Rithm Capital Q2 2025 Earnings Report

Rithm Capital EPS Results

• Actual EPS: $0.54
• Consensus EPS: $0.51
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Rithm Capital Revenue Results

• Actual Revenue: $1.22 billion
• Expected Revenue: $1.18 billion
• Beat/Miss: Beat by +$32.30 million
• YoY Revenue Growth: N/A

Rithm Capital Announcement Details

• Quarter: Q2 2025
• Date: 7/28/2025
• Time: Before Market Opens
• Conference Call Date: Monday, July 28, 2025
• Conference Call Time: 8:00AM ET

Rithm Capital (NYSE:RITM) operates as an asset manager focused on real estate, credit, and financial services. It operates through Origination and Servicing, Investment Portfolio, Mortgage Loans Receivable, and Asset Management segments. Its investment portfolio primarily comprises of mortgage servicing rights (MSR), and MSR financing receivables, title, appraisal and property preservation, excess MSRs, and services advance investments; real estate securities, call rights, SFR properties, and residential mortgage loans; consumer and business purpose loans; and asset management related investments. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as New Residential Investment Corp. and changed its name to Rithm Capital Corp. in August 2022. Rithm Capital Corp. was incorporated in 2011 and is based in New York, New York.

Rithm Capital Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Robust Q2 Financial Performance: GAAP net income of $283.9 M, 17% ROE, book value of $12.71 per share, an 8.9% dividend yield and a record $2.1 B in liquidity.
• Positive Sentiment: Record Origination & Servicing Growth: Genesis has doubled origination and tripled earnings since its 2022 acquisition, while NewRez funded $16 B in volume (+38% QoQ) and grew its servicing portfolio to over $864 B.
• Positive Sentiment: Asset Management Inflows & $1 B SMA: AUM rose by $3.5 B to $36 B, driven by broad ABF and real estate mandates and a new $1 B separately managed account for RTL loans, as the firm eyes C-Corp and REIT spins to unlock value.
• Positive Sentiment: Tech & AI Driving Efficiency: NewRez’s ResiAI tools and platform enhancements reduced servicing costs to about $140 per loan and improved customer retention through digital recapture and realtor partnerships.
• Negative Sentiment: Cautious Credit Outlook Amid Tight Spreads: Management highlighted intense competition and narrow credit spreads in RTL and corporate lending, maintaining conservative underwriting standards to control risk.

Presentation

[Operator]

Good day, and welcome to the Rhythm Capital Second Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Emma Bola, Associate General Counsel. Please go ahead.

[Emma Bolla, Associate General Counsel at Rithm Capital]

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's second quarter twenty twenty five earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rhythm Capital Nick Santoro, Chief Financial Officer of Rhythm Capital and Baron Silverstein, President of NewRez. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now.

[Emma Bolla, Associate General Counsel at Rithm Capital]

I would like to point out that certain statements made today will be forward looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.

[Emma Bolla, Associate General Counsel at Rithm Capital]

And with that, I will turn the call over to Michael.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Emma. Good morning, everyone, and welcome to our second quarter earnings call. The company had a great quarter. And when you look across all of our business lines and subsidiaries, everything so far continues to perform very, very well. On the origination side of our business, New Res and Genesis Nuurez our mortgage company, Genesis, our RTL lender are truly industry leaders.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Genesis is coming off a record quarter of production. And when you think about Genesis and you go back to when we acquired the company in 2022, we've actually grown we've more than doubled origination and we've taken earnings up by about threefold since we acquired the company. NewRez, our mortgage company continues to grow. We continue to add third party servicing to the platform. Today, total servicing is in excess of $850,000,000,000 On the asset management side, our investment teams both at Sculptor and Rhythm Asset Management are seeing inflows across the board led by both real estate and ABF asset based finance products.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

When you think about asset based finance or ABF, there are very few asset managers in our opinion who have the same experience and ability to source product as Rhythm does. We have an edge. It's that simple. Aside from sourcing assets from third parties like everyone else, we make our own assets. We control the origination.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We control the servicing of many of the products. And when you think about this, these are the very same products that we've been working on our entire careers and that goes back thirty plus years. Recently, we announced a large SMA at the Rhythm Asset Management level with two large institutional investors on our RTL product, creating an SMA that could be as large as 1,000,000,000 of loans on a go forward basis. As we look forward, we've been very clear about our desire to grow our asset management platform. Like I say every quarter, performance matters first and we'll continue to do all we can to differentiate ourselves where we can earning the trust of our LPs and shareholders.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Our plethora of fund offerings are tailored to meet our investor needs and we will continue to roll out more products where we feel we can create an edge versus others. I'm really excited about our business and the ability to grow our world class asset management business. Have a look at our results. They're terrific. On the M and A front, our pipelines are robust.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We are working on scaling up our credit business, our origination business lines and other opportunistic situations where we can create value for both shareholders and LPs. Looking ahead, we're focused on growing earnings, creating synergies where possible and doing the same thing which got us here. Great results equal more AUM and a higher equity price. I'll now refer to the supplement, which has been posted online. I'm going to start on Page three.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So, typical slide that we put in most of our earnings decks. When you think about Rhythm, here's the way that I like to think of us. Between our externally managed assets, which is $36,000,000,000 and the Rhythm balance sheet, we manage $80,000,000,000 of assets. We have almost $8,000,000,000 of permanent capital. And just one thing that's not on the page, since inception, we paid out dividends between both our common equity and our preferreds of over $6,000,000,000 If you take the $6,000,000,000 and you put it back in the context of shares, that would imply a stock price of about $25 just to give you a sense.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

