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VARIABLE INTEREST ENTITIES
 9 Months Ended
Sep. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
VARIABLE INTEREST ENTITIES VARIABLE INTEREST ENTITIES
In the normal course of business, Rithm Capital enters into transactions with special purpose entities (“SPEs”), which primarily consist of trusts established for a limited purpose. The SPEs have been formed for the purpose of transactions in which the Company transfers assets into an SPE in return for various forms of debt obligations supported by those assets. In these transactions, the Company typically receives cash and/or other interests in the SPE as proceeds for the transferred assets. The Company retains the right to service the transferred receivables. The Company evaluates its interests in each SPE for classification as a variable interest entity (“VIE”).

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

To assess whether Rithm Capital has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, Rithm Capital considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying (i) the activities that most significantly impact the VIE’s economic performance and (ii) which party, if any, has power over those activities. To assess whether Rithm Capital has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, Rithm Capital considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. When an SPE meets the definition of a VIE and the Company determines that it is the primary beneficiary, the Company includes the SPE in its consolidated financial statements.

For certain consolidated VIEs, Rithm Capital has elected to account for the assets and liabilities of these entities as collateralized financing entities (“CFE”). A CFE is a variable interest entity that holds financial assets and issues beneficial
interests in those assets, and these beneficial interests have contractual recourse only to the related assets of the CFE. Accounting guidance under GAAP for CFEs allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. The net equity in an entity accounted for under the CFE election effectively represents the fair value of the beneficial interests Rithm Capital owns in the entity.

Consolidated VIEs

Servicer Advances

Rithm Capital, through a taxable wholly-owned subsidiary, is the managing member of Advance Purchaser and owned approximately 89.3% of Advance Purchaser as of September 30, 2023 and is deemed to be the primary beneficiary of Advance Purchaser as a result of its ability to direct activities that most significantly impact the economic performance of the entities and its ownership of a significant equity investment. See Note 6 for details.

Newrez Joint Ventures

A wholly-owned subsidiary of Newrez, Newrez Ventures LLC (formerly known as Shelter Mortgage Company LLC) (“Newrez Ventures”), is a mortgage originator specializing in retail originations. Newrez Ventures operates its business through a series of joint ventures (“Newrez JVs”) and is deemed to be the primary beneficiary of the joint ventures as a result of its ability to direct activities that most significantly impact the economic performance of the entities and its ownership of a significant equity investment.

Residential Mortgage Loans

In May 2021, Newrez issued $750.0 million in notes through a securitization facility (the “2021-1 Securitization Facility”) that bear interest at 30-day SOFR plus a margin. The 2021-1 Securitization Facility is secured by newly originated, first-lien, fixed- and adjustable-rate residential mortgage loans eligible for purchase by the GSEs and Ginnie Mae. Through a master repurchase agreement, Newrez sells its originated residential mortgage loans to the 2021-1 Securitization Facility, which then issues notes to third party qualified investors, with Newrez retaining the trust certificate. The loans serve as collateral with the proceeds from the note issuance ultimately financing the originations. The 2021-1 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial closing date, (ii) the Company exercising its right to optional prepayment in full or (iii) a repurchase triggering event. The Company determined it is the primary beneficiary of the 2021-1 Securitization Facility as it has both (i) the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

Caliber Mortgage Participant I, LLC was formed to acquire, receive, participate, hold, release and dispose of participation interests in certain of Caliber’s residential mortgage loans held for sale (“MLHFS PC”). The Caliber Mortgage Participant I, LLC transfers the MLHFS PC in exchange for cash. Caliber is the primary beneficiary of the VIE and therefore, consolidates the SPE. The transferred MLHFS PC is classified on the Consolidated Balance Sheets as Residential Mortgage Loans, Held-for-Sale and the related warehouse credit facility liabilities as part of Secured Financing Agreements. Caliber retains the risks and benefits associated with the assets transferred to the SPEs.

