Rithm Capital Corp. (RITM) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto, and with Part I, Item 1A, “Risk Factors.”

Management’s discussion and analysis of financial condition and results of operations is intended to allow readers to view our business from management’s perspective by (i) providing material information relevant to an assessment of our financial condition and results of operations, including an evaluation of the amount and certainty of cash flows from operations and from outside sources, (ii) focusing the discussion on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or future financial condition, including descriptions and amounts of matters that are reasonably likely, based on management’s assessment, to have a material impact on future operations and (iii) discussing the financial statements and other statistical data management believes will enhance the reader’s understanding of our financial condition, changes in financial condition, cash flows and results of operations.

This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2021 items and year-to-year comparisons between 2021 and 2020 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, 2021.

COMPANY OVERVIEW

Rithm Capital is an investment manager that operates a vertically integrated mortgage platform and invests in real estate and related opportunities. We are structured as an internally managed REIT for U.S. federal income tax purposes. We seek to generate long-term value for our investors by using our investment expertise to identify, manage and invest in real estate related assets, including operating companies, that offer attractive risk-adjusted returns. Our investment 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 to customers, servicers and other parties through the lifecycle of transactions that affect each mortgage loan and underlying residential property or collateral. For more information about our investment guidelines, see “—Investment Guidelines.”

Our portfolio is currently composed of mortgage servicing rights, mortgage origination and servicing companies (including ancillary mortgage services businesses), residential mortgage-backed securities, single-family rental properties, mortgage loans, consumer loans and other opportunistic investments. We conduct our business through the following segments: Origination, Servicing, MSR Related Investments, Residential Securities, Properties and Loans, Consumer Loans and Mortgage Loans Receivable. Within our portfolio, we target complementary assets that generate stable long-term cash flows and employ conservative capital structures in an effort to generate returns across different interest rate environments. Our investment approach and capital allocation decisions combine a focus on asset selection, relative value, and risk management, taking into consideration available financing, and other relevant macroeconomic factors. In our efforts to identify and invest in target assets, we compete with banks, other REITs, non-bank mortgage lenders and servicers, private equity firms, alternative assets managers, hedge funds and other large financial services companies. In the face of this competition, the experience of members of our management team and dedicated investment professionals provide us with a competitive advantage when pursuing attractive investment opportunities.

Our investments in operating entities include our mortgage origination and servicing subsidiaries, Newrez and Caliber, and special servicing divisions, as well as investments in related businesses. Our residential mortgage origination business sources and originates loans through four distinct channels: Direct to Consumer, Retail, Wholesale and Correspondent. Our servicing platforms offer our subsidiaries and third-party clients performing and special servicing capabilities. Within our operating entities, we also have a title company called Avenue 365 and an appraisal company called eStreet. We also have investments in Guardian and non-controlling interest in, and partnerships with, Covius and other entities that provide services that support the mortgage and housing industries. Lastly, in 2021, we acquired Genesis, a provider of mortgage loans to developers of new construction, renovation and rental to hold projects. Our acquisition of Genesis has bolstered and complemented our existing business strategy.

We seek to protect book value and the value of our assets by actively managing and hedging our portfolio. Diversification of our overall portfolio, including our portfolio assets and operating entities, and a variety of hedging strategies help contribute to

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book value stability. Both our portfolio composition (inclusive of long and short duration instruments and various operating businesses) and specific hedging instruments (including Agency MBS TBAs, interest rate swaps and others) are employed to mitigate book value volatility. We believe that the actions we have taken over the past number of years to diversify and grow our portfolio have allowed us to operate efficiently and perform dynamically across economic conditions.

We also seek to protect our assets and reduce the impact of prepayments on our MSRs and Excess MSR investments through own recapture efforts and agreements with our subservicers. Under our agreements with subservicers, Rithm Capital is generally entitled to the MSRs or a pro rata interest in the Excess MSRs on any initial or subsequent refinancing of loans relating to MSRs and Excess MSRs subserviced or serviced by PHH, LoanCare, Flagstar, Mr. Cooper, Valon, or SLS.

As of December 31, 2022, we had $32.5 billion in total assets and 5,763 employees, including those individuals employed by our operating entities.

We have elected to be treated as a REIT for U.S. federal income tax purposes. Rithm Capital became a publicly-traded entity on May 15, 2013.

INTERNALIZATION OF MANAGEMENT

On June 17, 2022, we entered into definitive agreements with the Former Manager to internalize our management function. As part of the termination of the existing Management Agreement, we agreed to pay $400.0 million (subject to certain adjustments) to the Former Manager. Following the Internalization, we no longer pay a management or incentive fee to the Former Manager.

In connection with the termination of the Management Agreement, we entered into a Transition Services Agreement with the Former Manager (the “Transition Services Agreement”) in order to facilitate the transition of management functions and operations through the earliest to occur of (i) the date on which no remaining service is to be provided under the Transition Services Agreement or (ii) December 31, 2022. Under the Transition Services Agreement, the Former Manager provided (or caused to be provided), at cost, all of the services it was previously providing to us immediately prior to the Effective Date (“Transition Services”). The Former Manager ceased providing Transition Services as of December 31, 2022 in accordance with the Transition Services Agreement. The Transition Services primarily included information technology, legal, regulatory compliance, tax and accounting services. The Transition Services were provided for a fee intended to be equal to the Former Manager’s cost of providing the Transition Services, including the allocated cost of, among other things, overhead, employee wages and compensation and actually incurred out-of-pocket expenses and were invoiced on a monthly basis. We incurred $4.9 million in costs for Transition Services for the year ended December 31, 2022 and these costs are reported in General and Administrative expense in the Consolidated Statements of Income.

BOOK VALUE PER COMMON SHARE

The following table summarizes the calculation of book value per common share:

Refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value.

MARKET CONSIDERATIONS

Summary

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Economic data and indicators regarding the overall financial health and condition of the U.S. for 2022 were mixed. On one hand, the U.S. economy showed resilience in the face of persistent COVID-19 pandemic-related economic headwinds bolstered by the combination of a strong rebound in real gross domestic product (“GDP”) in the second half of 2022 and tight labor markets, with the unemployment rate returning to the pre-COVID-19 pandemic and half-century low. In addition, widespread vaccination and less lethal strains of COVID-19 led to lower fatality rates, allowing the U.S. to move back toward normal economic activity. However, ongoing supply chain disruptions, the lingering effect of fiscal stimulus and the war in Ukraine caused inflation to surge to its highest level in 40 years. In response, the Federal Reserve tightened rates, triggering sharp selloffs in both fixed income and equity markets. With respect to the housing market, market corrections continued to accelerate in the second half of 2022 due to depressed demand from rapidly rising mortgage rates and elevated home prices.

Looking beyond 2022, while supply-chain disruptions have been easing, wage growth is beginning to slow. In addition, the U.S. and global economic growth continues to be threatened by the ongoing war in Ukraine, financial uncertainty in several major international economies, and renewed supply-chain disruptions due to resurgence of the COVID-19 pandemic in parts of Asia, all of which may lead to subpar growth or even a modest recession in 2023.

Labor Markets

The recovery of the U.S. labor market from the depths of the COVID-19 pandemic has been historic. In a little more than two years, the economy has recovered all jobs lost during the 2021 recession, and the unemployment rate remains near 50-year lows—as of December 31, 2022, the unemployment rate was 3.5%. Although the gap between labor supply and demand remains significant, there have been some signs of easing with the labor force participation rate trending higher and labor demand starting to soften toward the end of 2022. Even so, the demand for labor currently hovers near record highs.

Prices

In nearly every advanced economy, including in the U.S., inflation throughout 2022 rose to a level higher than historic averages, putting pressure on individuals, businesses and the stability of economies. Inflation has been primarily driven by supply being insufficient to meet demand and largely attributable to the aftereffects of the COVID-19 pandemic, including the ongoing supply chain issues which have created bottlenecks for specific goods. Additionally, the war in Ukraine has added ongoing upward pressure on energy and food costs.

Housing Market

Starting in the second quarter of 2022, the correction observed in housing markets became more pronounced throughout the remainder of the year as rising mortgage rates and elevated house prices significantly curtailed demand. Since the start of 2022, existing and new home sales have trended lower; existing home sales—which account for substantially all home sales—declined 17% year over year. Given falling sales, inventories of homes available for sale have risen from all-time lows.