When you think about the so called Rhythm Edge, we've had 59% growth in our earnings available for distribution since the first quarter of twenty twenty one. We continue to grow our asset management business and our opportunistic investing platform. When you think about our origination businesses, again, this is where I think we have an edge. We'll continue to hopefully create more of an edge and we'll continue to acquire origination businesses down the road. Our mortgage servicer is the number three largest mortgage servicer in The United States.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

That includes all the bigger all the big banks as well. Our origination business is a top five mortgage originator in The United States. And our RTL lender is the number two as it relates to size in The U. S. When you think about our family of companies, NewRez, again, the mortgage company.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Just to put this in context, we built this company beginning in approximately 2018. Yes, we started new residential in 2013 while at Fortress. At that time, under the Fortress umbrella, we owned what is now known as Mr. Cooper. That was sold down the road.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So we made a decision to build our own and we started this business in 2000 give or take 2018 when we first got into the operating business. Sculptor, many of you know, we acquired in 2023. It's a world class alternative asset manager with a great track record that goes back over thirty years. Genesis Capital, I pointed out before, we acquired in 2022 from Goldman Sachs Merchant Bank. And again, it is the second largest RTL lender in the business.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

One of the very, what I would call, invoke products today in when we look at our funds businesses. Rhythm Property Trust, which was formerly known as Great Ajax, this is an externally managed mortgage REIT. We rebranded it from Great Ajax to Rhythm Property Trust. We sold down a number of the so called legacy assets that weren't accretive to earnings, and we're working on growing that, over time. Adore, which is our single family rental business, which has about 4,000 units, is another business that should rates come down over time, we will likely grow that, and try to create an edge there as well.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

When you look at Page four, our financial highlights. Great quarter. GAAP net income $283,900,000 or $0.53 per diluted share. Return on equity for the entire company was 17%. Earnings available for distribution, 291,100,000.0 or $0.54 per diluted share or an 18% return on equity.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Book value closed the quarter at $6,700,000,000 or $12.71 that's up from I think $12.39 prior quarter. Our dividend yield is still 8.9%. We're paying out $0.25 and we ended the quarter with a record amount of cash and liquidity at $2,100,000,000 When you think about the value prop and this is something that, quite frankly we spend a large amount of our time on, how do we take what we built, here at Rhythm and at our prior name of New Residential and create and get real value for what we think is a world class asset management business. So when you look at this slide and then I'm going to take you through Page six, which is a little bit easier. The true value in looking at Page six in the upper right side, for example, Mr. Cooper traded with Rocket for two times book. If you look in the upper right side of this page, Nuurez at two times book would be an $8,300,000,000 book value based on the amount of equity that's in that business today. If you value the investment portfolio one times book, that's $1,100,000,000 If you value Genesis, which is a great business at 1.3 times book that gets you to $760,000,000 And then the asset management business when we think about different multiples could be as high as 1,800,000,000 totaling $11,900,000,000 or a stock price that's in excess of $20 We're not going to get there today. Unfortunately, I'd like us to be there today. But when I look at the sum of the parts and I think about how we're valued in the marketplace, I feel as though we're extremely undervalued.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Page seven, when you look at Rhythm Asset Management, this does include Sculptor as a wholly owned sub. When you look at all the different products that we have or the different funds or that we can offer to our LPs and investors, the themes on the left side ABF and credit, we have a broad ABF mandate. Both Rhythm and Sculptor have ABF funds. MSRs, RTLs, NonQM, credit, CLOs, structured solutions. We when I think about our credit business and I keep talking about wanting to scale that up, Yes, we have great experience in credit.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Our returns speak for themselves. But I do think there's a lot more room for us to grow our credit business. On the real estate side, at the Sculptor level, world class real estate business, been at it for twenty plus years, and that will continue to grow over time. When I think about it from the Rhythm side, we have a number of different initiatives that we're working on here. I mentioned Rhythm Property Trust that is our externally managed REIT that is focused on commercial real estate.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