Caliber remains the servicer of the underlying residential mortgage loans and has the power to direct the SPE’s activities. Holders of the term notes issued by the Trust can look only to the assets of the Trust for satisfaction of the debt and have no recourse against Caliber.

Consumer Loan Companies

Rithm Capital has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of September 30, 2023, Rithm Capital owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

On September 25, 2020, certain entities comprising the Consumer Loan Companies, in a private transaction, issued $663.0 million of asset-backed notes (“SCFT 2020-A”) securitized by a portfolio of consumer loans.
The Consumer Loan Companies consolidate certain entities that issued securitized debt collateralized by the consumer loans (the “Consumer Loan SPVs”). The Consumer Loan SPVs are VIEs of which the Consumer Loan Companies are the primary beneficiaries.

Securitized Mortgage Loans Receivable

In March 2022, Rithm Capital formed a securitization facility that issued securitized debt collateralized by mortgage loans receivable (the “2022-RTL1 Securitization”). The 2022-RTL1 Securitization consists of a pool of performing, adjustable-rate and fixed-rate, interest-only, mortgage loans (construction, renovation and bridge), secured by a first lien or a first and second lien on a non-owner occupied mortgaged property with original terms to maturity of up to 36 months, with an aggregate UPB of approximately $348.1 million and an aggregate principal limit of approximately $433.5 million as of September 30, 2023. In addition to pass-through certificates sold to third parties, Rithm Capital acquired all of the residual tranche certificate, which bears no interest, for $20.9 million. Rithm Capital evaluated the purchased residual tranche certificate as a variable interest in the trust and concluded that the residual tranche certificate will absorb a majority of the trust’s expected losses or receive a majority of the trust’s expected residual returns. Rithm Capital also concluded that the securitization’s asset manager, a wholly-owned subsidiary of Rithm Capital, has the ability to direct activities that could impact the trust’s economic performance. As a result, Rithm Capital consolidates the trust.
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on the Consolidated Balance Sheets:
Advance PurchaserNewrez Joint VenturesResidential Mortgage LoansConsumer Loan SPVsMortgage Loans ReceivableTotal
September 30, 2023
Assets
Servicer advance investments, at fair value$378,664 $— $— $— $— $378,664 
Residential mortgage loans, held-for-sale, at fair value— — 1,094,978 — — 1,094,978 
Consumer loans— — — 303,881 — 303,881 
Mortgage loans receivable— — — — 348,061 348,061 
Cash and cash equivalents5,241 21,177 4,410 — — 30,828 
Restricted cash8,151 — 9,378 6,375 12,859 36,763 
Other assets9 410 — 4,528 — 4,947 
Total Assets$392,065 $21,587 $1,108,766 $314,784 $360,920 2,198,122 
Liabilities
Secured notes and bonds payable(A)
271,488 — 995,361 245,695 307,228 1,819,772 
Accrued expenses and other liabilities2,612 3,257 74 1,422 3,100 10,465 
Total Liabilities$274,100 $3,257 $995,435 $247,117 $310,328 $1,830,237 
December 31, 2022
Assets
Servicer advance investments, at fair value$387,675 $— $— $— $— $387,675 
Residential mortgage loans, held-for-investment, at fair value— — 22,699 — — 22,699 
Residential mortgage loans, held-for-sale, at fair value— — 844,000 — — 844,000 
Mortgage loans receivable— — — — 349,975 349,975 
Consumer loans— — — 363,756 — 363,756 
Cash and cash equivalents34,084 28,404 23,473 — — 85,961 
Restricted cash7,433 — 7,547 6,652 9,368 31,000 
Other assets9 1,026 165,975 5,253 (238)172,025 
Total Assets$429,201 $29,430 $1,063,694 $375,661 $359,105 $2,257,091 
Liabilities
Secured financing agreements(A)
— — 51,325 — — 51,325 
Secured notes and bonds payable(A)
313,093 — 768,959 299,498 312,918 1,694,468 
Accrued expenses and other liabilities1,928 4,306 25,381 1,144 349 33,108 
Total Liabilities$315,021 $4,306 $845,665 $300,642 $313,267 $1,778,901 
(A)The creditors of the VIEs do not have recourse to the general credit of Rithm Capital, and the assets of the VIEs are not directly available to satisfy Rithm Capital’s obligations.
Non-Consolidated VIEs

