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What changed in Rithm Capital Corp.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Rithm Capital Corp.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+789 added−905 removedSource: 10-K (2025-02-18) vs 10-K (2024-02-20)

Top changes in Rithm Capital Corp.'s 2024 10-K

789 paragraphs added · 905 removed · 522 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

103 edited+100 added−66 removed83 unchanged
Biggest changeSee “Risk Factors—Risks Related to Our Business—Our ability to exercise our cleanup call rights may be limited or delayed if a third party contests our ability to 8 exercise our cleanup call rights, if the related securitization trustee refuses to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.” Single-Family Rental (SFR) Properties Our strategy with respect to the SFR business involves purchasing, renovating, maintaining and managing a large number of geographically diversified high-quality residential properties and leasing them to qualified tenants.
Biggest changeOur strategy with respect to the SFR property business involves purchasing, renovating, maintaining and managing a large number of geographically diversified high-quality residential properties and leasing them to qualified tenants, including through the purchase of residential properties in “build-to-rent” (“BTR”) communities and leasing them to qualified tenants.
The purchasers of the RMBS are typically large institutions, such as pension funds, mutual funds, insurance companies, hedge funds and REITs. The agreement that governs the pooling of residential mortgage loans, the servicing of such residential mortgage loans and the terms of the RMBS issued by the securitization trust is often referred to as a pooling and servicing agreement.
The purchasers of RMBS are typically large institutions, such as pension funds, mutual funds, insurance companies, hedge funds and REITs. The agreement that governs the pooling of residential mortgage loans, the servicing of such residential mortgage loans and the terms of the RMBS issued by the securitization trust is often referred to as a pooling and servicing agreement.
Subject to maintaining our qualification as a REIT and exclusion from registration under the 1940 Act, we may also engage in a variety of interest rate management techniques that seek on the one hand to mitigate the influence of interest rate changes on the values of some of our assets and on the other hand help us achieve our risk management objectives.
Subject to maintaining our qualification as a REIT and exclusion from registration under the 1940 Act, we may also engage in a variety of interest rate risk management techniques that seek on one hand to mitigate the influence of interest rate changes on the values of some of our assets and on the other hand help us achieve our risk management objectives.
This category also includes residential mortgage loans issued to borrowers that do not meet conforming loan standards, but who qualify for a loan that is insured or guaranteed by the government through Ginnie Mae (Ginnie Mae, collectively with the GSEs, the “Agencies” and each of Fannie Mae, Freddie Mac and Ginnie Mae, an “Agency”), primarily through federal programs 2 operated by the Federal Housing Administration (“FHA”), the United States Department of Agriculture (“USDA”) and the Department of Veterans Affairs (“VA”). • Non-GSE or Government Guaranteed Loans.
This category also includes residential mortgage loans issued to borrowers that do not meet conforming loan standards, but who qualify for a loan that is insured or guaranteed by the government through Ginnie Mae (Ginnie Mae, collectively with the GSEs, the “Agencies” and each of Fannie Mae, Freddie Mac and Ginnie Mae, an “Agency”), primarily through federal programs operated by the Federal Housing Administration (“FHA”), the United States Department of Agriculture (“USDA”) and the Department of Veterans Affairs (“VA”). • Non-GSE or Non-Government Guaranteed Loans.
The amount of leverage we deploy for a particular investment depends upon an assessment of a variety of factors, which may include the anticipated liquidity and price volatility of our assets; the gap between the duration of assets and liabilities, including hedges; the availability and cost of financing the assets; our opinion of the creditworthiness of financing counterparties; the health of the U.S. economy and the residential mortgage and housing markets; our outlook on interest rates; the credit quality of the loans underlying our investments; and our outlook for asset spreads relative to financing costs.
The amount of leverage we deploy for a particular investment depends upon an assessment of a variety of factors, which may 12 include the anticipated liquidity and price volatility of our assets; the gap between the duration of assets and liabilities, including hedges; the availability and cost of financing the assets; our opinion of the creditworthiness of financing counterparties; the health of the U.S. economy and the residential mortgage and housing markets; our outlook on interest rates; the credit quality of the loans underlying our investments; and our outlook for asset spreads relative to financing costs.
We and our subsidiaries must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Equal Credit Opportunity Act, as well as individual state licensing, privacy, foreclosure laws and federal and local bankruptcy rules.
We and our subsidiaries must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act (the “FTCA”), the Telephone Consumer Protection Act, the Equal Credit Opportunity Act, as well as individual state licensing, privacy, foreclosure laws and federal and local bankruptcy rules.
These institutions would generally have held a majority of their originated residential mortgage loans as interest-earning assets on their balance sheets and would have performed all activities associated with servicing the loans, including accepting principal and interest payments, making advances for real estate taxes and homeowners’ insurance premiums, initiating collection actions for delinquent payments and conducting foreclosures.
These institutions would generally have held a majority of their originated residential 1 mortgage loans as interest-earning assets on their balance sheets and would have performed all activities associated with servicing the loans, including accepting principal and interest payments, making advances for real estate taxes and homeowners’ insurance premiums, initiating collection actions for delinquent payments and conducting foreclosures.
The Section 3(c)(5)(C) exclusion is available for entities “primarily engaged” in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in 13 real estate.” The Section 3(c)(5)(C) exclusion generally requires that at least 55% of these subsidiaries’ assets comprise qualifying real estate assets and at least 80% of each of their portfolios must comprise qualifying real estate assets and real estate-related assets under the 1940 Act.
The Section 3(c)(5)(C) exclusion is available for entities “primarily engaged” in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” The Section 3(c)(5)(C) exclusion generally requires that at least 55% of these subsidiaries’ assets must comprise qualifying real estate assets and at least 80% of each of their portfolios must comprise qualifying real estate assets and real estate-related assets under the 1940 Act.
See “Risk Factors—Risks Related to our Business—Any hedging transactions that we enter into may limit our gains or result in losses.” Our interest rate management techniques may include: • interest rate swap agreements, interest rate cap agreements, exchange-traded derivatives and swaptions; • puts and calls on securities or indices of securities; • U.S. Treasury securities, options on U.S.
See “Risk Factors—Risks Related to our Business—Any hedging transactions that we enter into may limit our gains or result in losses.” Our interest rate risk management techniques may include: • interest rate swap agreements, interest rate cap agreements, exchange-traded derivatives and swaptions; • puts and calls on securities or indices of securities; • U.S. Treasury securities, options on U.S.
We intend to continue to conduct our operations so that we do not come within the definition of an investment company because less than 40% of the value of our adjusted total assets on an unconsolidated basis will consist of “investment securities” in compliance with the 40% test under Section 3(a)(1)(C) of the 1940 Act.
We intend to continue to conduct our operations so that we do not come within the definition of an investment 15 company because less than 40% of the value of our adjusted total assets on an unconsolidated basis will consist of “investment securities” in compliance with the 40% test under Section 3(a)(1)(C) of the 1940 Act.
These and other laws and regulations directly affect our business and require constant compliance monitoring and internal and external audits and examinations by federal and state regulators. We work diligently to assess and understand the implications 12 of the complex regulatory environment in which we operate and strive to meet the requirements of this constantly changing environment.
These and other laws and regulations directly affect our business and require constant compliance monitoring and internal and external audits and examinations by federal and state regulators. We work diligently to assess and understand the implications of the complex regulatory environment in which we operate and strive to meet the requirements of this constantly changing environment.
These securitization trusts fund the acquisition of residential mortgage loans by issuing securities, known as residential mortgage-backed securities or RMBS, which entitle the owner of such securities to receive a portion of the interest and/or principal collected on the residential mortgage loans in the pool.
These securitization trusts fund the acquisition of residential mortgage loans by issuing securities, known as RMBS, which entitle the owner of such securities to receive a portion of the interest and/or principal collected on the residential mortgage loans in the pool.
The legal and regulatory environment in which we operate is also constantly evolving as statutes, regulations and practices, and interpretations thereof, that are in place 11 may be amended or otherwise change, and new statutes, regulations and practices may be enacted, adopted or implemented.
The legal and regulatory environment in which we operate is also constantly evolving as statutes, regulations and practices, and interpretations thereof, that are in place may be amended or otherwise change, and new statutes, regulations and practices may be enacted, adopted or implemented.
For purposes of the foregoing, we treat our interests in certain of our wholly-owned and majority owned subsidiaries, which constitutes more than 60% of the value of our adjusted total assets on an unconsolidated basis, as non-investment securities because such subsidiaries qualify for exclusion from the definition of an investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act (the “Section 3(c)(5)(C) exclusion”).
For purposes of the foregoing, we treat our interests in certain of our wholly-owned and majority owned subsidiaries, which constitute more than 60% of the value of our adjusted total assets on an unconsolidated basis, as non-investment securities because such subsidiaries qualify for exclusion from the definition of an investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act (the “Section 3(c)(5)(C) exclusion”).
We expect these instruments and techniques may allow us to reduce, but not eliminate, the impact of 10 changing interest rates on our earnings and liquidity.
We expect these instruments and techniques may allow us to reduce, but not eliminate, the impact of changing interest rates on our earnings and liquidity.
Many of our anticipated competitors are significantly larger than we are, have access to greater capital and other resources and may have other advantages over us.
Many of our competitors are significantly larger than we are, have access to greater capital and other resources and may have other advantages over us.
In addition, among other rules and regulations, we are subject to regulation by the Department of Labor under the U.S. Employee Retirement Income Security Act of 1974 (“ERISA”). As a registered commodity pool operator and a registered commodity trading advisor, we are subject to regulation and oversight by the Commodity Futures Trading Commission (“CFTC”).
In addition, among other rules and regulations, we are subject to regulation by the Department of Labor under the U.S. Employee Retirement Income Security Act of 1974 (“ERISA”). As a registered commodity pool operator and a registered commodity trading advisor, we are subject to regulation and oversight by the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association.
Further, we believe the fundamental long-term shortage of affordable housing in the U.S. has also contributed to the increased popularity of SFR properties. 3 Our expectation is that the demand for SFR will continue, and we therefore believe there are attractive opportunities in the SFR sector.
SFR Properties We believe the fundamental long-term shortage of affordable housing in the U.S. has also contributed to the increased popularity of SFR properties. Our expectation is that the demand for SFR will continue, and we therefore believe there are attractive opportunities in the SFR sector.
Now, institutions (including non-bank originators) that originate residential mortgage loans generally hold a smaller portion of originated loans as assets on their balance sheets and instead sell originated loans to third parties. The GSEs are currently the largest purchasers of residential mortgage loans.
Today, institutions (including non-bank originators) that originate residential mortgage loans generally hold a smaller portion of originated loans as assets on their balance sheets and instead sell originated loans to third parties. The GSEs are currently the largest purchasers of residential mortgage loans.
Re-performing loans were formally non-performing but became performing again, often as a result of a loan modification where the lender agrees to modified terms with the borrower rather than foreclosing on the underlying property.
Re-performing loans were previously non-performing but became performing again, often as a result of a loan modification where the lender agrees to modified terms with the borrower rather than foreclosing on the underlying property.
In certain jurisdictions, including the U.S., the European Union (“EU”) and UK, we are also subject to risk retention regulations applicable to securitizations and similar transactions, including collateralized loan obligations (“CLOs”) and other transactions that we manage or may manage in the future, which may require us to retain a portion of the securities or other interests issued in some of these CLOs and other transactions, whether in order to satisfy compliance obligations directly applicable to us or in response to investor demands based on regulatory requirements imposed on such investors.
In certain jurisdictions, including the U.S., the European Union (“EU”) and the UK, we are also subject to risk retention regulations applicable to securitizations and similar transactions, including CLOs and other transactions that we manage or may manage in the future, which may require us to retain a portion of 14 the securities or other interests issued in some of these CLOs and other transactions, whether in order to satisfy compliance obligations directly applicable to us or in response to investor demands based on regulatory requirements imposed on such investors.
Potential counterparties also assess our ability to demonstrate compliance with local, state and federal regulations and to improve technology and processes while controlling our costs. As it relates to our asset management business, the asset management industry is intensely competitive, and we expect that it will remain so.
Potential counterparties also assess our ability to demonstrate compliance with local, state and federal regulations and to improve technology and processes while controlling our costs. The asset management industry is intensely competitive, and we expect that it will remain so.
Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques, size of our available inventory and our acquisition channel.
Our operating results are impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory.
Treasury securities and U.S. Treasury short sales; • TBAs; and • other similar transactions. Subject to maintaining our qualification as a REIT and exclusion from registration under the 1940 Act, we may, from time to time, utilize derivative financial instruments to hedge the interest rate risk associated with our borrowings and utilize other techniques that we deem appropriate.
Treasury securities and U.S. Treasury securities payable; • TBAs; and • other similar financial instruments Subject to maintaining our qualification as a REIT and exclusion from registration under the 1940 Act, we may, from time to time, utilize derivative financial instruments to hedge the interest rate risk associated with our borrowings and utilize other techniques that we deem appropriate.
SMS services delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying residential mortgage loans. We are highly experienced in loan servicing, including loan modifications and seek to help borrowers avoid foreclosure. The SMS special servicing division also includes third-party serviced loans on behalf of unaffiliated investors.
Our special servicer, services delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying mortgage loans. The special servicing division also includes third-party serviced loans on behalf of unaffiliated investors. We are highly experienced in loan servicing, including loan modifications, and seek to help borrowers avoid foreclosure.
These investments are associated with specified pools of residential mortgage loans in which we have contractually assumed the servicing advance obligation and include the related outstanding servicer advances, the requirement to purchase future servicer advances and the rights to the basic fee component of the related MSR.
Servicer Advance Investments Our servicer advance investments are associated with specified pools of residential mortgage loans in which we have contractually assumed the servicing advance obligation and include the related outstanding servicer advances, the requirement to purchase future servicer advances and the rights to the base fee component of the related MSR.
In addition, once a property is available for its initial lease, we incur ongoing property-related expenses, which consist primarily of property taxes, insurance, HOA fees (when applicable), utility expenses, repairs and maintenance, leasing costs, marketing expenses and property administration. Before a property is considered rentable, certain of these expenses are capitalized as building and improvements.
Once a property is available for its initial lease, we incur ongoing property-related expenses, which consist primarily of property taxes, insurance, HOA fees (when applicable), utility expenses, repairs and maintenance, leasing costs, marketing expenses and property administration. Prior to a property being rentable, certain of these expenses are capitalized as building and improvements.
Our ability to originate and service residential mortgage loans positions us to support, connect with and provide solutions to homeowners throughout the lifetime of their residential mortgage loan. Over the last few decades, the complexity and composition of the market for residential mortgage loans in the U.S. have dramatically evolved.
Our ability to originate and service residential mortgage loans positions us to support, connect with and provide solutions to homeowners throughout the lifetime of their residential mortgage loan. The complexity and composition of the market for residential mortgage loans in the U.S. has dramatically evolved.
These investment guidelines may be changed by our board of directors without the approval of our stockholders. If our board of directors changes any of our investment guidelines, we will disclose such changes in our next required periodic report. Financing Strategy Our objective is to generate attractive risk-adjusted returns for our stockholders, which at times incorporates the use of leverage.
If our board of directors changes any of our investment guidelines, we will disclose such changes in our next required periodic report. Financing Strategy Our objective is to generate attractive risk-adjusted returns for our stockholders, which at times incorporates the use of leverage.
The Residential Real Estate Market Mortgage Originations and Servicing We believe we are one of only a select number of non-bank market participants that have the combination of capital, infrastructure, industry expertise and business relationships necessary to leverage opportunities existing in today’s complex and dynamic mortgage market.
Markets in which We Operate Mortgage Originations and Servicing We believe we are one of only a select number of non-bank market participants that have the combination of access to capital, infrastructure, industry expertise and business relationships necessary to leverage opportunities existing in today’s complex and dynamic mortgage market.
The principal underwriting guideline is the conforming loan limit which is established by statute and currently is $766,550 for 2024 (an increase from $726,200 in 2023) with certain exceptions for high-priced real estate markets.
The principal underwriting guideline is the conforming loan limit which is established by statute and currently is $806,500 for 2025 (an increase from $766,550 in 2024) with certain exceptions for high-priced real estate markets.
Our SFR properties are managed through an external property manager and APM. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality and tenant defaults, and the amount of time it takes to turn properties when tenants vacate.
Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality and tenant defaults, and the amount of time it takes to turn properties when tenants vacate.
Our ability to identify and acquire properties that meet our investment criteria is impacted by property prices in our target markets, the inventory of properties available, competition for our target assets and our available capital.
Our ability to identify and acquire properties that meet our investment criteria is impacted by property prices in our target markets, the inventory of properties available, competition for our target assets and our available capital as well as local, state and federal regulations.
For more details on our portfolio, see “—Our Portfolio” below, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio.” For information concerning current market trends which impact our portfolio, see “—The Residential Real Estate Market,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Considerations” and “—Quantitative and Qualitative Disclosures About Market Risk.” Acquisition of Sculptor Capital Management, Inc.
For more details on our portfolio, see “—Our Portfolio” below, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio.” For information concerning current market trends which impact our portfolio, see “—Residential Real Estate Market,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Considerations” and “—Quantitative and Qualitative Disclosures About Market Risk.” Acquisition of Computershare On May 1, 2024, Rithm Capital completed the acquisition of Computershare Mortgage Services Inc.
Interest Only Agency RMBS — This type of stripped security only entitles the holder to interest payments. The yield to maturity of interest only Agency RMBS is extremely sensitive to the rate of principal payments (particularly prepayments) on the underlying pool of residential mortgage loans.
The yield to maturity of interest only Agency RMBS is extremely sensitive to the rate of principal payments (particularly prepayments) on the underlying pool of residential mortgage loans.
Our strategy involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of our investments by offering products and services related to the lifecycle of transactions that affect each mortgage loan and underlying residential property or collateral. We operate our asset management business primarily through our wholly-owned subsidiary, Sculptor.
Our real estate related strategy involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of our investments by offering products and services related to the lifecycle of transactions that affect each mortgage loan and underlying residential property or collateral.
