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EXCESS MORTGAGE SERVICING RIGHTS
 3 Months Ended
Mar. 31, 2024
Transfers and Servicing [Abstract]  
EXCESS MORTGAGE SERVICING RIGHTS EXCESS MORTGAGE SERVICING RIGHTS
Excess MSR assets include Rithm Capital’s direct investments in Excess MSRs and investments in joint ventures jointly controlled by Rithm Capital and funds managed by the Former Manager investing in Excess MSRs. The Company’s investments in Excess MSR assets measured at fair value are included in Other assets on the Consolidated Balance Sheets.

The table below summarizes the components of Excess MSRs:
March 31, 2024December 31, 2023
Direct investments in Excess MSRs$199,363 $208,385 
Excess MSR joint ventures55,748 62,765 
Excess MSRs, at fair value$255,111 $271,150 

Direct Investments in Excess MSRs

The following table presents activity related to the carrying value of direct investments in Excess MSRs:
Total(A)
Balance as of December 31, 2023$208,385 
Interest income2,446 
Other income— 
Proceeds from repayments(9,546)
Proceeds from sales— 
Change in fair value(1,922)
Balance as of March 31, 2024
$199,363 
(A)Underlying loans serviced by Mr. Cooper Group Inc. (“Mr. Cooper”) and SLS.
Mr. Cooper or SLS, as applicable, as servicer, performs all of the servicing and advancing functions on the Company’s Excess MSR assets, retains the ancillary income and assumes servicing obligations and liabilities as the servicer of the underlying loans in the portfolio.

Rithm Capital entered into a “recapture agreement” with respect to each of the direct Excess MSR investments serviced by Mr. Cooper and SLS. Under such arrangements, Rithm Capital is generally entitled to a pro rata interest in the Excess MSRs on any refinancing of a loan in the original portfolio.

On October 2, 2023, Rithm Capital entered into a definitive agreement with Computershare Limited with respect to the Computershare Acquisition, which closed on May 1, 2024 (Note 26) for a purchase price of approximately $720 million. As part of the transaction, Rithm Capital acquired MSRs owned by SLS underlying the Excess MSR, which will bereclassifiedd to full MSRs. The Excess MSRs to be reclassified have a fair value of $1.0 million at March 31, 2024.

The following summarizes direct investments in Excess MSRs:
March 31, 2024December 31, 2023
UPB of Underlying MortgagesInterest in Excess MSR
Weighted Average Life Years(A)
Amortized Cost Basis
Carrying Value(B)
Carrying Value(B)
Rithm
Capital(C, D)
Former Manager-managed fundsMr. Cooper
$41,899,426 
32.5% – 100.0%
(56.4%)
0.0% – 50.0%
0.0% – 35.0%
6.0$174,621 $199,363 $208,385 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(C)Amounts in parentheses represent weighted averages.
(D)Rithm Capital also invested in related servicer advance investments, including the basic fee component of the related MSR as of March 31, 2024 (Note 6) on $14.9 billion unpaid principal balance (“UPB”) underlying these Excess MSRs.

Changes in fair value of Excess MSR investments consist of the following:
Three Months Ended
March 31,
20242023
Original and Recaptured Pools$(1,922)$(9,818)

As of March 31, 2024, a weighted average discount rate of 8.8% was used to value Rithm Capital’s direct and jointly controlled investments in Excess MSRs.

Excess MSR Joint Ventures
Rithm Capital entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by Rithm Capital and funds managed by the Former Manager investing in Excess MSRs.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for under the equity method of accounting:
March 31, 2024December 31, 2023
Excess MSRs$111,664$114,552
Other assets51911,664
Other liabilities(687)(687)
Equity$111,496$125,529
Rithm Capital’s investment$55,748$62,765
Rithm Capital’s percentage ownership50.0 %50.0 %
Three Months Ended
March 31,
20242023
Interest income$3,454 $2,404 
Other income (loss)(3,330)(5,225)
Expenses(14)(8)
Net income (loss)$110 $(2,829)

The following table summarizes the activity of investments in equity method investees:
Balance at December 31, 2023$62,765 
Distributions of earnings from equity method investees(107)
Distributions of capital from equity method investees(6,965)
Change in fair value of investments in equity method investees55 
Balance at March 31, 2024$55,748 