The following table summarizes the carrying value of the Company’s unconsolidated bonds retained pursuant to required risk retention regulations which reflects the Company’s maximum exposure to loss, as well as the UPB of transferred loans. These bonds are grouped and presented as part of real estate and other securities on the Consolidated Balance Sheets:
As of and for the
Nine Months Ended
September 30,
20232022
Residential mortgage loan UPB and other collateral$10,809,466 $12,137,481 
Weighted average delinquency(A)
4.2 %4.9 %
Net credit losses$167,519 $170,439 
Face amount of debt held by third parties(B)
$9,840,864 $11,228,461 
Carrying value of bonds retained by Rithm Capital(C)(D)
$867,134 $920,904 
Cash flows received by Rithm Capital on these bonds$113,527 $173,765 
(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by Rithm Capital.
(C)Includes bonds retained pursuant to required risk retention regulations.
(D)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 19 for details on unobservable inputs.

The following table summarizes the carrying value of the Company’s unconsolidated commercial real estate projects which reflects the Company’s maximum exposure to loss. See Note 22 regarding certain guarantees provided in connection with the investments. These investments are grouped and presented as part of Equity investments within Other assets on the Consolidated Balance Sheets:
September 30, 2023December 31, 2022
Carrying value of commercial real estate held within unconsolidated VIEs$48,438 $— 
Carrying value of Rithm’s investments in unconsolidated commercial real estate VIEs$19,933 $— 

Noncontrolling Interests

Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Rithm Capital. These interests are related to noncontrolling interests in consolidated entities that hold Rithm Capital’s servicer advance investments (Note 6), the Newrez JVs (Note 8) and Consumer loans (Note 9).

Others’ interests in the equity of consolidated subsidiaries is computed as follows:
September 30, 2023December 31, 2022
Advance Purchaser(A)
Newrez Joint VenturesConsumer Loan Companies
Advance Purchaser(A)
Newrez Joint VenturesConsumer Loan Companies
Total consolidated equity$117,966 $18,330 $82,007 $114,180 $25,124 $91,263 
Others’ ownership interest10.7 %49.5 %46.5 %10.7 %49.5 %46.5 %
Others’ interest in equity of consolidated subsidiary$12,600 $9,073 $38,234 $12,193 $12,437 $42,437 
Others’ interests in the net income (loss) is computed as follows:
Three Months Ended September 30,
20232022
Advance Purchaser(A)
Newrez Joint VenturesConsumer Loan Companies
Advance Purchaser(A)
Newrez Joint VenturesConsumer Loan Companies
Net income (loss)$13,229 $544 $6,806 $(1,296)$952 $15,000 
Others’ ownership interest10.7 %49.5 %46.5 %10.7 %49.5 %46.5 %
Others’ interest in net income (loss) of consolidated subsidiary$1,414 $269 $3,165 $(139)$471 $6,975 

Nine Months Ended September 30,
20232022
Advance Purchaser(A)
Newrez Joint VenturesConsumer Loan Companies
Advance Purchaser(A)
Newrez Joint VenturesConsumer Loan Companies
Net income (loss)$19,786 $1,238 $16,582 $1,219 $4,374 $53,340 
Others’ ownership interest10.7 %49.5 %46.5 %10.7 %49.5 %46.5 %
Others’ interest in net income (loss) of consolidated subsidiary$2,113 $613 $7,711 $130 $2,165 $24,803 
(A)Rithm Capital owned 89.3% of Advance Purchaser as of September 30, 2023 and 2022.