Properties added to our portfolio through traditional acquisition channels require expenditures in addition to payment of the purchase price, including property inspections, closing costs, liens, title insurance, transfer taxes, recording fees, broker commissions, property taxes, renovation work and HOA fees, when applicable.
Properties added to our portfolio through traditional acquisition channels require expenditures in addition to payment of the purchase price, including property inspections, closing costs, liens, title insurance, transfer taxes, recording fees, broker commissions, property taxes and HOA fees, when applicable. In addition, we typically incur costs to renovate a property acquired through traditional acquisition channels to prepare it for rental.
Our board of directors has adopted a broad set of investment guidelines to evaluate specific investments. Our general investment guidelines prohibit any investment that would cause us to fail to qualify as a REIT and any investment that would cause us to be regulated as an investment company.
Investment Guidelines We make decisions about our investments in accordance with broad investment guidelines adopted by our board of directors to evaluate specific investments. Our general investment guidelines prohibit any investment that would cause us to fail to qualify as a REIT and any investment that would cause us to be regulated as an investment company.
Genesis’s loan programs include new construction, bridge, build-to-rent, rental hold, fix and flip and vacation rental. We believe Genesis’s suite of loan programs, industry expertise and tailored solutions provides a competitive advantage over regional community banks that have historically acted as primary providers of capital within this space.
Despite this competitive landscape, we believe Genesis’ suite of loan programs, including new construction, bridge, build-to-rent, rental hold, fix and flip and vacation rental loans, provides us with a competitive advantage over regional community banks that have historically acted as primary providers of capital within this space.
We seek to generate long-term value for our investors by using our investment expertise to identify, manage and invest in real estate related and other financial assets and more recently, offer broader asset management capabilities, in each case, that provides investors with attractive risk-adjusted returns.
We seek to generate long-term value for our investors by using our investment expertise to identify, manage and invest in real estate related and other financial assets, as well as offering broader asset management capabilities, in order to provide investors with attractive risk-adjusted returns.
We have adopted corporate governance guidelines and codes of business conduct and ethics, which delineate our standards for our officers, directors and employees. Rithm Capital files annual, quarterly and current reports, proxy statements and other information required by the Exchange Act with the SEC. Our SEC filings are available to the public from the SEC’s internet site at http://www.sec.gov.
We have adopted corporate governance guidelines and codes of business conduct and ethics, which delineate our standards for our officers, directors and employees. Website Access to Rithm Capital Reports Rithm Capital files annual, quarterly and current reports, proxy statements and other information required by the Exchange Act with the SEC.
We compete with other lenders across a variety of industry segments. Loan production faces intense competition primarily on the basis of product offerings, brand recognition, technical knowledge, speed of execution, rates and fees. Servicing competes primarily on the price, experience, quality and efficiency of execution and 14 servicing performance.
Loan production faces intense competition primarily on the basis of product offerings, brand recognition, technical knowledge, speed of execution, rates and fees. Servicing competes primarily on the price, experience, quality and efficiency of execution and servicing performance.
Furthermore, servicing agreements generally require a servicer to make advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan or the mortgaged property.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” Servicing agreements generally require a servicer to make advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan or the mortgaged property.
An MSR is made up of two components: a basic fee and an Excess MSR. The basic fee is the amount of compensation for the performance of servicing duties (including advance obligations), and the Excess MSR is the amount that exceeds the basic fee. Ownership of an MSR requires the owner to be a licensed mortgage servicer.
An MSR is made up of two components: a base fee and an Excess MSR. The base fee is the amount of compensation for the performance of servicing duties (including advance obligations) and the Excess MSR is the amount that exceeds the base fee.
We believe that, commencing with our initial taxable year ended December 31, 2013, we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that our manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. 1940 Act Exclusion We intend to continue to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act.
We believe that, commencing with our initial taxable year ended December 31, 2013, we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that our manner of operation will enable us to meet the requirements for qualification and taxation as a REIT.
We conduct our business through the following segments: Origination and Servicing, Investment Portfolio, Mortgage Loans Receivable, Asset Management and Corporate.
We conduct our business through the following segments: Origination and Servicing, Investment Portfolio, Residential Transitional Lending and Asset Management.
The service providers we use, including outside counsel retained to process foreclosures and bankruptcies, must also comply with some of these legal requirements.
Several other states have enacted similar legislation, and many other states are currently considering similar legislation. The service providers we use, including outside counsel retained to process foreclosures and bankruptcies, must also comply with some of these legal requirements.
Employees and Human Capital Resources Our executive management team oversees our human capital resources and employment practices to ensure that an asset as important as our employees are strategically integrated with our goals and business plans as a manager of assets and investments focused on the real estate and financial services industries.
Human Capital Our executive management team oversees human capital resources and employment practices, ensuring employees are strategically aligned with our goals and business plans as a manager of assets and investments in real estate and financial 17 services industries.
Most servicer advances are considered “top of the waterfall” and are generally repaid from amounts received from the related residential mortgage loan pool, and to a lesser extent, payments from the borrower or amounts received from the liquidation of the property securing the loan, which is referred to as “loan-level recovery.” We fund advances primarily from a combination of cash on hand, loan prepayments and secured financing arrangements.
Most servicer advances are considered “top of the waterfall” and are generally repaid from amounts received from the related residential mortgage loan pool, and to a lesser extent, payments from the borrower or amounts received from the liquidation of the property securing the loan, which is referred to as “loan-level recovery.” Loan prepayments made by the borrowers on the residential mortgage loans underlying the securitizations can only be used to fund principal and interest advances.
Decisions regarding the form and other characteristics of the financing for our investments are made by our officers subject to the general investment guidelines adopted by our board of directors. Regulations The mortgage industry is subject to a highly complex legal and regulatory framework.
Decisions regarding the form and other characteristics of the financing for our investments are made by our officers subject to the general investment guidelines adopted by our board of directors. 13 Regulations We are subject to numerous legal and regulatory frameworks across our business lines.
Mortgage pass-through certificates — Mortgage pass-through certificates are securities representing interests in “pools” of residential mortgage loans secured by residential real property where payments of both interest and principal, plus pre-paid principal, on the securities are made monthly to holders of the securities, in effect “passing through” monthly payments made by the individual borrowers on the residential mortgage loans that underlie the securities, net of fees paid in connection with the issuance of the securities and the servicing of the underlying residential mortgage loans.
Other types of Agency RMBS and other related financial instruments in which we have invested or may invest are set forth below: • Mortgage Pass-Through Certificates: Mortgage pass-through certificates are securities representing interests in “pools” of residential mortgage loans secured by residential real property where payments of both interest and principal, plus pre-paid principal, on the securities are made monthly to holders of the securities, in effect “passing through” monthly payments made by the individual borrowers on the residential mortgage loans that underlie the 8 securities, net of fees paid in connection with the issuance of the securities and the servicing of the underlying residential mortgage loans. • Interest Only Agency RMBS: This type of security only entitles the holder to interest payments.
Corporate Governance and Internet Address; Where Readers Can Find Additional Information We emphasize the importance of professional business conduct and ethics through our corporate governance initiatives. Our board of directors consists of a majority of independent directors, and the Audit, Nominating and Corporate Governance and Compensation committees of our board of directors are composed exclusively of independent directors.
“Legal Proceedings” in this report. 18 Corporate Governance We emphasize the importance of professional business conduct and ethics through our corporate governance initiatives. Our board of directors consists of a majority of independent directors, and the Audit, the Nominating and Corporate Governance, the Compensation and the Regulatory committees of our board of directors are composed exclusively of independent directors.
Looking forward, the MBA forecasts origination volumes to increase 22% in 2024 to $2.0 trillion, with a 16% increase in purchase volume and a 50% increase in refinance volume. Mortgage originators primarily generate their revenue from the sale of originated loans to the GSEs and Ginnie Mae.
Looking forward, the MBA forecasts total mortgage origination volume to increase 15% in 2025 to $2.1 trillion, with an 8% increase in purchase volume and a 34% increase in refinance volume. Mortgage originators primarily generate their revenue from the sale of originated loans to the GSEs, Ginnie Mae or other large mortgage companies.
Although we monitor our portfolio periodically and prior to each investment origination or acquisition, there can be no assurance that we will be able to maintain the Section 3(c)(5)(C) exclusion from the definition of an investment company under the 1940 Act for these subsidiaries.
Although we monitor our portfolio periodically and prior to each investment origination or acquisition, there can be no assurance that we will be able to maintain the Section 3(c)(5)(C) exclusion from the definition of an investment company under the 1940 Act for these subsidiaries. 16 To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the exclusions or exceptions we and our subsidiaries rely on from the 1940 Act, we may be required to adjust our strategy accordingly.
Our European and Asian operations, and our investment activities around the globe, are subject to a variety of regulatory regimes that vary country by country, including the United Kingdom (“UK”) Financial Conduct Authority and the Securities and Futures Commission in Hong Kong.
Our investment activities around the globe are subject to a variety of regulatory regimes that vary country by country including in the UK and in Hong Kong.
In this capacity, we play an important role in providing efficient capital markets access to these institutions. Our Correspondent channel is an important component of our strategy to grow our customer base and add to our MSR portfolio. For the year ended December 31, 2023, we originated $24.0 billion in Correspondent originations, representing 65% of our total funded origination volume.
In this capacity, we play an important role in providing efficient capital markets access to these institutions. Our Correspondent channel is an important component of our strategy to grow our customer base and add to our MSR portfolio.
During the year ended December 31, 2023, we securitized $670.3 million of Non-QM residential loans. We believe that our multi-channel origination mortgage platform provides us with a competitive advantage and enables us to provide our borrowers within the mortgage community with various products to ultimately originate both purchase and refinance loans across different market backdrops.
We believe that our multi-channel origination mortgage platform provides us with a competitive advantage and enables us to provide borrowers with various products to ultimately originate both purchase and refinance loans across different market conditions.
Because of this timing difference, servicers can effectively “borrow” against the prepayments received to cover principal and interest advance requirements. As of December 31, 2023, the carrying value of our servicer advance balances was $2.8 billion.
Because of this timing difference, servicers can effectively “borrow” against the prepayments received to cover principal and interest advance requirements.
Investment Guidelines We make decisions about our investments in accordance with broad investment guidelines adopted by our board of directors. Accordingly, we may, without a stockholder vote, change our target asset classes and acquire a variety of assets that may differ from, and are possibly riskier than, our current portfolio.
Accordingly, we may, without a stockholder vote, change our target asset classes and acquire a variety of assets that may differ from, and are possibly riskier than, our current portfolio, as long as they are within such guidelines. Additionally, these investment guidelines may be changed by our board of directors without the approval of our stockholders.
This is what is often referred to as a “general collections backstop.” See “Risk Factors—Risks Related to Our Business—Servicer advances may not be recoverable or may take longer to recover than we expect, which could cause us to fail to achieve our targeted return on our servicer advance investments or MSRs.” 7 Residential Securities, Properties and Loans RMBS Residential mortgage loans are often packaged into pools held in securitization entities which issue RMBS collateralized by such loans.
This is what is often referred to as a “general collections backstop.” See “Risk Factors—Risks Related to Our Business—Servicer advances may not be recoverable or may take longer to recover than we expect, which could cause us to fail to achieve our targeted return on our servicer advance investments or MSRs.” We fund advances primarily from a combination of cash on hand, loan prepayments and secured financing arrangements.
Loan prepayments made by the borrowers on the residential mortgage loans underlying the securitizations can only be used to fund principal and interest advances. The servicing agreements with Fannie Mae, Ginnie Mae and certain private label securitizations (“PLS”) generally have a “waterfall” payment structure that allows servicers to apply balances received from prepayments to cover principal and interest advance requirements.
The servicing agreements with Fannie Mae, Ginnie Mae and certain PLS generally have a “waterfall” payment structure that allows servicers to apply balances received from prepayments to cover principal and interest advance requirements.
Sculptor is a leading global alternative asset manager and provides asset management services and investment products across credit, real estate and multi-strategy platforms through commingled funds, separate accounts and other alternative investment vehicles. We completed our acquisition of Sculptor on November 17, 2023.
Sculptor is a leading global alternative asset manager and provides asset management services and investment products across credit, real estate and multi-strategy platforms through commingled funds, separate accounts and other alternative investment vehicles. As of December 31, 2024, we had approximately $46.0 billion in total assets and approximately $34.0 billion in assets under management (“AUM”).
While the loans are sourced through third parties, we underwrite and fund these loans according to our own quality and compliance monitoring standards. We provide brokers with 5 differentiated products and pricing, as well as superior customer service through our experienced salesforce and our proprietary technologies.
While the loans are sourced through third parties, we underwrite and fund these loans according to our own quality and compliance monitoring standards.
When our existing customers choose us for their refinancing needs, we not only benefit from the gain on sale on the newly originated loan but also benefit from retaining the newly created MSR. For the year ended December 31, 2023, we funded $2.0 billion in Direct to Consumer originations, representing 5% of our total funded origination volume.
When our existing customers choose us for their refinancing needs, we can not only benefit from the gain on sale on the newly originated loan but can also benefit from retaining the newly created MSR.
Genesis originated 1,088 loans with a UPB of $2.1 billion in 2023. Asset Management We operate our asset management business primarily through our wholly-owned subsidiary, Sculptor. Sculptor is a leading global alternative asset manager and a specialist in opportunistic investing.
In 2024, Genesis originated 1,476 business purpose loans with a UPB of $3.6 billion. Asset Management Our Asset Management segment primarily operates through our wholly-owned subsidiaries, Sculptor and RCM Manager. Sculptor is a leading global alternative asset manager and a specialist in opportunistic investing with approximately $34.0 billion in AUM as of December 31, 2024.
Rithm Capital is a Delaware corporation that was formed as a limited liability company in September 2011 (commenced operations in December 2011) and, since June 17, 2022, has been structured as an internally managed REIT for U.S. federal income tax purposes.
Since June 17, 2022, Rithm Capital has been structured as an internally managed REIT for U.S. federal income tax purposes.
Our subsidiaries that perform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, including the CFPB, Federal Trade Commission, the U.S. Department of Housing and Urban Development (“HUD”), the VA, the SEC and various state licensing, supervisory and administrative agencies.
For one, the mortgage industry is subject to a highly complex legal and regulatory framework, and our subsidiaries that perform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, including the CFPB, the Federal Trade Commission (the “FTC”), the U.S.
We also must comply with federal, state and local laws related to data privacy and the handling of non-public personal financial information of our customers, including the California Consumer Protection Act (“CCPA”) and similar state statutes, and we expect additional states to enact legislation similar to the CCPA, which limit how companies can use customer data and impose obligations on companies in their management of such data.
We also must comply with federal, state, local and foreign laws related to data privacy and the handling of non-public personal financial information of our customers, including the California Consumer Protection Act, which went into effect in January 2020, as amended by the California Privacy Rights Act, which went into effect in January 2023 (collectively, “CCPA”), the European Union General Data Protection Regulation 2016/679 and applicable national supplementing laws (the “EU GDPR”) and the United Kingdom General Data Protection Regulation and Data Protection Act 2018 (the “UK GDPR” and, together with the EU GDPR, the “GDPR”) and similar laws, which limit how companies can use customer data and impose obligations on companies in their management of such data.
An MSR provides a mortgage servicer with the right to service a pool of residential mortgage loans in exchange for a portion of the interest payments made on the underlying residential mortgage loans. This amount typically ranges from 25 to 50 basis points (“bps”) of the UPB of the residential mortgage loans, plus ancillary income and custodial interest.
We finance our investments in MSRs and MSR financing receivables with short- and medium-term bank and capital markets notes. An MSR provides a mortgage servicer with the right to service a pool of residential mortgage loans in exchange for a portion of the interest payments made on the underlying residential mortgage loans, plus ancillary income and custodial interest.
Moreover, we may determine to change our strategy, including to pursue, modify or abandon any such potential transactions at any time, and, in any event, there can be no assurance we will be successful in executing on our strategy.
Moreover, we may determine to change our strategy, including to pursue, modify or abandon any such potential transactions at any time, and, in any event, there can be no assurance we will be successful in executing on our strategy. 5 Our Portfolio Our portfolio, as of December 31, 2024 and 2023, is separated into the Origination and Servicing, our Investment Portfolio, Residential Transitional Lending and Asset Management segments as described in more detail below (dollars in thousands).
On the other hand, servicers generally derive their income from the contractual fees earned for servicing loans and ancillary revenue such as late fees and modification incentives. The servicing fee, along with ancillary income and other revenue, is designed to cover costs incurred to service the specified pool plus a reasonable margin.
The servicing fee, along with ancillary income and other revenue, is designed to cover costs incurred to service the specified pool plus a reasonable margin. A portion of the margin is often referred to as the excess servicing fee.
Our SMART Loan Series is a non-qualified residential mortgage (“Non-QM”) product that provides a variety of options for highly qualified borrowers who fall outside the specific requirements of Agency residential mortgage loans.
Our Non-QM loan products provide a variety of options for highly qualified borrowers who fall outside the specific requirements of agency residential mortgage loans issued by the GSEs or Ginnie Mae (“Agency” securities).
In addition, other potential purchasers of our target assets may be more attractive to sellers of such assets if the sellers believe that these potential purchasers could obtain any necessary third-party approvals and consents more easily than us. As it relates to our Mortgage Company (including mortgage-related services businesses), we provide various residential mortgage loan and real estate services products.
In addition, other potential purchasers of our target assets may be more attractive to the sellers of such assets if the sellers believe that these other potential purchasers could obtain any necessary third-party approvals and consents more easily than we could. Newrez competes with both non-bank and bank lenders and servicers across a variety of industry segments.
As of December 2023, the Mortgage Bankers Association (“MBA”) estimated total U.S. origination volume for 2023 was $1.6 trillion, down 25% from an estimated $2.2 trillion in 2022. Furthermore, the MBA estimated that 19% of 2023 activity was related to refinance volume, a decline from 30% in 2022.
The purchase market remains the key driver to mortgage originations. As of January 2025, the Mortgage Bankers Association (“MBA”) estimated total U.S. origination volume for 2024 was $1.8 trillion, up 22% from an estimated $1.5 trillion in 2023. Furthermore, the MBA estimated that 28% of 2024 activity was related to refinance volume, an increase from 15% in 2023.