That will grow over time. We're extremely patient there. We're working on a couple of situations that could be really meaningful. When I look at multi strategy, the multi strategy fund at Sculptor is a world class fund with almost $9,000,000,000 of AUM with great results. And then recently over the past year, we launched some energy transition type funds.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So overall, I feel like we have product offerings for most, what I would call, most LPs who want solutions or want one stop shopping. Potential expansion themes could be direct lending. Yes, we do need to be in the insurance business and then we think about private equity and infrastructure. Page eight, when you look at the quarter in review, I mentioned on the Genesis side, record quarter, roughly 1.25 continue to add new sponsors, great product and a great business like I pointed out, much in vogue with our LPs and in the so called ABF space. Rhythm Asset Management, Sculptor $36,000,000,000 up $3,500,000,000 of AUM since the close, Very, very good continued fundraising momentum across all the different products, very good performance in the second quarter.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

And then I pointed out earlier that we at the Rhythm side on the Rhythm side, we entered into a recent SMA on 1,000,000,000 of RTL loans. On NewRez, the mortgage company speaks for itself. ROE is typically anywhere from in and around 20% servicing portfolio now eight sixty four billion dollars We continue to increase our third party servicing and think about other strategic ways to drive more earnings in the business that could be to and Barron is going to talk about that through technology saves or technology initiatives across the platform. And then finally, on the investment portfolio, we recently did a non QM securitization. We continue to do those.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We invested about $2,200,000,000 in the quarter in residential mortgage assets, which we feel are extremely attractive right now. When we look at the markets today, and think about the macro economy, one is, the economy feels as much as quite frankly earlier in the quarter, a little bit concerned with all the geopolitical risk that's going on. Right now, when you look over the course of the past quarter, a number of companies reported earnings. So I think everybody is expecting higher earnings on a go forward basis. The economy feels pretty good while saying that we do feel that we're going to get one or two rate cuts this year.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

When you think about the tariff situation, obviously, the President and the administration, they're deal guys. They continue to negotiate deals across the board and we think that's going to continue. So while there could be blips where the market sell off due to some uncertainties, we feel like, especially in light of the European deal that got announced over the weekend and now, the administration trying to extend deadlines around the China tariffs, we feel like the policy uncertainty is declining. Risk appetite across the board remains high. Vol should continue to remain on the lower side right here.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

And what does that mean? That means, all the products that we typically invest in should do much better. Then when we think about the yield curve, have the way we have been hedging our book, we've had rate steepeners on for many, many months. We're going to continue to maintain that posture, meaning that we think the long end here at, call it, four forty million on the ten year note and the front end at $390,000,000 We do think when the Fed cuts rates, the curve will continue to steepen. The issue that you have with the long end is that the government needs to continue to sell lots and lots of debt to fund the deficit.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So what we're going to see over time, we think is a steeper yield curve. And then at the bottom, we just talk about some of the different things around ABF and the Rhythm platform. As I flip through, I'll just hit a couple of highlights and then I'll turn it back to Barron. Genesis business, again, leader in the RTL business, looking to grow that business over time. That could be through just more direct origination or through some acquisition.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Again, when we bought the company, we did I think we were doing something around $1,000,000,000 to $2,000,000,000 of origination. Now we're doing something north of $4,000,000,000 and that should continue to grow. The one thing we want to be very, very careful of here is credit as we go forward. On the asset management side, there's been no shortage of comments from me or any of us on our desire to grow our asset management business. You may ask why.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

And when you think about valuations, Rhythm as a company, which makes north of $1,000,000,000 a year trades something between six and seven times EBITDA. When you think about asset management businesses, they could trade as high as from 20 to 30 times on fee related earnings. So we have a huge push not to give up what got us here, which is our earnings, our balance sheet and the wonderful work that the teams do around either the operating companies or on the investment side, but to additionally grow our asset management capabilities. So you're going to see a lot more from us there. While saying that, we just have to be mindful of multiples where some of the asset management businesses trade.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Within Property Trust, very, very excited about this. It's small now. It's about $300,000,000 of equity. We're sitting with about $100,000,000 of cash and liquidity on balance sheet. This will grow for us, likely will grow through some kind of M and A activity.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

And this is kind of no different than the way that we built new residential going back to our fortress days, where we started with $1,000,000,000 of capital and we grew it over time through acquisitions. You're going to hopefully see the same thing from us on the Rhythm Property Trust side. Page 16, we have a spec, dollars 200,000,000 gives you buying power of about 1,000,000,000 point dollars We continue to focus on what I would call acquisitions across the board, could be in financial services, could be in so called energy transition. That's this vehicle, which trades on the NYSE, we're very excited about to find the right target and opportunity to create real value again for shareholders. Finally, what I'll do is on the Nuurez side, I'm going to turn it over to Barron.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

But just overall, you think about whether it be the mortgage company or all the other business lines that we have, results matter first. Results will lead to higher AUM and then hopefully we get a proper revaluation of our overall company as we think about, the growth trajectories of where we're going and actually the sum of the parts. So with that, Ferren, why don't I turn it over to you and you could take the mortgage company.