The following is a summary of Excess MSR investments made through equity method investees:
As of March 31, 2024
Unpaid Principal Balance
Investee Interest in Excess MSR(A)
Rithm Capital Interest in Investees
Amortized Cost Basis(B)
Carrying Value(C)
Weighted Average Life (Years)(D)
Agency
Original and Recaptured Pools$16,678,050 66.7 %50.0 %$92,197 $111,664 5.2
(A)The remaining interests are held by Mr. Cooper.
(B)Represents the amortized cost basis of the equity method investees in which Rithm Capital holds a 50% interest.
(C)Represents the carrying value of the Excess MSRs held in equity method investees, in which Rithm Capital holds a 50% interest. Carrying value represents the fair value of the pools, as applicable.
(D)Represents the weighted average expected timing of the receipt of expected cash flows of each investment.
MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES
The following table summarizes activity related to MSRs and MSR financing receivables:
Balance as of December 31, 2023$8,405,938 
Purchases, net— 
Originations(A)
215,939 
Sales671 
Change in fair value due to:
    Realization of cash flows(B)
(116,839)
    Change in valuation inputs and assumptions201,014 
Balance at March 31, 2024$8,706,723 
(A)Represents MSRs retained on the sale of originated residential mortgage loans.
(B)Based on the paydown of the underlying residential mortgage loans.
The following table summarizes components of servicing revenue, net:
Three Months Ended
March 31,
20242023
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$430,426 $439,232 
Ancillary and other fees39,777 30,607 
Servicing fee revenue, net and fees470,203 469,839 
Change in fair value due to:
Realization of cash flows(116,839)(105,691)
Change in valuation inputs and assumptions, net of realized gains (losses)201,014 (36,613)
Servicing revenue, net$554,378 $327,535 

The following table summarizes MSRs and MSR financing receivables by type as of March 31, 2024:
UPB of Underlying Mortgages
Weighted Average Life (Years)(A)
Carrying Value(B)
Agency$348,953,092 7.8$5,477,522 
Non-Agency47,806,353 6.8666,958 
Ginnie Mae(C)
129,914,381 7.22,562,243 
Total/Weighted Average$526,673,826 7.5$8,706,723 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Represents fair value. As of March 31, 2024, weighted average discount rates of 8.5% (range of 7.9% – 10.8%) were used to value Rithm Capital’s MSRs and MSR financing receivables.
(C)As of March 31, 2024, Rithm Capital holds approximately $1.8 billion in residential mortgage loans subject to repurchase and the related residential mortgage loans repurchase liability on its Consolidated Balance Sheets.

Residential Mortgage Loans Subject to Repurchase

Rithm Capital, through Newrez, is an approved issuer of Ginnie Mae mortgage-backed securities (“MBS”) and originates and securitizes government-insured residential mortgage loans. As the issuer of the Ginnie Mae-guaranteed securitizations, Rithm Capital has the unilateral right to repurchase loans from the securitizations when they are delinquent for more than 90 days. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. As a result, once the delinquency criteria have been met and regardless of whether the repurchase option has been exercised, the Company accounts for the loans as if they had been repurchased. The Company recognizes such loans and a corresponding liability in the Consolidated Balance Sheets. As of March 31, 2024, Rithm Capital reflected approximately $1.8 billion in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Consolidated Balance Sheets. Rithm Capital may re-pool repurchased loans into new Ginnie Mae securitizations upon re-performance of the loan or otherwise sell to third-party investors. The Company does not change the accounting for MSRs related to previously sold loans upon recognizing loans eligible for repurchase. Rather, upon repurchase of a loan, the MSR is written off. As of March 31, 2024, Rithm Capital holds approximately $0.5 billion of such repurchased loans presented within Residential mortgage loans, held for sale on its Consolidated Balance Sheets.