Measured with a lag, house prices remain elevated after accelerating sharply over the past two years. Nonetheless, house prices have slowed during 2022 as demand has declined. The Case-Shiller national house price index—which measures sales prices of existing homes—was up 7.7% over the year ended in November 2022, slowing markedly from the 18.9% advance of the year through November 2021. Similarly, the FHFA house price index was up 8.2% over the year ended in November 2022, down from 17.0% pace during the previous year through November 2021. Meanwhile, new construction starts and permits for future starts weakened further in 2022. Single-family housing starts dropped 21.8% year over year. Single-family permits also were down, decreasing 29.9% compared to 2021.

The National Association of Home Builders’ housing market index dropped to 31 in December 2022 on a preliminary basis, less than half the level of 84 at the end of 2021, suggesting that home builder sentiment has deteriorated sharply in the wake of higher mortgage rates and rising materials costs.

As of January 2023, the MBA estimated total U.S. origination volume for 2022 was $2.2 trillion, down from an estimated $4.4 trillion, or 49%, in 2021. Furthermore, 30% of 2022 activity was related to refinance volume, a decline from 58% in 2021. Looking forward, the MBA forecasts origination volumes to decline in 2023 to $1.9 trillion before increasing to $2.3 trillion in 2024. Furthermore, refinance activity for 2023 and 2024 is forecasted to be 24% and 28%, respectively. With respect to the purchase market, despite rising mortgage rates leading to a drop in refinances, the economy is expected to continue supporting an increase in home sales in 2023 largely driven by continued shortages of construction materials, buildable lots and other inputs. The MBA views 2023 as predominantly a purchase market.

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The market conditions discussed above influence our investment strategy and results, many of which have been impacted since mid-March 2020 by the COVID-19 pandemic as well as the other events such as the war in Ukraine beginning in February of 2022.

The following table summarizes the annualized GDP growth rate:

(A)Annualized rate based on the advance estimate.

The following table summarizes the U.S. unemployment rate according to the U.S. Department of Labor:

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:

Since May 2022, in response to the inflationary pressures, the Federal Reserve has rapidly raised interest rates and indicated it anticipates further interest rate increases. Rising interest rates would result in increased interest expense on our outstanding variable rate and future variable and fixed rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay distributions. In addition, in the event of a significant rising interest rate environment and/or economic downturn, loan and collateral defaults may increase and result in credit losses that would adversely affect our liquidity and operating results. Additionally, higher interest rates on dividends paid on certain of our preferred stock that reset to floating rates would adversely affect our cash flows.

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2022; however, uncertainty related to market volatility and inflationary pressures, the ultimate impact of the COVID-19 pandemic, as well as the geopolitical risks associated with the war in Ukraine will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of December 31, 2022 inherently less certain than they would be absent the current economic environment, potential impacts of the COVID-19 pandemic and the ongoing war in Ukraine. Actual results may materially differ from those estimates. Market volatility and inflationary pressures, the COVID-19 pandemic, and the war in Ukraine and their impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions.

CHANGES TO LIBOR

LIBOR is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives. It had been expected that a number of private-sector banks currently reporting information used to set LIBOR would stop doing so after 2021 when their current reporting commitment ends, which would either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. On March 5, 2021, Intercontinental Exchange Inc. (“ICE”) announced that ICE Benchmark Administration Limited, the administrator of LIBOR, intends to stop publication of the majority of USD-LIBOR tenors (overnight, 1-, 3-, 6-, and 12-month) on June 30, 2023. On January 1, 2022, ICE discontinued the publication of the 1-week and 2-month tenors of USD-LIBOR. In the U.S., the Alternative Reference Rates Committee (“ARRC”) has identified the SOFR as its preferred alternative rate for U.S. dollar-based LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. However, some market participants are still evaluating what convention of SOFR will be adopted for various types of financial instruments and securitization vehicles. For example, the mortgage and derivatives markets have adopted the daily compounded and paid in arrears SOFR convention. In contrast, GSEs, such as Fannie Mae and

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Freddie Mac, have begun issuing adjustable rate mortgages and mortgage-backed securities indexed to the 30-, 90-, and 180-day Average SOFR rates published by the Federal Reserve Bank of New York as well as term SOFR rates in the future.

We have material contracts that are indexed to USD-LIBOR and are monitoring this activity, evaluating the related risks and our exposure, and adding alternative language to contracts, where necessary. Certain contracts, such as interest rate swaps, have an orderly market transition already in process. However, it is not possible to predict the effect of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for LIBOR-based financial instruments. We do not currently intend to amend our 7.50% Series A-, 7.125% Series B-, 6.375% Series C- Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock to change the existing USD-LIBOR cessation fallback language.

The Financial Accounting Standards Board has issued accounting guidance that provides optional expedients and exceptions to contracts, hedging relationships and other transactions impacted by LIBOR transition if certain criteria are met. The guidance can be applied as of January 1, 2020. In preparation for the phase-out of LIBOR, the Company has adopted and implemented the SOFR index for its Freddie Mac and Fannie Mae adjustable-rate mortgages. For debt facilities that do not mature prior to the phase-out of LIBOR, the Company adopted the allowable contract modification relief optional expedient and has begun amending terms to transition to an alternative benchmark. During the year ended December 31, 2022, new and renewed facilities began adopting the SOFR index, while other facilities early adopted and transitioned to the SOFR index.

OUR PORTFOLIO

Our portfolio, as of December 31, 2022, is composed of servicing and origination, including our subsidiary operating entities, residential securities and loans and other investments, as described in more detail below (dollars in thousands).

Operating Investments

Origination

Our origination business operates within our Mortgage Company. We have a multi-channel lending platform, offering purchase and refinance loan products. We originate loans through our Retail channel, provide refinance opportunities to eligible existing servicing customers through our Direct to Consumer channel, and purchase originated loans through our Wholesale and Correspondent channels. We originate or purchase residential mortgage loans conforming to the underwriting standards of the Agencies, 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 non-QM loan products provide a variety of options for highly qualified borrowers who fall outside the specific requirements of Agency residential mortgage loans.

We generate revenue through sales of residential mortgage loans, including, but not limited to, gain on residential loans originated and sold and the value of MSRs retained on transfer of the loans. Profit margins per loan vary by channel, with

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correspondent typically being the lowest and DTC being the highest. We sell conforming loans to the GSEs and securitize Non-QM residential loans. We utilize warehouse financing to fund loans at origination through the sale date.

For the full year ended December 31, 2022, funded loan origination volume was $67.6 billion, down from $123.3 billion in the year prior, primarily attributable to a higher interest rate environment that drove decreases in origination volumes across all channels. Additionally, 70% of all funded production during 2022 was purchase origination, up from 42% for the prior year. Lastly, for the full year ended December 31, 2022, approximately 58.0% of funded production was Agency, 37.0% was Government, 1.0% was Non-QM and 3.0% was Non-Agency residential mortgage loans.

Gain on sale margins for the full year ended December 31, 2022 was 1.70%, 19 bps higher than 1.51% for the same period in 2021. During 2022, gain on sale margins continued to level off to more normal levels largely driven by weakening demand for loans amid excess industry capacity due to an escalating interest rate environment weighing on the residential real estate market.

Included in our Origination segment are the financial results of two services businesses, eStreet and Avenue 365. EStreet offers appraisal valuation services and Avenue 365 provides title insurance and settlement services to our Mortgage Company and third parties.

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The tables below provide selected operating statistics for our Origination segment:

(A)Includes realized gains on loan sales and related new MSR capitalization, changes in repurchase reserves, changes in fair value of IRLCs, changes in fair value of loans held for sale and economic hedging gains and losses.

(B)Includes loan origination fees of $0.6 billion and $2.3 billion for the year ended December 31, 2022 and 2021, respectively.

(C)Excludes $46.3 million and $122.5 million of Gain on Originated Residential Mortgage Loans, Held-for-Sale, Net for the year ended December 31, 2022 and 2021, respectively, related to the MSR Related Investments, Servicing, and Residential Securities and Mortgage Loans segments, as well as intercompany eliminations (Note 9 to the Consolidated Financial Statements).

(D)Excludes mortgage servicing rights revenue on recaptured loan volume delivered back to NRM.

Servicing

Our servicing business operates through our SMS performing and special servicing divisions. The performing loan servicing division services performing Agency and government-insured loans. SMS 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. As of December 31, 2022, the performing loan

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servicing division serviced $393.3 billion UPB of loans and the special servicing division serviced $110.3 billion UPB of loans, for a total servicing portfolio of $503.6 billion UPB, representing a 4.3% increase from December 31, 2021.