[Baron Silverstein, President at NewRez LLC]

Great. Thank you, Michael. Good morning, everyone. Starting on Slide 18. Another great quarter.

[Baron Silverstein, President at NewRez LLC]

And as Michael mentioned, as we execute on our '25 growth strategy, we had wins and recapture, growth of our third party fee based servicing business and efficiencies driven by our Resi initiatives. Our second quarter pretax income, excluding mark to market, was approximately $275,000,000 up 2% quarter over quarter and 20% year over year and delivered a 19% ROE for the quarter. These results continue to show the power of our platform really through our ability to drive consistent earnings with the results first ethos, right, and a focus on organic growth and adding new partnerships, and Michael continues to talk about opportunistic acquisitions. Turning to Slide 19. Our originations business remained in growth mode.

[Baron Silverstein, President at NewRez LLC]

We're now the fourth largest originator with $16,000,000,000 in funded volume, which is up 38% over last quarter. And while market competition continues to drive margin compression, our disciplined focus on profitable growth allowed us to opportunistically pick up market share while maximizing PTI and ROE for the quarter. We also expect future growth without having to chase volume through price, and this is evidenced by the launch of our New ResDirect platform, which is focused on purchase recapture and a digital realtor partnership allowing us to better support consumers through their home buying journey. Turning to Slide 20. Our platform investments can also drive gains and recapture, right, as we deliver on our brand promise to maximize customer retention.

[Baron Silverstein, President at NewRez LLC]

While a reduction in rates would benefit overall origination volumes, our momentum in connecting with our consumers on purchase transactions and home equity products is key to our balance and sustainable growth in any market. Our recapture strategy is now being driven by our new Chief Commercial Officer, Leslie Gillen, who was previously Chief Marketing Officer at JPMorgan, and she joined us this month. Customer retention remains a top growth strategy for us, and we're committed to delivering exceptional customer experience that differentiates our platform versus our competition. Moving to Slide 21 and continuing the theme of opportunities, we offer a differentiated product strategy through our manufacturing capabilities and non agency assets. And when you couple that with our special servicing expertise, we're able to support clients in maximizing the performance of their investments.

[Baron Silverstein, President at NewRez LLC]

We are gaining market share in NonQM originations, but expect to see similar growth in both Home Equity and our prime jumbo products, right? Our partnership with Rhythm and third party servicing clients are the strength of our franchise as shown in our ability to retain 98% of the clients we service for today. Moving to Slide 22. Our servicing business continues to perform well with $234,000,000 of pretax income, which is up 5% year over year. Our special servicing platform is the best in the business, and we continue to gain market share as shown by increases in our servicing balances of 7% quarter over quarter and 22% year over year.

[Baron Silverstein, President at NewRez LLC]

These results were driven by adding 10 new clients in the second quarter, and we boarded $61,000,000,000 since the beginning of the year. We continue to see opportunities to grow, whether through increasing wallet share with our existing clients or acquisition opportunities of both portfolios or operating platforms. Our performance across the servicing business is also driven by our operational efficiency enabled by our proprietary technology and scale that drives our cost leadership at a fully loaded $140 $142 cost per loan. Finally, on Slide 23, our technology enhancements and AI initiatives are continuing to drive our costs lower. We are starting to see significant gains from our ResiAI investments.

[Baron Silverstein, President at NewRez LLC]

These initial tools are not only driving returns, but also focused on homeowner experience, up leveling our operational workflow and powering our predictive analytics. We have a robust roadmap and this development is being driven by our new CIO, Brian Woodring, previously Chief Technology Officer at Rocket, who joined us last quarter. I continue to believe our business is as best positioned as it ever has been and I look forward to sharing the next chapter of the NewRez growth story with you all with you. Thank you. Back to you, Michael.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Perrin. Operator, why don't we turn it back to you for some Q and A. Thank you.

[Operator]

We will now begin the question and answer session. The first question today comes from Bose George with KBW. Please go ahead.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, Good morning. I wanted to start with a question on Nuurez. Any updated thoughts on when or if you might do something there in terms of listing? And then just on that Slide six, are obviously a lot of other things that you're looking at as well. So anything to comment on there in terms of unlocking value?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Yes. I think we spent obviously, Bose, we good morning, first of all. We spent a lot of time looking at how we get our how we're going to get our stock price to be what we think it should be. I think right now when you look at the company and the growth of the company, we're likely not going to list it separate today. We're going to continue to grow the business as Barron pointed out whether that be through investments in people.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We've made two significant hires over the past quarter and we've made some real changes there. But really how do we grow earnings there? And then once we continue to do that and that's something we're very much focused on and grow our footprint in third party servicing which the team has done a great job doing during the quarter, then I think you're going to start to see the feel the full realization as far as what that so called company is worth. One of the things we struggle with is like when you look at the so called some of the parts or you look at the real inputs that go in into this business and I think about some of the larger asset management businesses out there like everybody's and I'm not going to use the word complicated as complicated, but everybody's got some kind of story around all of their underlying businesses. I think we have very much the same.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

