Q2 2024 Rithm Capital Corp Earnings Call

July 31, 2024

Operator: Good morning, and welcome to the Rhythm Capital second quarter 2024 earnings call. All participants will be in listen-only mode.

Unknown Executive: Good morning and welcome to the Rithm Capital second quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signify conference specialists by pressing star then zero on your telephone keypad.

Speaker Change: Good morning and welcome to the Rhythm Capital second quarter

Speaker Change: 2024 Earnings Call. All participants will be in listen-only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Please go ahead.

Speaker Change: Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.

Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Emma Bolla: I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Please go ahead.

Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Please go ahead.

Emma Bolla: Thank you and good morning, everyone. I would like to thank you for joining us today for Rithm Capital second quarter 2024. Joining me today are Michael Nierenberg, Cerman, CEO and President of Rhythm Capital, Nic Santoro, Chief Financial Officer of Rhythm Capital, and Baron Silverstein, President of New Res.

Emma Bolla: Thank you and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's second quarter 2024. Joining me today are Michael Nierenberg, Chairman, CEO, and President of Rhythm Capital, Nic Santoro, Chief Financial Officer of Rhythm Capital, and Baron Silverstein, President of NewRez. Throughout the call, we are going to reference the earnings supplement that was posted this morning on the Rhythm Capital website, www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now.

Emma Bolla: Thank you and good morning everyone. I would like to thank you for joining us today for Rhythm Capital's second quarter 2024 earnings call.

Michael Nierenberg: Joining me today are Michael Nierenberg, Chairman, CEO , and President of Rhythm Capital.

Speaker Change: Nick Santoro, Chief Financial Officer of Rhythm Capital, and Baron Silverstein, President of NewRest. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now.

Emma Bolla: Throughout the call, we were going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.RhythmCap.com. If you've not already done so, I'd encourage you to download the presentation now.

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

Speaker Change: I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results.

Speaker Change: I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC.

Emma Bolla: In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliation of these measures to the most directly comparable gap measures can be found in our earnings supplement. I want that.

Speaker Change: In addition, we will be discussing some non-GAAP financial measures during today's call.

Speaker Change: Reconciliations of these measures to the most directly comparable gap measures can be found in our earnings supplement.

Michael Nierenberg: I will turn the call over to Michael. Thanks, thanks, Emma.

Michael Nierenberg: Thanks, Emma. Good morning, everyone, and thanks for joining the call. Rhythm had an excellent quarter with strong contributions from all of our business lines. While we continue to focus on the direct lending business, which has gotten us to this point, the growth of our alternative asset business is very important to the revaluation of our company. During the quarter, New Res, our mortgage company, Genesis, our RTL lender, and our portfolio of assets generated very strong returns. The Sculptor business, which we have owned since November of last year, is seeing excellent performance in credit, real estate, and the multi-strat fund.

Michael Nierenberg: Good morning, everyone, and thanks for joining the call. Rhythm had an excellent quarter with strong contributions from all of our business lines. While we continue to focus on the direct lending business lines, which have gotten us to this point, the growth of our alternative asset business is very important to the revaluation of our company. During the quarter, New Res, our mortgage company, Genesis, our RTL lender, and our portfolio of assets generated very strong returns. The scope to business which we have owned since November of last year is seeing excellent performance in credit, real estate, and in the multi-strat fund.

Speaker Change: And with that, I will turn the call over to Michael. Thanks, Emma. Good morning, everyone, and thanks for joining the call.

Michael Nierenberg: Rhythm had an excellent quarter with strong contributions from all of our business lines. While we continue to focus on the direct lending business lines which have gotten us to this point, the growth of our alternative asset business is very important to the revaluation of our company.

Speaker Change: During the quarter, Nures, our mortgage company, Genesis, our RTL lender, and our portfolio of assets generated very strong returns.

Speaker Change: The Sculptor business, which we have owned since November of last year, is seeing excellent performance in credit, real estate, and in the multi-strat fund. AUM is stable, and the teams are having great conversations with LPs.

Michael Nierenberg: AUM is stable, and the teams are having great conversations with LPs. During the quarter, we did several transactions.

Michael Nierenberg: During the quarter, we did several transactions. We closed the previously announced acquisition of SLS, which is a mortgage company. This deal added to the new risk platform. Fifty six billion in own servicing and another one hundred billion in third party services. We closed on a previously announced investment in our Sculptor CLO business, a captive CLO equity fund. This helps support the franchise, generates great returns for the house, and should increase enterprise value for both Sculptor and Rhythm at the top of the house.

Michael Nierenberg: We closed the previously announced acquisition of SLS, which is a mortgage company. This deal added to the New Res platform, 56 billion in owned servicing, and another 100 billion in third party servicing. We closed on our previously announced investment in our sculptor's CLO business, a captive CLO equity fund. This helps support the franchise, generates great returns for the house, and shouldn't increase enterprise value for both Sculptor and Rhythm at the top of the house. We completed the previously announced acquisition of the management contract of Great Ajax, which was a residential mortgage REIT, which is now we're going to transition that into a opportunistic commercial mortgage REIT, which will help generate fee-related earnings for shareholders, as we reposition the company and grow it.

Speaker Change: During the quarter, we did several transactions.

Speaker Change: We closed the previously announced acquisition of SLS, which is a mortgage company. This deal added to the new risk platform $56 billion in owned servicing and another $100 billion in third-party servicing.

Speaker Change: We closed on our previously announced investment in our Sculptor CLO business, a captive CLO equity fund.

Speaker Change: This helps support the franchise, generates great returns for the house, and should increase enterprise value for both Sculptor and Rhythm at the top of the house.

Michael Nierenberg: We completed the previously announced acquisition of the management contract of Great Ajax, which was a residential mortgage rate, which is now we're going to transition that into an opportunistic commercial mortgage rate, which will help generate fee-related earnings for shareholders as we reposition the company and grow it. We also added 40 billion of excess MSRs where we partnered with Sculptor on this acquisition. This shows the power of our franchise.

Speaker Change: We completed the previously announced acquisition of the management contract of Great Ajax.

