Company: RITM-PC
Filing Date: 2025-02-18
Form Type: 10-K
Source: 0001556593-25-000007
Chunk: 7

Company: Rithm Capital Corp.
Filing Date: 2025-02-18
Form: 10-K
Item: Item 1
Chunk 7
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structurings that Rithm Capital foresees as further creating investment opportunities.

Evolving trends in the housing sector are putting pressure on homeowners. The housing market is currently characterized by a national inventory shortage, with significant regional variations. In the South and Southwest, inventory levels are rising, led by states such as Texas and Florida, which are experiencing an increase in supply. Conversely, inventory remains constrained in the Northeast and Midwest, creating stark regional disparities. These variations are driving divergence in home price trends across the country. Adding to the challenges, high mortgage rates and escalating insurance costs are exacerbating an already weak housing affordability landscape. Further compounding the issue is the prevalence of locked-in mortgages at low rates, causing many borrowers to opt to remain in their current homes rather than face higher borrowing costs.

The U.S. consumer is currently benefiting from favorable economic conditions, including low unemployment claims and modestly rising employment levels. These factors have supported robust consumer spending and overall financial strength. Additionally, wealth effects from accumulated home equity and gains in the stock market have further bolstered consumer confidence and purchasing power. 

Fundamentals are favorable for MSRs. Prepayment speeds remain subdued as refinance volumes have dropped in the current high-rate environment. This has stabilized MSR cashflows, extending out mortgage cash flows as refinancing incentives have turned negative, while also providing limited opportunity for recapture.  The affordability challenges posed by higher rates have also reduced home sales, with the drop in existing home sales suppressing contributions to speeds from housing turnover.  Additionally, the “higher for longer” rate environment continues to benefit MSR investors by generating substantial float income, or interest earned on funds temporarily held and stable cash flows from our large MSR portfolio, reinforcing its value as a key asset.

Prepayment speeds remain subdued as refinance volumes have dropped in the current high-rate environment, thus providing limited opportunity for recapture. However, the “higher for longer” rate environment continues to benefit MSR investors by generating substantial float income, or interest earned on funds temporarily held and stable cash flows from our large MSR portfolio, reinforcing its value as a key asset.

4

Residential Mortgage Loans

Rithm Capital accumulates its residential mortgage loan portfolio through originations, bulk acquisitions and the execution of call rights. The current market dynamics are marked by increasing home prices, strong credit quality of loans and rising yields, all of which enhance the appeal of the mortgage market to investors. These factors are driving a transition within the asset class, as it increasingly shifts into private hands. This shift is occurring