I think part of the challenge is for us, we're going to continue or not the challenge, we're going to continue to go down the same path in building our origination businesses, which I pointed out in our opening remarks. ABF is a product that's more invoked today than ever been. Some of the products that Barron and his team create now, when you look at, for example, the non QM market, we're doing more and more in that space. It's a product that's in very much in demand for the so called ABF funds that we and others have. You look at jumbo product, you're going to continue to see more.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We have a lot of uncertainty now with around what's going to happen, whether the government privatizes Fannie and Freddie. How do we think about that? That will be a great opportunity for us as we go down the road. So I think for now, mission on the mortgage company is to continue to grow it, drive higher ROEs around that, be thoughtful about what we're doing. Barron pointed out bulk purchases.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Do we want to buy bulk MSRs at 6.5 multiples? I'm not really sure. So everything is around the growth there. When I look at the so called sum of the parts, really what's going to be the what's going to dial us up and I think create more of a differentiation around our business as we go forward is going to be around the asset management business. We continue to look at what I would say some folks in the asset management business.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We want to scale up our credit. We want to have we want to scale up. We want to do stuff in insurance. So we're very much focused on the M and A landscape in those business lines as well, while recognizing that we're not going to pay 20 or 30 times for an asset management business, but we're going to try to add two bolt ons that are going to enable us to grow the platform overall.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. That's helpful. And then actually just a follow-up on the insurance. Are there vehicles out there, insurance companies that you're looking at just from the acquisition side? And also is this can the SPAC play a role in that?

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Or is that if anything happens, is that at Rhythm?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

I think the on the insurance side, it's likely going to happen at Rhythm. Our M and A team has been at it. We've looked at insurance for the past number of years. Hard to get your arms around from a valuation standpoint. While saying that, there are some opportunities and some things that we're working on where we could potentially acquire either an insurance business or some company that has an insurance business and grow it.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So the idea for us would be do something a little bit smaller and then grow it rather than go all on an insurance business that is already full scaled and trading at too high of a premium. Then on the SPAC front, it's wide open to look at pretty much anything right now.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Thanks.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Bose.

[Operator]

The next question comes from Crispin Love with Piper Sandler. Please go ahead.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Thank you and good morning everyone.

[Operator]

Good morning.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

So there's been a bunch of change in the mortgage market in recent quarters. Rates remain elevated. We've seen some M and A with Roth and Koop and then some smaller ones out there. Can you just share how that might impact NewRiz's strategy as it relates to the channels you're most focused on penetrating across retail, broker and correspondent as you are involved in all three and just where you might expect to lean into most and drive that incremental growth you've been talking about?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Bear with me, I think the growth is going to come actually, I mean, just to give you an example, our non QM business has grown dramatically over the course of the past quarter. And what we've done there is we've opened up new origination channels both through correspondent and wholesale. So that's an area for example where going back to last year, what we do last year, dollars 1.5 or $2,000,000,000 or so? Yes. And this year we're going to do Our forecast up to 4,000,000,000 Yes.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So like that's an example of where we're likely going to double the amount of origination. Part of this has to do with the relative value of the product and as we think about again the so called ABF space, but that's an example. Barron alluded to hiring two extremely important hires for our business. One Leslie Gillen who comes to us from Chase, who is very much focused on the growth in the origination businesses and how we can make a difference for consumers. We added Brian from Rocket who is very focused on technology and where we're going to go with AI and create potentially either more efficiencies and or technology saves.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

On the M and A front, there's not that quite frankly, last year we bought SPS. There's just not that much left for us to do in that space because we feel like we have everything. While saying that if there's something that we think is going to be accretive to what we do, we'll likely go after it. The other thing that we're focused on is where can we how do we figure out a way to lower our cost of servicing. Biren, maybe you want to just touch on that and what we've done there.

[Baron Silverstein, President at NewRez LLC]

Yes. I mean, on Slide I'll just make sure I get the right one. On Slide 23, we kind of highlighted some of the initial wins we've had on, what I'll say is our technology enhancements and our different AI initiatives. And we really whether it's on the chatbot side or whether it's on our telephony side or any of our operational workflows where we've incorporated, our proprietary technology or brought in different technology partners to really drive our initiatives. But we've seen significant cost benefits, and we know where our roadmap is driving us today.