Speaker Change: which was a residential mortgage rate which is now we're going to transition that into a opportunistic commercial mortgage rate which will help generate fee-related earnings for shareholders as we reposition the company and grow it.

Michael Nierenberg: We also added 40 billion of excess MSRs, where we partnered with Sculptor on this acquisition. This shows the power of our franchise. Looking at the macro picture, we are extremely well positioned for the future and the expectations, and with the expectations of a said lowering rates beginning in September, this boasts very well for our company. This will help lower our borrowing costs and hopefully lead to higher earnings. We do believe a steeper curve will lead to higher prices and tighter spreads at the cost of finance from mortgage-related assets comes down with silver going lower on a nominal rate basis.

Speaker Change: We also added $40 billion of excess MSRs where we partnered with Sculptor on this acquisition. This shows the power of our franchise.

Michael Nierenberg: Looking at the macro picture, we are extremely well positioned for the future. The expectations of the Fed lowering rates beginning in September bode very well for our company. This will help lower our borrowing costs and hopefully lead to higher earnings. We do believe a steeper curve will lead to higher prices and tighter spreads as the cost of financing from mortgage-related assets comes down, with SOFR going lower on a nominal rate basis.

Speaker Change: Looking at the macro picture, we are extremely well positioned for the future and with the expectations of the Fed lowering rates beginning in September , this bodes very well for our company. This will help lower our borrowing costs and hopefully lead to higher earnings.

Speaker Change: We do believe a steeper curve will lead to higher prices and tighter spreads as the cost of finance from mortgage related assets comes down with SOFR going lower on a nominal rate basis.

Michael Nierenberg: This will generate solid returns and earnings for the business and good returns for our LPs and shareholders. One thing you'll see that's a little bit different in our presentation this time is a couple of slides illustrating some of the parts of our business. I'm hopeful that this will help show the value of our company and the value proposition for our shareholders and LPs. I'll now refer to the Supplement, which has been posted online.

Michael Nierenberg: This will generate solid returns and earnings for the business and good returns for our LPs and shareholders.

Speaker Change: This will generate solid returns and earnings for the business and good returns for our LPs and shareholders.

Michael Nierenberg: One thing you'll see that's a little bit different in our presentation this time is a couple of slides illustrating that some of the parts of our business. I'm hopeful that this will help show the value of our company and the value proposition for our shareholders and LPs. I'll now refer to the supplement, which has been posted online. I'm going to start with page three.

Speaker Change: One thing you'll see that's a little bit different in our presentation this time is a couple of slides illustrating some of the parts of our business.

Speaker Change: I'm hopeful that this will help show the value of our company and the value proposition for our shareholders and LPs. I'll now refer to the supplement which has been posted online.

Michael Nierenberg: I'm going to start with page 3, and Baron, who's with me, will focus on the mortgage company. So now to page 3. This slide demonstrates the power of the overall franchise. If you look back in history, and just a little bit taking you backwards, the company was started in 2013 with $1 billion of equity capital. Today, we have $7.3 billion of permanent capital. We've paid out over $5.4 billion in dividends. The total economic return is 189%.

Michael Nierenberg: Baron, who's with me, will focus on the mortgage company, so now to page three. This is the this slide demonstrates the kind of the power of the overall franchise. If you look back in history and just a little bit, you know, taking your backwards company started in 2013 with a billion dollars of equity capital. Today, we have 7.3 billion of permanent capital. We paid out over 5.4 billion of dividends. Total economic return is 189%. When you look at the Sculptor franchise and you look at the breadth of that investment team, whether it be in real estate, whether it be around the multi-strat fund, whether it be on credit, you look at the power of the Rhythm franchise on the investment side.

Baron: I'm going to start with page 3. Baron, who's with me, will focus on the mortgage company. So now to page 3. This is the, this slide demonstrates the...

Baron: Kind of the power of the overall franchise

Baron: If you look back in history, and just a little bit, you know, taking you backwards.

Speaker Change: Company was started in 2013 with a billion dollars of equity capital. Today we have 7.3 billion of permanent capital. We paid out over 5.4 billion in dividends. Total economic return is 189%.

Michael Nierenberg: When you look at the Sculptor franchise, and you look at the breadth of that investment team, whether it be in real estate, whether it be around the multi-strat fund, whether it be on credit, you look at the power of the Rhythm franchise on the investment side, there is not a sector that we don't have expertise in, whether it be in credit, real estate, mortgage, or on the consumer side. And then when you look at the power of our direct lending businesses and our continued desire to grow those, I'm really excited for the future of what our company will be.

Speaker Change: When you look at the Sculptor franchise...

Speaker Change: And you look at the breadth of that investment team, whether it be in real estate, whether it be around the multi-strat fund, whether it be on credit.

Speaker Change: You look at the power of the Rhythm franchise on the investment side, there is not a sector that we don't have expertise in, whether it be in credit, real estate, mortgage,

Michael Nierenberg: There is not a sector that we don't have expertise in, whether being credit, real estate, mortgage, or on the consumer side. And then when you look at the power of our direct lending businesses and our continued desire to grow, those are really exciting for the future of what our company will be. As you look at Q2 financial highlights, book value $12.39 per diluted share. Gap net income of $213 million or 43 cents per diluted share; earnings available for distribution $231 million of $47 cents per diluted share. The dividend is still 25 cents. That's a 9.2% dividend yield as of the end of June; economic return for 2 to 3.7%.

Speaker Change: or on the consumer side. And then when you look at the power of our direct lending businesses and our continued desire to grow those, I'm really excited for the future of what our company will be. As you look at Q2 financial highlights, book value $12.39 per diluted share.

Michael Nierenberg: As you look at Q2 financial highlights, book value $12.39 per diluted share, gap net income of $213 million or $0.43 per diluted share, earnings available for distribution, $231 million of $0.47 per diluted share, dividend still $0.25, that's a 9.2% dividend yield as of the end of June.

Speaker Change: Gantt net income of 213 million dollars or 43 cents per diluted share

Speaker Change: Earnings available for distribution, $231 million of $0.47 per diluted share. Dividends still $0.25, that's a 9.2% dividend yield as of the end of June . Economic return for Q2, 3.7%.