Ocwen MSR Financing Receivable Transactions

In July 2017, Ocwen Loan Servicing, LLC (collectively with certain affiliates, “Ocwen”, and subsequently PHH Mortgage Corporation (“PHH”) (as successor by merger to Ocwen)) and Rithm Capital entered into an agreement to transfer from Ocwen to Rithm Capital of Ocwen’s remaining interests in the MSRs relating to loans with an aggregate UPB of approximately $110.0 billion and with respect to which Rithm Capital already held certain rights (“Rights to MSRs”). Additionally, in January 2018, Ocwen sold and transferred to Rithm Capital certain Rights to MSRs and other assets related to MSRs for loans with a UPB of approximately $86.8 billion, of which approximately $11.1 billion UPB, as March 31, 2024, of underlying loans consents have not been received and all other conditions to transfer have not been met and, accordingly, are recorded as MSR financing receivables.
Geographic Distributions

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the MSRs and MSR financing receivables:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationMarch 31, 2024December 31, 2023
California17.0 %17.1 %
Florida8.6 %8.6 %
Texas6.2 %6.2 %
New York6.0 %6.0 %
Washington5.7 %5.8 %
New Jersey4.3 %4.3 %
Virginia3.7 %3.6 %
Maryland3.4 %3.4 %
Illinois3.3 %3.3 %
Georgia3.0 %3.0 %
Other US38.8 %38.7 %
100.0 %100.0 %

Geographic concentrations of investments expose Rithm Capital to the risk of economic downturns within the relevant states. Any such downturn in a state where Rithm Capital holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the MSRs.

Residential Mortgage Loan Subservicing

Newrez performs servicing of residential mortgage loans for unaffiliated parties under servicing agreements. The servicing agreements do not meet the criteria to be recognized as a servicing right asset and, therefore, are not recognized in the Consolidated Balance Sheets. The UPB of residential mortgage loans serviced for others as of March 31, 2024 and 2023 was $111.3 billion and $94.1 billion, respectively. Rithm Capital earned servicing revenue of $38.1 million and $34.0 million for the three months ended March 31, 2024 and 2023, respectively, related to unaffiliated subserviced loans which is presented within Servicing revenue, net in the Consolidated Statements of Operations.

In relation to certain owned MSRs, Rithm Capital engages unaffiliated licensed mortgage servicers as subservicers to perform the operational servicing duties, including recapture activities, in exchange for a subservicing fee, which is recognized as subservicing expense and presented as part of General and administrative expenses in the Consolidated Statements of Operations. As of March 31, 2024, PHH and Valon Mortgage, Inc. (“Valon”) subservice 8.5% and 4.8%, respectively, of MSRs owned by Rithm Capital. The remaining 86.7% of owned MSRs are serviced by Newrez (Note 1).

Servicer Advances Receivable

In connection with Rithm Capital’s ownership of MSRs, the Company assumes the obligation to serve as a liquidity provider to initially fund servicer advances on the underlying pool of mortgages (Note 22) it services. These servicer advances are recorded when advanced and are included in servicer advances receivable on the Consolidated Balance Sheets.
The table below summarizes the type of advances included in the servicer advances receivable:
March 31, 2024December 31, 2023
Principal and interest advances$592,660 $616,801 
Escrow advances (taxes and insurance advances)1,283,083 1,442,697 
Foreclosure advances775,190 767,171 
Total(A)(B)(C)
$2,650,933 $2,826,669 
(A)Includes $529.6 million and $585.0 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.
(B)Includes $372.2 million and $405.6 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from either the borrower or Ginnie Mae. Expected losses for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair value through a non-reimbursable advance loss assumption.
(C)Excludes $64.5 million and $66.4 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries. These reserves relate to inactive loans in the foreclosure or liquidation process.

Rithm Capital’s servicer advances receivable related to Non-Agency MSRs generally have the highest reimbursement priority pursuant to the underlying servicing agreements (i.e., ranks “top of the waterfall”) and Rithm Capital is generally entitled to repayment from the respective loan or REO liquidation proceeds before any interest or principal is paid on the notes issued by the trust. In most cases, advances in excess of respective the loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by Rithm Capital as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, Rithm Capital has a contractual right to be reimbursed by the subservicer. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has provisioned $93.2 million, or 3.5%, and $93.7 million, or 3.3%, for expected non-recovery of advances as of March 31, 2024 and December 31, 2023, respectively.

The following table summarizes servicer advances provision activity during the quarter:
Balance at December 31, 2023$93,681 
Provision7,217 
Write-offs(7,654)
Balance at March 31, 2024$93,244 

See Note 18 regarding the financing of MSRs and servicer advances receivable.