[Baron Silverstein, President at NewRez LLC]

We're going to continue to see significant benefits across the board for what I'll say is our AI initiatives and our platform.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Great. Thank you. Appreciate that. And then just second question for me on the value prop and optimizing Rhythm's corporate structure. What do you view as the most logical and possible ways to do so over the near to intermediate term?

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

What could that look like? Based on your answer to a prior question, it seems like the new res spend doesn't seem to be a near term event. So just curious on what you're looking at on the corporate structure standpoint?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So we continue to evaluate so called growing Rhythm Asset Management. We continue to evaluate the merits of a C Corp. In doing both of those, we need to make sure that we have scale at all parts of our business. So meaning on the REIT side, it's got to be big enough that we have a standalone REIT, not different quite frankly than what Blackstone has done around BXMT and their broader business. Obviously, not Blackstone, but something similar to that.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So the idea would be you'd have a REIT, you'd have a C Corp and then you'd have your wholly owned subs in your asset management businesses. And that's really that's how we're trying to march forward. We need to create more scale on the REIT side to be able to create the C Corp at the asset management side and we need to create more FRE at the asset management side. So all of those things continue to be in play.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Perfect. Makes sense. Appreciate taking my questions, Michael and Barron.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Tristan.

[Operator]

The next question comes from Eric Hagen with BTIG. Please go ahead.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Hey, thanks. Good morning, guys. How do you guys think about capital allocation across the business right now? The flexibility to maybe move capital from one segment to the other. I mean, is the partnership at Genesis, is that going to support allocating capital to others segments maybe more easily or something? And do you feel like any of the four segments will get valued higher in the market if they operate with more leverage?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So I think it's an interesting question. Think when you take a step back and you look at rhythm and this goes down to breaking out and to Bose earlier question, do you take the isolate the mortgage company from Genesis, the isolate Genesis from the mortgage company. All of our corporate earnings go into what we the way that we like to think of it as a funnel. From there, we could allocate capital as we see needed to the different segments that we're focused on that we think are going to generate the largest returns for our shareholders and the best kind of investment results for our LPs. So when we think about Genesis, we have we closed the quarter with a record amount of cash and liquidity of $2,100,000,000 We look at Genesis and that business can and will continue to grow.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

It is highly competitive now because quite frankly many LPs want this type of product. And the other thing is what you're seeing from some of the other kind of RTL originators is a much more either refocused effort or a desire to create the product. So we just want to make sure that we're thoughtful. Number one has to be around credit and then two, as we think about the returns. But we're fairly agnostic.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

We're not going to go all in on any one strategy, but we can allocate capital whether if there's an M and A acquisition, for example, in the Genesis business, we'll go there. We're focused a couple of areas that we don't have right now when you think about it is, on the lending side, think about a one type of OneMain Financial. That would be good to get something in the consumer side of the business that we currently don't have. So the short answer Eric is that the money goes into the funnel, the funnel could then allocate the money across the different platform to support the asset management business and other things. Another good example is we support the Sculptor CLO business, right?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Rhythm takes approximately 50% of the equity on every CLO deal at the Sculptor level. We are going to at some point, we'll roll out CLO equity funds. But right now that's been the MO over the course of the past year. So lot of support not only for growing different investment strategies, but also for our portfolio companies.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Yes. Good stuff. Good response. Thank you. I mean, how do you guys think rate cuts from the Fed will drive the pace of capital raising both for Sculptor and for the other diversified asset managers out there?

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

I mean, do you think lower rates will potentially reduce the expected returns and raise valuations for the asset classes that Sculptor competes in?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Listen, raising capital is it is a absolutely full time job. I mean, if you think about the asset management world today and where folks are headed, you could hear the largest asset managers talking about their growth in the wealth channels and retail. There's been some articles the go forward in the 04/2001 market opening up to large scale asset managers. When we look at capital formation, I could tell you, I've been across the globe seven times in two years as well as with some of my other colleagues. Part of its brand building and the other part is what is the suite of products you have to offer that LP and how does that work in today's environment.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So to your question, when you think about lower rates, I think rates are going be lower in the front end. What does that do? It's going to help your financing. Longer term though, it's going to lower your absolute level of asset yields, particularly if they're priced off their front end. So I think it remains to be seen.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

I think the way that we're approaching it is going to continue to be focused on our coordinating. Our ABF experience in my opinion is second to none when I look at our teams here who have been we've been together for thirty plus years. So I think it remains to be seen. But I don't I think spreads could come in on mortgage products because it's cheap on a relative basis compared to corporate. But in general lower yields are if rates really did plummet won't be that beneficial to fixed income investors is what I would say.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Yes. Good stuff. If I could sneak in one more of the 1,000,000,000 point dollars that was raised at Sculptor in the quarter, which funds or strategies were those directed towards?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

The funds are more broad based. Could be something in the real estate business. It could be something around credit and from a specific standpoint, the real estate business, I think looking at my Q1 comments was north of $3,000,000,000 there. Those guys have just knocked it out of the park and not just from an AUM standpoint. The results are great.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Credit business continues to see inflows. The CLO business continues to grow. I pointed out that at the Rhythm level, we continue to work in partnership supporting that business as well.

[Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG]

Good stuff. Appreciate you guys. Thank you.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Eric.

[Operator]

The next question comes from Randy Binner with B. Riley. Please go ahead.

[Randy Binner, Managing Director at B.Riley Securities]

Hey, thanks. Yes, I have a couple. I guess first on Slide 21, the non QM or non agency growth is pretty significant in the back half. Just trying to understand if that is a function of potential GSE reform? Or is that more just opportunity you see given kind of where rates in the housing market are?

[Baron Silverstein, President at NewRez LLC]

It's opportunistic, right, from where we are. We're just going to continue to see momentum, right. We've grown out our wholesale business. We've basically penetrated and grown our correspondent acquisitions and our direct origination side. It's really just driving where we are.

[Baron Silverstein, President at NewRez LLC]

There is a price competitive nature to it. Michael talked about the demand in the industry and where we're getting liquidity. So I would tell you it's a combination of all of those.

[Randy Binner, Managing Director at B.Riley Securities]

Okay. That's helpful. And then if we had movement on GSE reform and I think non QM would pretty clearly be a market opportunity for you and your competitors, that growth could be even larger potentially or would that that wouldn't be something that would happen this year, we'd be kind of looking longer term?

[Baron Silverstein, President at NewRez LLC]

Yes. I mean, there's a it would obviously be for what I'll call the non agency products would be significant opportunity. We are already looking at those opportunities today on certain agency eligible products. So absolutely, I agree. Yes.

[Randy Binner, Managing Director at B.Riley Securities]

Okay. Got it. And then, if I could follow-up, I think with Bose's question to Mike on the insurance M and A, what type of insurance property would you be looking to buy? I just didn't understand if it was something that's mortgage related or just more broadly in the insurance area?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

It's more broad in the insurance area. We've looked at insurance for years, right? I mean, makes sense when you think about our manufacturing capability to have these long dated liabilities. So it could be P and C, it could be life and annuities type stuff, but we're always on the hunt. Again, it won't be something that says scaled as some of the larger asset managers, but I feel like we're getting closer on a so called platform to be able to launch insurance products that would again help fund some of the things that we do here at Rhythm.

[Randy Binner, Managing Director at B.Riley Securities]

Okay. So it's like a liability funding mechanism your asset manager. It.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Correct.

[Randy Binner, Managing Director at B.Riley Securities]

Can I have one more if I can?

[Randy Binner, Managing Director at B.Riley Securities]

This is all helpful. Just on credit, and I think this is for Mike. But you said you're careful on credit, of course, are, but spreads are incredibly tight. Are there any areas that are kind of on the watch list for you right now?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Yes. No, I think listen, I think credit spreads overall are extremely well bid, right? You're in a very, very good credit market, particularly on the corporate side. When I when if you look at the globe and you think about credit and you think about rhythm asset management, whether it be at the Sculptor level or at the rhythm level, what we're trying to do is, if you sit down with an LP, you want to be able to have a full menu of products to be able to offer. As not every LP wants to have 10 more of the same person doing the same thing.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So some of the credit stuff that we'll be building out for example could be on the direct lending side. That's an area that we're focused on. Again, just to supplement some of the things. Keep in mind, Sculptor has been an opportunistic and regular way credit for us since essentially since inception. When I look at the credit markets on the mortgage side, I think mortgage credit is generally very, very attractive relative to corporates.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

But my comments around credit are really more around, I think on the corporate side away from the underwriting side, on the corporate side. So we have products that we could offer to any LP that compete with others. Obviously, it's a very, very crowded space as we all know. The real question for Rhythm is how do we create alpha versus some of the large scale asset managers who have been in this for many, many years where some of the stuff could be beta plays for a number of LPs. So it's really I think there's I know there's room for us and then the question is do we have the product to offer.

[Randy Binner, Managing Director at B.Riley Securities]

All right. Thanks for the responses. Appreciate it.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Randy.

[Operator]

The next question comes from Doug Hartner with UBS. Please go ahead.