Michael Nierenberg: Economic return for Q2 was 3.7%. Earnings after distribution return in equity is 15%. And cash and liquidity at the end of Q2 were $1.5 billion. On pages 5 and 6, I'm going to talk a little bit about value, our intrinsic value, and the sum of the parts. Going back, and again, we'll go back to the end of June, the end of Q2, the current valuation at the end of Q2 was $5.4 billion in market cap.

Michael Nierenberg: Earnings have to distribution return an equity 15% in cash and liquidity at the end of Q2 was $1.5 billion. Page 5 and 6. I'm going to talk a little bit about the value or intrinsic value in the sum of the parts. Going back and again we'll go back to the end of June. End of Q2 current valuation at the end of Q2 was $5.4 billion in market cap. Share price at the end of June was $11.22. Book value $6.1 billion. When you look at the sum of the parts and there are, you can compare us to anybody else in, I think, in the business when you look at some of this.

Speaker Change: Earnings after distribution return in equity 15% and cash and liquidity at the end of Q2 was $1.5 billion.

Speaker Change: Page 5 and 6 I'm going to talk a little bit about the value or intrinsic value in the sum of the parts

Speaker Change: Going back, and again we'll go back to the end of June , end of Q2, current valuation at the end of Q2 was $5.4 billion in market cap, share price at the end of June was $11.22, book value $6.1 billion.

Michael Nierenberg: When you look at the sum of the parts, and there are, you can compare us to anybody else in the business when you look at some of this. But like New Res, the mortgage company, there are public peers out there. We put a range of 1.1 to 1.5 times.

Speaker Change: When you look at the some of the parts and there are

Speaker Change: You can compare us to anybody else, I think, in the business when you look at some of this.

Michael Nierenberg: But like you read the mortgage company, there are public peers out there. We put a range of 1.1 to 1.5 times. I would encourage you to look at some of the public companies that trade out there on the investment portfolio. In the sum of the parts valuation, we assume roughly book value there or Genesis business, which continues to generate very good returns and grow. We put a 1.2 to 1.5 times multiple on that business, and then Sculptor we just put in at our acquisition cost at 1 times our acquisition cost. What that does and I don't know what the exact number should be, it gets us to a range of value between roughly $13 and $16 per share or price to book value at 1 point at the low of 1 times.

Speaker Change: New Rez the mortgage company there are public peers out there. We put a range of 1.1 to 1.5 times I would encourage you to look at some of the public companies that trade out there on the investment portfolio

Michael Nierenberg: I would encourage you to look at some of the public companies that trade out there. On the investment portfolio, in the sum of the parts valuation, we assume roughly book value there. Our Genesis business, which continues to generate very good returns and grow, we put a 1.2 to 1.5 times multiple on that business. And then Sculpture, we just put in at our acquisition cost, so at one times our acquisition cost. What that does, and I don't know what the exact number should be, it gets us to a range of value between roughly $13 and $16 per share, or price to book value at one point, at the low of one times, on gap measures of 1.3 times at the high end. The valuation list, you can again, you can make up whatever number you want is between 15 and 45%. We'll get there at some point.

Speaker Change: In the sum of the parts valuation we assume, you know, roughly book value there or Genesis business

Speaker Change: which continues to generate very good returns and grow. We put a 1.2 to 1.5 times multiple on that business and then Sculptor we just put in at our acquisition cost, so at one times our acquisition cost.

Speaker Change: What that does, and I don't know what the exact number should be, it gets us to a range of value between roughly $13 and $16 per share, or price to book value at the low of one times per share. Thank you.

Michael Nierenberg: on GAT measures of 1.3 times at the high end. The valuation lift, you can, again, you can make up whatever number you want; it's between 15 and 45%. We'll get there at some point, and I do think the, when you look at the real math behind all of our numbers, we're really, you know, we think it's a great value for our shareholders and LP. Page 6, just looking at, again, talking about the. I'm not going to spend a ton of time on this; I'd encourage you to have a look at this. You look at where we think current value is today and where we think it could go.

Speaker Change: on GAAP measures of 1.3 times at the high end.

Speaker Change: The valuation lift you can again you can make up whatever number you want is between 15 and 45 percent We'll get there at some point and I do think the when you look at the real math behind all of our numbers We're really, you know, we think it's a great value prop for our shareholders and LPs

Michael Nierenberg: And I do think that when you look at the real math behind all of our numbers, we're really, you know, we think it's a great value prop for our shareholders and LP. Page six, just looking at it again, talking about the I'm not going to spend a ton of time on this, but I'd encourage you to have a look at this.

Michael Nierenberg: Again, this is why people buy equities. And from a performance standpoint, as a team here, across all of our platforms, we take it hard to ensure or do the best we can to make sure that we generate great results for our shareholders and LP. Page 7, Rhythm 2.0, you know, why are we different today?

Speaker Change: Page six, just looking at, again, talking about the, I'm not going to spend a ton of time on this. I'd encourage you to have a look at this.

Speaker Change: You look at where we think current value is today and where we think it could go.

Michael Nierenberg: Again, this is, this is why people buy equities, and from a performance standpoint, it's a team here, both across all of our platforms. We take it hard to, to ensure or do the best we can to make sure that we put, we generate great results for our shareholders and LP's.

Speaker Change: Again, this is this is why people buy equities

Speaker Change: And from a performance standpoint, as a team here, both across all of our platforms, we take it to heart to ensure or do the best we can to make sure that we generate great results for our shareholders and LPs.

Michael Nierenberg: Page 7, Rhythm 2.0: you know, why are we different today? Again, we have our direct lending businesses, and that could be new res; that could be the Genesis Capital business. One of the slides I'll get to in the middle is just talked about Rhythm commercial. It's really more direct lending off the Rhythm balance sheet. It doesn't compete with any, with any of our other strategies. And, you know, one of the things you'll see is the leverage of the overall platform. One of the things I opened up in, in our opening remarks is if you look, you know, during the quarter we bought a large pool of exit seminars; that was $40 billion, and we did that in partnership with the Sculptor franchise.

Michael Nierenberg: Again, we have our direct lending businesses, and that could be New Res, that could be the Genesis Capital business. One of the slides I'll get to in the middle just talks about Rhythm Commercial, which is really more of a direct lending business off the Rhythm balance sheet. It doesn't compete with any of our other strategies.

