.0%	1.0% - 42.1% (5.3%)	0.1% - 41.4% (3.0%)	0.1% - 63.3% (12.5%)
Residential mortgage loans held-for-sale, at fair value	$	109,519

Non-Performing Loans

Fair Value

Discount Rate

Annual change in home prices

Liquidation Timeline
(in years)

Current Value of Underlying Properties

Acquired loans

19,807

8.6% – 9.1%

(8.9%)

6.1%– 12.7%

(8.1%)

2.0 – 6.4

(2.9)

227.1% – 782.5%

(279.9%)

Originated loans(A)

10,027

6.0%

N/A

0.5 - 9.2

(1.9)

N/A

Residential mortgage loans held-for-sale, at fair value

29,834

(A)Includes inputs for 47.9% and 76.9% of originated performing and non-performing loans, respectively, classified as Level 3. The remainder of performing and non-performing loans were priced using dealer price quotes and historical sale transactions for similar loans with a range of 49.2% - 100.0% (87.9%).

The following table summarizes certain information regarding the ranges and weighted averages of 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

370,957

8.7% – 9.2%

(8.9%)

3.6% – 5.0%

(4.4%)

6.9% – 17.0%

(9.3%)

21.1% – 61.0%

(41.2%)

Consumer Loans Valuation

The following table summarizes certain information regarding the ranges and weighted averages of 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
SpringCastle	$	303,881	8.4% – 9.4% (8.6%)	9.1% – 36.6% (17.7%)	1.7% – 7.5% (4.7%)	60.0% – 60.0% (60.0%)
Marcus	1,132,199		11.1%	20.5%	5.3%	7.0%
Consumer loans, held-for-investment, at fair value	$	1,436,080

Mortgage Loans Receivable Valuation

The estimated fair value of originated loans approximates carrying value as most are variable-rate that reprice frequently and with minimal credit risk and severity risk. Fair value of acquired loans purchased on August 24, 2023 approximates purchase price given the recency of acquisition. 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 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 VIEs 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 Operations. The securitized mortgage loans receivable and the debt issued by the Company’s CFE are both classified as Level 2.

Derivatives 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 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 inputs used in valuing IRLCs:

Fair Value

Loan Funding Probability

Fair Value of Initial Servicing Rights (Bps)

IRLCs, net

6,498

0.3% – 100.0%

(82.6%)

0.7 – 345.0

(222.4)

Asset-Backed Securities Issued

Rithm Capital was deemed to be the primary beneficiary of the SCFT 2020-A securitization, and therefore, Rithm Capital’s Consolidated Balance Sheets include the asset-backed securities issued by the SCFT 2020-A trust. 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	$	245,695	6.4%	17.7%	4.7%	93.5%

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 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, SFR Properties, operating lease ROU assets, intangible assets and goodwill if an impairment or observable price adjustment is recognized in the current period.

At September 30, 2023, assets measured at fair value on a nonrecurring basis were $85.5 million. The $85.5 million of assets include approximately $78.7 million of residential mortgage loans held-for-sale and $6.8 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 inputs used in valuing these residential mortgage loans as of September 30, 2023:

Fair Value and Carrying Value

Discount Rate

Weighted Average Life (Years)(A)

Prepayment Rate

CDR(B)

Loss Severity(C)

Performing loans

57,229

5.3% – 9.2%

(8.9%)

4.6 – 5.6

(4.7)

1.9% – 5.0%

(4.7%)

6.9% – 13.8%

(7.5%)

21.1% – 61.0%

(22.2%)

Non-performing loans

21,454

8.6% – 10.0%

(9.3%)

2.0 – 6.4

(3.2)

1.9% – 4.5%

(2.9%)

11.8% – 37.7%

(25.0%)

34.8% – 65.1%

(41.5%)

Total/weighted average

78,683

9.0%

4.3

4.2%

12.3%

27.5%

(A)The weighted average life is 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% (weighted average of 21%), 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 Operations for the nine months ended September 30, 2023 consisted of a reversal of valuation allowance of $3.9 million for residential mortgage loans and a reversal of valuation allowance of $1.1 million for REO.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details