Company: RITM-PC
Filing Date: 2025-02-18
Form Type: 10-K
Source: 0001556593-25-000007
Chunk: 37

Company: Rithm Capital Corp.
Filing Date: 2025-02-18
Form: 10-K
Item: Item 1A
Chunk 37
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 fair value of investments could exceed acquisition costs or require non-cash charges that negatively impact financial results. 

Delinquency rates also have a significant impact on the value of our investments. Increases in borrower delinquencies defer MSR revenue since it limits current collections to performing loans, strain   servicer advance financing capacity (necessitating additional financing on unfavorable terms), and accelerate loss severities in RMBS or loan portfolios. Sustained delinquency spikes diminish portfolio fair values, reduce recoveries on servicer advances, and may trigger foreclosure-related decreases in interest income. 

Recapture Agreement Limitations

We are party to several “recapture agreements” with Servicing   Partners whereby our MSR or Excess MSR is retained if the applicable Servicing Partner originates a new loan using proceeds to repay a loan underlying an existing MSR/Excess MSR in our portfolio. While these agreements aim to mitigate prepayment impacts from rising voluntary prepayment rates, there are no assurances counterparties will meet contractual recapture targets or that such arrangements will apply to future MSR/Excess MSR investments.

Failure to meet anticipated recapture targets could significantly reduce servicing cash flows on affected pools, materially adversely impacting the value of our MSR/Excess MSR investments and, consequently, our business, financial condition, results of operations, and cash flows. These agreements apply exclusively to MSRs and Excess MSRs, with no comparable arrangements for other portfolio assets.

Current recapture targets for active agreements are disclosed in Note 19 to our consolidated financial statements . There are no guarantees counterparties will enter into similar arrangements for future investments in MSRs or Excess MSRs. 

20

Illiquid Asset Valuation Uncertainties

We, and our funds, invest in various assets for which there is no active market. In addition to the assumptions detailed above, our valuations for non-market-traded assets could incorporate:

•third-party bid/ask price evaluations (including executable quotes from market participants);

•stress-tested cash flow projections under multiple economic scenarios;

•sector-specific risk assessments accounting for industry distress;

•trading prices of comparable publicly traded financial instruments; and/or

•restrictions on transferability and marketability discounts.

The absence of active secondary markets creates challenges, particularly for investments in distressed sectors subject to rapid value deterioration from company-specific or industry developments. Realizations at values significantly lower than carrying amounts could result in:

•losses for applicable funds;

•declines in management fees and loss of potential incentive income;

•investor redemptions and litigation risks; and/or