Furthermore, we generally service all of the loans that we originate, which provides us with connectivity with our borrowers throughout the lifecycle of their loan. We combine operational excellence, modern proprietary technology, capital markets expertise, prudent risk management and a relentless focus on client service to deliver consistent high-quality service to our customers in both our origination and servicing businesses.
We believe we combine operational excellence, modern proprietary technology, capital markets expertise, prudent risk management and a relentless focus on client service to deliver consistent high-quality service to our customers in both our Origination and Servicing businesses. In 2024, Newrez introduced its artificial intelligence (“AI”) initiative, called Rezi AI.
As of December 31, 2023, we employed 485 loan consultants covering 147 of our retail locations in the U.S. We also have joint venture partnerships with realtors, homebuilders and mortgage banks as well as traditional distributed retail business units.
These referral relationships are integral to our success in the purchase mortgage market. We also have joint venture partnerships with realtors, homebuilders and mortgage banks as well as traditional distributed retail business units.
We reward our employees based on merit and their contributions in accordance with the requirements of the Equal Employment Opportunities Commission. We maintain policies that reinforce and enhance our commitment to high ethical standards, corporate governance and internal controls, to provide the best and most competitive service to our customers in order to enhance stockholder value.
We reward performance based on merit and contributions, in compliance with Equal Employment Opportunity Commission standards. We maintain policies that uphold high ethical standards, corporate governance and robust internal controls to deliver exceptional service to our clients and enhance stockholder value. We are committed to a workplace free of harassment, discrimination and retaliation.
Servicing Partners With respect to our Excess MSRs, servicer advance investments, consumer loans and business purpose loans, we engage third-party servicers to service the loans, or loans underlying the investments, as applicable. With respect to our MSRs and residential mortgage loan investments, we service the loans both in-house and through third-party servicers to service the loans underlying the investments.
With respect to our Excess MSRs, servicer advance investments and consumer loans, we engage third-party servicers to service the loans, or loans underlying the investments, as applicable. As of December 31, 2024, our third-party Servicing Partners include, but are not limited to, Mr. Cooper Group Inc. (“Mr. Cooper”), PHH Mortgage Corporation (“PHH”), Valon Mortgage, Inc.
Our revenues are derived primarily from rents collected from tenants for our SFR properties under lease agreements which typically have a term of one to two years. In the fourth quarter of 2023, we entered into a strategic partnership with Darwin Homes, Inc. (“Darwin”) to establish a new property management platform, Adoor Property Management LLC (“APM”).
Our revenues are derived primarily from rents collected from tenants for our SFR properties pursuant to lease agreements which typically have a term of one to two years.
Additionally, we work to ensure our commitments to diversity, equity and inclusion are reflected throughout our operating companies. 15 Employee Compensation & Employee Engagement We recognize employee engagement and retention as a critical factor to our success and are committed to maintaining a work environment in which employee growth and advancement are very important.
Additionally, we work collaboratively to ensure our commitment to fostering a diverse and inclusive workplace are consistently reflected across our operating companies. Compensation and Benefits We recognize employee engagement and retention as critical to our success and are committed to fostering an equitable work environment where growth and advancement are prioritized.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSee “Risks Related to the Financial Markets and Our Regulatory Environment—Certain of our Servicing Partners have been and are subject to federal and state regulatory matters and other litigation, which may adversely impact us” for more information.
Biggest changeSee “Risks Related to the Financial Markets and Our Regulatory Environment—Certain of our subsidiaries and Servicing Partners have been and are subject to federal and state regulatory matters and other litigation, which may adversely impact us.” Additionally, servicers are subject to as various other risks, including, but not limited to those pertaining to: • risks related to compliance with applicable laws, regulations and other requirements (see also “—Risks Related to the Financial Markets and Our Regulatory Environment—Our subsidiaries that perform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, and our subsidiaries’ business results may be significantly impacted by the existing and future laws and regulations to which they are subject.
We generally record such investments on our balance sheet at fair value and we measure their fair value on a recurring basis.
We generally record such investments on our balance sheet at fair value and measure their fair value on a recurring basis.
If any of our Servicing Partners fail to adequately perform their loss mitigation obligations, we could be required to make or purchase, as applicable, servicer advances in excess of those that we might otherwise have had to make or purchase and the time period for collecting servicer advances may extend.
If we or any of our Servicing Partners fail to adequately perform their loss mitigation obligations, we could be required to make or purchase, as applicable, servicer advances in excess of those that we might otherwise have had to make or purchase and the time period for collecting servicer advances may extend.
Failure to successfully modify, resell or refinance our repurchased Ginnie Mae loans or default of a significant portion of the repurchased Ginnie Mae loans may adversely affect our business, financial condition, liquidity and results of operations.
Failure to successfully modify, resell or refinance our repurchased Ginnie Mae loans or a default of a significant portion of the repurchased Ginnie Mae loans may adversely affect our business, financial condition, liquidity and results of operations.
If investors subject to such legislation viewed our funds or ESG practices, including our climate-related goals and commitments, as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in our funds, our ability to maintain the size of our funds could be impaired, and it could negatively affect the price of our common stock.
If investors subject to such legislation viewed our ESG practices, including our climate-related goals and commitments, as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in our funds, our ability to maintain the size of our funds could be impaired, and it could negatively affect the price of our common stock.
Regulatory actions or legal proceedings against certain of our Servicing Partners or our subsidiaries could increase our financing costs or operating expenses, reduce our revenues or otherwise materially adversely affect our business, financial condition, results of operations and liquidity.
Regulatory actions or legal proceedings against certain of our subsidiaries or Servicing Partners could increase our financing costs or operating expenses, reduce our revenues or otherwise materially adversely affect our business, financial condition, results of operations and liquidity.
Certain of our Servicing Partners and subsidiaries have disclosed certain matters in their periodic reports filed with the SEC and there can be no assurance that such events will not have a material adverse effect on them.
Certain of our subsidiaries and Servicing Partners have disclosed certain matters in their periodic reports filed with the SEC and there can be no assurance that such events will not have a material adverse effect on them.
In addition, certain of our Servicing Partners and subsidiaries have been and continue to be subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations and threatened legal actions and proceedings.
In addition, certain of our subsidiaries and Servicing Partners have been and continue to be subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations and threatened legal actions and proceedings.
Such Servicing Partners and subsidiaries cannot provide any assurance as to the outcome of any of the aforementioned actions, proceedings or inquiries, or that such outcomes will not have a material adverse effect on their reputation, business, prospects, results of operations, liquidity or financial condition.
Such subsidiaries and Servicing Partners cannot provide any assurance as to the outcome of any of the aforementioned actions, proceedings or inquiries, or that such outcomes will not have a material adverse effect on their reputation, business, prospects, results of operations, liquidity or financial condition.
The laws and regulations are complex and vary greatly among the states and localities, and in some cases, these laws are in conflict with each other or with U.S. federal law. In connection with the MSR Transactions, there is no assurance that each transfer of MSRs to our selected subservicer will be approved by the requisite regulators.
The laws and regulations are complex and vary greatly among the states and localities, and in some cases, these laws are in conflict with each other or with U.S. federal law. In connection with MSR transactions, there is no assurance that each transfer of MSRs to our selected subservicer will be approved by the requisite regulators.
Certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans and/or MSRs. In the event that any licensing requirement is applicable to us, and we do not hold such licenses, there can be no assurance that we will obtain such licenses or, if obtained, that we will be able to maintain them.
Certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans and/or MSRs. In the event that any licensing requirement is applicable to us, and we do not hold such licenses, or there can be no assurance that we will obtain such licenses or, if obtained, that we will be able to maintain them.
As a result, the requirement to distribute a substantial portion of our net taxable income could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on 58 unfavorable terms; (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt; or (iv) make taxable distributions of our capital stock or debt securities in order to comply with REIT requirements.
As a result, the requirement to distribute a substantial portion of our net taxable income could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on unfavorable terms; (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or 58 repayment of debt; or (iv) make taxable distributions of our capital stock or debt securities in order to comply with REIT requirements.
These factors include, among other things: • interest rates, including increases thereof and credit spreads; • the availability of credit, including the price, terms and conditions under which it can be obtained; • the quality, pricing and availability of suitable investments; • liquidity in the credit markets; • the ability to obtain accurate market-based valuations; • volatility associated with asset valuations and margin calls; • the ability of securities dealers to make markets in relevant securities and loans; • loan values relative to the value of the underlying real estate assets; • default rates on the loans underlying our investments and the amount of the related losses and credit losses with respect to our investments; • prepayment and repayment rates, delinquency rates and legislative/regulatory changes with respect to our investments and the timing and amount of servicer advances; • the availability and cost of quality Servicing Partners, and advance, recovery and recapture rates; • competition; • the actual and perceived state of the real estate markets, bond markets, market for dividend-paying stocks and public capital markets generally; • uncertainty related to U.S. federal fiscal, tax, trade or regulatory policy; • terrorism or cyber terrorism; • unemployment rates; and • the attractiveness of other types of investments relative to investments in real estate or REITs generally.
These factors include, among other things: • interest rates, including increases thereof and credit spreads; • the availability of credit, including the price, terms and conditions under which it can be obtained; • the quality, pricing and availability of suitable investments; • liquidity in the credit markets; 37 • the ability to obtain accurate market-based valuations; • volatility associated with asset valuations and margin calls; • the ability of securities dealers to make markets in relevant securities and loans; • loan values relative to the value of the underlying real estate assets; • default rates on the loans underlying our investments and the amount of the related losses and credit losses with respect to our investments; • prepayment and repayment rates, delinquency rates and legislative/regulatory changes with respect to our investments and the timing and amount of servicer advances; • the availability and cost of quality Servicing Partners, and advance, recovery and recapture rates; • competition; • the actual and perceived state of the real estate markets, bond markets, market for dividend-paying stocks and public capital markets generally; • uncertainty related to U.S. federal fiscal, tax, trade or regulatory policy; • terrorism or cyber terrorism; • unemployment rates; and • the attractiveness of other types of investments relative to investments in real estate or REITs generally.
These provisions include, among others: • a classified board of directors with staggered three-year terms; • provisions regarding the election of directors, classes of directors, the term of office of directors, the filling of director vacancies and the resignation and removal of directors for cause only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon; • provisions regarding corporate opportunity only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon; • removal of directors only for cause and only with the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote in the election of directors; • our board of directors to determine the powers, preferences and rights of our preferred stock and to issue such preferred stock without stockholder approval; • advance notice requirements applicable to stockholders for director nominations and actions to be taken at annual meetings; • a prohibition, in our certificate of incorporation, stating that no holder of shares of our common stock will have cumulative voting rights in the election of directors, which means that the holders of a majority of the issued and outstanding shares of common stock can elect all the directors standing for election; and • a requirement in our bylaws specifically denying the ability of our stockholders to consent in writing to take any action in lieu of taking such action at a duly called annual or special meeting of our stockholders.
These provisions include, among others: 64 • a classified board of directors with staggered three-year terms; • provisions regarding the election of directors, classes of directors, the term of office of directors, the filling of director vacancies and the resignation and removal of directors for cause only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon; • provisions regarding corporate opportunity only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon; • removal of directors only for cause and only with the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote in the election of directors; • our board of directors to determine the powers, preferences and rights of our preferred stock and to issue such preferred stock without stockholder approval; • advance notice requirements applicable to stockholders for director nominations and actions to be taken at annual meetings; • a prohibition, in our certificate of incorporation, stating that no holder of shares of our common stock will have cumulative voting rights in the election of directors, which means that the holders of a majority of the issued and outstanding shares of common stock can elect all the directors standing for election; and • a requirement in our bylaws specifically denying the ability of our stockholders to consent in writing to take any action in lieu of taking such action at a duly called annual or special meeting of our stockholders.
These factors include, without limitation: • a shift in our investor base; • our quarterly or annual earnings and cash flows, or those of other comparable companies; • actual or anticipated fluctuations in our operating results; • changes in accounting standards, policies, guidance, interpretations or principles; • announcements by us or our competitors of significant investments, acquisitions, dispositions or other transactions; • the failure of securities analysts to cover our common stock; • changes in earnings estimates by securities analysts or our ability to meet those estimates; • market performance of affiliates and other counterparties with whom we conduct business; • the operating and stock price performance of other comparable companies; • our failure to qualify as a REIT, maintain our exemption under the 1940 Act or satisfy the NYSE listing requirements; • negative public perception of us, our competitors or industry; • overall market fluctuations; and • general economic conditions.
These factors include, without limitation: • a shift in our investor base; • our quarterly or annual earnings and cash flows, or those of other comparable companies; • actual or anticipated fluctuations in our operating results; 62 • changes in accounting standards, policies, guidance, interpretations or principles; • announcements by us or our competitors of significant investments, acquisitions, dispositions or other transactions; • the failure of securities analysts to cover our common stock; • changes in earnings estimates by securities analysts or our ability to meet those estimates; • market performance of affiliates and other counterparties with whom we conduct business; • the operating and stock price performance of other comparable companies; • our failure to qualify as a REIT, maintain our exemption under the 1940 Act or satisfy the NYSE listing requirements; • negative public perception of us, our competitors or industry; • overall market fluctuations; and • general economic conditions.
These risks include, without limitation: possible declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; increases in competition, property taxes and operating expenses; changes in zoning laws; increased energy costs; unemployment; costs resulting from the clean-up of, and liability to, third parties for damages resulting from, environmental problems; casualty or condemnation losses; uninsured damages from floods, hurricanes, earthquakes or other natural disasters; and changes in interest rates.
These risks include, without limitation: possible declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; increases in competition, property taxes and operating expenses; changes in zoning laws; increased energy costs; unemployment; costs resulting from the clean-up of, and liability to, third parties for damages resulting from, environmental problems; casualty or condemnation losses; uninsured damages from floods, hurricanes, earthquakes, wildfires or other natural disasters; and changes in interest rates.
For a particular taxable year, we would treat such TBAs as 61 qualifying assets for purposes of the REIT asset tests, and income and gains from such TBAs as qualifying income for purposes of the 75% gross income test, to the extent set forth in an opinion from Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of the underlying Agency RMBS, and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of such TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS.
For a particular taxable year, we would treat such TBAs as qualifying assets for purposes of the REIT asset tests, and income and gains from such TBAs as qualifying income for purposes of the 75% gross income test, to the extent set forth in an opinion from Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of the underlying Agency RMBS, and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of such TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS.
If we or such Servicing Partner is terminated as servicer with respect to a PSA and we are unable to enforce our contractual rights against such Servicing Partner, or if such Servicing Partner is unable to make any resulting indemnification payments to us, if any such 40 payment is due and payable, it may have a material adverse effect on our financial condition, results of operations, ability to make distributions, liquidity and financing arrangements, including our servicer advance financing facilities, and may make it more difficult for us to acquire additional interests in MSRs in the future.
If we or such Servicing Partner is terminated as servicer with respect to a PSA and we are unable to enforce our contractual rights against such Servicing Partner, or if such Servicing Partner is unable to make any resulting indemnification payments to us, if any such payment is due and payable, it may have a material adverse effect on our financial condition, results of operations, ability to make distributions, liquidity and financing arrangements, including our servicer advance financing facilities, and may make it more difficult for us to acquire additional interests in MSRs in the future.
The actual or alleged failure of our mortgage origination and servicing subsidiaries to comply with applicable federal, state and local laws and regulations and GSE, Ginnie Mae and other business counterparty requirements, or to implement and adhere to adequate remedial measures designed to address any identified compliance deficiencies, could lead to: • the loss or suspension of licenses and approvals necessary to operate our or our subsidiaries’ business; • limitations, restrictions or complete bans on our or our subsidiaries’ business or various segments of our business; • our or our subsidiaries’ disqualification from participation in governmental programs, including GSE, Ginnie Mae and VA programs; • breaches of covenants and representations under our servicing, debt, or other agreements; • negative publicity and damage to our reputation; • governmental investigations and enforcement actions; • administrative fines and financial penalties; • litigation, including class action lawsuits; • civil and criminal liability; • termination of our servicing and subservicing agreements or other contracts; 50 • demands for us to repurchase loans; • loss of personnel who are targeted by prosecutions, investigations, enforcement actions or litigation; • a significant increase in compliance costs; • a significant increase in the resources we and our subsidiaries devote to regulatory compliance and regulatory inquiries; • an inability to access new, or a default under or other loss of current, liquidity and funding sources necessary to operate our business; • restrictions on our or our subsidiaries’ business activities; • impairment of assets; and • an inability to execute on our business strategy.
The actual or alleged failure of our mortgage origination and servicing subsidiaries to comply with applicable federal, state and local laws and regulations and GSE, Ginnie Mae and other business counterparty requirements, or to implement and adhere to adequate remedial measures designed to address any identified compliance deficiencies, could lead to: • the loss or suspension of licenses and approvals necessary to operate our or our subsidiaries’ business; • limitations, restrictions or complete bans on our or our subsidiaries’ business or various segments of our business; • our or our subsidiaries’ disqualification from participation in governmental programs, including GSE, Ginnie Mae and VA programs; • breaches of covenants and representations under our servicing, debt, or other agreements; • negative publicity and damage to our reputation; • governmental investigations and enforcement actions; • administrative fines and financial penalties; • litigation, including class action lawsuits; • civil and criminal liability; • termination of our servicing and subservicing agreements or other contracts; • demands for us to repurchase loans; • loss of personnel who are targeted by prosecutions, investigations, enforcement actions or litigation; 47 • a significant increase in compliance costs; • a significant increase in the resources we and our subsidiaries devote to regulatory compliance and regulatory inquiries; • an inability to access new, or a default under or other loss of current, liquidity and funding sources necessary to operate our business; • restrictions on our or our subsidiaries’ business activities; • impairment of assets; and • an inability to execute on our business strategy.