Speaker Change: Page 7, Rhythm 2.0. You know, why are we different today? Again, we have our direct lending businesses, and that could be New Res, that could be...

Speaker Change: the Genesis Capital Business.

Speaker Change: One of the slides I'll get to in the middle just talks about Rhythm Commercial. It's really more of direct lending off the Rhythm balance sheet. It doesn't compete with any of our other strategies.

Michael Nierenberg: And, you know, one of the things you'll see is the leverage of the overall platform. One of the things I opened up in our opening remarks is that if you look, you know, during the quarter, we bought a large pool of excess MSRs that was $40-odd billion, and we did that in partnership with Rhythm. Sculptor Franchise.

Speaker Change: And one of the things you'll see is the leverage of the overall platform. One of the things I opened up in our opening remarks is if you look during the quarter, we bought a large pool of excess MSRs that was 40 odd billion dollars. And we did that in partnership with our...

Michael Nierenberg: So the power of the franchise and the way that we look at it, and where we think we're going to go from both the investment side, our direct lending business, and then as time goes by, the sculptor business should hopefully continue to grow in the great results that they're currently seeing there, will hopefully lead to more LP investments.

Speaker Change: with the Sculptor Franchise.

Speaker Change: So the power of the franchise in the way that we look at it and where we think we're going to go from both the investment side, our direct lending business, and then as time goes by the sculptor business should hopefully continue to grow and the great results that they're currently seeing there will hopefully lead to more LP investments.

Michael Nierenberg: When we look at page 8, just talking about the markets a little bit, you know, I spoke about what we did in the quarter. Genesis Capital, just to give you a sense on that business, we acquired that in December, I believe, of 22. EBITDA growth in that business since the time that we acquired that is probably up something around, I think it's up about 50% since we acquired the company in June of 22.

Michael Nierenberg: When we look at page 8, just talking about the markets a little bit, you know, I spoke about what we did in the quarter. Genesis Capital, just to give you a sense in that business. We acquired that in December, I believe, of 22. EBITDA growth in that business, since the time that we acquired that, is probably up something around, I think it's up about 50% since we acquired the company in June of 22. Again, another direct lending business. During the quarter, we did our first securitization, rated securitization, and lowering our cross the capital there at the Genesis level.

Speaker Change: When we look at page 8, just talking about the markets.

Speaker Change: A little bit, you know, I spoke about what we did in the quarter. Genesis Capital, just to give you a sense on that business, we acquired that in December , I believe, of 22.

Speaker Change: EBITDA growth in that business since the time that we acquired that is probably up.

Speaker Change: I think it's up about 50% since we acquired the company in June of 22. Again another direct lending business. During the quarter we did our first securitization, rated securitization, and lowering our cost of capital there at the Genesis level.

Michael Nierenberg: Again, another direct lending business. During the quarter, we did our first securitization, rated securitization, and lowering our cost to capital there at the Genesis level. The financing market is extremely healthy these days. If you look at any, you know, whether you look at your Bloomberg or you look at the tape, there are tons and tons of securitizations and deals that come to market as well as in the high yield space, and I'll talk about that in a minute as well.

Michael Nierenberg: Financing, the financing markets extremely healthy these days. If you look at any, you know, whether you look at your Bloomberg or you look at the tape, there are tons and tons of securitizations and deals that come to market, as well as in the high yield space, and I'll talk about that in a minute as well. When we look at our sculptor franchise, they did mention we closed, Sculptor closed two CLOs during the quarter for $780 million. They also had a new investment in the real estate credit fund, and then some of the other things we did, we completed our acquisition of Great Ajax, and again, going back to performance first, that is the most important thing for us, not to say you am gross, but performance first.

Speaker Change: The financing market is extremely healthy these days, whether you look at your Bloomberg or you look at the tape, there are tons and tons of securitizations and deals that come to market, as well as in the high yield space, and I'll talk about that in a minute as well.

Michael Nierenberg: When we look at our Sculptor franchise, I did mention Sculptor closed two CLOs during the quarter for $780 million. They also had a new investment in the real estate credit fund. And then some of the other things we did, we completed our acquisition of Great Ajax. And again, going back to performance first, that is the most important thing for us, not just AUM growth, but performance first. Page nine, and then I'm going to turn it over to Baron.

Speaker Change: When we look at our Sculptor franchise, I did mention Sculptor closed two CLOs during the quarter for $780 million.

Speaker Change: They also had a new investment in the real estate credit fund.

Speaker Change: And then some of the other things we did, we completed our acquisition of a great Ajax.

Speaker Change: And again, going back to performance first, that is the most important thing for us, not just AUM growth, but performance.

Michael Nierenberg: Page nine, and then I'm going to turn it over to Baron. Just to keep macroeconomic themes, we do think that is going to lower rates if the data continues in September by 25 basis points. That will lead to lower cost of financing. A mortgage-related asset, as I spoke about earlier, the yield curve should continue to steep in with the front end doing better, or the back end selling off. You could have made an argument that when you look at true net treasury suppliers reading yesterday, I think the treasury deficit is about $35 trillion. We expect roughly $1 trillion a net supply to hit the Treasury market this year.

Michael Nierenberg: Just on key macroeconomic themes, we do think the Fed is going to lower rates if the data continues in September by 25 basis points. That'll lead to a lower cost of financing on mortgage-related assets, as I spoke about earlier. The yield curve should continue to steepen with the front end doing better or the back end selling off. You could make an argument that, you know, when you look at true net treasury supply, I was reading yesterday, I think the deficit is about $35 trillion.

Speaker Change: Page 9, and then I'm going to turn it over to Baron.

Baron: We do think the Fed is going to lower rates if the data continues in September by 25 basis points. That will lead to lower costs of financing on mortgage-related assets, as I spoke about earlier. The yield curve should continue to steepen with the front end doing better or the back end selling off.