The table below provides the mix of our serviced assets portfolio between subserviced performing servicing on behalf of Rithm Capital or its subsidiaries (labeled as “Performing Servicing”) and subserviced non-performing, or special servicing (labeled as “Special Servicing”) for third parties and delinquent loans subserviced for other Rithm Capital subsidiaries for the periods presented.

The table below summarizes base servicing fees and other fees for the periods presented:

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(A)Includes other fees earned from third parties of $39.5 million and $54.9 million for the year ended December 31, 2022 and 2021, respectively.

MSR Related Investments

MSRs and MSR Financing Receivables

Our MSR related investments include MSRs, MSR finance receivables and Excess MSRs. 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. 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.

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 both fixed and variable interest rates offered by the counterparty for the term of the notes of a specified margin over LIBOR or SOFR. The capital markets notes are typically issued with a collateral coverage percentage, which is a quotient expressed as a percentage equal to the aggregate note amount divided by the market value of the underlying collateral. The market value of the underlying collateral is generally updated on a quarterly basis and if the collateral coverage percentage becomes greater than or equal to a collateral trigger, generally 90%, we may be required to add funds, pay down principal on the notes, or add additional collateral to bring the collateral coverage percentage below 90%. 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.

We have contracted with certain subservicers to perform the related servicing duties on the residential mortgage loans underlying our MSRs. As of December 31, 2022, these subservicers include PHH, Mr. Cooper, LoanCare, Valon and Flagstar, which subservice 9.2%, 8.0%, 6.0%, 2.0% and 0.3% of the underlying UPB of the related mortgages, respectively (includes both MSRs and MSR Financing Receivables). The remaining 74.5% of the underlying UPB of the related mortgages is serviced by our Mortgage Company.

We are generally obligated to fund all future servicer advances related to the underlying pools of mortgages on our MSRs and MSR Financing Receivables, as well as Servicer Advance Investments. Generally, we will advance funds when the borrower fails to meet contractual payments (e.g., principal, interest, property taxes, insurance). We will also advance funds to maintain and report foreclosed real estate properties on behalf of investors. Advances are recovered through claims to the related investor and subservicers. Per the servicing agreements, we are obligated to make certain advances on mortgages to be in compliance with applicable requirements. In certain instances, the subservicer is required to reimburse us for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract.

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We finance our servicer advances with short- and medium-term collateralized borrowings. These borrowings are non-recourse committed facilities that are not subject to margin calls and bear both fixed and variable interest rates offered by the counterparty for the term of the notes, generally less than one year, of a specified margin over LIBOR or SOFR. See Note 19 to our Consolidated Financial Statements for further information regarding financing of our servicer advances.

The table below summarizes our MSRs and MSR Financing Receivables as of December 31, 2022.

The following tables summarize the collateral characteristics of the loans underlying our investments in MSRs and MSR Financing Receivables as of December 31, 2022 (dollars in thousands):

(A)Based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score when loans are refinanced or become delinquent.

(B)Represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)Represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.

(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.

(F)Represents the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 90 or more days.

Excess MSRs

The tables below summarize the terms of our Excess MSRs:

(A)The MSR is a weighted average as of December 31, 2022, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

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(B)Serviced by Mr. Cooper and SLS, we also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 7 to our Consolidated Financial Statements) on $17.0 billion UPB underlying these Excess MSRs.

(A)The MSR is a weighted average as of December 31, 2022, 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 collateral characteristics of the loans underlying our direct Excess MSR investments as of December 31, 2022 (dollars in thousands):

(A)Based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score when loans are refinanced or become delinquent.

(B)Represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)Constant prepayment rate represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.

(D)Voluntary prepayment rate represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.

(E)Involuntary prepayment rate represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.

(F)Represents the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 90 or more days.

(G)Weighted averages exclude collateral information for which collateral data was not available as of the report date.

The following tables summarize the collateral characteristics as of December 31, 2022 of the loans underlying Excess MSR investments made through joint ventures accounted for as equity method investees (dollars in thousands). For each of these pools, we own a 50% interest in an entity that invested in a 66.7% interest in the Excess MSRs.

(A)Based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score on a monthly basis.

(B)Represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)Constant prepayment rate represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.

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(D)Voluntary prepayment rate represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.

(E)Involuntary prepayment rate represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.

(F)Represents the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 90 or more days.

(G)Weighted averages exclude collateral information for which collateral data was not available as of the report date.

Servicer Advance Investments

Servicer advances are a customary feature of residential mortgage securitization transactions and represent one of the duties for which a servicer is compensated since the advances are non-interest bearing. Servicer advances are generally reimbursable payments made by a servicer (i) when the borrower fails to make scheduled payments due on a residential mortgage loan or (ii) to support the value of the collateral property. 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 basic fee component of the related MSR. We have purchased Servicer Advance Investments on certain loan pools underlying our Excess MSRs.

The following tables summarize our Servicer Advance Investments, including the right to the basic fee component of the related MSRs (dollars in thousands):

(A)Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.

The following summarizes additional information regarding our Servicer Advance Investments, and related financing, as of and for the year ended, December 31, 2022 (dollars in thousands):

(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.

(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.

(D)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.

(E)The following types of advances are included in Servicer Advance Investments:

MSR Related Services Businesses

Our MSR related investments 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 industries. Our subsidiary Guardian is a national provider of field services and property management services. We also made a strategic minority investment in Covius, a provider of various technology-enabled services to the mortgage and real estate industries. As of December 31, 2022, our ownership interest in Covius is 18.1%.

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Residential Securities and Loans

Real Estate Securities

Agency RMBS

The following table summarizes our Agency RMBS portfolio as of December 31, 2022 (dollars in thousands):

(A)Carrying value equals fair value.

(B)Represents the annualized rate of the prepayments during the quarter as a percentage of the total amortized cost basis.

The following table summarizes the net interest spread of our Agency RMBS portfolio for the year ended December 31, 2022:

(A)The Agency RMBS portfolio consists of 100.0% fixed rate securities (based on amortized cost basis). See table above for details on rate resets of the floating rate securities.

We largely employ our Agency RMBS position as a hedge to our MSR portfolio. Our Agency RMBS portfolio was $7.3 billion as of December 31, 2022 compared to $8.4 billion as of December 31, 2021. We finance our Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At December 31, 2022 and 2021, the Company pledged Agency RMBS with a carrying value of approximately $7.1 billion and $8.4 billion, respectively, as collateral for borrowings under repurchase agreements. To the extent available on desirable terms, we expect to continue to finance our acquisitions of Agency RMBS with repurchase agreement financing. See Note 19 to our Consolidated Financial Statements for further information regarding financing of our Agency RMBS.

Non-Agency RMBS

Within our Non-Agency RMBS portfolio, we retain and own risk retention bonds from our securitizations in conjunction with risk retention regulations under the Dodd-Frank Act. As of December 31, 2022, 57.4% of our Non-Agency RMBS portfolio was related to bonds retained pursuant to required risk retention regulations.

The following table summarizes our Non-Agency RMBS portfolio as of December 31, 2022 (dollars in thousands):

(A)Fair value, which is equal to carrying value for all securities.

The following tables summarize the characteristics of our Non-Agency RMBS portfolio and of the collateral underlying our Non-Agency RMBS as of December 31, 2022 (dollars in thousands):

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(A)The percentage of amortized cost basis of securities and residual interests that is subordinate to our investments. This excludes interest-only bonds.

(B)The current amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance for the quarter ended December 31, 2022.

(C)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $16.6 million and $1.1 million, respectively, for which no coupon payment is expected.

(D)The ratio of original UPB of loans still outstanding.

(E)Three month average constant prepayment rate and default rates.

(F)The percentage of underlying loans that are 90+ days delinquent, or in foreclosure or considered REO.

The following table summarizes the net interest spread of our Non-Agency RMBS portfolio as of December 31, 2022:

(A)The Non-Agency RMBS portfolio consists of 35.0% floating rate securities and 65.0% fixed rate securities (based on amortized cost basis).

We finance our Non-Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At December 31, 2022 and 2021, the Company pledged Non-Agency RMBS with a carrying value of approximately $946.2 million and $924.9 million, 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. In addition, a portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. 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.