In general, on the date each month that principal prepayments are announced (i.e., factor day), the value of our real estate related security pledged as collateral under our repurchase agreements is reduced by the amount of the prepaid principal and, as a result, our lenders will 35 typically initiate a margin call requiring the pledge of additional collateral or cash, in an amount equal to such prepaid principal, in order to re-establish the required ratio of borrowing to collateral value under such repurchase agreements.
In general, on the date each month that principal prepayments are announced (i.e., factor day), the value of our real estate related security pledged as collateral under our repurchase agreements is reduced by the amount of the prepaid principal and, as a result, our lenders will typically initiate a margin call requiring the pledge of additional collateral or cash, in an amount equal to such prepaid principal, in order to re-establish the required ratio of borrowing to collateral value under such repurchase agreements.
Competition for fund investors is based on a variety of factors, including: • Investment performance; • Investor liquidity and willingness to invest; • Investor perception of investment managers’ ability, drive, focus and alignment of interest with them; 27 • Investor perception of robustness of business infrastructure and financial controls; • Transparency with regard to portfolio composition; • Investment and risk management processes; • Quality of service provided to and duration of relationship with investors; • Business reputation, including the reputation of a firm’s investment professionals; and • Level of fees and incentive income charged for services.
Competition for fund investors is based on a variety of factors, including: • Investment performance; • Investor liquidity and willingness to invest; • Investor perception of investment managers’ ability, drive, focus and alignment of interest with them; • Investor perception of robustness of business infrastructure and financial controls; • Transparency with regard to portfolio composition; • Investment and risk management processes; • Quality of service provided to and duration of relationship with investors; • Business reputation, including the reputation of a firm’s investment professionals; and • Level of fees and incentive income charged for services.
While we believe that the sellers and servicers would be in violation of the applicable Servicing Guidelines to the extent that they have improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive, time consuming and, ultimately, uneconomic for us to enforce our contractual rights.
While we believe that the sellers and servicers would be in violation of the applicable Servicing Guidelines to the extent that they have or in the future they improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive, time consuming and, ultimately, uneconomic for us to enforce our contractual rights.
These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories (including outstanding judgments or prior bankruptcies), mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgage property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represent a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified.
These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories (including outstanding judgments or prior bankruptcies), mortgage loans where the amount of the loan at origination is 80% or more of the value of the 34 mortgage property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represent a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified.
Any distributions will be authorized by our board of directors and declared by us based upon a number of factors, including our actual and anticipated results of operations, liquidity and financial condition, restrictions under Delaware law or applicable financing covenants, our REIT taxable income, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, our operating expenses and other factors our directors deem relevant.
Any distributions will be authorized by our board of directors and declared by us based upon a number of factors, including our actual and anticipated results of operations, liquidity and financial condition, restrictions under Delaware law or applicable financing covenants, our 63 REIT taxable income, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, our operating expenses and other factors our directors deem relevant.
In addition, some of our real estate and other financial instruments, including many of the investments held by our funds, may not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws.
In addition, some of our real estate and other financial instruments that are securities, including many of the investments held by our funds, may not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws.
If the market value or income potential of qualifying assets for purposes of our qualification as a REIT or our exclusion from registration as an investment company under the 1940 Act declines as a result of increased interest rates, changes in prepayment rates or other factors, or the market value or income from non-qualifying assets increases, we may need to increase our investments in qualifying assets and/or liquidate our non-qualifying assets to maintain our REIT qualification or our exclusion from registration under the 1940 Act.
If the market value or income potential of qualifying assets for purposes of our qualification as a REIT or our exclusion from registration as an investment company under the 1940 Act declines as a result of increased interest rates, changes in prepayment 45 rates or other factors, or the market value or income from non-qualifying assets increases, we may need to increase our investments in qualifying assets and/or liquidate our non-qualifying assets to maintain our REIT qualification or our exclusion from registration under the 1940 Act.
Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, additional regulatory scrutiny, significant litigation exposure and harm to our reputation, any of which could have a material adverse effect on our business, financial 67 condition, liquidity and results of operations.
Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, additional regulatory scrutiny, significant litigation exposure and harm to our reputation, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
If we are unable to attract and retain such personnel, we may not be able to take advantage of acquisitions and other growth opportunities that may be presented to us, and this could have a material adverse effect on our business, financial condition, liquidity and results of operations. 68 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
If we are unable to attract and retain such personnel, we may not be able to take advantage of acquisitions and other growth opportunities that may be presented to us, and this could have a material adverse effect on our business, financial condition, liquidity and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Such Servicing Partners or subsidiaries may be subject to additional federal and state regulatory matters in the future that could materially and adversely affect the value of our investments to the extent we rely on them to achieve our investment objectives because we have no direct ability to influence their performance.
Such subsidiaries or Servicing Partners may be subject to additional federal and state regulatory matters in the future that could materially and adversely affect the value of our investments to the extent we rely on 48 them to achieve our investment objectives because we have no direct ability to influence their performance.
Such increases in foreclosure timelines could increase 47 the need for capital to fund servicer advances, which would increase our interest expense, delay the collection of interest income or servicing revenue until the foreclosure has been resolved and, therefore, reduce the cash that we have available to pay our operating expenses or to pay dividends.
Such increases in foreclosure timelines could increase the need for capital to fund servicer advances, which would increase our interest expense, delay the collection of interest income or servicing revenue until the foreclosure has been resolved and, therefore, reduce the cash that we have available to pay our operating expenses or to pay dividends.
Those investments will be subject to the risk that the company in which the investment is made may make business, financial or management decisions contrary to our expectations, with which we do not agree or that the majority stakeholders or the management of the company may take risks or otherwise act in a manner that does not serve our interests.
Those investments will be subject to the risk that the company in which the investment is made may make business, financial or management decisions contrary to our 26 expectations, with which we do not agree or that the majority stakeholders or the management of the company may take risks or otherwise act in a manner that does not serve our interests.
There are also no established trading markets for a majority of our intended investments. Moreover, certain of our investments, including our investments in consumer loans and certain of our interests in MSRs, are made indirectly through a vehicle that owns the underlying assets. Our ability to sell our interest may be contractually limited or prohibited.
There are also no established trading markets for a majority of our intended investments. 32 Moreover, certain of our investments, including our investments in consumer loans and certain of our interests in MSRs, are made indirectly through a vehicle that owns the underlying assets. Our ability to sell our interest may be contractually limited or prohibited.
With respect to mortgage loans, in lieu of obtaining such licenses, we may contribute our acquired residential mortgage loans to one or more 45 wholly-owned trusts whose trustee is a national bank, which may be exempt from state licensing requirements. We have formed one or more subsidiaries to apply for certain state licenses.
With respect to mortgage loans, in lieu of obtaining such licenses, we may contribute our acquired residential mortgage loans to one or more wholly-owned trusts whose trustee is a national bank, which may be exempt from state licensing requirements. We have formed one or more subsidiaries to apply for certain state licenses.
It is possible that the integration process could take longer than anticipated and could result in additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices and policies, any of which could adversely affect our ability to achieve the anticipated benefits of such acquisitions.
It is possible that the integration process could take longer than anticipated and could result in additional 66 and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices and policies, any of which could adversely affect our ability to achieve the anticipated benefits of such acquisitions.
Our ability to acquire and/or transfer MSRs may be subject to the approval of various third parties and such approvals may not be provided on a timely basis or at all or may be conditioned upon our satisfaction of significant conditions which could require 21 material expenditures and the provision of significant representations, warranties and indemnities.
Our ability to acquire and/or transfer MSRs may be subject to the approval of various third parties, and such approvals may not be provided on a timely basis or at all or may be conditioned upon our satisfaction of significant conditions which could require material expenditures and the provision of significant representations, warranties and indemnities.
To the extent we consider ESG factors in connection with investments for certain of our funds and other investments, because ESG factors are not universally agreed upon or accepted by investors, our consideration of ESG factors or construction of specific ESG or impact funds could attract opposition from certain segments of our existing and potential client base.
To the extent we consider ESG factors in connection with investments for certain of our funds and other investments, because ESG factors are not universally agreed upon or accepted by investors, our consideration of ESG factors or construction of 31 specific ESG or impact funds could attract opposition from certain segments of our existing and potential client base.
While we cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect our business, 33 there can be no assurance that these matters will not have an adverse impact on our results of operations, cash flows and financial condition.
While we cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect our business, there can be no assurance that these matters will not have an adverse impact on our results of operations, cash flows and financial condition.
Any sustained period of increased payment 44 delinquencies, foreclosures or losses could adversely affect our net interest income from the assets in our portfolio, which would significantly harm our revenues, results of operations, financial condition, liquidity, business prospects and our ability to make distributions to our stockholders.
Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect our net interest income from the assets in our portfolio, which would significantly harm our revenues, results of operations, financial condition, liquidity, business prospects and our ability to make distributions to our stockholders.
In addition, in the case of Agency MSRs, any payment received from a successor servicer will be applied first to pay the applicable Agency for all of its claims and costs, including claims and costs against the servicer that do not relate to the residential mortgage loans for which we own interests in the MSRs.
In the case of Agency MSRs, any payment received from a successor servicer will be applied first to pay the applicable Agency for all of its claims and costs, including claims and costs against the servicer that do not relate to the residential mortgage loans for which we own interests in the MSRs.
Difficult market conditions can adversely affect our funds in many ways, including by negatively impacting their performance and reducing their ability to raise or deploy capital, reducing AUM and lowering 25 management fee income and incentive income, increasing the cost of financial instruments and executing transactions.
Difficult market conditions can adversely affect our funds in many ways, including by negatively impacting their performance and reducing their ability to raise or deploy capital, reducing AUM and lowering management fee income and incentive income, increasing the cost of financial instruments and executing transactions.
Such approval may be withheld for any reason or no reason in the discretion of the mortgage owner. Moreover, we have not received and do not 31 expect to receive any assurances from any GSEs that their conditions for the sale by us of any interests in MSRs will not change.
Such approval may be withheld for any reason or no reason in the discretion of the mortgage owner. Moreover, we have not received and do not expect to receive any assurances from any GSEs that their conditions for the sale by us of any interests in MSRs will not change.
Such increases in foreclosure timelines could increase our need for capital to fund servicer advances (which do not bear interest), which would increase our interest expense, reduce the value of our investment and potentially reduce the cash that we have available to pay our operating expenses or to pay dividends.
Such increases in foreclosure timelines could 33 increase our need for capital to fund servicer advances (which do not bear interest), which would increase our interest expense, reduce the value of our investment and potentially reduce the cash that we have available to pay our operating expenses or to pay dividends.
If any of our sources are unable to or elected not to extend or refinance such arrangements, we may not be able to find a replacement counterparty in a timely manner. Many of our servicer advance financing arrangements are provided by financial institutions with whom we have substantial relationships.
If any of our sources are unable to or elected not to extend or refinance such arrangements, we may not be able to find a replacement counterparty in a timely manner. 55 Many of our servicer advance financing arrangements are provided by financial institutions with whom we have substantial relationships.
Some of our servicer advance financing arrangements entail the issuance of term notes to capital markets investors with whom we have little or no relationships or the identities of which we may not be aware and, therefore, we have 55 no ability to control or monitor the identity of the holders of such term notes.
Some of our servicer advance financing arrangements entail the issuance of term notes to capital markets investors with whom we have little or no relationships or the identities of which we may not be aware and, therefore, we have no ability to control or monitor the identity of the holders of such term notes.
A weak or declining economy or political disruption, including any international trade disputes, could exacerbate supply chain constraints that could ultimately harm our business. Cybersecurity incidents and technology disruptions or failures could damage our business operations and reputation, increase our costs and subject us to potential liability.
A weak or declining economy or political disruption, including any international trade disputes, could exacerbate supply chain constraints that could ultimately harm our business. 65 Cybersecurity incidents and technology disruptions or failures could damage our business operations and reputation, increase our costs and subject us to potential liability.
These modifications are currently reducing, or in the future may reduce, the value of a number of our current or future investments, including investments in mortgage-backed securities and interests in MSRs. As a result, such loan modifications are negatively affecting our business, results of operations, liquidity and financial condition.
These modifications are currently reducing, or in the future may reduce, the value of a number of our current or future 52 investments, including investments in mortgage-backed securities and interests in MSRs. As a result, such loan modifications are negatively affecting our business, results of operations, liquidity and financial condition.
If we fail to meet the expectations of our fund 66 investors or otherwise experience poor investment performance, whether due to difficult economic and financial conditions or otherwise, our ability to retain existing AUM and attract new investors and capital flows could be materially adversely affected.
If we fail to meet the expectations of our fund investors or otherwise experience poor investment performance, whether due to difficult economic and financial conditions or otherwise, our ability to retain existing AUM and attract new investors and capital flows could be materially adversely affected.
If we purchase assets at a premium to par value, and borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on our assets may reduce the expected yield on such assets because we will have to amortize the related premium on an accelerated basis.
If we purchase assets at 35 a premium to par value, and borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on our assets may reduce the expected yield on such assets because we will have to amortize the related premium on an accelerated basis.
In addition, any of our Servicing Partners could be removed as servicer by the related loan owner or certain other transaction counterparties, which could have a material adverse effect on our interests in the loans and MSRs serviced by such Servicing Partner.
In addition, any of our subsidiaries or Servicing Partners could be removed as servicer by the related loan owner or certain other transaction counterparties, which could have a material adverse effect on our interests in the loans and MSRs serviced by such Servicing Partner.
If any of these Servicing Partners is the named servicer of the related MSR and is terminated, its servicing performance deteriorates, or in the event that any of them files for bankruptcy, our expected returns on these investments could be severely impacted.
If any of these Servicing Partners is the named servicer of the related MSR, or if Newrez is the servicer, and is terminated, its servicing performance deteriorates, or in the event that any of them files for bankruptcy, our expected returns on these investments could be severely impacted.
Furthermore, if we are forced to compete with other alternative asset managers on the basis of fees, we may not be able to maintain our current management fee and incentive income structures, which drive our revenues and earnings.
Furthermore, if we are forced to compete with other alternative asset managers on the basis of fees, we may not be able to 28 maintain our current management fee and incentive income structures, which drive our revenues and earnings.
In addition, under applicable accounting standards, we may be required to treat some of our investments as derivatives, which could adversely affect our results of operations. 37 Market conditions could negatively impact our business, results of operations, cash flows and financial condition.
In addition, under applicable accounting standards, we may be required to treat some of our investments as derivatives, which could adversely affect our results of operations. Market conditions could negatively impact our business, results of operations, cash flows and financial condition.
During the term of the repurchase agreement—which can be as short as 30 days—the counterparty will make funds available to us and hold the asset as collateral. Our counterparties can also require us to post additional margin as collateral at any time during the term of the agreement.
During the term of the repurchase agreement—which can be as short as 30 days—the counterparty will make funds available to us and 54 hold the asset as collateral. Our counterparties can also require us to post additional margin as collateral at any time during the term of the agreement.
When the term of a repurchase agreement ends, we will be required to repurchase the asset for the specified repurchase price, with the difference between the sale and repurchase prices serving as the equivalent of paying 54 interest to the counterparty in return for extending financing to us.
When the term of a repurchase agreement ends, we will be required to repurchase the asset for the specified repurchase price, with the difference between the sale and repurchase prices serving as the equivalent of paying interest to the counterparty in return for extending financing to us.
The political or 38 regulatory climate in the U.S., or elsewhere, also could change so that it would not be lawful or practical for us to use vendors with international operations in the manner in which we currently use them.
The political or regulatory climate in the U.S., or elsewhere, also could change so that it would not be lawful or practical for us to use vendors with international operations in the manner in which we currently use them.
There can be no assurance that risk retention regulations will not materially and adversely affect our business and operations, and the price of our common stock. 53 Regulatory changes in jurisdictions outside the U.S. could adversely affect our business.
There can be no assurance that risk retention regulations will not materially and adversely affect our business and operations and/or the price of our common stock. 53 Regulatory changes in jurisdictions outside the U.S. could adversely affect our business.
In addition, the SEC staff may, in the future, 46 issue further guidance that may require us to re-classify some of our subsidiaries’ assets for the purpose of qualifying for an exclusion from regulation under the 1940 Act.
In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify some of our subsidiaries’ assets for the purpose of qualifying for an exclusion from regulation under the 1940 Act.
In addition, another party could impair our ability to exercise our cleanup call rights by contesting our rights (for example, by claiming that they hold the exclusive cleanup call right with respect to the applicable securitization trust).
In addition, another party could impair our ability to exercise our cleanup call rights by contesting our rights (for 40 example, by claiming that they hold the exclusive cleanup call right with respect to the applicable securitization trust).
In addition, we must limit our aggregate income from non-qualified hedging transactions, from our provision of services and from other non-qualifying sources, to less than 5% of our annual gross income (determined without regard to gross income from qualified hedging transactions).
In addition, we must limit our aggregate income from non-qualified hedging transactions, 60 from our provision of services and from other non-qualifying sources, to less than 5% of our annual gross income (determined without regard to gross income from qualified hedging transactions).
In addition, concerns about, 23 or a default by, one large participant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses.
In addition, concerns about, or a default by, one large participant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses.
Opinions of counsel are not binding on the IRS and no assurance can be given that the IRS would not successfully challenge the conclusions set forth in such opinions.
Opinions of counsel are not binding on the IRS and no assurance can be given that the IRS would not successfully 61 challenge the conclusions set forth in such opinions.
The Dodd-Frank Act also creates new categories of regulated market participants, such as “swap-dealers,” “security-based swap dealers,” “major swap participants” and “major security-based swap participants,” and subjects or may subject these regulated entities to significant new capital, registration, recordkeeping, reporting, disclosure, business conduct and other regulatory requirements that will give rise to new administrative costs.
The Dodd-Frank Act also establishes categories of regulated market participants, such as “swap-dealers,” “security-based swap dealers,” “major swap participants” and “major security-based swap participants,” and subjects or may subject these regulated entities to significant new capital, registration, recordkeeping, reporting, disclosure, business conduct and other regulatory requirements that will give rise to new administrative costs.