Baron: You could make an argument that when you look at true net

Baron: Treasury Supply was reading yesterday. I think it did deficit the Treasury deficit the

Michael Nierenberg: We expect roughly $1 trillion of net supply to hit the treasury market this year. And when you look at that, and think about the Bank of Japan raising rates this morning, what does all that mean? Potentially, you could see some capital get recycled back into Japan, where people think they're going to earn more interest income. So it'll be interesting to see how that plays out. Market volatility, we believe, will continue to persist.

Baron: Deficit is about $35 trillion. We expect roughly $1 trillion of net supply to hit the Treasury market.

Michael Nierenberg: When you look at that, you think about the Bank of Japan raising rates this morning. What does all that mean? Potentially, you could see some capital get recycled back towards Japan, where people think they're going to earn more interesting income. It will be interesting to see how that plays out. Market volatility, we believe, will continue to persist. The geopolitical world that the environment that we all live in is not that comforting. We believe there will be a lot more market volatility. Private credit will continue to expand. You just saw this morning, Aries announced they raised $34 billion for a new private credit fund.

Speaker Change: You know, this year, when you look at that, you think about the Bank of Japan raising rates this morning. What does all that mean? Potentially, you could see some capital get recycled back towards Japan.

Speaker Change: where people think they're going to earn more interest income. So it'll be interesting to see how that plays out. Market volatility, we believe, will continue to persist. You know, the geopolitical...

Speaker Change: world, that environment that we all live in.

Michael Nierenberg: And, you know, there will be a lot, we believe there'll be a lot more market volatility. Private credit will continue to expand. You just saw this morning, Ares announced they raised $34 billion for a new private credit fund. It's a big world. There's a lot of opportunity for us out there, and we're excited to actually seize on that opportunity. That's kind of it for now. I think I do one last comment on commercial real estate, and then we'll get back to that in a minute.

Speaker Change: Not that comforting and, we believe there will be a lot more market volatility. Private Credit will continue to expand you saw this morning It's a big world, there's a lot of opportunity for us out there and we are excited to actually seize on that opportunity.

Michael Nierenberg: It's a big world. There's a lot of opportunity for us out there, and we're excited to actually seize on that opportunity.

Michael Nierenberg: That's kind of it for now. I think I do one last comment on commercial real estate, and we'll get back to that in a minute. There is a ton of demand and a ton of incoming that we have as an institution for folks looking for capital in the credit space in the commercial real estate world. I'll talk about that in a few.

Speaker Change: That's kind of it for now. I think I do one one last comment on commercial real estate then we'll get back to that in a minute. I, you know, we have

Michael Nierenberg: You know, we have a ton of demand and a ton of inflows that we have as an institution for folks looking for capital in the credit space, in the commercial real estate world, and I'll talk about that in a few. So with that, I'll turn it over to Barron, who will pick up on slide 10.

Baron: There is a ton of demand and a ton of incoming that we have as an institution for folks looking for capital in the credit space, in the commercial real estate world, and I'll talk about that in a few. So with that, I'll turn it over to Baron, who will pick up on slide 10.

Baron Silverstein: With that, I'll turn it over to Zaren, who will pick up on slide 10. All right.

Baron Silverstein: All right, thank you, Michael. Good morning, everyone.

Baron Silverstein: Thank you, Michael.

Baron Silverstein: Good morning, everyone. We wrapped up another great quarter here at Nures. We're firmly in growth mode, gaining market share, and just focused on disciplined management, and also expansion of our third-party climate base. We're now the second largest non-bank servicer and the fifth largest lender in the industry, and our growth through our originations business is really just to drive and allows us to meet customers and how they want to be met. And then we're there with our recapture engine that really sets us well for a rape rally. Our servicing platform has a scale and long history of third party servicing for our clients, and we continue to gain market share and gain market share not only on bringing new clients but also gaining wallet share on our existing customer base.

Baron Silverstein: We wrapped up another great quarter here at New-Res, and you know, we're firmly in growth mode, gaining market share and just focused on discipline management and also expansion of our third-party client base. We're now the second largest non-bank servicer and the fifth largest lender in the industry. And our growth through our Originations business is really just to drive and allow us to meet customers and how they want to be met, right? And then we're there with our recapture engine, which really sets us well for a rape rally.

Baron: All right. Thank you, Michael. Good morning, everyone. We wrapped up another great quarter here at New Res, and we're firmly in growth mode, gaining market share and just focused on discipline management and also expansion of our third-party client base.

Baron: We're now the second largest non-bank servicer and the fifth largest lender in the industry.

Baron: Through our originations business is really just to drive and allows us to meet customers where and how they want to be met

Speaker Change: Right, and then we're there with our recapture engine that really sets us well for a rape rally.

Baron Silverstein: Our servicing platform has a scale and long history of third-party servicing for our clients and we continue to gain market share and gain market share not only on bringing new clients but also gaining wallet share on our existing customer base. So, our view overall is we can continue to grow our business, both organically and inorganically, but stay focused on our operational excellence while maximizing performance for our shareholders. Moving to slide 11, we delivered another strong quarter and that's just building upon the foundation we've already constructed over the last few years. Our second quarter pre-tax income was $248 million, delivering a 23% ROE, excluding mark-to-market on the own portfolio, excluding MSR mark-to-market.

Speaker Change: Our servicing platform has a scale and long history of third-party servicing for our clients and we continue to gain market share and gain market share not only on bringing new clients but also gaining wallet share on our existing customer base.

Baron Silverstein: So our view overall is we can continue to grow our business and both organically and we're in organically but stay focused on our operational excellence while maximizing performance for our shareholders. Moving to slide 11. We delivered another strong quarter, and that's just building upon the foundation we've already constructed over the last few years. Our second quarter pre-tax income was 248 million, delivering a 23% ROE excluding market to market on the own portfolio. Excluding more MSR market, our pre-tax income increased 7% quarter over quarter, reinforcing the strength of our balanced business model overall. Key drivers include the acquisition of SLS, which closed on May 1st that Michael mentioned earlier.

Speaker Change: So, our view overall is we can continue to grow our business, both organically and inorganically, but stay focused on our operational excellence while maximizing performance for our shareholders.

Speaker Change: Moving to slide 11. We delivered another strong quarter and that's just building upon the foundation we've already constructed over the last few years.