Call Rights

We hold a limited right to cleanup call options with respect to certain securitization trusts serviced or master serviced by Mr. Cooper whereby, when the UPB of the underlying residential mortgage loans falls below a pre-determined threshold, we can effectively purchase the underlying residential mortgage loans at par, plus unreimbursed servicer advances, resulting in the repayment of all of the outstanding securitization financing at par, in exchange for a fee of 0.75% of UPB paid to Mr. Cooper at the time of exercise. We similarly hold a limited right to cleanup call options with respect to certain securitization trusts master serviced by SLS for no fee, and also with respect to certain securitization trusts serviced or master serviced by Ocwen subject to a fee of 0.5% of UPB on loans that are current or thirty (30) days or less delinquent, paid to Ocwen at the time of exercise. The aggregate UPB of the underlying residential mortgage loans within these various securitization trusts is approximately $76.0 billion.

We continue to evaluate the call rights we acquired from each of our servicers, and our ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. See “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 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.” The actual UPB of the residential mortgage loans on which we can successfully exercise call rights and realize the benefits therefrom may differ materially from our initial assumptions.

We have exercised our call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, we sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, we received par on the

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securities issued by the called trusts which we owned prior to such trusts’ termination. Refer to Note 9 in our Consolidated Financial Statements for further details on these transactions.

Refer to Note 24 in our Consolidated Financial Statements for further details on these transactions for additional discussion regarding call rights and transactions with affiliates.

Residential Mortgage Loans

We have accumulated our residential mortgage loan portfolio through various bulk acquisitions and the execution of call rights. Additionally, through our Mortgage Company, we originate residential mortgage loans for sale and securitization to third parties and we generally retain the servicing rights on the underlying loans.

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. 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). We account for loans based on the following categories:

•Loans held-for-investment, at fair value

•Loans held-for-sale, at lower of cost or fair value

•Loans held-for-sale, at fair value

As of December 31, 2022, we had approximately $4.0 billion outstanding face amount of residential mortgage loans. These investments were financed with secured financing agreements with an aggregate face amount of approximately $2.6 billion and secured notes and bonds payable with an aggregate face amount of approximately 0.8 billion.

The following table presents the total residential mortgage loans outstanding by loan type at December 31, 2022 (dollars in thousands).

(A)For loans classified as Level 3 in the fair value hierarchy, the weighted average life is based on the expected timing of the receipt of cash flows. For Level 2 loans, the weighted average life is based on the contractual term of the loan.

(B)Residential mortgage loans, held-for-investment, at fair value is grouped and presented as part of Residential Loans and Variable Interest Entity Consumer Loans, Held-for-Investment, at Fair Value on the Consolidated Balance Sheets.

(C)Performing loans are generally placed on nonaccrual status when principal or interest is 90 days or more past due.

(D)As of December 31, 2022, Rithm Capital has placed non-performing loans, held-for-sale on non-accrual status, except as described in (E) below.

(E)Includes $523.1 million and $299.2 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.

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We finance a significant portion of our residential mortgage loans with borrowings under repurchase agreements. These recourse borrowings bear variable interest rates offered by the counterparty for the term of the proposed repurchase transaction, generally less than one year, of a specified margin over the one-month LIBOR or SOFR. At December 31, 2022 and 2021, the Company pledged residential mortgage loans with a carrying value of approximately $3.0 billion and $11.0 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. A portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. 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.

Other

Consumer Loans

The table below summarizes the collateral characteristics of the consumer loans, including those held in the Consumer Loan Companies and those acquired from the Consumer Loan Seller, as of December 31, 2022 (dollars in thousands):

(A)     Represents the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 90 or more days.

(B)    Represents the annualized rate of the voluntary prepayments during the three months as a percentage of the total principal balance of the pool.

(C)     Represents the annualized rate of the involuntary prepayments (defaults) during the three months as a percentage of the total principal balance of the pool.

We have financed our investments in consumer loans with securitized non-recourse long-term notes with a stated maturity date of May 2036. See Note 19 to our Consolidated Financial Statements for further information regarding financing of our consumer loans.

Single-Family Rental (“SFR”) Portfolio

We continue to invest in and grow our SFR portfolio and strive to become a leader in the SFR industry by acquiring and maintaining a geographically diversified portfolio of high-quality single-family homes. As of December 31, 2022, our SFR portfolio consisted of approximately 3,761 units with an aggregate carrying value of $971.3 million, up from 2,551 units with an aggregate carrying value of $579.6 million as of December 31, 2021. During the years ended December 31, 2022 and 2021, we acquired approximately 1,226 and 2,294 SFR units, respectively.

The following table summarizes certain key SFR property metrics as of December 31, 2022 (dollars in thousands):

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We primarily rely on the use of credit facilities, term loans, and mortgage-backed securitizations to finance purchases of SFR properties. See Note 19 to our Consolidated Financial Statements for further information regarding financing of our SFR properties.

Mortgage Loans Receivable

Through our wholly owned subsidiary Genesis, we specialize in originating and managing a portfolio of primarily short-term mortgage loans to fund single-family and multi-family real estate developers with construction, renovation and bridge loans.

Construction — Loans provided for ground-up construction, including mid-construction refinancing of ground-up construction, and the acquisition of such properties.

Renovation — Acquisition or refinance loans for properties requiring renovation, excluding ground-up construction.

Bridge — Loans for initial purchase, refinance of completed projects, or rental properties.

We currently finance construction, renovation and bridge loans using a warehouse credit facility and revolving securitization structures.

Properties securing our loans are typically secured by a mortgage or a first deed of trust lien on real estate. Depending on loan type, the size of each loan committed is based on a maximum loan value in accordance with our lending policy. 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 divided by the total estimated cost of a project or value of a property after renovations and improvements to a property. 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. Loan ratios described above do not reflect interim activity such as construction draws or interest payments capitalized to loans, or partial repayments of the loan.

Each loan is typically backed by a corporate or personal guarantee to provide further credit support for the loan. The guarantee may be collaterally secured by a pledge of the guarantor’s interest in the borrower or other real estate or assets owned by the guarantor.

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Loan commitments at origination are typically interest only and bear a variable interest rate tied to either LIBOR or the SOFR plus a spread ranging from 3.8% to 10.0%, 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. As of December 31, 2022, the average commitment size of our loans was $1.7 million and the weighted average remaining term to contractual maturity of our loans was 8.8 months.

We typically receive loan origination fees, or “points” of up to 5.3% of the total commitment at origination which varies in amount based upon the term of the loan and the quality of the borrower and the underlying collateral. In addition, we charge fees on past due receivables and receive reimbursements from borrowers for costs associated with services provided by us, such as closing costs, collection costs on defaulted loans, and inspection fees. In addition to origination fees, we earn loan extension fees when maturing loans are renewed or extended and amendment fees when loan terms are modified, such as increases in interest reserves and construction holdbacks in line with our underwriting criteria or upon modification of a loan. Loans are generally only renewed or extended if the loan is not in default and satisfies our underwriting criteria, including our maximum LTV ratios of the appraised value as determined at the time of loan origination or based on an updated appraisal, if required. Loan origination and renewal fees are deferred and recognized in income over the contractual maturity of the underlying loan.

Typical borrowers include real estate investors and developers. Loan proceeds are used to fund the construction, development, investment, land acquisition and refinancing of residential properties and to a lesser extent mixed-use properties. We also make loans to fund the renovation and rehabilitation of residential properties. Our loans are generally structured with partial funding at closing and additional loan installments disbursed to the borrower upon satisfactory completion of previously agreed stages of construction.

A principal source of new loans has been repeat business from our customers and their referral of new business. Our retention originations typically have lower customer acquisition costs than originations to new customers, positively impacting our profit margins.

As of December 31, 2022, we have loans in 33 states with the majority of loans located in California.

The following table summarizes certain information related to our mortgage loans receivable activity as of and for the year ended December 31, 2022 (dollars in thousands):

(A)Based on commitment.

(B)Excludes loan fees and based on commitment at funding.

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The following table summarizes our total mortgage loans receivable portfolio by loan purpose as of December 31, 2022 (dollars in thousands):

(A)Weighted by commitment LTV for bridge loans and LTC or LTARV for construction and renovation loans.

The following table summarizes our total mortgage loans receivable portfolio by geographic location as of December 31, 2022 (dollars in thousands):

TAXES

We have elected to be treated as a REIT for U.S. federal income tax purposes. As a REIT we generally pay no federal or state and local income tax on assets that qualify under the REIT requirements if we distribute out at least 90% of the current taxable income generated from these assets.

