Onity Group Q2 Earnings Call Highlights

Key Points

• Revenue rose 24% year over year, while funded originations reached a record $15.5 billion, up 64%, driven primarily by correspondent lending and co-issue activity. Origination margins also improved to 26 basis points.
• Onity reported a quarterly net loss after approximately $33 million in transaction costs and unfavorable fair-value adjustments, including expenses tied to its reverse asset sale to Finance of America and the transfer of legacy subservicing to Rithm.
• Management expects full-year 2026 adjusted ROE at the low end of its 10%–15% guidance range amid geopolitical, inflationary and market pressures, while pursuing servicing growth, AI-driven cost savings and additional share repurchases.

Onity Group NYSE: ONIT reported double-digit year-over-year revenue growth and record quarterly origination volume in the second quarter of 2026, while transaction costs and unfavorable fair-value adjustments contributed to a net loss.

Chair, President and Chief Executive Officer Glen Messina said the company’s balanced mortgage origination and servicing model continued to provide offsetting earnings dynamics as interest rates changed. Higher rates during the second quarter supported servicing profitability, while origination adjusted pre-tax income declined sequentially.

“Our sound strategy and strong operating fundamentals delivered double-digit year-over-year revenue growth and record origination volume,” Messina said. He added that Onity completed its reverse asset sale to Finance of America and transferred most of its legacy subservicing business back to Rithm.

Messina said the transactions are intended to simplify the company’s operations, improve profitability and focus, and provide greater strategic flexibility. The quarterly net loss included approximately $33 million of pre-tax costs associated with the transactions and market-driven unfavorable asset fair-value adjustments.

Revenue Growth and Record Originations

Chief Financial Officer Sean O’Neil said revenue increased 24% from a year earlier, supported by higher servicing and origination volumes, improved recapture rates, lower servicing advances and data analytics. Sequential revenue growth was modest, as servicing growth more than offset an origination decline.

Funded originations reached $15.5 billion in the second quarter, the largest quarterly volume in the company’s history. Messina said originations rose 64% from the prior-year period and outpaced industry growth. The business-to-business channel, including correspondent lending and co-issue activity, was the largest contributor to the volume increase.

O’Neil said origination pre-tax income rose more than threefold from the prior year, driven by increased combined-business volume and stronger execution. Margins improved as well, with Messina noting that margins increased from 23 basis points to 26 basis points.

Consumer-direct lending remained profitable, though its adjusted pre-tax income declined sequentially. O’Neil attributed that decline to a 30% quarter-over-quarter decrease in lock volume and higher operating expenses from commissions tied to the first-quarter refinance surge.

Onity’s refinance recapture rate was 51% in the second quarter, up three percentage points from a year earlier, while refinance payoff volume increased roughly threefold. The company also reported that home-equity product volume doubled from the prior-year quarter. Second-lien originations more than doubled year over year, with more than $70 million funded during the quarter.

Servicing Growth and Portfolio Changes

Total servicing unpaid principal balance rose 10% from a year earlier, compared with 3% growth for the overall servicing industry, according to Messina. Servicing additions net of runoff totaled $76 billion year over year, primarily reflecting organic growth and offsetting planned transfers to Rithm and deboardings associated with client asset sales.

First-half subservicing additions reached $35 billion, exceeding management’s guidance. Onity said it won business from capital partners, banks and independent mortgage banks and saw growth in business-purpose residential and commercial subservicing. Commercial and business-purpose residential subservicing UPB rose 25% from a year earlier.

Servicing revenue increased 13% year over year and 3% sequentially, helped by growth in owned mortgage servicing rights, or MSRs. Servicing adjusted pre-tax income improved from the first quarter because of better float income and improved runoff as mortgage rates remained elevated during the second quarter.

However, servicing adjusted pre-tax income remained lower than a year earlier, primarily because MSR runoff increased nearly 80% year over year as lower rates in prior quarters contributed to refinancing activity.

The company changed its non-GAAP methodology for adjusted pre-tax income. Under the revised approach, MSR runoff is based on actual servicing UPB runoff, while changes related to rates, inputs and assumptions are classified as notable items rather than included in adjusted pre-tax income.

Reverse Sale Reduces Fair-Value Exposure

O’Neil said approximately $24 million of the decline in GAAP pre-tax income was related to nonrecurring transaction costs or fair-value marks on reverse assets. The Finance of America sale and costs associated with the Rithm deboarding created a $9 million negative one-time effect during the quarter.

The remaining pressure came largely from lower fair values on reverse assets, including less favorable HECM spreads. O’Neil said about 80% of the fair value of those reverse assets has been sold to Finance of America, which should materially reduce the company’s exposure to reverse MSR valuation volatility.

Management said the remaining reverse assets are older and have shorter duration, making them less sensitive to spread movements. Other fair-value impacts included a mild increase in delinquencies and hedge costs.

Messina said the company saw an increase in GSE 30-day delinquencies, which management believes may reflect a seasonal pattern around the Fourth of July holiday. He said the company is monitoring longer-term 60- and 90-day delinquency measures more closely and has not seen indicators of a material shift in borrower payment behavior.

ROE Initiatives and Capital Allocation

Onity outlined three areas intended to improve long-term return on equity: increasing servicing scale, optimizing its portfolio and expanding technology-driven productivity. Management said every $50 billion of servicing growth can reduce fixed cost per loan by 13%.

The company is targeting an approximate 50-50 mix of owned servicing and subservicing. It has reduced its investment in reverse MSRs, citing yields about two percentage points below forward MSRs, limited leverageability and greater volatility.

Onity is also deploying machine learning, voice agents, call-monitoring analytics and workflow tools through its partnership with Blend. O’Neil said the company is targeting roughly $3 million in annual savings at its current portfolio size as it scales AI-powered contact-center solutions.

The company completed a $10 million share repurchase authorization and has an additional $20 million buyback authorization in place. Management said the repurchase program reflects its view that its shares are trading materially below book value.

Looking ahead, Messina said persistent geopolitical instability, inflation and market volatility led the company to expect full-year 2026 adjusted ROE at the low end of its guidance range. O’Neil said the company was guiding to the lower end of its stated 10% to 15% range based on current market conditions and first-half results.

About Onity Group (NYSE:ONIT)

Onity Group, listed on the New York Stock Exchange under the ticker ONIT, is a technology company specializing in enterprise operations management software. Its platform is designed to help legal, finance, human resources and corporate services teams automate and streamline mission-critical workflows. Leveraging artificial intelligence and no-code automation tools, Onity's solutions aim to reduce manual processes, improve visibility and ensure compliance across complex organizational structures.

The company's flagship offerings include contract lifecycle management, matter management, e-billing and spend management, as well as enterprise deal management.

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