Speaker Change: Our second quarter pre-tax income was $248 million, delivering a 23% ROE, excluding mark-to-market on the own portfolio, right? Excluding MSR mark-to-market, our pre-tax income increased 7% quarter over quarter, reinforcing the strength of our balanced business model overall.

Baron Silverstein: Our pre-tax income increased 7% quarter over quarter, reinforcing the strength of our balanced business model overall. Key drivers include the acquisition of SLS, which closed on May 1st, that Michael mentioned earlier. We added $56 billion in owned MSRs and $98 billion in third-party MSR servicing, growing our MSR portfolio 28% quarter-over-quarter and third-party servicing 92% quarter-over-quarter. We also completed the transition of all 800,000 plus SLS loans onto our servicing platform, which we believe to be the first in the industry to move so many loans in such a short period of time while still minimizing homeowner disruptions and maximizing cost and expense management.

Speaker Change: Key drivers include the acquisition of SLS, which closed on May 1st that Michael mentioned earlier. We added $56 billion in owned MSRs and $98 billion in third-party MSR servicing, growing our MSR portfolio 28% quarter over quarter and third-party servicing 92% quarter over quarter.

Baron Silverstein: We added 56 billion in owned MSRs and 98 billion in third party MSR servicing, growing our MSR portfolio 28% quarter over quarter and third party servicing 92% quarter over quarter. We also completed the transition of all 800 plus thousand SLS loans onto our servicing platform, which we believe to be the first in the industry to move so many loans in such a short period of time while still minimizing homeowner disruptions and maximizing cost and expense management. Our origination business also performed well in spite of overall margin pressures, with production volume up 35% quarter over quarter, led by our corresponding host cell channels, but also benefited from the addition of co-issue capabilities and growth in both non-QM and home equity originations overall.

Michael Nierenberg: We also completed the transition of all 800 plus thousand SLS loans onto our servicing platform, which we believe to be the first in the industry to move so many loans in such a short period of time, while still minimizing homeowner disruptions and maximizing cost and expense management.

Baron Silverstein: Our originations business also performed well in spite of overall margin pressures, with production volume up 35% quarter over quarter, led by our correspondent and wholesale channels, but also benefited from the addition of co-issue capabilities and growth in both non-QM and home equity originations overall. You know, overall, I'll just say, I believe our business is in the best position it's ever been, and I'm looking forward to continuing to tell the New Roads story to the market. Back to you, Michael.

Speaker Change: Our originations business also performed well in spite of overall margin pressures, with production volume up 35% quarter over quarter, led by our correspondent and wholesale channels, but also benefited from the addition of co-issue capabilities and growth in both non-QM and home equity originations overall.

Baron Silverstein: Overall, I'll just say our business I believe our business is the best position it's ever been, and I'm looking forward to continue to tell the new story to the market.

Speaker Change: Overall, I'll just say I believe our business is in the best position it's ever been, and I'm looking forward to continuing to tell the new REV story to the market.

Michael Nierenberg: Thank you.

Michael Nierenberg: Thanks, Baron. A few more slides from me, and then, and then we'll open up for Q and A. Genesis Capital, you know that again, that's our transitional lending business, very focused on high quality loans to extremely strong sponsors. Most of the time, there's full recourse back to the very same sponsors that we're providing capital to. In the quarter, I think we did something close to 300 million of production. You know, when we first acquired the company, they were doing something between one and a half and two billion of production. This year, we will hit three plus billion in production, and as I mentioned, the EBITDA on that business is going to be up over a little bit north of 50% since the time that we acquired that.

Michael Nierenberg: Great. Thanks, Baron. A few more slides for me, and then we'll open up for Q&A. Genesis Capital, you know, again, that's our transitional lending business, very focused on high-quality loans to extremely strong sponsors. Most of the time, there's full recourse back to the very same sponsors that we're providing capital to. In the quarter, I think we did something close to $300 million in production. You know, when we first acquired the company, they were doing something between $1.5 and $2 billion in production.

Speaker Change: Back to you. Great. Thanks, Baron. A few more slides for me, and then we'll open up for Q&A. Genesis Capital, again, that's our transitional lending business, very focused on high-quality loans to extremely strong sponsors. Most of the time, there's full recourse back to the very same sponsors that we're providing capital to. In the quarter, I think we did something close to $300 million of production. When we first acquired the company, they were doing something between $1.5 and $2 billion of production. This year, we'll hit $3 plus billion in production. As I mentioned, the EBITDA...

Michael Nierenberg: And as I mentioned, the EBITDA on that business is going to be up over a little bit north of 50% since the time that we acquired it. When you look at page 13, again, very strong ROE, and this is a common theme for us. It's not only what we do about growth; it's about generating good returns for shareholders and LPs. For the quarter, 18% ROE.

Speaker Change: On that business is going to be up over a little bit north of 50% since the time that we acquired that

Michael Nierenberg: When you look at page 13 again, very strong ROE, and this is a common theme for us. It's not only what we do; it's about growth, it's about generating good returns for shareholders and LP. For the quarter, 18% ROE. We also originate 65% of our loans were floating rate, 64% loan to value, and when you look at the overall portfolio of what's been done to date. The link with these are only 2%, which shows the strong credit culture of that business on sculptor. You know I gave you a few comments before. Company we close the transaction towards the end of November. If you think about it this way.

Speaker Change: When you look at page 13, again, very strong ROE, and this is a common theme for us.

Speaker Change: It's not only what we do is about growth, it's about generating good returns for shareholders and LPs.

Michael Nierenberg: We also originate 65% of our loans were floating rate, 64% loan to value. And when you look at the overall portfolio of what's been done to date, delinquencies are only 2%, which shows the strong credit culture of that business. On Sculptor, you know, I gave you a few comments before the company, we closed the transaction towards the end of November. If you think about it this way, December's a holiday month, getting through a little bit of transition stuff.

Speaker Change: For the quarter, 18% ROE. We also originate 65% of our loans were floating rate, 64% loan to value, and when you look at the overall portfolio of what's been done to date, delinquencies are only 2%.