We hold certain assets, including Servicer Advance Investments and MSRs, in taxable REIT subsidiaries (“TRSs”) that are subject to federal, state and local income tax because these assets either do not qualify under the REIT requirements or the status of these assets is uncertain. We also operate our securitization program, servicing, origination, and service businesses through TRSs.

As our operating investments continue to grow and become a larger component of our total consolidated income, we anticipate income subject to tax will increase, along with a corresponding increase in tax expense and our consolidated effective tax rate.

As of December 31, 2022, we recorded a deferred tax liability of $711.9 million, primarily composed of deferred tax liabilities generated through the deferral of gains from loans sold by our origination business with servicing retained by us as well as deferred tax liabilities generated from changes in fair value of MSRs, loans, and swaps held within taxable entities.

For the year ended December 31, 2022, we recognized deferred tax expense (benefit) of $271.2 million primarily reflecting deferred tax expense generated from changes in the fair value of MSRs, loans, and swaps held within taxable entities as well as income in our servicing and origination business segments.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Company’s accounting policies are more fully described in Note 2 of the Consolidated Financial Statements. As disclosed in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. 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.

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The mortgage and financial industries are operating in a challenging and uncertain economic environment. Financial and real estate companies continue to be affected by, among other things, market volatility, rapidly rising interest rates and inflationary pressures. We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2022; however, uncertainty related to market volatility and inflationary pressures, as well as the geopolitical risks associated with the war in Ukraine, will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of December 31, 2022 inherently less certain than they would be absent the current economic environment and the ongoing war in Ukraine. Actual results may materially differ from those estimates. Market volatility and inflationary pressures and the war in Ukraine and their impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions.

MSRs and MSR Financing Receivables

Classification and valuation — An MSR can be created or acquired through a variety of means, including explicitly through a contract or implicitly through the origination and sale of a loan with servicing retained. As an approved owner of MSRs, we account for our MSRs as servicing assets or servicing liabilities as we have undertaken an obligation to service financial assets. We measure our MSRs at fair value at acquisition and elect to subsequently measure at fair value at each reporting date using the fair value measurement method. 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. These inputs are primarily based on current market data obtained from servicers and other third parties, which may be adjusted based on our expectations for the future, and requires significant judgement. The determination of estimated cash flows used in pricing models is inherently subjective and imprecise. The methods used to estimate fair value may not result in an amount that is indicative of net realizable value or reflective of future fair values. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in fair value.

In order to evaluate the reasonableness of our fair value determinations, we engage an independent valuation firm to separately measure the fair value of our MSRs. The independent valuation firm determines an estimated fair value range based on its own models. We compare the range provided by the independent valuation firm to the values generated by our internal models. To date, we have not made any significant valuation adjustments as a result of the values provided by the third-party valuation adjustments.

In certain cases, we have legally purchased MSRs or the right to the economic interest in MSRs, however, we determined that the respective purchase agreement would not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, we have recorded an investment in MSR financing receivables. Income from this investment (net of subservicing fees) is recorded as interest income and is grouped and presented as part of Servicing Revenue, Net in the Consolidated Statements of Income. 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 Income. 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.

Revenue and interest income recognition — We recognize income from investment in MSRs and MSR Financing Receivables as Servicing Revenue, Net which comprises (i) income from the MSRs, plus or minus (ii) the mark-to-market on the MSRs including change in fair value due to realization of cash flows.

Servicer Advance Investments

Classification and valuation — We have elected to account for the Servicer Advance Investments at fair value. Accordingly, we estimate the fair value of the Servicer Advance Investments at each financial reporting date and reflect changes in the fair value of the Servicer Advance Investments as gains or losses.

We categorize Servicer Advance Investments under Level 3 of the GAAP hierarchy because we use internal pricing models to estimate the future cash flows related to the Servicer Advance Investments that incorporate significant unobservable inputs and include assumptions that are inherently subjective and imprecise. In order to evaluate the reasonableness of our fair value determinations, we engage an independent valuation firm to separately measure the fair value of our Servicer Advance Investments. The independent valuation firm determines an estimated fair value range based on its own models.

Our estimations of future cash flows include the combined cash flows of all of the components that comprise the Servicer Advance Investments: existing advances, the requirement to purchase future advances and the right to the basic fee component

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of the related MSR. The factors that most significantly impact the fair value include (i) the rate at which the servicer advance balance declines, (ii) the duration of outstanding servicer advances, which we estimate is approximately nine months on average for an advance balance at a given point in time (not taking into account new advances made with respect to the pool), and (iii) the UPB of the underlying loans with respect to which we have the obligation to make advances and own the basic fee component.

Interest income and expense recognition — We recognize income from Servicer Advance Investments in the form of interest income. Interest income is calculated using the interest method, with adjustments to the yield applied based upon changes in actual or expected cash flows under the retrospective method. The servicer advances are not interest-bearing, but we accrete the effective rate of interest applied to the aggregate cash flows from the servicer advances and the basic fee component of the related MSR.

We remit to our servicers a portion of the basic fee component of the MSR related to our Servicer Advance Investments as compensation for acting as servicer, as described in more detail under “—Our Portfolio—Servicing Related Assets—Servicer Advances.” Our interest income is recorded net of the servicing fees owed to our servicers.

Real Estate and Other Securities

Classification and valuation — Our securities portfolio primarily consists of Agency and Non-Agency RMBS. Agency RMBS are securities issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae. Non-Agency RMBS are not issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae and are therefore subject to credit risk. RMBS investments are classified as either available-for-sale or accounted for under the fair value option. We determine the appropriate classification of our securities at the time they are acquired and evaluate the appropriateness of such classifications at each balance sheet date. If classified as available-for-sale, investments are carried at fair value, with net unrealized gains or losses reported as a component of accumulated other comprehensive income. If classified under the fair value option, changes in fair value are recorded in the Consolidated Statements of Income as a component of Change in Fair Value of Investments.

We generally categorize Agency RMBS under Level 2 and Non-Agency as Level 3 of the GAAP hierarchy. We estimate the fair value of the majority of our RMBS based upon broker quotations, counterparty quotations or pricing service quotations. Pricing services generally develop their pricing of RMBS based on transaction prices of recent trades for similar financial instruments, when available. When recent trades for similar financial instruments are not available, cash flow models or other pricing models are used. The significant inputs used in the valuation of our securities include the discount rate, prepayment rates, default rates and loss severities, as well as other variables.

The determination of estimated cash flows used in pricing models is inherently subjective and imprecise. The methods used to estimate fair value may not be indicative of net realizable value or reflective of future fair values. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in fair value.

Impairment — We evaluate the cost basis of investments in securities not accounted for under the fair value option on at least a quarterly basis under ASC 326-30, Financial Instruments-Credit Losses: Available-for-Sale Debt Securities. When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security's cost basis is considered impaired. We must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors. In our assessment of whether a credit loss exists, we compare the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security. The estimated future cash flows reflect those that a “market participant” would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well incorporating observations of current market developments and events. Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income. If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in Other Income (Loss) in the Consolidated Statements of Income. If it is determined as of the financial reporting date that all or a portion of a security's cost basis is not collectible, then we will recognize a realized loss to the extent of the adjustment to the security's cost basis. This adjustment to the amortized cost basis of the security is reflected in Gain (Loss) on Settlement of Investments, Net in the Consolidated Statements of Income.

Interest income recognition — There are several different accounting models that may be applicable for purposes of the recognition of interest income on RMBS depending on whether the security is designated as available-for-sale or fair value option.

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The following accounting models apply to RMBS classified as available-for-sale:

(i) RMBS of high credit quality rated ‘AA’ or higher that, at the time of purchase, we expect to collect all contractual cash flows and the security cannot be contractually prepaid in such a way that we would not recover substantially all of our recorded investment.

(ii) Non-Agency RMBS which are not of high credit quality at the time of purchase or that can be contractually prepaid or otherwise settled in such a way that we would not recover substantially all of our recorded investment.