Our business, financial condition, liquidity and/or results of operations could be materially and adversely affected by the substantial resources we devote to, and the significant compliance costs we incur in connection with, regulatory compliance and regulatory inquiries, including any fines, penalties, restitution or similar payments we may be required to make in connection with resolving such matters.
Our business, financial condition, liquidity and/or results of operations could be materially and adversely affected by the substantial resources we devote to, and the significant compliance costs we incur in connection with, regulatory compliance and regulatory inquiries, including any fines, penalties, restitution or similar payments or changes to business practices we may be required to make in connection with resolving such matters.
In general, compliance with the REIT requirements may hinder our ability to make and retain certain attractive investments. 60 Complying with the REIT requirements may limit our ability to hedge effectively.
In general, compliance with the REIT requirements may hinder our ability to make and retain certain attractive investments. Complying with the REIT requirements may limit our ability to hedge effectively.
In such “distressed” situations, it may be difficult to obtain full information as to 26 the exact financial and operating condition of the issuer.
In such “distressed” situations, it may be difficult to obtain full information as to the exact financial and operating condition of the issuer.
It is 65 unclear whether and to what extent we would be able to or choose to pay taxable distributions in cash and stock.
It is unclear whether and to what extent we would be able to or choose to pay taxable distributions in cash and stock.
Increasing governmental, investor and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, scope and complexity of matters that we are required to control, assess and report.
Increasing governmental, investor and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence and disclosure on topics such as climate change, labor and risk oversight, could expand the nature, scope and complexity of matters that we are required to control, assess and report.
This competition may affect our ability to attract and retain residents and may reduce the 42 rental rates we are able to charge.
This competition may affect our ability to attract and retain residents and may reduce the rental rates we are able to charge.
Generally, as interest rates increase, the value of our fixed-rate securities decreases, which will decrease the book value of our equity. Furthermore, shifts in the U.S. Treasury yield curve reflecting an increase in interest rates would also affect the yield required on our investments and therefore their value.
Generally, if interest rates increase, the value of our fixed-rate securities decreases, which will decrease the book value of our equity. Furthermore, shifts in the U.S. Treasury yield curve reflecting an increase in interest rates would also affect the yield required on our investments and therefore their value.
Our assumptions could differ materially from actual results. The use of different estimates or assumptions in connection with the valuation of these investments could produce materially different fair values for such investments, which could have a material adverse effect on our consolidated financial position and results of operations.
Our assumptions could differ materially from actual results. The use of different estimates or assumptions in connection with the valuation of these investments could produce materially different fair values, which could have a material adverse effect on our consolidated financial position and results of operations.
We have, through our recently acquired subsidiary Sculptor, experienced and may again experience periods of rapid growth and significant declines in AUM, which place significant demands on our legal, compliance, accounting, risk management, administrative and operational resources. Rapid changes in our AUM may impose substantial demands on our legal, compliance, accounting, risk management, administrative and operational infrastructures.
We have, through our subsidiary Sculptor, experienced and may again experience periods of rapid growth and significant declines in AUM, which place significant demands on our legal, compliance, accounting, risk management, administrative and operational resources. Rapid changes in our AUM may impose substantial demands on our legal, compliance, accounting, risk management, administrative and operational infrastructures.
Favorable servicer ratings from third-party rating agencies, such as S&P Global Ratings (“S&P”), Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”), are important to the conduct of a mortgage servicer’s loan servicing business, and a downgrade in a Servicing Partner’s servicer ratings could have an adverse effect on the value of our interests in MSRs and result in an event of default under our financings.
Favorable servicer ratings from third-party rating agencies, such as S&P Global Ratings (“S&P”), Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”), are important to the conduct of a mortgage servicer’s loan servicing business, and a downgrade in Newrez’s servicer rating, NRM’s servicer rating or a Servicing Partner’s servicer ratings could have an adverse effect on the value of our interests in MSRs and result in an event of default under our financings.
Our results of operations and our ability to make or sustain distributions to our stockholders depend on several factors, including the availability of opportunities to acquire attractive assets, the performance of our funds, our ability to integrate recently acquired businesses including Sculptor, the level and volatility of interest rates, the performance of our origination and servicing businesses, the availability of adequate short- and long-term financing and conditions in the real estate market, the financial markets and economic conditions.
Our results of operations and our ability to make or sustain distributions to our stockholders depend on several factors, including the availability of opportunities to acquire attractive assets or make attractive investments, the performance of our funds, our ability to integrate acquired businesses, the level and volatility of interest rates, the performance of our origination and servicing businesses, the availability of adequate short- and long-term financing and conditions in the real estate market, the financial markets and economic conditions.
Failure to successfully modify, resell or refinance early buyout loans or defaults of the early buyout loans beyond expected levels may adversely affect our business, financial condition, liquidity and results of operations. As a mortgage servicer, we have an EBO option for loans at least three months delinquent in our Ginnie Mae MSR portfolio.
Failure to successfully modify, resell or refinance early buyout loans or defaults of early buyout loans beyond expected levels may adversely affect our business, financial condition, liquidity and results of operations. As a mortgage servicer, we have an early buyout (“EBO”) option for loans at least three months delinquent in our Ginnie Mae MSR portfolio.
Individual states have also been increasingly active in supervising non-bank mortgage lenders and servicers such as our Mortgage Company, and certain regulators have communicated recommendations, expectations or demands with respect to areas such as corporate governance, safety and soundness, risk and compliance management, and cybersecurity, in addition to their focus on traditional licensing and examination matters.
Individual states have also been increasingly active in supervising non-bank mortgage lenders and servicers such as Newrez, and certain regulators have communicated recommendations, expectations or demands with respect to areas such as corporate governance, safety and soundness, risk and compliance management, and cybersecurity, in addition to their focus on traditional licensing and examination matters.
When managing our funds’ exposure to market risks, we may from time to time use hedging strategies and if our risk management processes and systems are ineffective, we may be exposed to material unanticipated losses. See “Risks Related to Our Business—Any hedging transactions that we enter into may limit our gains or result in losses.” • Investment Strategy Risk .
When managing our funds’ exposure to market risks, we may from time to time use hedging strategies and if our risk management processes and systems are ineffective, we may be exposed to material unanticipated losses. See “—Any hedging transactions that we enter into may limit our gains or result in losses.” • Investment Strategy Risk .
We and our subsidiaries must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Equal Credit Opportunity Act, as well as individual state licensing, privacy, and foreclosure laws and federal and local bankruptcy rules.
We and our subsidiaries must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the FTCA, the Telephone Consumer Protection Act, the Fair Housing Act, the Equal Credit Opportunity Act, as well as individual state licensing, privacy, and foreclosure laws and federal and local bankruptcy rules.
Our subsidiaries that perform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, including the CFPB, the Federal Trade Commission, HUD, VA, the SEC and various state agencies that license, audit, investigate and conduct examinations of such subsidiaries’ mortgage servicing, origination, debt collection and other activities.
Our subsidiaries that perform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, including the CFPB, the FTC, HUD, VA, the SEC and various state agencies that license, audit, investigate and conduct examinations of such subsidiaries’ mortgage servicing, origination, debt collection and other activities.
Valuation methodologies for certain assets in our funds are subject to significant subjectivity and the values established pursuant to such methodologies may never be realized, which could result in significant losses for our funds.
Valuation methodologies for certain assets in our Client Accounts are subject to significant subjectivity and the values established pursuant to such methodologies may never be realized, which could result in significant losses for our funds.
Defaults on the mortgage loans underlying Agency RMBS typically have the same effect as prepayments because of the underlying Agency guarantee. Prepayments, which are the primary feature of mortgage-backed securities that distinguish them from other types of bonds, are difficult to predict and can vary significantly over time.
Defaults on the mortgage loans underlying Agency RMBS typically have the same effect as prepayments because of the underlying Agency guarantee. Prepayments are the primary feature of mortgage-backed securities that distinguish them from other types of bonds. As noted above, prepayments are difficult to predict and can vary significantly over time.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe use a combination of cyber security personnel, documented processes and purpose-driven technologies and monitoring systems to identify, protect, detect, respond and recover from security incidents. These encompass incident response procedures, information security and vendor management and a combination of participation in industry consortiums, continuous monitoring, internal, as well as independent testing of systems, and team member education.
Biggest changeSpecifically, our cybersecurity program consists of incident response procedures, information security and vendor management due diligence, as well as participation in industry consortiums, ongoing monitoring, internal and independent testing of information systems and continuous employee education and simulations.
To date, cybersecurity risks, including those resulting from any previous cybersecurity incidents, have not materially affected us, including our business strategy, results of operations or financial condition. We do not believe that cybersecurity risks resulting from any previous cybersecurity incidents of which we are aware are reasonably likely to materially affect us.
To date, cybersecurity risks, including those resulting from any previous cybersecurity incidents, have not materially affected us, our business strategy, results of operations or financial condition. We do not believe that cybersecurity risks resulting from any previous cybersecurity incidents, of which we are aware, are reasonably likely to materially affect us.
As part of these processes, we monitor the privacy and cybersecurity laws, regulations and guidance applicable to us in the regions where we do business (including, but not limited to, SEC rules, the CCPA and the Gramm-Leach-Bliley Act, as further described under the caption “Business—Regulations”), as well as proposed privacy and cybersecurity laws, regulations, guidance and emerging risks.
As part of these processes, we monitor the privacy and cybersecurity laws, regulations and guidance applicable to us in the regions where we do business (including, but not limited to, 67 SEC rules, the CCPA and the Gramm-Leach-Bliley Act, as further described under the caption “Business—Regulations”), as well as proposed privacy and cybersecurity laws, regulations, guidance and emerging risks.
Our independent testing includes both (i) periodic testing and evaluations performed by our internal audit firm and (ii) annual network penetration testing conducted through independent third parties. Our processes for assessing, identifying and managing material risks from cybersecurity threats have been integrated into our overall risk management system and processes.
Our independent testing includes both (i) periodic testing and evaluations performed by our internal audit team and (ii) annual network penetration testing conducted through independent third parties. Our processes for assessing, identifying and managing material risks from cybersecurity threats have been integrated into our overall risk management system and processes.
Additionally, in order to reduce cybersecurity risk related to the use of third-party service providers, we (i) obligate our service providers to adhere to privacy and cyber security measures and (ii) perform risk assessments of each new service provider during onboarding based on, among other things, the nature of their business and the type of information we provide to such service providers.
Additionally, in order to reduce cybersecurity risks related to our use of third-party service providers, we (i) obligate our service providers to adhere to strict privacy and cybersecurity measures and (ii) perform risk assessments of each new service provider during onboarding based on, among other things, the nature of their business and the type of information we provide to such service providers.
Audit Committee meetings and MRC Committee meetings include discussions of specific risk areas throughout the year, including, among others, those relating to cybersecurity, and reports from the Chief Information Security Officer (“CISO”) and Chief Information Officer (“CIO”) on the Company’s enterprise risk profile and the Company’s risk treatment policies and processes on a quarterly basis or as needed.
Audit Committee meetings and Regulatory Committee meetings include discussions of specific risk areas throughout the year, including, among others, those relating to cybersecurity, and reports from the CISO and Chief Information Officer (“CIO”) on the Company’s enterprise risk profile and the Company’s risk treatment policies and processes on a quarterly basis or as needed.
The Audit Committee of the board, in conjunction with the Mortgage and Regulatory Compliance Committee (the “MRC Committee”), which focuses on the risk structure and governance related to the Mortgage Company’s mortgage servicing and origination business, oversees the Company’s risk management program, which focuses on the most significant risks the Company faces in the short-, intermediate-, and long-term timeframe.
Specifically, the Audit Committee of the board, in conjunction with the Regulatory Committee (the “Regulatory Committee”), which focuses on the risk structure and governance related to regulatory risk throughout all lines of business, oversees the Company’s risk management program, which focuses on the most significant risks the Company faces in the short-, intermediate-, and long-term timeframe.
ITEM 1C. CYBERSECURITY Risk Management and Strategy We prioritize the management of cybersecurity risk and regularly assess risks from cybersecurity threats, monitor our information systems for potential vulnerabilities and test those systems pursuant to our cybersecurity program.
ITEM 1C. CYBERSECURITY Risk Management and Strategy We prioritize the management of cybersecurity risk and regularly assess any risk of cybersecurity threats. In doing so, we continuously monitor and test our information systems for potential vulnerabilities pursuant to our cybersecurity program.
Each service provider is then ranked in a tier, which tier determines the frequency and extent of evaluation for the service provider. We additionally collect SIG, SOC 1 reports and Business Continuity and Disaster Recovery documents from each of our key service providers.
Each service provider is assigned a tiered risk rating, which determines the frequency and extent of evaluation for the service provider. Furthermore, we collect and evaluate SIG, SOC 1 reports and Business Continuity and Disaster Recovery documents for our key service providers.
Governance Our board of directors oversees the Company’s risk management process, including cybersecurity risks, directly and through its committees.
Governance Our board of directors oversees the Company’s risk management program, including our cybersecurity program, both directly and through several committees created as part of our risk governance program.
The Company takes a risk-based approach to cybersecurity and has implemented cybersecurity policies throughout its operations that are designed to address cybersecurity threats and incidents. In particular, the CISO is focused on assessing, managing, mitigating and reporting on cybersecurity threats and risks.
Additionally, we have protocols by which certain cybersecurity incidents are escalated in a timely manner to the Audit Committee and the board of directors. The Company takes a risk-based approach to cybersecurity and has implemented cybersecurity policies throughout its operations that are designed to address cybersecurity threats and incidents.
Removed
The CISO, in conjunction with the CIO, the Chief Risk Officer and the Chief Legal Officer, manages the Company’s cyber security posture. The current CISO has more than 20 years of experience in information security and information technology, including previously serving as the CISO for multiple large multinational corporations.
Added
Our cybersecurity program, led by our interim Chief Information Security Officer (“CISO”), is part of our overall enterprise risk management program, along with other significant risks that we face.
Removed
In addition to his extensive work experience, the CISO holds a Bachelor of Science in Business Administration with an emphasis on Management of Information Systems from Alliant University and a Master of Science in Business Administration with an emphasis on Information Systems Audit from California State Polytechnic University.
Added
Our dedicated cybersecurity personnel supervise and monitor our controls, technologies, systems and other processes utilized to mitigate any data loss, theft, exploitation, unauthorized access or other vulnerabilities that may affect our information or data.
Removed
The CISO has the following certifications: Certified Information Systems Security Professional (CISSP), Certified Information Security Manager (CISM), Certified Fraud Examiner (CFE) and Federal Bureau of Investigations (FBI) CISO Academy Graduate. The CISO reports to the CIO and management on cybersecurity threats on a regular basis.
Added
In particular, the CISO is focused on assessing, managing, mitigating and reporting on cybersecurity threats and risks and is tasked with overseeing and enhancing the security posture of the Company and it subsidiaries. This role involves prioritizing and implementing security initiatives across all organizational units.
Removed
The CISO monitors the Company’s cybersecurity posture through the Security Incident Response Team, which consists of key individuals in the legal, human resources, compliance, privacy, risk and information security departments across Rithm Capital 69 and its operating companies.
Added
The CISO plays a critical role in protecting the Company’s assets, data and reputation by developing a robust security strategy and security awareness. Our current CISO brings over 20 years of experience in IT operations and information security with a proven track record working in large financial institutions, mortgage companies and banks, with expertise in managing complex security environments.
Removed
Any escalations will then be raised by the CISO and CIO to Company management who will work with the CISO and CIO to determine the appropriate remediation effort. At the employee level, we maintain an experienced information technology team tasked with implementing our privacy and cybersecurity program and support the CISO in carrying out reporting, security and mitigation functions.
Added
The CISO, in conjunction with other executive leaders such as the CIO and the Chief Legal Officer, manages the Company’s cybersecurity posture. In doing so, the CISO receives regular reports prepared by our experienced cybersecurity personnel on cybersecurity threats and continuously reviews risk management measures implemented by the Company to help identify and mitigate data protection and cybersecurity risks.
Removed
We also hold employee trainings on privacy and cybersecurity, as well as records and information management, and we conduct phishing tests. We generally seek to promote awareness of cybersecurity risk through communication and education of our employee population.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeGiven the inherent unpredictability of these types of proceedings, it is possible that future adverse outcomes could have a material adverse effect on our business, financial position or results of operations. Rithm Capital is, from time to time, subject to inquiries by government entities.
Biggest changeGiven the inherent unpredictability of these types of proceedings, it is possible that future adverse outcomes could have a material adverse effect on our business, financial position or results of operations. 68 Rithm Capital is, from time to time, subject to inquiries by government entities.
Removed
As previously disclosed, in connection with the Sculptor Acquisition, on September 11, 2023, stockholder Gilles Beauchemin filed a purported class action against Sculptor and each of Sculptor’s directors in the Court of Chancery of the State of Delaware, captioned Gilles Beauchemin v. Engel, et al., C.A. No. 2023-0921-SG (the “Beauchemin Action”).
Removed
The Beauchemin Action alleged, among other things, that Sculptor’s board of directors (the “Sculptor Board”) and the special committee of the Sculptor Board (the “Special Committee”) violated their fiduciary duties and sought, among other things, to enjoin the transaction with Rithm Capital. Plaintiff also filed a Motion for Preliminary Injunction. Rithm Capital was not party to the filed complaint.
Removed
On October 17, 2023, Sculptor stockholders Daniel S. Och, Harold A.
Removed
Kelly, Jr., Richard Lyon, James O’Connor and Zoltan Varga (collectively, the “Specified Stockholders”) filed a putative class action complaint on behalf of themselves and all other similarly situated stockholders of Sculptor against each of Sculptor’s directors, Sculptor and certain of its subsidiaries, and Rithm Capital and certain of its subsidiaries, in the Court of Chancery of the State of Delaware, captioned Och, et al. v.
Removed
Engel, et al., C.A. No. 2023-1043-SG (the “Former EMD Group Action”). The complaint in the Former EMD Group Action alleged, among other things, that the Sculptor Board and the Special Committee violated their fiduciary duties and sought, among other things, to enjoin the transaction with Rithm Capital.