Speaker Change: which shows the strong credit culture of that business. On Sculptor, you know, I gave you a few comments before. As a company, we closed the transaction towards the end of November . If you think about it this way,

Michael Nierenberg: December's a holiday month, getting through a little bit of transition stuff, so the partnership and you know working together is really been for about six months here. Very excited for the prospects of that business. A plus team. You know when you think about the folks that are running that business from the credit to the real estate side to the multi-strat teams, been around for 30 plus years. Again, it's not an AUM rates; it's about performing great. We're putting up great returns for shareholders and the LPs that support these businesses, and that's something we look forward to growing over time as performance continues to be very good.

Michael Nierenberg: So the partnership and, you know, working together have really been for about six months here. Very excited about the prospects of that business. A-plus team, you know, when you think about the folks that are running that business from the credit to the real estate side to the multi-strat teams, been around for 30-plus years. Again, it's not an AUM race.

Speaker Change: December's a holiday month, getting through a little bit of transition stuff. So the partnership and working together has really been for about six months here. I'm very excited for the prospects of that business.

Speaker Change: A-plus team, you know, when you think about the folks that are running that business, from the credit to the real estate side to the multi-strat teams.

Speaker Change: Been around for 30 plus years. Again, it's not an AUM race. It's about performing great, putting up great returns for shareholders and the LPs that support these businesses. And that's something we look forward to growing over time as performance continues to be very good.

Michael Nierenberg: It's about performing great, putting up great returns for shareholders and the LPs that support these businesses, and that's something we look forward to growing over time as performance continues to be very good. Q2 highlights: mentioned the CLOs, closed two CLOs for $780 million. You'll see more activity in the CLO business as we go through here towards the end of the year. The Real Estate Credit Fund took in $100 million of new capital.

Michael Nierenberg: Thank you to a highlight. I mentioned the CLOs close to CLOs for $780 million. You'll see more activity in the CLO business as we go through here towards the end of the year. The Real Estate Credit Fund took an 100 million of new capital. This helps increase sculptors, obviously long-term AUM. More importantly, it gives capital to invest in what we think is one of the best real estate, both lending and investment periods that we've seen in our career. What I would say when you look at the overall platform on the real estate side, really no legacy, no legacy, you know, like office for example.

Speaker Change: Q2 Highlights

Speaker Change: Mentioned the CLOs closed two CLOs for 780 million dollars. You'll see more activity in the CLO business as we go through here

Michael Nierenberg: This helps increase sculptors', obviously long-term AUM, but more importantly, gives capital to invest in what we think is one of the best real estate, both lending and investment periods that we've seen in our careers. What I would say is when you look at the overall platform on the real estate side, really no legacy like office, for example, and it puts us in a very, very unique position between the Sculptor real estate folks and some of the direct lending we're doing out of the Rhythm commercial side.

Speaker Change: towards the end of the year. The Real Estate Credit Fund took in $100 million of new capital. This helps increase sculptors. Obviously, long-term AUM more importantly gives capital to invest in what we think is one of the best real estate both lending and investment periods that we've seen in our careers.

Speaker Change: What I would say when you look at the overall platform on the real estate side, really no legacy, no legacy, you know, like office, for example, and it puts us in a very, very unique position between the scope to real estate folks.

Michael Nierenberg: And it puts us in a very, very unique position between the sculptor real estate folks and some of the direct lending we're doing, you know, added a rhythm commercial side. You know, we have solutions for everybody. And again, being that we're in what we believe is one of the best real estate investing periods with fresh capital, no legacy issues on balance sheet. We're excited about where that business is going to go. Overall performance during Q2, as they pointed out earlier, was very, very strong. When you look at the rhythm, you know, we have a slide in here on page 16: rhythm on the commercial side.

Speaker Change: And some of the direct lending, we're doing, you know, out of the rhythm.

Michael Nierenberg: We have solutions for everybody, and again, being that we're in what we believe is one of the best real estate investing periods with fresh capital, no legacy issues on the balance sheet, we're excited about where that business is going to go. Overall performance during Q2, as I pointed out earlier, is very, very strong. When you look at the Rhythm, we have a slide in here on page 16, Rhythm on the commercial side.

Speaker Change: [inaudible]

Speaker Change: with Fresh Capital, no legacy issues on Balance Sheet.

Speaker Change: We're excited about where that business is going to go.

Speaker Change: Overall performance during Q2, as they pointed out earlier, was very, very strong.

Michael Nierenberg: We pointed out, if you look to the right side of the page, Great Ajax. Great Ajax is a permanent capital vehicle that's externally managed by Rhythm, the very same team that built Rhythm, formerly known as New Residential. Over the course of Q2, selling down legacy residential, re-performing loan assets, and redeploying capital into the commercial world. The capital base today is about $250 million in equity. We look forward to growing that over time, and I think the way that'll likely occur is if there's some great investment or opportunities to deploy capital, potentially raising capital, both in the public markets alongside potentially some third-party capital that comes in as well.

Speaker Change: When you look at the Rhythm, you know, we have a slide in here on page 16, Rhythm on the commercial side. We pointed out, if you look to the right side of the page, Great Ajax. Great Ajax is a permanent capital vehicle that's externally managed by Rhythm.

Michael Nierenberg: We pointed out if you look to the right side of the page, great Ajax, great Ajax is a permanent capital vehicle that's externally managed by Rhythm. Very same team that built Rhythm, you know, formerly known as New Residential, over the course of Q2 selling down legacy residential, reperforming loan assets, redeploying capital into the commercial world. Capital base today is about 250 million of equity. We look forward to growing that over time, you know, and I think the way that that'll likely occur is if there's some great investment or opportunity opportunities to deploy capital, potentially raising capital, both in the public markets alongside with some, potentially some third party capital that come in as well.

Speaker Change: very same team that built

Speaker Change: Formerly known as New Residential, over the course of Q2, selling down legacy residential

Speaker Change: Reperforming Loan Assets

Speaker Change: Redeploying capital into the commercial world.

Speaker Change: Capital base today is about 250 million of equity. We look forward to growing that over time. You know, and I think the way that that'll likely occur is if there's some great investment or opportunity opportunities to deploy capital.