For RMBS of high credit quality accounted for under (i) above, we recognize interest income by applying the permitted “interest method,” whereby purchase premiums and discounts are amortized and accreted, respectively, as an adjustment to contractual interest income accrued at each security’s stated coupon rate. The interest method is applied at the individual security level based upon each security’s effective interest rate. We calculate each security’s effective interest rate at the time of purchase by solving for the discount rate that equates the present value of that security's remaining contractual cash flows (assuming no principal prepayments) to its purchase price. Because each security’s effective interest rate does not reflect an estimate of future prepayments, we refer to this manner of applying the interest method as the “contractual effective interest method.” When applying the contractual effective interest method to its investments in RMBS, as principal prepayments occur, a proportional amount of the unamortized premium or discount is recognized in interest income such that the contractual effective interest rate on the remaining security balance is unaffected.

For Non-Agency RMBS accounted for under (ii) above, we recognize interest income by applying the required prospective level-yield methodology. Interest income under this methodology is impacted by management judgments around both the amount and timing of credit losses (defaults) and prepayments. Consequently, interest income on these Non-Agency RMBS is recognized based on the timing and amount of cash flows expected to be collected, as opposed to being based on contractual cash flows. These securities are generally purchased at a discount to the principal amount. At the original acquisition date, we estimate the timing and amount of cash flows expected to be collected and calculate the present value of those amounts to our purchase price. In each subsequent balance sheet date, we revise our estimates of the remaining timing and amount of cash flows expected to be collected. If there is a positive change in the amount and timing of future cash flows expected to be collected from the previous estimate, the effective interest rate in future accounting periods may increase resulting in an increase in the reported amount of interest income in future periods. A positive change in the amount and timing of future cash flows expected to be collected is considered to have occurred when the net present value of future cash flows expected to be collected has increased from the previous estimate. This can occur from a change in either the timing of when cash flows are expected to be collected (i.e., from changes in prepayment speeds or the timing of estimated defaults) or in the amount of cash flows expected to be collected (i.e., from reductions in estimates of future defaults). If there is a negative or adverse change in the amount and timing of future cash flows expected to be collected from the previous estimate, and the security's fair value is below its amortized cost, an impairment loss equal to the adverse change in cash flows expected to be collected, discounted using the security's effective rate before impairment, is required to be recorded in current period earnings. Additionally, while the effective interest rate used to accrete interest income after an impairment has been recognized will generally be the same, the amount of interest income recorded in future periods will decline because of the reduced balance of the amortized cost basis of the investment to which such effective interest rate is applied.

The following accounting models apply to RMBS accounted for under the fair value option:

(iii) RMBS of high credit quality rated ‘AA’ or higher that, at the time of purchase, we expect to collect all contractual cash flows and the security cannot be contractually prepaid in such a way that we would not recover substantially all of our recorded investment.

(iv) Non-Agency RMBS which are not of high credit quality at the time of purchase or that can be contractually prepaid or otherwise settled in such a way that we would not recover substantially all of our recorded investment.

Interest income on RMBS accounted for in (iii) above is recognized based on the stated coupon rate and the outstanding principal amount. The original purchase premium or discount is not amortized or accreted as part of interest income but rather reflected as part of the security’s fair value.

Interest income on Non-Agency RMBS accounted for in (iv) above is recognized in accordance with the model described in (ii) above.

Residential Mortgage Loans

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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. Loans are also eligible to be accounted for under the fair value option which are recorded on the Consolidated Balance Sheets at fair value and the periodic changes in fair value is recorded as a component of Change in Fair Value of Investments in the Consolidated Statements of Income. When we have the intent and ability to hold loans for the foreseeable future or to maturity/payoff, such loans are classified as held for investment. When we have the intent to sell loans, such loans are classified as held for sale.

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. To the extent interest rates change or market liquidity and or credit conditions materially change, the value of these loans could decline, which could have a material effect on reported earnings.

For originated residential mortgage loans measured at fair value, the fair value is generally determined using a market approach by utilizing either (i) the fair value of securities backed by similar residential mortgage loans, adjusted for certain factors to approximate the fair value of a whole residential mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics.

For acquired residential mortgage loans measured at fair value, the fair value is generally determined by discounting the expected future cash flows using inputs such as default rates, prepayment speeds and discount rates.

For loans measured at the lower of cost or fair value, we account for any excess of cost over fair value as a valuation allowance and include changes in the valuation allowance in in the period in which the change occurs. Purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred discounts or premiums are an adjustment to the basis of the loan and are included in the quarterly determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.

Interest income recognition — Interest income on mortgage loans is accrued based on the unpaid principal balance and the contractual interest rate. Interest earned on mortgage loans are reported in Interest Income in the Consolidated Statements of Income. If it’s probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the original contractual terms of the loan agreement, or if the loan becomes 90 days delinquent, the Company will reverse all prior accrued and unpaid interest on such mortgage loan. The Company will return loans to accrual status only when we reinstate the loan and there is no significant uncertainty as to collectability.

Impairment — Subsequent to the adoption of CECL on January 1, 2020, all residential mortgage loans are carried at fair value or the lower of cost or fair value. As a result, these loans are not subject to an allowance for credit losses under the CECL impairment model.

A loan is determined to be past due when a monthly payment is due and unpaid for 30 days or more. Loans, other than PCD loans, are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 90 days or more past due unless the loan is both well secured and in the process of collection. Loans held-for-sale are subject to the nonaccrual policy. A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan. Our ability to recognize interest income on nonaccrual loans as cash interest payments are received rather than as a reduction of the carrying value of the loans is based on the recorded loan balance being deemed fully collectible.

Business Combinations and Asset Acquisitions

When the assets acquired and liabilities assumed constitute a business, then the acquisition is a business combination. If substantially all of the fair value of the gross asset acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset is not considered a business. 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. In instances where the cost of acquisition is lower than the fair values of the identifiable net assets acquired (i.e., bargain purchase), the difference is recognized in earnings in the period of acquisition. The consideration transferred for an acquisition is measured at fair value of the consideration given. Acquisition related costs are expensed as incurred. The results of operations of acquired businesses are included from the date of acquisition.

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If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we will recognize a measurement-period adjustment during the period in which we determine the amount of the adjustment, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date.

Investment Consolidation

Variable interest entities (“VIEs”) are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered are the determination as to the degree of control over an entity by its various equity holders, the design of the entity, how closely related the entity is to each of its equity holders, the relation of the equity holders to each other and a determination of the primary beneficiary in entities in which we have a variable interest. These analyses involve estimates, based on our assumptions, as well as judgments regarding significance and the design of entities.

For additional information on VIEs, see “Item 8. Consolidated Financial Statements—Note 21. Variable Interest Entities.”

Income Taxes

We intend to operate in a manner that allows us to qualify for taxation as a REIT. As a result of our expected REIT qualification, we do not generally expect to pay U.S. federal or state and local corporate level taxes on income earned outside of our TRSs. 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. See “Risk Factors—Risks Related to Our Taxation as a REIT.” Rithm Capital operates various business segments, including servicing, origination, and MSR related investments, through TRSs that are subject to regular corporate income taxes.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our Consolidated Financial Statements.

Accounting Impact of Valuation Changes

Rithm Capital’s assets fall into three general categories as disclosed in the table below. These categories are:

Marked to Market Assets (“MTM Assets”) — Assets that are marked to market through the Consolidated Statements of Income. Changes in the value of these assets (i) are recorded in the Consolidated Statement of Income, 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. Changes in the value of these assets (i) are recorded in the Consolidated Statements of Comprehensive Income as unrealized gains or losses, and therefore do not impact net income on the Consolidated Statement of Income, and (ii) impact our Total Rithm Capital Stockholders’ Equity (net book value).

Cost Assets — Assets that are not marked to market. Changes in value of these assets do not impact net income in the Consolidated Statement of Income 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. Any such change (i) is recorded in the Consolidated Statements of Income, 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. Impairment on loans and REO as well as securities subsequent to the adoption of CECL on January 1, 2020 is subject to reversal if values subsequently increase.

All of Rithm Capital’s liabilities, with the exception of derivatives, residential mortgage loan repurchase liability, certain debt accounted for under the fair value option and contingent consideration liabilities (which are marked to market through the Consolidated Statements of Income), are recorded at their amortized cost basis.

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The table below summarizes Rithm Capital’s assets by category as of December 31, 2022:

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RESULTS OF OPERATIONS

Factors Impacting Comparability of Our Results of Operations

Our net income is primarily generated from net interest income, servicing fee revenue less cost, and gain on sale of loans less cost to originate. Changes in various factors such as market interest rates, prepayment speeds, estimated future cash flows, servicing costs and credit quality could affect the amount of basis premium to be amortized or discount to be accreted into interest income for a given period. Prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be affected by credit losses in excess of initial anticipations 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, 2022, interest rates increased and remained elevated. 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.