Removed
On October 23, 2023, the court entered an order consolidating the Former EMD Group Action and the Beauchemin Action as in re Sculptor Capital Management, Inc. Stockholder Litigation, Consol. C.A. No. 2023-0921-SG (the “Sculptor Stockholder Action”).
Removed
On October 26, 2023, Rithm Capital and Sculptor entered into Amendment No. 2 to the Agreement and Plan of Merger (the "Merger Agreement"), amending, among other things, the price per share of Class A common stock of Sculptor, which was increased to $12.70.
Removed
In connection, Rithm Capital entered into a Transaction Support Agreement (the “Transaction Support Agreement”) with each of the Specified Stockholders and the other signatories party thereto.
Removed
Under the terms of the Transaction Support Agreement, each Specified Stockholder agreed, among other things, to vote all shares held by such Specified Stockholder in favor of the adoption of the Merger Agreement and the approval of the Sculptor Acquisition, and to dismiss with prejudice the claims raised in the Former EMD Group Action complaint, solely with respect to the Specified Stockholders.
Removed
A stipulated order dismissing these claims was submitted to the Court of Chancery for approval. The Specified Stockholders also agreed to withdraw any demands under Section 220. On October 29, 2023, plaintiff Beauchemin filed a consolidated amended complaint adding additional claims and defendants to the matter.
Removed
On November 14, 2023, the parties reached an agreement in principle to settle all claims in the Sculptor Stockholder Action for, among other things, a total payment of $6.5 million to eligible Sculptor common stockholders. On January 22, 2024, the parties executed and filed the Stipulation and Agreement of Settlement, Compromise and Release in connection with the settlement.
Removed
A final hearing for the settlement is scheduled for May 20, 2024. 70 ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 71 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe maximum number of shares available for issuance in the aggregate over the ten-year term of the 2023 Plan is 34,240,000 shares. Share Repurchase Program For details regarding our share repurchase program, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Stockholders’ Equity—Common Stock.” 73 ITEM 6. [RESERVED]
Biggest change“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Stockholders’ Equity—Common Stock.” 71 ITEM 6. [RESERVED]
No assurance, however, can be given that any future distributions will be made or, if made, as to the amounts or timing of any future distributions as such distributions are subject to our earnings, financial condition, liquidity, capital requirements, REIT requirements and such other factors as our board of directors deems 72 relevant.
No assurance, however, can be given that any future distributions will be made or, if made, as to the amounts or timing of any future distributions as such distributions are subject to our earnings, financial condition, liquidity, capital requirements, REIT requirements and such other factors as our board of directors deems 70 relevant.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES We have one class of common stock, which is listed on the NYSE under the symbol “RITM”. As of February 9, 2024, there were 26 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES We have one class of common stock, which is listed on the NYSE under the symbol “RITM”. As of February 18, 2025, there were 22 holders of record of our common stock.
The graph assumes an investment of $100 in our common stock and in each of the indices on December 31, 2018 through December 31, 2023. The past performance of our common stock is not an indication of future performance.
The graph assumes an investment of $100 in our common stock and in each of the indices on December 31, 2019 through December 31, 2024. The past performance of our common stock is not an indication of future performance.
In addition, such distributions may be subject to the receipt of sufficient funds from our servicer subsidiaries, NRM and Newrez, which are subject to regulatory restrictions on their ability to pay distributions. Omnibus Incentive Plan On May 25, 2023, Rithm Capital’s stockholders adopted the 2023 Plan, which became effective as of May 25, 2023.
In addition, such distributions may be subject to the receipt of sufficient funds from our servicer subsidiaries, NRM and Newrez, which are subject to regulatory restrictions on their ability to pay distributions. Share Repurchase Program For details regarding our share repurchase program, see Part II, Item 7.
Year Ended December 31, Index 2018 2019 2020 2021 2022 2023 Rithm Capital Corp. $ 100.0 $ 128.6 $ 84.4 $ 98.7 $ 84.3 $ 122.7 NAREIT All REIT 100.0 128.1 120.7 168.7 126.4 140.9 Russell 2000 100.0 125.5 150.5 172.7 137.4 160.6 NAREIT Mortgage REIT 100.0 121.3 98.7 114.0 84.0 96.8 S&P 500 100.0 131.5 155.6 200.3 164.0 207.0 See Note 22 to our Consolidated Financial Statements for further information regarding distributions on our common stock.
Year Ended December 31, Index 2019 2020 2021 2022 2023 2024 Rithm Capital Corp. $ 100.0 $ 65.6 $ 76.8 $ 65.6 $ 95.4 $ 106.0 NAREIT All REIT 100.0 94.9 134.1 100.8 112.2 116.6 Russell 2000 100.0 119.9 137.7 109.5 128.0 142.7 NAREIT Mortgage REIT 100.0 81.4 94.0 69.3 79.8 78.6 S&P 500 100.0 118.4 152.3 124.7 157.5 196.8 See Note 24 to our consolidated financial statements for further information regarding distributions on our common stock.
Removed
The 2023 Plan replaced Rithm Capital’s Nonqualified Stock Option and Incentive Award Plan, which became effective on May 15, 2013, was amended and restated as of November 4, 2014 and as of February 16, 2023, and expired by its terms on April 29, 2023 (the “2013 Plan”).
Removed
Any stock-based awards issued under the 2013 Plan will continue to be subject to the terms and provisions of the 2013 Plan applicable to such awards.
Removed
The 2023 Plan is intended to facilitate our use of equity-based awards and incentives to provide competitive short-term and long-term compensation opportunities for the benefit of our officers, employees, non-employee directors, independent contractors and consultants to strengthen their commitment to the Company, motivate them to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose contributions are essential to the success of the Company’s business and whose efforts will impact the Company’s long-term growth and profitability.
Removed
To accomplish these purposes, the 2023 Plan provides for the issuance of options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, other stock-based awards and cash awards. Such awards will be subject to the terms and conditions set forth in the agreements evidencing such awards and the terms of the 2023 Plan.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following tables summarizes the collateral characteristics of the residential mortgage loans underlying our MSRs and MSR financing receivables as of December 31, 2023 (dollars in thousands): Collateral Characteristics Current Carrying Amount Current Principal Balance Number of Loans WA FICO Score (A) WA Coupon WA Maturity (months) Average Loan Age (months) Adjustable Rate Mortgage % (B) Three Month Average CPR (C) Three Month Average CRR (D) Three Month Average CDR (E) Three Month Average Recapture Rate GSE (A) $ 5,333,013 $ 351,642,337 1,873,921 768 3.9 % 274 59 1.2 % 4.9 % 4.9 % — % 2.8 % Non-Agency (A) 678,913 48,928,545 449,007 636 4.4 % 284 214 9.5 % 5.9 % 3.9 % 2.1 % — % Ginnie Mae 2,394,012 127,863,627 540,968 700 3.8 % 321 36 0.5 % 4.3 % 4.2 % 0.1 % 6.5 % Total $ 8,405,938 $ 528,434,509 2,863,896 739 3.9 % 286 68 1.8 % 4.8 % 4.6 % 0.2 % 3.4 % (A) Includes GSE and Non-Agency MSRs of $25.9 billion and $45.5 billion underlying UPB, respectively, serviced by third-party subservicers discussed further in Investment Portfolio section below.
Biggest changeThe table below summarizes our MSRs and MSR financing receivables as of December 31, 2024: (dollars in billions) Current UPB Weighted Average MSR (bps) Carrying Value GSE (A) $ 383.0 28 $ 6.4 Non-Agency (A) 70.0 45 0.8 Ginnie Mae 137.2 46 3.1 Total / Weighted Average $ 590.2 35 $ 10.3 (A) Includes GSE and Non-Agency MSRs of $23.8 billion and $41.7 billion underlying UPB, respectively, serviced by third-party subservicers. 79 The following tables summarize the collateral characteristics of the residential mortgage loans underlying our MSRs and MSR financing receivables as of December 31, 2024 (dollars in thousands): Collateral Characteristics Current Carrying Amount Current Principal Balance Number of Loans WA FICO Score (B) WA Coupon WA Maturity (months) Average Loan Age (months) Adjustable Rate Mortgage % (C) Three Month Average CPR (D) Three Month Average CRR (E) Three Month Average CDR (F) Three Month Average Recapture Rate GSE (A) $ 6,413,199 $ 383,014,320 1,978,754 772 4.2 % 273 62 1.0 % 6.3 % 6.3 % — % 7.6 % Non-Agency (A) 836,408 70,022,636 567,430 664 4.6 % 282 200 8.9 % 6.7 % 5.1 % 1.7 % — % Ginnie Mae 3,072,064 137,177,395 564,085 702 4.2 % 316 41 0.4 % 7.0 % 6.8 % 0.1 % 31.2 % Total $ 10,321,671 $ 590,214,351 3,110,269 743 4.2 % 284 73 1.8 % 6.5 % 6.3 % 0.2 % 12.2 % Collateral Characteristics Delinquency Loans in Foreclosure REO Loans in Bankruptcy 90+ Days (G) GSE (A) 0.3 % 0.1 % — % 0.1 % Non-Agency (A) 2.6 % 5.5 % 0.6 % 2.4 % Ginnie Mae 2.6 % 0.6 % — % 0.6 % Weighted Average 1.1 % 0.9 % 0.1 % 0.5 % (A) Includes GSE and Non-Agency MSRs of $23.8 billion and $41.7 billion underlying UPB, respectively, serviced by third-party subservicers.
(B) Annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees. (C) Represents the weighted average expected timing of the receipt of expected net cash flows for this investment.
(B) Represents the annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees. (C) Represents the weighted average expected timing of the receipt of expected net cash flows for this investment.
We finance our investments in MSRs and MSR financing receivables with short- and medium-term bank and public capital markets notes. These borrowings are primarily recourse debt and bear either fixed or variable interest rates, which are offered by the counterparty for the term of the notes for a specified margin over SOFR.
We finance our investments in MSRs and MSR financing receivables with short- and medium-term bank and capital markets notes. These borrowings are primarily recourse debt and bear either fixed or variable interest rates, which are offered by the counterparty for the term of the notes for a specified margin over SOFR.
LTV is measured by the total commitment amount of the loan at origination divided by the “as-complete” appraisal. At the time of origination, the difference between the initial outstanding principal and the total commitment is the amount held back for future release subject to property inspections, progress reports and other conditions in accordance with the loan documents.
LTV is measured by the total commitment amount of the loan at origination divided by the “as-complete” appraisal. At the time of origination, the difference between the initial outstanding principal and the total commitment is the amount held back for future release subject to property inspections, progress reports and other conditions in accordance with the loan 86 documents.
If this value declines by more than a de minimis threshold, the counterparty could require us to post additional collateral, or margin, in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents.
If this value declines by more than a de minimis threshold, the counterparty 99 could require us to post additional collateral, or margin, in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents.
Additionally, we elected to measure MSR Financing Receivables at fair value, with changes in fair value flowing through Servicing Revenue, Net in the Consolidated Statements of Operations. In order to evaluate the 94 reasonableness of our fair value determinations, similar to MSRs, we engage an independent valuation firm to separately measure the fair value of our MSR Financing Receivables.
Additionally, we elected to measure MSR financing receivables at fair value, with changes in fair value flowing through servicing revenue, net in the consolidated statements of operations. In order to evaluate the reasonableness of our fair value determinations, similar to MSRs, we engage an independent valuation firm to separately measure the fair value of our MSR financing receivables.
Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory.
Our operating results are impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory.
These borrowings are non-recourse committed facilities that are not subject to margin calls and bear either fixed or variable interest rates offered by the counterparty for the term of the notes, generally less than one year, of a specified margin over SOFR. See Note 19 to our Consolidated Financial Statements for further information regarding financing of our servicer advances.
These borrowings are non-recourse committed facilities that are not subject to margin calls and bear either fixed or variable interest rates offered by the counterparty for the term of the notes, generally less than one year, of a specified margin over SOFR. See Note 18 to our consolidated financial statements for further information regarding financing of our servicer advances.
As of December 31, 2023, we did not have any other commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
As of December 31, 2024, we did not have any other commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
We believe that these off-balance sheet structures presented the most efficient and least expensive form of financing for these assets at the time they were entered and represented the most common market-accepted method for financing such assets. Our exposure to credit losses related to these non-recourse, off-balance sheet financings is limited to $1.0 billion.
We believe that these off-balance sheet structures presented the most efficient and least expensive form of financing for these assets at the time they were entered and represented the most common market-accepted method for financing such assets. Our exposure to credit losses related to these non-recourse, off-balance sheet financings is limited to $0.5 billion.
Renovation work varies, but may include paint, flooring, cabinetry, appliances, plumbing, hardware and other items required to prepare the property for rental. The time and cost involved to prepare our properties for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel and age and condition of the property.
Renovation work varies, but may include painting, flooring, cabinetry, appliances, plumbing, hardware and other items required to prepare the property for rental. The time and cost involved to prepare our properties for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel and age and condition of the property.
While the terms and timing of the approval and declaration of cash dividends, if any, on shares of our capital stock is at the sole discretion of our board of directors and we cannot predict how market conditions may evolve, we intend to distribute to our stockholders an amount equal to at least 90% of our REIT taxable 110 income determined before applying the deduction for dividends paid and by excluding net capital gains consistent with our intention to maintain our qualification as a REIT under the Code.
While the terms and timing of the approval and declaration of cash dividends, if any, on shares of our capital stock is at the sole discretion of our board of directors and we cannot predict how market conditions may evolve, we intend to distribute to our stockholders an amount equal to at least 90% of our REIT taxable income determined before applying the deduction for dividends paid and by excluding net capital gains consistent with our intention to maintain our qualification as a REIT under the Internal Revenue Code.
We believe the estimates and assumptions underlying our Consolidated Financial Statements are reasonable and supportable based on the information available as of December 31, 2023; however, uncertainty over the current macroeconomic conditions makes any estimates and assumptions as of December 31, 2023 inherently less certain than they would be absent the current economic environment.
We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2024; however, uncertainty over the current macroeconomic conditions makes any estimates and assumptions as of December 31, 2024 inherently less certain than they would be absent the current economic environment.
Our loans are generally categorized as Level 2 or 3 under the GAAP fair value hierarchy, as described in Note 20 to our Consolidated Financial Statements. The fair value of loans is affected by, among other things, changes in interest rates, credit performance, prepayments, and market liquidity.
Our loans are generally categorized as Level 2 or 3 under the GAAP fair value hierarchy, as described in Note 19 to our consolidated financial statements. The fair value of loans is affected by, among other things, changes in interest rates, credit performance, prepayments, and market liquidity.
Our MSRs are categorized as Level 3 under the GAAP fair value hierarchy, as described in Note 20 to our Consolidated Financial Statements. The inputs used in the valuation of MSRs include prepayment rate, delinquency rate, mortgage servicing amount, discount rate, and estimated market level future costs to service.
Our MSRs are categorized as Level 3 under the GAAP fair value hierarchy, as described in Note 19 to our consolidated financial statements. The inputs used in the valuation of MSRs include prepayment rate, delinquency rate, mortgage servicing amount, discount rate, and estimated market level future costs to service.
An MSR provides a mortgage servicer with the right to service a pool of residential mortgage loans in exchange for a portion of the interest payments made on the underlying residential mortgage loans, plus ancillary income and custodial interest. An MSR is made up of two components: a basic fee and an Excess MSR.
An MSR provides a mortgage servicer with the right to service a pool of residential mortgage loans in exchange for a portion of the interest payments made on the underlying residential mortgage loans, plus ancillary income and custodial interest. An MSR is made up of two components: a base fee and an Excess MSR.
Changes in value of these assets do not impact net income in the Consolidated Statement of Operations nor do they impact our Total Rithm Capital Stockholders’ Equity (net book value). An exception to these descriptions results from changes in value that represent impairment.
Changes in value of these assets do not impact net income in the consolidated statements of operations nor do they impact our total Rithm Capital stockholders’ equity (net book value). An exception to these descriptions results from changes in value that represent impairment.
We have financed our investments in the SpringCastle loans with securitized non-recourse long-term notes with a stated maturity date of May 2036. The Marcus loans were financed with long-term notes with a stated maturity date of June 2028.
We have financed our investments in the SpringCastle loans with securitized non-recourse long-term notes with a stated maturity date of May 2036. The Marcus loans are financed with long-term notes with a stated maturity date of June 2028.
Once a property is rentable, expenditures for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve or extend the life of a property. 89 The following table summarizes certain key SFR property metrics as of December 31, 2023 (dollars in thousands): Number of SFR Properties % of Total SFR Properties Net Book Value % of Total Net Book Value Average Gross Book Value per Property % of Rented SFR Properties % of Occupied Properties % of Stabilized Occupied Properties Average Monthly Rent Average Sq.
Once a property is rentable, expenditures for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve or extend the life of a property. 85 The following table summarizes certain key SFR property metrics as of December 31, 2024 (dollars in thousands): Number of SFR Properties % of Total SFR Properties Net Book Value % of Total Net Book Value Average Gross Book Value per Property % of Rented SFR Properties % of Occupied Properties % of Stabilized Occupied Properties Average Monthly Rent Average Sq.
Our ability to roll over short-term borrowings is critical to our liquidity outlook. We have a significant amount of near-term maturities, which we expect to be able to refinance. If we cannot repay or refinance our debt on favorable terms, we will need to seek out other sources of liquidity.
Our ability to extend or refinance short-term borrowings is critical to our liquidity outlook. We have a significant amount of near-term maturities, which we expect to be able to refinance. If we cannot repay or refinance our debt on favorable terms, we will need to seek out other sources of liquidity.
Our revenues are derived primarily from rents collected from tenants for our SFR properties under lease agreements which typically have a term of one to two years.
Our revenues are derived primarily from rents collected from tenants for our SFR properties pursuant to lease agreements which typically have a term of one to two years.
Loan commitments at origination are typically interest only and bear a variable interest rate tied to the SOFR plus a spread ranging from 4.0% to 12.0% and have initial terms typically ranging from 6 to 120 months in duration based on the size of the project and expected timeline for completion of construction, which we often elect to extend for several months based on our evaluation of the project.