[Douglas Harter, Equity Research Analyst at UBS Group]

Thanks. Hoping to talk a little bit more about the SMA for the residential transition lending. As you think about that, how much of kind of the new production kind of goes in there? And how do you think about the balance of third party funds versus balance sheet? And then how replicatable is that kind of across your other asset generation assets?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

It's a great question, Doug. When we look at balance sheet versus putting assets in funds, we need to do both because we need to maintain and grow earnings at the so called rhythm level, at the parent level. This SMA is something that we've been working on for establish a relationship going back a couple of years ago, and it's something we've been working on for a long, long time. So we're really, really excited. We do think this hopefully will lead into other opportunities to raise third party capital, whether it be into funds or co invest or even on the M and A front where we're going to bring in partners.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

And I think that's the general theme of where we're going to go on a forward basis. So when you think about Rhythm, the growth of the platform has to be on both sides. It has to be on both the fund side and it's got to be we don't want to balloon our balance sheet. Ideally, what we'd like to do is put everything we can in funds because it's a much better way to fund our business, but without giving up the earnings at the so called corporate level because you have to get to scale first. So over the course of the next, what I would say number of years, you're going to see the growth in both from an earnings perspective And we just want to make sure from a funding vehicle standpoint and this goes to the insurance questions that we just received, how do we think about funding our balance sheet.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

So I think you're going to see a little bit of both.

[Douglas Harter, Equity Research Analyst at UBS Group]

Great. And then just as you've talked about kind of scaling the REIT, how do you think about raising capital at the rhythm level to scale that or how would you go ahead look to scale the REIT?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

I think, again, I go back to the same thing. We are when we look at the REIT business and I'll use Rhythm Property Trust as an example. Think back to Fortress, think back to New Residential, we started that business with $1,000,000,000 of capital. Today, it has almost $8,000,000,000 If you think about Rhythm Property Trust today, it has $300,000,000 of capital. We are not going to do a capital raise with the stock at whatever, give or take $2.7 While saying that, we think the commercial real estate opportunity is something that is there.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

It could be extremely attractive. We have to be really thoughtful about how we deploy capital. The likelihood on any large scale transaction would be to bring in third party capital, and partners. It's something very different than our early history where we did most things ourselves. We did do some stuff with some of the larger alt managers going back to the mid teens.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

But I think on a go forward basis, our new partners will likely be large scale LPs, which will help grow our business. No different quite frankly than I think what you've seen with the large holes.

[Douglas Harter, Equity Research Analyst at UBS Group]

Great. Thank you, Michael.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks, Doug.

[Operator]

The next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead.

[Kenneth Lee, Vice President at RBC Capital Markets]

Hey, good morning. Thanks for taking my question. Just one follow-up on the that strategic partnership for the resi transition loans. And it sounds like it's an SMA kind of vehicle there. Could you talk a little bit more about the potential economics there?

[Kenneth Lee, Vice President at RBC Capital Markets]

Is this something where Rhythm gets a management fee? And could there also be performance fees related to such a thing? Thanks.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

It's both. As you think about this on a go forward basis, while saying that it's not quite frankly, this is not I think the game changer for some of these things that we're doing are more about the strategic relationship and partnership as we bring in third party capital to our business. And the doors that hopefully it opens up as we look at many other things across the board. As you know, being a REIT distributing, call it almost $550,000,000 a year in dividends, is not a great way to retain capital. So we'll always need more capital until we get to a critical mass and going back I think some of the earlier questions about, how do we think about our capital structure, whether it's a C Corp or REIT, how we retain more earnings, all of these things and bringing in third party capital are going to help us do that.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

The economics on certain things that we're doing in the funds business and it's not specific to Rhythm quite frankly. You're seeing management fees come in a bunch. And but when we think about what we're doing here, we have management fees and we have performance fees across the board.

[Kenneth Lee, Vice President at RBC Capital Markets]

Got you. Great. Very helpful there. And just one follow-up, if I may, and this is just another follow-up on the potential M and A there, and you talked about insurance being a potential area. It sounds like if there's going to be a pursuit of liability funding kind of businesses, would this also potentially include like fixed annuity platforms, something that we've seen other alternative managers engaging as well?

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thanks. It could. It absolutely could. We have to start somewhere and like I said, we're not going we can't afford, and we don't think it would be the right thing for shareholders as well to go out and buy a fully scaled insurance business today, at the multiples where they're trading. So we're going to have to start somewhere, which we believe that we can do and then grow no different than what we've done with a number of our other businesses.

[Kenneth Lee, Vice President at RBC Capital Markets]

Great. Very helpful there. Thanks again.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.

[Michael Nierenberg, Chairman, President & CEO at Rithm Capital]

Well, to everybody for joining the call this morning. Thanks to all of you for your questions. We look forward to updating you throughout the quarter and next quarter and hopefully continue to put up the same wonderful results that we did this quarter. Enjoy the rest of the summer, everybody. Thank you.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Emma Bolla, Associate General Counsel
• Michael Nierenberg, Chairman, President & CEO

Analysts

• Baron Silverstein, President at NewRez LLC
• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)
• Crispin Love, Director - Equity Research at Piper Sandler Companies
• Eric Hagen, MD, BTIG Mortgage & Specialty Finance Analyst at BTIG
• Randy Binner, Managing Director at B.Riley Securities
• Douglas Harter, Equity Research Analyst at UBS Group
• Kenneth Lee, Vice President at RBC Capital Markets