On June 17, 2022, we entered into definitive agreements with the Former Manager to internalize our management function. As part of the termination of the existing Management Agreement, we paid $400.0 million (subject to certain adjustments) to the Former Manager. Following the Internalization, we no longer pay a management or incentive fee to the Former Manager.

In the second half of 2021, we completed two acquisitions, Caliber Home Loans, Inc. and Genesis Capital, LLC. As a result of these acquisitions, year over year operating revenues and expenses increased.

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Summary of Results of Operations

The following tables summarize the changes in our results of operations for the year ended December 31, 2022 compared to 2021 year-to-year (dollars in thousands). Our results of operations are not necessarily indicative of our future performance.

Percentage changes in the table above deemed “n/m” are not meaningful.

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Servicing Revenue, Net

Servicing Revenue, Net consists of the following:

(A)The following table summarizes the components of servicing revenue, net related to changes in valuation inputs and assumptions:

Percentage changes in the table above deemed “n/m” are not meaningful.

The table below summarizes the unpaid principal balances of our MSRs and MSR Financing Receivables:

The table below summarizes loan UPB by Performing Servicing and Special Servicing:

Servicing revenue, net increased $1.6 billion, primarily driven by (i) a $0.8 billion net increase in the fair value of our MSR portfolio attributable to favorable mark-to-market adjustments related to slower projected prepayment rates and higher estimated custodial earnings due to an increase in projected forward interest rates, partially offset by higher discount rates, and (ii) a $0.6 billion decrease in realization of cash flows as a result of slower prepayments. In addition, the higher average unpaid principal balance year-over-year drove (iii) a $0.3 billion increase in servicing fee revenue and fees.

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As of December 31, 2022, the performing loan servicing division serviced $393.3 billion UPB of loans and the special servicing division serviced $110.3 billion UPB of loans, for a total servicing portfolio of $503.6 billion UPB, representing a 4.3% increase from December 31, 2021.

Interest Income

Interest income for the year ended December 31, 2022 increased $265.1 million primarily driven by higher interest rates during 2022, including higher float income earned on custodial accounts associated with our MSRs, and the inclusion of results from Caliber and Genesis for the full year 2022.

Gain on Originated Residential Mortgage Loans, Held-for-Sale, Net

The following table provides information regarding Gain on Originated Residential Mortgage Loans, Held-for-Sale, Net as a percentage of pull through adjusted lock volume, by channel:

The following table summarizes funded loan production by channel:

Gain on originated residential mortgage loans, held-for-sale, net decreased $740.7 million year over year, primarily driven by a reduction in the pull through adjusted lock volume attributable to an increase in interest rates during the year, partially offset by the inclusion of the Caliber acquisition for the full year 2022. For the year ended December 31, 2022, loan origination volume was $67.6 billion, down from $123.3 billion in the prior year.

During 2022, gain on sale margins continued to revert to historical levels largely driven by weakening demand for loans amid excess industry capacity due to an escalating interest rate environment weighing on the residential real estate market. Gain on sale margin for the year ended December 31, 2022 was 1.70%, 19 bps higher than 1.51% for the prior year. The higher gain on sale margin for 2022 was driven by channel mix—funded loan production in our higher margin Retail channel outpaced production in lower margin channels. 70% of all funded origination volume during 2022 was purchase origination, up from 42% in 2021.

Interest Expense and Warehouse Line Fees

Interest expense increased $293.7 million year over year, primarily attributable to the higher interest rates in 2022.

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General and Administrative

General and Administrative expenses consists of the following:

General and administrative expenses increased $11.4 million year over year. Legal and professional fees decreased primarily due to lower deal costs incurred in 2022. Loan origination, subservicing fees, and loan servicing fees decreased due to lower loan production volume throughout 2022 commensurate with the increasing rate environment. The increase in occupancy expense reflects a full year of Caliber and Genesis expenses for 2022. Property and maintenance expenses increased due to continued growth at Guardian. Other expenses increased primarily due to higher information technology and marketing expenses due to a full year of Caliber and Genesis expenses, and higher single family rental property expenses driven by property purchases.

Compensation and Benefits

Compensation and benefits increased $71.6 million year over year, primarily due to the Caliber and Genesis acquisitions in the latter half of 2021, which initially added over 7,000 in headcount. Additionally, on June 17, 2022, we entered into definitive agreements with the Former Manager to internalize our management function. Following the Internalization, we no longer pay a management fee to the Former Manager and we have assumed compensation and benefit expenses directly. These increases were partially offset by a reduction in headcount primarily within our Origination segment commensurate with aligning our expense base to a lower production environment. Total headcount at December 31, 2022 was 5,763, down from 12,296 at December 31, 2021.

Management Fee to Affiliate

Management fee to affiliate decreased $49.8 million year over year due to the Internalization effective June 17, 2022. See Notes 1, 24 and 26 to our Consolidated Financial Statements for further information regarding the management fee to affiliate.

Termination Fee to Affiliate

The termination fee to affiliate of $400.0 million for the year ended December 31, 2022 relates to the Internalization effective June 17, 2022. See Notes 1, 24 and 26 to our Consolidated Financial Statements for further information regarding the termination fee to affiliate.

Other Income (Loss)

Other Income (Loss) consists of the following:

Percentage changes in the table above deemed “n/m” are not meaningful.

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The following table summarizes the components of Other income (loss):

Percentage changes in the table above deemed “n/m” are not meaningful.

(A)Includes excess MSRs, servicer advance investments, consumer loans, and other.

Change in fair value of investments, net, together with Gain (loss) on settlement of investments, net, reflects the net change in unrealized and net realized gains (losses) on our investment portfolio, including real estate and other securities, residential mortgage loans, and derivative instruments.

Total other income (loss) was $(120.1) million for the full year 2022 compared to $(41.1) million for the prior year. The increase in loss year over year was primarily driven by the sale of Agency RMBS in 2022, offset by the associated interest rate swaps utilized as economic hedges—we recognized net realized and unrealized losses on our Agency RMBS of $1.0 billion, offset by net realized and unrealized gains on our interest rate swaps and of $1.3 billion. Losses on our Agency RMBS and net realized and unrealized gains on our interest rate swaps were driven by higher interest rates and widening yield spreads in 2022.

The change in fair value of residential mortgage loans decreased $329.4 million, primarily attributable to increasing interest rates throughout 2022.

Unrealized gains on secured notes and bonds payable increased $32.8 million, primarily driven by favorable mark-to-market adjustments related to our consumer loans and mortgage loans receivable.

Rental revenue increased $40.8 million, driven by growth within our SFR business attributable to continued growth in acquired properties and occupancy rates.

Property and maintenance revenue increased $27.6 million, primarily due to continued growth in operations at Guardian.

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Other income (loss), net includes a $78.6 million loss recognized during 2022 attributable to unfavorable mark-to-market adjustments related to our ancillary investments, primarily reflecting the write-off of our remaining interest in Covius.

Income Tax Expense (Benefit)

Income tax expense increased $121.3 million, primarily driven by current and deferred tax expense resulting from changes in the fair value of MSRs, loans, and swaps held within taxable entities as well as income generated by the origination and servicing segments.

Dividends on Preferred Stock

The following table summarizes preferred shares (amounts in thousands, except per share data):

Dividends on preferred stock increased $23.0 million, primarily driven by the Preferred Series D shares issued in September 2021.

Other Comprehensive Income

See “—Accumulated Other Comprehensive Income (Loss)” below.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, and other general business needs. Additionally, to maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income. We note that a portion of this requirement may be able to be met in future years through stock dividends, rather than cash, subject to limitations based on the value of our stock.

Our primary sources of funds are cash provided by operating activities (primarily income from loan origination 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.

Our primary uses of funds are the payment of interest, servicing and subservicing expenses, outstanding commitments (including margins and mortgage loan originations), other operating expenses, repayment of borrowings and hedge obligations, dividends and funding of future servicer advances. Total cash and cash equivalents at December 31, 2022 and 2021 was $1.3 billion.

Our ability to utilize funds generated by the MSRs held in our servicer subsidiaries, NRM, Newrez and Caliber, is subject to and limited by certain regulatory requirements, including maintaining liquidity, tangible net worth and ratio of capital to assets. 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, 2022, approximately $0.9 billion of our cash and cash equivalents was held at NRM, Newrez and Caliber, of which $0.7 billion was in excess of regulatory liquidity requirements. NRM, Newrez and Caliber are expected to maintain compliance with applicable net worth requirements throughout the year.

