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VARIABLE INTEREST ENTITIES

3 Months Ended

Mar. 31, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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 first evaluates whether it holds a variable interest in the entity. Where the Company has a variable interest, it is required to determine whether the entity will be considered a VIE or a Voting Interest Entity (“VOE”), the classification of which will determine the analysis that the Company is required to perform when determining whether it should consolidate the entity.

VIEs are defined as entities in which (i) equity investors do not have the characteristics of a controlling financial interest, (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, or (iii) substantially all of the activities of the entity are performed on behalf of the party with disproportionately few voting rights. Where an entity does not have the characteristics of a VIE, it is a VOE. A VIE is required to be consolidated by the 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 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, individually or 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 consolidates 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 CFEs. A CFE is a variable interest entity that holds financial assets, issues beneficial interests in those assets and has no more than nominal equity. The 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

Advance Purchaser

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 March 31, 2024. Rithm Capital 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 Joint Ventures”) and is deemed to be the primary beneficiary of such Newrez Joint Ventures as a result of its ability to direct activities that most significantly impact the economic performance of the Newrez Joint Venture entities and its ownership of a significant equity investment.

Residential Mortgage Loans

The Company securitizes, sells and services residential mortgage loans. Securitization transactions typically involve the use of VIEs and are accounted for either as sales or as secured financings. Certain of these activities may involve SPEs which, by their nature, are deemed to be VIEs.

Rithm Capital sells pools of conforming mortgage loans through GSE and Ginnie Mae sponsored programs with the servicing retained by Newrez. The Company has several financing vehicles in the form of mortgage loan participation and sale agreements with financial institutions, or Purchasers, to sell pools of agency residential mortgage loans.

Newrez Mortgage Participant LLC, NPF Trust EBO I and Newrez Trust II were formed to acquire, receive, participate, hold, release and dispose of participation interests in certain of Newrez’s residential mortgage loans HFS (“MLHFS PC”). These facilities transfer the MLHFS PC in exchange for cash. Newrez 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, HFS and the related warehouse credit facility liabilities as part of Secured Financing Agreements. Newrez retains the risks and benefits associated with the assets transferred to the SPEs.

Mortgage-Backed Securitization

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 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.

Consumer Loan Companies

Rithm Capital has a co-investment in a portfolio of consumer loans held through certain limited liability entities (the “Consumer Loan Companies”), which hold the SpringCastle loans. As of March 31, 2024, 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.

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”). 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. As of March 31, 2024, 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 $341.8 million and an aggregate principal limit of approximately $487.2 million.

Consolidated Funds

In the ordinary course of business, Sculptor sponsors the formation of consolidated funds that are considered VIEs. The Company consolidates certain VIEs for which it is the primary beneficiary either directly or indirectly through a consolidated entity. The assets of these consolidated funds may only be used to settle obligations of these entities and are not available to creditors of the Company or Sculptor. The investors in these consolidated funds have no recourse against the assets of the Company or Sculptor. There is no recourse to the Company or Sculptor for the consolidated funds’ liabilities.

The Company, through Sculptor, consolidates a structured alternative investment solution, which issued notes in the aggregate principal amount of $350.0 million, of which approximately $127.8 million were retained by Sculptor and eliminated in consolidation. The retained notes consists of $20.0 million Class A notes, $20.0 million of Class C notes and $87.8 million of subordinated notes. As of March 31, 2024, the consolidated notes payable due to third parties had a fair value of $218.1 million.

Sculptor’s structured alternative investment solution entered into a $52.5 million credit facility maturing March 18, 2025. This credit facility is capped at $20.0 million of total borrowing capacity per quarter, bearing interest of SOFR plus margin of 3.0%. The facility is also subject to an annual 1.15% unused commitment fee. As of March 31, 2024, the consolidated funds have not drawn on the facility.

See Note 18 and 19 regarding the financing and fair value measurements of consolidated funds, respectively.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on the Consolidated Balance Sheets:


	Advance Purchaser		Newrez Joint Ventures		Residential Mortgage Loans		Consumer Loan Companies		Mortgage Loans Receivable		Consolidated Funds		Total
March 31, 2024
Assets

Servicer advance investments, at fair value	$	364,843	$	—	$	—	—		$	—	$	—	$	364,843
Residential mortgage loans, HFS, at fair value	—		—		1,177,451		—		—		—		1,177,451
Consumer loans	—		—		—		267,948		—		—		267,948
Mortgage loans receivable	—		—		—		—		341,831		—		341,831
Cash and cash equivalents	5,532		18,000		—		—		—		1,056		24,588
Restricted cash	7,885		—		9,381		6,232		11,607		9,800		44,905
Other assets	9		631		—		4,051		4,887		339,187		348,765
Total Assets	$	378,269	$	18,631	$	1,186,832	$	278,231	$	358,325	$	350,043	2,570,331
Liabilities
Secured financing agreements(A)	—		—		1,052,769		—		—		—		1,052,769
Secured notes and bonds payable(A)	265,776		—		—		221,922		324,062		—		811,760
Accrued expenses and other liabilities	2,505		2,366		6,128		1,587		371		223,188		236,145
Total Liabilities	$	268,281	$	2,366	$	1,058,897	$	223,509	$	324,433	$	223,188	$	2,100,674