Loan commitments at origination are typically interest only, bear a variable interest rate tied to the SOFR plus a spread ranging from 4.0% to 17.2% and have initial terms typically ranging from 4 to 120 months in duration based on the size of the project and expected timeline for completion of construction, which we often elect to extend for several months based on our evaluation of the project.
With respect to the next 12 months, we expect that our cash on hand, combined with our cash flow provided by operations and our ability to roll our secured financing agreements and servicer advance financings will be sufficient to satisfy our anticipated liquidity needs with respect to our current investment portfolio, including related financings, potential margin calls, loan origination and operating expenses.
With respect to the next 12 months, we expect that our cash on hand, combined with our cash flow provided by operations and our ability to extend or refinance our secured financing agreements and servicer advance financings will be sufficient to satisfy our anticipated liquidity needs with respect to our current investment portfolio, including related financings, potential margin calls, loan origination and operating expenses.
Impairment on loans and REO, as well as securities, is subject to reversal if values subsequently increase. All of Rithm Capital’s liabilities, with the exception of derivatives, residential mortgage loan repurchase liability and certain debt accounted for under the fair value option, are recorded at their amortized cost basis.
Impairment on loans and REO, as well as securities, is subject to reversal if values subsequently increase. All of Rithm Capital’s liabilities, with the exception of derivatives, residential mortgage loan repurchase liability, notes payable of consolidated CFEs and certain debt accounted for under the fair value option, are recorded at their amortized cost basis.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 19 to our Consolidated Financial Statements for further information regarding financing of our MSRs and MSR financing receivables, including a summary of activity related to financing from December 31, 2022 to December 31, 2023.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 18 to our consolidated financial statements for further information regarding financing of our MSRs and MSR financing receivables, including a summary of activity related to financing from December 31, 2023 to December 31, 2024.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 19 to our Consolidated Financial Statements for further information regarding financing of our residential mortgage loans, including a summary of activity related to financing from December 31, 2022 to December 31, 2023.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 18 to our consolidated financial statements for further information regarding financing of our residential mortgage loans, including a summary of activity related to financing from December 31, 2023 to December 31, 2024.
For construction and renovation loans, we generally use loan-to-cost (“LTC”) or loan-to-after-repair-value (“LTARV”) ratio. For bridge loans, we use an LTV ratio. LTC and LTARV are measured by the total commitment amount of the loan at origination 90 divided by the total estimated cost of a project or value of a property after renovations and improvements to a property.
For construction and renovation loans, we generally use LTC or LTARV ratio. For bridge loans, we use an LTV ratio. LTC and LTARV are measured by the total commitment amount of the loan at origination divided by the total estimated cost of a project or value of a property after renovations and improvements to a property.
(D) Represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool. (E) Represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.
(D) Represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool. (E) Represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.
In addition, $5.0 billion face amount of our MSR and Excess MSR financing is subject to mandatory monthly repayment to the extent that the outstanding balance exceeds the market value (as defined in the related agreement) of the financed asset multiplied by the contractual maximum LTV ratio.
In addition, $5.8 billion face amount of our MSR financing is subject to mandatory monthly repayment to the extent that the outstanding balance exceeds the market value (as defined in the related agreement) of the financed asset multiplied by the contractual maximum LTV ratio.
The following is a summary of our servicer advance investments, including the right to the basic fee component of the related MSRs (dollars in thousands): December 31, 2023 Amortized Cost Basis Carrying Value (A) UPB of Underlying Residential Mortgage Loans Outstanding Servicer Advances Servicer Advances to UPB of Underlying Residential Mortgage Loans Mr.
The following is a summary of our servicer advance investments, including the right to the base fee component of the related MSRs (dollars in thousands): December 31, 2024 Amortized Cost Basis Carrying Value (A) UPB of Underlying Residential Mortgage Loans Outstanding Servicer Advances Servicer Advances to UPB of Underlying Residential Mortgage Loans Mr.
Purchased non-performing loans means that at the time of acquisition, the borrower will not likely make payments in accordance with contractual terms (i.e., credit-impaired).
Purchased non-performing loans means that at the time of acquisition, it is not likely that the borrower will make payments in accordance with the contractual loan terms (i.e., credit-impaired).
Our operating results may also be affected by credit losses in excess of initial estimates or unanticipated credit events experienced by borrowers whose mortgage loans underlie the MSRs, mortgage loans receivable, or the non-Agency RMBS held in our investment portfolio. During the year ended December 31, 2023, interest rates remained elevated.
Our operating results may also be affected by credit losses in excess of initial estimates or unanticipated credit events experienced by borrowers whose mortgage loans underlie the MSRs, residential transition loans, or the Non-Agency RMBS held in our investment portfolio. During the year ended December 31, 2024, interest rates remained elevated.
Any such change (i) is recorded in the Consolidated Statements of Operations, as impairment that impacts net income, and (ii) impacts our Total Rithm Capital Stockholders’ Equity (net book value). In the case of residential mortgage loans, held-for-sale, at lower of cost or fair value, any reductions in value are considered impairment.
Any such change (i) is recorded in the consolidated statements of operations, as impairment that impacts net income and (ii) impacts our total Rithm Capital 91 stockholders’ equity (net book value). In the case of residential mortgage loans, HFS, at lower of cost or fair value, any reductions in value are considered impairment.
Furthermore, specific to FHFA, all non-banks will have to hold additional origination liquidity of 50 bps times loans held-for-sale plus pipeline loans. Large non-banks with greater than $50 billion UPB in servicing will have to hold an additional liquidity buffer of 2 bps on Fannie Mae and Freddie Mac servicing balances and 5 bps on Ginnie Mae servicing.
Furthermore, specific to FHFA, all non-banks have to hold additional origination liquidity of 50 bps times loans HFS plus pipeline loans. Large non-banks with greater than $50 billion UPB in servicing will have to hold an additional liquidity buffer of 2 bps on Fannie Mae and Freddie Mac servicing UPB and 5 bps on Ginnie Mae servicing UPB.
CONTRACTUAL OBLIGATIONS As of December 31, 2023, we had the following material contractual obligations: Contract Terms Debt Obligations Secured Financing Agreements Described under Note 19 to our Consolidated Financial Statements. Secured Notes and Bonds Payable Described under Note 19 to our Consolidated Financial Statements. Unsecured Senior Notes Described under Note 19 to our Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS As of December 31, 2024, we had the following material contractual obligations: Contract Terms Debt Obligations: Secured Financing Agreements Described under Note 18 to our consolidated financial statements. Secured Notes and Bonds Payable Described under Note 18 to our consolidated financial statements. Unsecured Senior Notes Described under Note 18 to our consolidated financial statements.
Moreover, our ability to access and utilize cash generated from our regulated entities is an important part of our dividend paying ability. As of December 31, 2023, approximately $1.2 billion of available liquidity was held at NRM and the Mortgage Company, of which $0.7 billion were in excess of the new regulatory liquidity requirements made effective during 2023.
Moreover, our ability to access and utilize cash generated from our regulated entities is an important part of our dividend paying ability. As of December 31, 2024, approximately $1.2 billion of available liquidity was held at NRM and Newrez, of which $0.6 billion were in excess of the new regulatory liquidity requirements made effective during 2023.
The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments. The mortgage and financial sectors operate in a challenging and uncertain economic environment.
We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments. The mortgage and financial sectors operate in a challenging and uncertain economic environment.
Changes in the value of these assets (i) are recorded in the Consolidated Statement of Operations, as unrealized gains or losses that impact net income, and (ii) impact our Total Rithm Capital Stockholders’ Equity (net book value). Other Comprehensive Income Assets (“OCI Assets”) — Assets that are marked to market through the Consolidated Statements of Comprehensive Income.
These categories are: Marked-to-Market Assets (“MTM Assets”) — Assets that are marked-to-market through the consolidated statements of operations. Changes in the value of these assets (i) are recorded in the consolidated statement of operations, as unrealized gains or losses that impact net income and (ii) impact our total Rithm Capital stockholders’ equity (net book value).
The loan servicer generally updates the FICO score when loans are refinanced or become delinquent. (B) Constant prepayment rate represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.
The loan servicer generally updates the FICO score when loans are refinanced or become delinquent. (B) Represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool. (C) Represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.
As of December 31, 2023, our maximum exposure to loss of $821.3 million 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.
As of December 31, 2024, our maximum exposure to loss of $830.9 million 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.
Residential Mortgage Loans Classification and valuation — Loans are classified as (i) held-for-investment at fair value, (ii) held-for-sale at fair value or (iii) held-for-sale at lower of cost or fair value.
Residential Mortgage Loans Loans are classified as (i) held-for-investment at fair value, (ii) held-for-sale at fair value or (iii) held-for-sale at lower of cost or fair value.
The basic fee is the amount of compensation for the performance of servicing duties (including advance obligations), and the Excess MSR is the amount that exceeds the basic fee. See Note 6 to our Consolidated Financial Statements for additional information including a summary of activity related to MSRs and MSR financing receivables from December 31, 2022 to December 31, 2023.
The base fee is the amount of compensation for the performance of servicing duties (including advance obligations) and the Excess MSR is the amount that exceeds the base fee. See Note 5 to our consolidated financial statements for additional information including a summary of activity related to MSRs and MSR financing receivables from December 31, 2023 to December 31, 2024.
Loans are accounted for based on our strategy for the loan and on whether the loan was performing or non-performing at the date of acquisition. Acquired performing loans means that, at the time of acquisition, it is likely the borrower will continue making payments in accordance with contractual terms.
A majority of the portfolio is serviced by Newrez. Loans are accounted for based on our strategy for the loan and on whether the loan was performing or non-performing at the date of acquisition. Acquired performing loans means that, at the time of acquisition, it is likely the borrower will continue making payments in accordance with the contractual loan terms.
At December 31, 2023 and 2022, the Company pledged residential mortgage loans with a carrying value of approximately $2.2 billion and $3.0 billion, respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements is subject to daily mark-to-market fluctuations and margin calls.
At December 31, 2024 and 2023, the Company pledged residential mortgage loans with a carrying value of approximately $4.7 billion and $2.2 billion, respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements is subject to daily mark-to-market fluctuations and margin calls.
See Note 19 to our Consolidated Financial Statements for further information regarding financing of our consumer loans, including a summary of activity related to financing from December 31, 2022 to December 31, 2023.
See Note 18 to our consolidated financial statements for further information regarding financing of our consumer loans, including a summary of activity related to financing from December 31, 2023 to December 31, 2024.
This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
This section generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
Additionally, we have acquired and are continuing to acquire additional homes through the purchase of communities and portions of communities built for renting from regional and national home builders.
Additionally, we have acquired and are continuing to acquire additional homes through the purchase of BTR communities and portions of BTR communities from regional and national home builders.
Our primary sources of funds are cash provided by operating activities (primarily income from loan originations and servicing), sales of and repayments from our investments, potential debt financing sources, including securitizations, and the issuance of equity securities, when feasible and appropriate.
Source of Funds Our primary sources of funds are cash provided by operating activities (primarily income from loan originations and servicing, as well as management and incentive fees), sales of and repayments from our investments, potential debt financing sources, including securitizations, and the issuance of equity securities, when feasible and appropriate.
Discussions of 2022 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Amendment No. 1 on Form 10-K/A (the “Amended 2023 Form 10-K/A”) to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
As of December 31, 2023, we had outstanding secured financing agreements with an aggregate face amount of approximately $12.6 billion to finance our investments. The financing of our entire RMBS portfolio, which generally has 30- to 90-day terms, is subject to margin calls.
As of December 31, 2024, we had outstanding secured financing agreements with an aggregate face amount of approximately $16.8 billion to finance our investments. The financing of our entire Agency RMBS portfolio, which generally has 30- to 90-day terms, is subject to margin calls.
Our investments in real estate related assets include our equity interest in operating companies, and our strategy also involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of our investments by offering products and services related to the lifecycle of transactions that affect each mortgage loan and underlying residential property or collateral.
Our real estate related strategy involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of our investments by offering products and services related to the lifecycle of transactions that affect each mortgage loan and underlying residential property or collateral.
Higher interest rates can decrease a borrower’s ability or willingness to enter into mortgage transactions, including residential, business purpose and commercial loans. Higher interest rates also increase our financing costs. In the fourth quarter of 2023, we acquired Sculptor.
Higher interest rates can decrease a borrower’s ability or willingness to enter into mortgage transactions, including residential, business purpose and commercial loans. Higher interest rates also increase our financing costs. In the second quarter of 2024, we acquired Computershare, including SLS.
We acquired these loans through open market purchases, loan origination through our Mortgage Company and the exercise of call rights and acquisitions. 87 The following table presents the total residential mortgage loans outstanding by loan type at December 31, 2023 (dollars in thousands).
We acquired these loans through open market purchases, loan origination through Newrez, bulk acquisitions and the exercise of call rights. The following table presents the total residential mortgage loans outstanding by loan type at December 31, 2024 (dollars in thousands).
Our ability to identify and acquire properties that meet our investment criteria is impacted by property prices in our target markets, the inventory of properties available, competition for our target assets and our available capital.
Our ability to identify and acquire properties that meet our investment criteria is impacted by property prices in our target markets, the inventory of properties available, competition for our target assets and our available capital as well as local, state and federal regulations.
If we were to fail to meet the REIT requirements, we would be subject to U.S. federal, state and local income and franchise taxes, and we would face a variety of adverse consequences.
Many of the REIT requirements, however, are highly technical and complex. If we were to fail to meet the REIT requirements, we would be subject to U.S. federal, state and local income and franchise taxes, and we would face a variety of adverse consequences.
On acquisition, the identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill.
Business combinations are accounted for under the acquisition method. On acquisition, the identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill.
Management fees are generally calculated and paid to Sculptor on a quarterly basis in advance, based on the amount of AUM at the beginning of the quarter. Management fees are prorated for capital inflows and redemptions during the quarter. Certain of Sculptor’s management fees are paid on a quarterly basis in arrears.
Management fees for certain of our closed-end funds are based on invested capital. Management fees are generally calculated and paid to Sculptor on a quarterly basis in advance, based on the amount of AUM at the beginning of the quarter. Management fees are prorated for capital inflows and redemptions during the quarter.
We originate or purchase residential mortgage loans conforming to the underwriting standards of the GSEs and Ginnie Mae, government-insured residential mortgage loans which are insured by the FHA, VA and USDA, and Non-Agency and non-QM loans through our SMART Loan Series.
Our loan offerings include residential mortgage loans conforming to the underwriting standards of the GSEs and Ginnie Mae, government-insured residential mortgage loans which are insured by the FHA, VA and USDA, Non-Agency securities and Non-QM loans through our SMART Loan Series.
These risks are further described in “Quantitative and Qualitative Disclosures About Market Risk.” OFF-BALANCE SHEET ARRANGEMENTS We have material off-balance sheet arrangements related to our non-consolidated securitizations of residential mortgage loans treated as sales in which we retained certain interests.
Quantitative and Qualitative Disclosures About Market Risk.” 102 OFF-BALANCE SHEET ARRANGEMENTS We have material off-balance sheet arrangements related to our non-consolidated securitizations of residential mortgage loans treated as sales in which we retained certain interests.
Other Contractual Obligations Lease Liability Described under Note 17 to our Consolidated Financial Statements. Interest Rate Swaps Described under Note 18 to our Consolidated Financial Statements. See Note 23 and Note 27 to our Consolidated Financial Statements for information regarding commitments and material contracts entered into subsequent to December 31, 2023, if any.
Other Contractual Obligations: Lease Liability Described under Note 16 to our consolidated financial statements. Interest Rate Swaps Described under Note 17 to our consolidated financial statements. See Note 26 and Note 28 to our consolidated financial statements for information regarding commitments and material contracts entered into subsequent to December 31, 2024, if any.
From and including the date of original issue, July 2, 2019, August 15, 2019, February 14, 2020 and September 17, 2021 but excluding August 15, 2024, August 15, 2024, February 15, 2025 and November 15, 2026, holders of shares of our Series A, Series B, Series C and Series D are entitled to receive cumulative cash dividends at a rate of 7.50%, 7.125%, 6.375% and 7.00% per annum of the $25.00 liquidation preference per share (equivalent to $1.875, $1.781, $1.594 and $1.750 per annum per share), respectively, and from and including August 15, 2024, August 15, 2024 and February 15, 2025, at a floating rate per annum which is determined pursuant to the USD-LIBOR cessation fallback language in the Certificate of Designations for each of our Series A, Series B and Series C.
From and including the date of original issue, July 2, 2019 and August 15, 2019 but excluding August 15, 2024, holders of shares of our Series A and Series B were entitled to receive cumulative cash dividends at a rate of 7.50% and 7.125% per annum of the $25.00 liquidation preference per share (equivalent to $1.875 and $1.781 per annum per share), respectively, and from and including August 15, 2024, holders of our Series A and Series B are entitled to receive cumulative cash dividends at a floating rate per annum which is determined pursuant to the USD-LIBOR cessation fallback language in the Certificate of Designations for each of our Series A and Series B.
As of December 31, 2023, 53.9% of our Non-Agency RMBS portfolio was related to bonds retained pursuant to required risk retention regulations.
As of December 31, 2024, 96% of our Non-Agency RMBS portfolio was related to bonds retained pursuant to required risk retention regulations.
SMS, our special servicing division, services delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying mortgage loans. We are highly experienced in loan servicing, including loan modifications, and seek to help borrowers avoid foreclosure.
Our special servicer, services delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying mortgage loans. The special servicing division also includes third-party serviced loans on behalf of unaffiliated investors. We are highly experienced in loan servicing, including loan modifications, and seek to help borrowers avoid foreclosure.
Bureau of Economic Analysis: Three Months Ended December 31, 2023 (A) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Real GDP 3.3 % 4.9 % 2.1 % 2.0 % 2.6 % (A) Annualized rate based on the advance estimate. The following table summarizes the U.S. unemployment rate according to the U.S.