Currently, our primary sources of financing are secured financing agreements and secured notes and bonds payable, although we have pursued in the past and may also pursue in the future one or more other sources of financing such as securitizations and other secured and unsecured forms of borrowing. As of December 31, 2022, we had outstanding secured financing agreements with an aggregate face amount of approximately $11.3 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. Under secured financing agreements, we sell a

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security to a counterparty and concurrently agree to repurchase the same security at a later date for a higher specified price. The sale price represents financing proceeds and the difference between the sale and repurchase prices represents interest on the financing. The price at which the security is sold generally represents the market value of the security less a discount or “haircut,” which can range broadly. During the term of the secured financing agreement, the counterparty holds the security as collateral. If the agreement is subject to margin calls, the counterparty monitors and calculates what it estimates to be the value of the collateral during the term of the agreement. 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. Furthermore, we may, from time to time, be a party to derivative agreements or financing arrangements that may be subject to margin calls based on the value of such instruments. 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. We seek to maintain adequate cash reserves and other sources of available liquidity to meet any margin calls or related requirements resulting from decreases in value related to a reasonably possible (in our opinion) change in interest rates.

Our ability to obtain borrowings and to raise future equity capital is dependent on our ability to access borrowings and the capital markets on attractive terms. We continually monitor market conditions for financing opportunities and at any given time may be entering or pursuing one or more of the transactions described above. Our senior management team has extensive long-term relationships with investment banks, brokerage firms and commercial banks, which we believe enhance our ability to source and finance asset acquisitions on attractive terms and access borrowings and the capital markets at attractive levels.

Our ability to fund our operations, meet financial obligations and finance acquisitions may be impacted by our ability to secure and maintain our secured financing agreements, credit facilities and other financing arrangements. Because secured financing agreements and credit facilities are short-term commitments of capital, lender responses to market conditions may make it more difficult for us to renew or replace, on a continuous basis, our maturing short-term borrowings and have imposed, and may continue to impose, more onerous conditions when rolling such financings. If we are not able to renew our existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets.

The use of TBA dollar roll transactions generally increases our funding diversification, expands our available pool of assets, and increases our overall liquidity position, as TBA contracts typically have lower implied haircuts relative to Agency RMBS pools funded with repo financing. TBA dollar roll transactions may also have a lower implied cost of funds than comparable repo funded transactions offering incremental return potential. However, if it were to become uneconomical to roll our TBA contracts into future months it may be necessary to take physical delivery of the underlying securities and fund those assets with cash or other financing sources, which could reduce our liquidity position.

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. Our lenders also have revised and may continue to revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, including haircuts and requiring additional collateral in the form of cash, based on, among other factors, the regulatory environment and their management of actual and perceived risk. Moreover, the amount of financing we receive under our secured financing agreements will be directly related to our lenders’ valuation of our assets that cover the outstanding borrowings.

On August 17, 2022, the FHFA and Ginnie Mae released updated capital and liquidity standard for loan sellers and servicers. In regards to capital requirements, the updated standards require all loan sellers and servicers to maintain a minimum tangible net worth of $2.5 million plus 25 bps for Fannie Mae, Freddie Mac and private label servicing UPB plus 35 bps for Ginnie Mae servicing. This change aligns the existing Ginnie Mae capital requirement with the FHFA’s. In addition, the definition of tangible net worth has been changed to remove deferred tax assets, though the tangible net worth to tangible asset ratio remained unchanged at 6% or greater. In regard to liquidity requirements, the updated standards require all non-depositories to maintain base liquidity of 3.5 bps of Fannie Mae, Freddie Mac and private label servicing UPB plus 10 bps for Ginnie Mae servicing. This change is an increase in required liquidity for the Ginnie Mae balances and aligns with the FHFA’s. 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. Notwithstanding Ginnie Mae’s risk-based capital requirement, the updated standards will become effective on September 30, 2023. Noncompliance with the capital and liquidity requirements can result in the FHFA and Ginnie Mae taking various remedial actions up to and including removing the Company’s ability to sell loans to and service loans on behalf of the FHFA

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and Ginnie Mae. Currently, Ginnie Mae’s risk-based capital requirement is expected to go into effect on December 31, 2024. The FHFA’s revised requirements is expected to increase our capital and liquidity requirement and lower our return on capital.

On June 17, 2022, we entered into definitive agreements with the Former Manager to internalize our management function. As part of the termination of the existing Management Agreement, we agreed to pay $400.0 million (subject to certain adjustments) to the Former Manager. Following the Internalization, we no longer pay a management or incentive fee to the Former Manager. Consequently, we have assumed general and administrative, and compensation and benefit expenses directly. We anticipate a savings in operating costs as a result of the Internalization.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. The corporate minimum tax is effective for tax years beginning after December 31, 2022. The Inflation Reduction Act also includes an excise tax that would impose a 1% surcharge on stock repurchases. This excise tax is effective on stock repurchases after December 31, 2022. While we continue to evaluate the impact of the Inflation Reduction Act on our consolidated financial statements, we currently do not expect a material impact on our results, financial position, or cash flows.

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, mortgage loan origination and operating expenses. 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. While it is inherently more difficult to forecast beyond the next 12 months, we currently expect to meet our long-term liquidity requirements through our cash on hand and, if needed, additional borrowings, proceeds received from secured financing agreements and other financings, proceeds from equity offerings and the liquidation or refinancing of our assets.

These short-term and long-term expectations are forward-looking and subject to a number of uncertainties and assumptions, including those described under “—Market Considerations” as well as “Risk Factors.” If our assumptions about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and such a shortfall may occur rapidly and with little or no notice, which could limit our ability to address the shortfall on a timely basis and could have a material adverse effect on our business.

Our cash flow provided by operations differs from our net income due to these primary factors (i) the difference between (a) accretion and amortization and unrealized gains and losses recorded with respect to our investments and (b) cash received therefrom, (ii) unrealized gains and losses on our derivatives, and recorded impairments, if any, (iii) deferred taxes, and (iv) principal cash flows related to held-for-sale loans, which are characterized as operating cash flows under GAAP.

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Debt Obligations

The following table summarizes information regarding our debt obligations (dollars in thousands):

(A)Net of deferred financing costs.

(B)All debt obligations with a stated maturity through the date of issuance were refinanced, extended or repaid.

(C)Includes approximately $80.5 million of associated interest payable as of December 31, 2022.

(D)All fixed interest rates.

(E)All LIBOR or SOFR-based floating interest rates.

(F)Includes $278.6 million which bear interest at an average fixed interest rate of 5.1% with the remaining having LIBOR or SOFR-based floating interest rates.

(G)All LIBOR or SOFR-based floating interest rates.

(H)Includes $227.6 million of corporate loans which bear interest at a fixed interest rate of 3.7%.

(I)Includes $3.0 billion of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or SOFR, and (ii) a margin ranging from 2.5% to 3.3%; and $1.8 billion of capital market notes with fixed interest rates ranging 3.0% to 5.4%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR Financing Receivables securing these notes.

(J)$1.2 billion face amount of the notes has a fixed rate while the remaining notes bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or a cost of funds rate, as applicable, and (ii) a margin ranging from 1.2% to 3.3%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the MSRs and MSR Financing Receivables owned by NRM.

(K)Represents (i) $20.9 million of SAFT 2013-1 mortgage-backed securities issued with fixed interest rate of 3.7% and (ii) $750.0 million securitization backed by a revolving warehouse facility to finance newly originated first-lien, fixed- and adjustable-rate residential mortgage loans which bears interest equal to one-month LIBOR plus 1.1%.

(L)Includes the SpringCastle debt, comprising the following classes of asset-backed notes held by third parties: $277.7 million UPB of Class A notes with a coupon of 2.0% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.7% and a stated maturity date in September 2037 (collectively, “SCFT 2020-A”).

Certain of the debt obligations included above are obligations of our consolidated subsidiaries, which own the related collateral. In some cases, such collateral is not available to other creditors of ours.

We have margin exposure on $11.3 billion of repurchase agreements. To the extent that the value of the collateral underlying these repurchase agreements declines, we may be required to post margin, which could significantly impact our liquidity.

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The following tables provide additional information regarding our short-term borrowings (dollars in thousands):

(A)Represents the average for the period the debt was outstanding.