December 31, 2023
Assets

Servicer advance investments, at fair value	$	367,803	$	—	$	—	$	—	$	—	$	—	$	367,803
Residential mortgage loans, HFS, at fair value	—		—		1,112,097		—		—		—		1,112,097
Consumer loans	—		—		—		285,632		—		—		285,632
Mortgage loans receivable	—		—		—		—		353,594		—		353,594
Cash and cash equivalents	5,381		18,159		—		—		—		—		23,540
Restricted cash	8,273		—		6,113		6,301		7,572		—		28,259
Other assets	9		688		—		4,325		4,531		340,929		350,482
Total Assets	$	381,466	$	18,847	$	1,118,210	$	296,258	$	365,697	$	340,929	$	2,521,407
Liabilities
Secured financing agreements(A)	—		—		996,845		—		—		—		996,845
Secured notes and bonds payable(A)	274,404		—		—		235,770		318,998		—		829,172
Accrued expenses and other liabilities	2,606		2,240		5,382		1,507		372		219,920		232,027
Total Liabilities	$	277,010	$	2,240	$	1,002,227	$	237,277	$	319,370	$	219,920	$	2,058,044

(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 real estate bonds issued by unconsolidated VIEs and 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 presented as part of Real estate and other securities on the Consolidated Balance Sheets:



	March 31, 2024		December 31, 2023
Residential mortgage loan UPB and other collateral	$	11,466,396	$	10,901,751
Weighted average delinquency(A)	4.2%		4.2%
Net credit losses	$	167,949	$	163,125
Face amount of debt held by third parties	$	10,397,972	$	9,857,607

Carrying value of bonds retained by Rithm Capital(B)(C)	$	991,692	$	963,953
Year to date cash flows received by Rithm Capital on these bonds	$	40,924	$	155,972

(A)Represents the percentage of the UPB that is 60+ days delinquent.

(B)Includes real estate bonds retained pursuant to required risk retention regulations.

(C)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 Company’s involvement with VIEs related to the asset management business that are not consolidated. The Company’s involvement, through Sculptor, is generally limited to providing asset management services and, in certain cases, investments in the VIEs. The maximum exposure to loss represents the potential loss of current investments or income and fees receivables from these entities, as well as the obligation to repay unearned revenues, primarily incentive income subject to clawback, in the event of any future fund losses, as well as unfunded commitments to certain funds that are VIEs. The Company does not provide, nor is it required to provide, any type of non-contractual financial or other support to its VIEs that are not consolidated beyond its share of capital and other commitments described in Note 17.



	March 31, 2024		December 31, 2023
Net assets of unconsolidated VIEs in which the Company has a variable interest	$	12,613,891	$	12,782,124
Maximum risk of loss as a result of the Company’s involvement with unconsolidated VIEs:
Unearned income and fees	38,993		37,468
Income and fees receivable	37,873		43,250
Investments	527,231		533,026

Unfunded commitments(A)	182,846		207,575
Other commitments	23,021		—
Maximum Exposure to Loss	$	809,964	$	821,319

(A)Includes commitments from certain employees and executive managing directors in the amounts of $94.8 million and $97.5 million as of March 31, 2024 and December 31, 2023, respectively.

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 presented as part of Equity investments within other assets on the Consolidated Balance Sheets:


	March 31, 2024		December 31, 2023
Carrying value of commercial real estate held within unconsolidated VIEs	$	96,186	$	66,652
Carrying value of Rithm Capital’s investments in unconsolidated commercial real estate VIEs	$	34,846	$	29,210

Noncontrolling Interests

Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than Rithm Capital and it is presented as a separate component of Equity on the Company’s Consolidated Balance Sheets. These interests are related to noncontrolling interests in consolidated entities that hold servicer advance investments (Note 6), the Newrez Joint Ventures (Note 8), consumer loans (Note 9) and Sculptor investments.

Others’ interests in the equity of consolidated subsidiaries is computed as follows:


	March 31, 2024						December 31, 2023
	Total Consolidated Equity		Others' Ownership Interest		Others' Interest in Equity of Consolidated Subsidiary		Total Consolidated Equity		Others' Ownership Interest		Others' Interest in Equity of Consolidated Subsidiary
Advance Purchaser	$	109,988	10.7	%	$	11,747	$	104,458	10.7	%	$	11,157
Newrez Joint Ventures	$	16,265	49.5	%	$	8,051	$	16,607	49.5	%	$	8,220
Consumer Loan Companies	$	68,126	46.5	%	$	31,679	$	72,361	46.5	%	$	33,748

Others’ interests in the net income (loss) is computed as follows:


	Three Months Ended March 31,
	2024						2023
	Net income (loss)		Others’ ownership interest as a percent of total		Others’ interest in net income (loss) of consolidated subsidiaries		Net income (loss)		Others’ ownership interest as a percent of total		Others’ interest in net income (loss) of consolidated subsidiaries
Advance Purchaser	$	9,530	10.7	%	$	1,018	$	(1,370)	10.7	%	$	(146)
Newrez Joint Ventures	$	112	49.5	%	$	55	$	(85)	49.5	%	$	(42)
Consumer Loan Companies	$	2,192	46.5	%	$	1,019	$	(2,391)	46.5	%	$	(1,112)

Noncontrolling interests related to Sculptor represents the ownership interests in certain funds held by entities or persons other than the Company. These interests substantially relate to interests held by Sculptor employees in real estate funds managed by the Company adjusted for their capital activity and allocated earnings in such funds. Such employees’ portion of carried interest is expensed and recorded within compensation and benefits on the Consolidated Statements of Operations and therefore excluded in the calculation of noncontrolling interests. As of March 31, 2024, others’ interest in the net equity of consolidated subsidiaries related to Sculptor was $42.3 million.