Bureau of Economic Analysis: Three Months Ended December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Real GDP 2.3 % 3.1 % 3.0 % 1.6 % 3.2 % The following table summarizes the annualized U.S. unemployment rate according to the U.S.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 19 to our Consolidated Financial Statements for further information regarding financing of our Non-Agency RMBS, including a summary of activity related to financing from December 31, 2022 to December 31, 2023. 86 See Note 8 to our Consolidated Financial Statements for additional information including a summary of activity related to real estate and other securities from December 31, 2022 to December 31, 2023.
The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 18 to our consolidated financial statements for further information regarding financing of our Non-Agency RMBS, including a summary of activity related to financing from December 31, 2023 to December 31, 2024.
Excess MSRs The following tables summarize the terms of our Excess MSRs: MSR Component (A) Excess MSR Direct Excess MSRs Current UPB (billions) (B) Weighted Average MSR (bps) Weighted Average Excess MSR (bps) Interest in Excess MSR (%) Carrying Value (millions) Total / Weighted Average $ 43.0 32 20 32.5% – 100% $ 208.4 (A) The MSR is a weighted average as of December 31, 2023, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).
The following tables summarize the terms of our Excess MSRs: MSR Component (A) Excess MSR Direct Excess MSRs Current UPB (billions) (B) Weighted Average MSR (bps) Weighted Average Excess MSR (bps) Interest in Excess MSR (%) Carrying Value (millions) Total / Weighted Average $ 53.5 32 20 65.0% – 80% $ 369.2 (A) The MSR is a weighted average as of December 31, 2024 and the Excess MSR represents the difference between the weighted average MSR and the base fee (which fee remains constant).
As a result, interest rates and other factors affect our performance more so than inflation, although inflation rates can often have a meaningful influence over the direction of interest rates.
INFLATION Virtually all of our assets and liabilities are financial in nature. As a result, interest rates and other factors affect our performance more so than inflation, although inflation rates can often have a meaningful influence over the direction of interest rates.
As of December 31, 2023, our SFR portfolio consists of 3,888 properties with an aggregate carrying value of $1.0 billion, up from 3,731 units with an aggregate carrying value of $971.3 million as of December 31, 2022. During the years ended December 31, 2023 and 2022, we acquired 182 and 1,196 SFR units, respectively.
As of December 31, 2024, our SFR portfolio consists of 4,049 properties with an aggregate carrying value of $1.0 billion, up from 3,888 properties with an aggregate carrying value of $1.0 billion as of December 31, 2023. During the years ended December 31, 2024 and 2023, we acquired 219 and 182 SFR properties, respectively.
Currently, our primary sources of financing are secured financing agreements and secured notes and bonds payable, although we have in the past and may in the future also pursue one or more other sources of financing such as securitizations and other secured and unsecured forms of borrowing.
Our total cash and cash equivalents at December 31, 2024 was $1.5 billion. Currently, our primary sources of financing are secured financing agreements and secured notes and bonds payable, although we have in the past and may in the future also pursue one or more other sources of financing such as securitizations and other secured and unsecured forms of borrowing.
Financing Activities Net cash provided by (used in) financing activities were approximately $(1.3) billion and $(7.0) billion for the years ended December 31, 2023 and 2022, respectively.
Financing Activities Net cash provided by (used in) financing activities were approximately $4.8 billion and $(0.8) billion for the years ended December 31, 2024 and 2023, respectively.
Treasury rate 3.9 % 4.6 % 3.8 % 3.5 % 3.9 % 30-year fixed mortgage rate 6.6 % 7.3 % 6.7 % 6.3 % 6.4 % We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2023; however, uncertainty related to market volatility and inflationary pressures driving the federal funds rate to increase makes any estimates and assumptions as of December 31, 2023 inherently less certain than they would be absent the current economic environment.
Treasury rate 4.6 % 3.8 % 4.4 % 4.2 % 3.9 % 30-year fixed mortgage rate 6.9 % 6.1 % 6.9 % 6.8 % 6.6 % We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2024; however, uncertainty related to market volatility, the path of the federal funds rate, various regional conflicts and trade and fiscal policies makes any estimates and assumptions as of December 31, 2024, inherently less certain than they would be absent the current environment.
See Note 19 to our Consolidated Financial Statements for further information regarding financing of our SFR properties. Investment Portfolio Businesses Our investment portfolio segment also includes the activity from several wholly-owned subsidiaries or minority investments in companies that perform various services in the mortgage and real estate sectors.
See Note 18 to our consolidated financial statements for further information regarding financing of our SFR properties. Our Investment Portfolio segment also includes the activity from several wholly-owned subsidiaries or minority investments in companies that perform various services in the mortgage and real estate sectors. This includes our strategic partnership with Darwin to run a property management platform, APM.
Conversely, poor investment performance slows our growth by decreasing our AUM and increasing the potential for redemptions from our funds, which would have a negative effect on our revenues and earnings. 92 Management fees are generally calculated based on the AUM we manage.
Conversely, poor investment performance slows our growth by decreasing our AUM and increasing the potential for redemptions from our funds, which would have a negative effect on our revenues and earnings. The Asset Management business generates its revenues primarily through Sculptor management fees and incentive income. Management fees are generally calculated based on a percentage of the AUM we manage.
As of December 31, 2023, the average commitment size of our loans was $2.5 million, and the weighted average remaining term to contractual maturity of our loans was 12.4 months. We receive loan origination fees, or “points” at an average of 1.0% of the total commitment at origination.
As of December 31, 2024, the average commitment size of our loans was $3.5 million, and the weighted average remaining term to contractual maturity of our loans was 12.8 months. We receive loan origination fees, or “points,” and we earned an average of 1.1% of the total commitment at origination as of December 31, 2024.
We seek to generate long-term value for our investors by using our investment expertise to identify, manage and invest in real estate related and other financial assets and more recently offer broader asset management capabilities, in each case, that provides investors with attractive risk-adjusted returns.
We seek to generate long-term value for our investors by using our investment expertise to identify, manage and invest in real estate related and other financial assets, as well as offering broader asset management capabilities, in order to provide investors with attractive risk-adjusted returns.
The following table summarizes the net interest spread of our Non-Agency RMBS portfolio for the year ended December 31, 2023: Net Interest Spread (A) Weighted average asset yield 5.79 % Weighted average funding cost 7.62 % Net interest spread (1.83) % (A) The Non-Agency RMBS portfolio consists of 35.6% floating rate securities and 64.4% fixed-rate securities (based on amortized cost basis).
The following table summarizes the net interest spread of our Non-Agency RMBS portfolio for the year ended December 31, 2024: Net Interest Spread (A) Weighted average asset yield 4.5 % Weighted average funding cost 6.6 % Net Interest Spread (2.1) % (A) The Non-Agency RMBS portfolio consists of 21.4% floating rate securities and 78.6% fixed-rate securities (accounted for on an amortized cost basis).
As of December 31, 2023, there was $10.9 billion in total outstanding UPB of residential mortgage loans underlying such securitization trusts that represent off-balance sheet financings. We have material off-balance sheet arrangements related to our asset management business non-consolidated securitizations.
As of December 31, 2024 there was $8.2 billion in total outstanding UPB of residential mortgage loans underlying such securitization trusts that represent off-balance sheet financings. We have material off-balance sheet arrangements related to our involvement with funds through our Asset Management business.
(D) Includes $224.5 million and $198.2 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA. We consider the delinquency status, LTV ratios and geographic area of residential mortgage loans as our credit quality indicators.
(E) Includes $245.8 million and $281.6 million UPB of Ginnie Mae early buyout options performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA. We consider the delinquency status, LTV ratios and geographic area of residential mortgage loans as our credit quality indicators.
If the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us.
These revised requirements are expected to increase our capital and liquidity requirement and lower our return on capital. If the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us.
As described in Note 23, we have committed to purchase certain future servicer advances. The actual amount of future advances is subject to significant uncertainty. However, we currently expect that net recoveries of servicer advances will exceed net fundings for the foreseeable future.
As described in Note 26, we have committed to purchase certain future servicer advances. The actual amount of future advances is subject to significant uncertainty. However, we currently expect that net recoveries of servicer advances will exceed net fundings for the foreseeable future. This expectation is based on judgments, estimates and assumptions, all of which are subject to significant uncertainty.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe level of mortgage basis is driven by demand and supply of mortgage-backed instruments relative to other rate-sensitive assets. Changes in the mortgage basis have an impact on prepayment rates driven by the ability of borrowers underlying our portfolio to refinance.
Biggest changeChanges in the mortgage basis have an impact on prepayment rates driven by the ability of borrowers underlying our portfolio to refinance. A lower mortgage basis would imply a lower mortgage rate which would increase prepayment speeds due to higher refinance activity and, therefore, lower fair value of our mortgage portfolio.
We believe our consumer loan investments generally have limited interest rate sensitivity given that our portfolio is mostly composed of very seasoned loans with credit-impaired borrowers who are paying fixed rates, who we believe are relatively unlikely to change their prepayment patterns based on changes in interest rates.
We believe our consumer loan investments generally have limited interest rate sensitivity given that our portfolio is mostly composed of seasoned loans with credit-impaired borrowers who are paying fixed-rates, who we believe are relatively unlikely to change their prepayment patterns based on changes in interest rates.
To the extent we do not hedge against changes in interest rates, our balance sheet, results of operations and cash flows would be 113 susceptible to significant volatility due to changes in the fair value of, or cash flows from, our investments as interest rates change.
To the extent we do not hedge against changes in interest rates, our balance sheet, results of operations and cash flows would be susceptible to significant volatility due to changes in the fair value of, or cash flows from, our investments as interest rates change.
The effects of such a decrease in values on our financial position, results of operations and liquidity are discussed below under “—Prepayment Rate Exposure.” Changes in the value of our assets could affect our ability to borrow and access capital.
The effects of such a decrease in values on our financial position, results of operations and liquidity are discussed below under “—Prepayment Rate Exposure.” 104 Changes in the value of our assets could affect our ability to borrow and access capital.
Generally, in a declining interest rate environment, residential mortgage loan prepayment rates increase, which in turn would cause the value of MSRs, MSR financing receivables, Excess MSRs and the rights to the basic fee components of MSRs to decrease, because the duration of the cash flows we are entitled to receive becomes shortened, and the value of loans and Non-Agency RMBS to increase, because we generally acquired these investments at a discount whose recovery would be accelerated.
Generally, in a declining interest rate environment, residential mortgage loan prepayment rates increase which in turn would cause the value of MSRs, MSR financing receivables, Excess MSRs and the rights to the base fee components of MSRs to decrease, because the duration of the cash flows we are entitled to receive becomes shortened, and the value of loans and Non-Agency RMBS to increase, because we generally acquired these investments at a discount whose recovery would be accelerated.
Our expectation of prepayment rates is a significant assumption underlying those cash flow projections. If the fair value of MSRs and MSR financing receivables, Excess MSRs or the basic fee component of MSRs decreases, we would be required to record a non-cash charge, which would have a negative impact on our financial results.
Our expectation of prepayment rates is a significant assumption underlying those cash flow projections. If the fair value of MSRs and MSR financing receivables, Excess MSRs or the base fee component of MSRs decreases, we would be required to record a non-cash charge, which would have a negative impact on our financial results.
In addition, to the extent that the loans underlying our MSRs, MSR financing receivables, Excess MSRs and the rights to the basic fee components of MSRs are well-seasoned with credit-impaired borrowers who may have limited refinancing options, we believe the impact of interest rates on prepayments would be reduced.
In addition, to the extent that the loans underlying our MSRs, MSR financing receivables, Excess MSRs and the rights to the base fee components of MSRs are well-seasoned with credit-impaired borrowers who may have limited refinancing options, we believe the impact of interest rates on prepayments would be reduced.
Furthermore, a significant increase in prepayment rates could materially reduce the ultimate cash flows we receive from MSRs and MSR financing receivables, Excess MSRs or our right to the basic fee component of MSRs, and we could ultimately receive substantially less than what we paid for such assets.
Furthermore, a significant increase in prepayment rates could materially reduce the ultimate cash flows we receive from MSRs and MSR financing receivables, Excess MSRs or our right to the base fee component of MSRs, and we could ultimately receive substantially less than what we paid for such assets.
With respect to a significant portion of our MSRs and Excess MSRs, we have recapture agreements, as described in Note 5 and Note 6 to our Consolidated Financial Statements. These recapture agreements help to protect these investments from the impact of increasing prepayment rates.
With respect to a significant portion of our MSRs and Excess MSRs, we have recapture agreements, as described in Note 5 and Note 13 to our consolidated financial statements. These recapture agreements help to protect these investments from the impact of increasing prepayment rates.
Conversely, in an increasing interest rate environment, prepayment rates decrease, which in turn would cause the value of MSRs, MSR financing receivables, Excess MSRs and the rights to the basic fee components of MSRs to increase and the value of loans and Non-Agency RMBS to decrease.
Conversely, in an increasing interest rate environment, prepayment rates decrease which in turn would cause the value of MSRs, MSR financing receivables, Excess MSRs and the rights to the base fee components of MSRs to increase and the value of loans and Non-Agency RMBS to decrease.
Prepayment Rate Exposure Prepayment rates significantly affect the value of MSRs and MSR financing receivables, Excess MSRs, the basic fee component of MSRs (which we own as part of our servicer advance investments), Non-Agency RMBS and loans, including consumer loans.
Prepayment Rate Exposure Prepayment rates significantly affect the value of MSRs and MSR financing receivables, Excess MSRs, the base fee component of MSRs (which we own as part of our servicer advance investments), Non-Agency RMBS and loans, including consumer loans.
These risks are highly sensitive to many factors, including, but not limited to, governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. All of our market risk sensitive assets, liabilities and derivative positions (other than TBAs) are for non-trading purposes only.
These risks are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. All of our market risk sensitive assets, liabilities and derivative positions (other than TBAs) are for non-trading purposes only.
The interest rates on our secured financing agreements, as well as adjustable-rate mortgage loans in our securitizations, are generally based on SOFR, which is subject to national, international and other regulatory guidance for reform. The interest rates on the CLO Investments Loans are variable based on SOFR or EURIBOR (subject to a floor of zero percent).
The interest rates on our secured financing agreements, as well as adjustable-rate mortgage loans in our securitizations, are generally based on SOFR, which is subject to national, international and other regulatory guidance for reform.
The table below provides comparative estimated changes in our book value based on changes in mortgage basis. Estimated Change in Book Value (in millions) (A) Mortgage basis change (bps) December 31, 2023 December 31, 2022 +20bps +31.2 +0.9 +10bps +15.7 +0.6 -10bps -15.7 -0.6 -20bps -32 -1.8 (A) Amounts shown are pre-tax.
The mortgage basis is also correlated with other spread products such as corporate credit. 105 The table below provides comparative estimated changes in our book value based on changes in mortgage basis: Estimated Change in Book Value (in $ millions) (A) Mortgage basis change (bps) December 31, 2024 December 31, 2023 +20bps -2.8 +31.2 +10bps -1.4 +15.7 -10bps +1.4 -15.7 -20bps +2.8 -32 (A) Amounts shown are pre-tax.
For our call rights, higher delinquencies and defaults could reduce the value of the underlying loans, therefore reducing or eliminating the related potential profit. 115 Market factors that could influence the degree of the impact of credit risk on our investments include (i) unemployment levels and the general economy, which impact borrowers’ ability to make payments on their loans, (ii) home prices, which impact the value of collateral underlying residential mortgage loans, (iii) the availability of credit, which impacts borrowers’ ability to refinance and (iv) other factors, all of which are beyond our control.
Market factors that could influence the degree of the impact of credit risk on our investments include (i) unemployment levels and the general economy, which impact borrowers’ ability to make payments on their loans, (ii) home prices, which impact the value of collateral underlying residential mortgage loans, (iii) the availability of credit, which impacts borrowers’ ability to refinance and (iv) other factors, all of which are beyond our control. 106 Liquidity Risk The assets that comprise our asset portfolio are generally not publicly traded.
The table below provides comparative estimated changes in our book value based on a parallel shift in the yield curve (assuming an unchanged mortgage basis), including changes in our book value resulting from potential related changes in discount rates.
The table below provides comparative estimated changes in our book value based on a parallel shift in the yield curve (assuming an unchanged mortgage basis) including changes in our book value resulting from potential related changes in discount rates: Estimated Change in Book Value (in $ millions) (A) Interest rate change (bps) December 31, 2024 December 31, 2023 +50bps +27.4 +339.3 +25bps +24.5 +171.2 -25bps -46.3 -171.2 -50bps -114.3 -347.4 (A) Amounts shown are pre-tax.
For our Non-Agency RMBS and loans, higher default rates can lead to greater loss of principal.
For our Non-Agency RMBS and loans, higher default rates can lead to greater loss of principal. For our call rights, higher delinquencies and defaults could reduce the value of the underlying loans, therefore reducing or eliminating the related potential profit.
The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions. See Note 20 to our Consolidated Financial Statements for a sensitivity analysis for MSRs and MSR financing receivables. 116
A portion of these assets may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.
Removed
Estimated Change in Book Value (in millions) (A) Interest rate change (bps) December 31, 2023 December 31, 2022 +50bps +339.3 +403.4 +25bps +171.2 +203.3 -25bps -171.2 -203.3 -50bps -347.4 -411.5 (A) Amounts shown are pre-tax. Mortgage Basis Spread Risk Mortgage basis measures the spread between the yield on current coupon mortgage-backed securities and benchmark rates, including treasuries and swaps.
Added
Mortgage Basis Spread Risk Mortgage basis measures the spread between the yield on current coupon MBS and benchmark rates including treasuries and swaps. The level of mortgage basis is driven by demand and supply of mortgage-backed instruments relative to other rate-sensitive assets.
Removed
A lower mortgage basis would imply a lower mortgage rate which would 114 increase prepayment speeds due to higher refinance activity and, therefore, lower fair value of our mortgage portfolio. The mortgage basis is also correlated with other spread products such as corporate credit.
Added
See Note 19 to our consolidated financial statements for a sensitivity analysis for MSRs and MSR financing receivables. 107
Removed
Liquidity Risk The assets that comprise our asset portfolio are generally not publicly traded. A portion of these assets may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly-traded securities.

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