Speaker Change: Potentially raising capital both in the public markets alongside with with some with

Michael Nierenberg: A ton of experience around the house in all of our verticals. We will not enter something unless we have expertise there, whether it be at the sculptor level, whether it be at the rhythm level, whether it be commercial real estate, residential consumer, or any of the direct lending businesses. So overall, before you know, I'll leave the segment performance; you could have a look at that yourself. And we'll get into Q and eight, but overall, very good quarter. Very excited where the business is going. I'd really encourage you to take a look at, you know, some of Barron's comments. There are public company peers out there who have done a great job. You know, Baron and the team have done a great job at the new red side as well.

Speaker Change: Potentially some third-party capital that come in as well.

Speaker Change: A ton of experience around the house in all of our verticals. We will not enter something unless we have expertise there, whether it be at the sculptor level, whether it be at the Rhythm level, whether it be commercial real estate, residential, consumer or any of the direct lending businesses. So, overall, before, you know, I'll leave the segment performance, you can have a look at that yourselves.

Michael Nierenberg: Overall, a very good quarter, very excited about where the business is going. I'd really encourage you to take a look at some of Barron's comments. There are public company peers out there who have done a great job. You know, Barron and the team have done a great job on the New Res side as well. Again, honing in on performance first, AUM growth later, and driving returns for LPs and shareholders. With that, I'll turn it back to the operator, and we'll open up for Q&A.

Baron: And we'll get into Q&A. But overall, very good quarter, very excited where the business is going. I'd really encourage you to take a look at some of Baron's comments. There are public company peers out there who have done a great job. Baron and the team have done a great job at the New Res side as well. And again, honing in on performance first, AUM growth later, and driving returns for LPs and shareholders. With that, I'll turn it back to the operator and we'll open it up for Q&A.

Michael Nierenberg: And again, you know, honing in on performance first, AUM growth later and driving returns for LPs shareholders with that alternative back to the operator will open up for Q and eight.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Eric Hagen with BTIG. Please go ahead.

Unknown Executive: We will now begin the question and answer session to ask a question. You may press star than one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster.

Unknown Executive: At this time, we will pause momentarily to assemble our boss.

Unknown Executive: Pastor.

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

Eric J. Hagen: Good morning. Hey, on the MSR portfolio, just given its growth, do we have an estimate for how much amortization you might incur going forward, including on the excess MSRs that you bought during the quarter? And how do you feel about the leverage in the MSR portfolio? Do you feel like your capital allocation could maybe shift if rates drop sharply at either end of the yield curve going forward?

Speaker Change: The first question comes from Eric Hagen with BTIG. Please go ahead.

Michael Nierenberg: Hey, thanks, good morning. Hey, on the MSR portfolio, just given its growth, I mean, do we have an estimate for how much amortization you might incur going forward, including on the excess MSRs that you bought during the quarter? And how are you feeling about the leverage in the MSR portfolio? Do you feel like your capital allocation could maybe shift if rates drop sharply at either end of the yield curve going forward?

Eric J. Hagen: Hey, thanks. Good morning

Eric J. Hagen: Hey, on the MSR portfolio, just given its growth, I mean, do we have an estimate for how much amortization you might incur going forward, including on the excess MSRs that you bought during the quarter? And how are you feeling about the leverage in the MSR portfolio?

Speaker Change: Do you feel like your capital allocation could maybe shift if rates drop sharply at either end of the yield curve going forward?

Michael Nierenberg: So, let me, you gave me too many questions, but no, on the Exis MSRs, these are legacy MSRs where you own the very same ones. Amortization, you know, it's very, very seasoned, probably something in the tune of a 15-year season. You know, amortization will be very, very steady there. These are really going back to our early thesis at New Residential.

Michael Nierenberg: So, let me give me too many questions, but no. On the excess MSRs, these are legacy MSRs where you own the very same MSR as it was the liquidation of an MSR fund. Emeritus, you know, it's very, very season, probably something in the tune of 15-year season. You know, amortization will be very, very steady there. Those are really going back to our early thesis at New Residential. These are credit impaired mortgage servicing rights. Those are currently serviced. You know, just to give you sense that Cooper, so it goes back to our relationship there as well.

Speaker Change: So

Speaker Change: Let me, you gave me too many questions, but now.

Speaker Change: On the XS MSRs, these are legacy MSRs where you own the very same MSRs, it was the liquidation of an MSR fund.

Speaker Change: Emeritus, you know, it's very, very seasoned, probably something in the tune of 15-year season. You know, amortization will be very, very steady there. Those are really going back to our early thesis at New Residential. These are credit-impaired mortgage servicing rights.

Michael Nierenberg: These are credit-impaired mortgage servicing rights. Those are currently being serviced, you know, just to give you a sense of Cooper. So, it goes back to our relationship there as well.

Speaker Change: Those are currently serviced, you know, just to give you a sense, at Cooper, so it goes back to our relationship there as well, so, and we have recaptured provisions.

Michael Nierenberg: So, and we have recapture provisions with Cooper on that portfolio. On the amortization front, if you look at the slides, I think amortization came in roughly at 60 PR. Look at what I would say on amortization, and this is more of a broader theme on the mortgage market. Current coupon mortgage rates are roughly 682. Home insurance is up probably 25 to 50% when you look on an annual basis. So, when I think about those two things, and I look at our MSR portfolio, where 96% of our MSRs are added the money, call it gross whack roughly a 4% 282 basis points added the money on our MSRs.

Michael Nierenberg: So, and we have recaptured provisions with Cooper on that portfolio. On the amortization front, if you look at the slides, I think amortization came in roughly at 6 CPR. Here's what I would say on amortization, and this is more of a broader theme in the mortgage market. Current coupon mortgage rates are roughly 682. Home insurance is up probably 25 to 50% when you look on an annual basis. So, when I think about those two things and I look at our MSR portfolio, where 96% of our MSRs are out of the money, call it gross WAC, roughly 4%. 282 basis points out of the money on our MSRs. Yeah, I'm worried about MSRs.

Speaker Change: with Cooper on that portfolio. On the amortization front, if you look at the slides, I think amortization came in roughly at 6 CPR.

Speaker Change: Here's what I would say on amortization, and this is more of a broader theme on the mortgage market. Current coupon mortgage rates are roughly 682. Home insurance is up probably 25% to 50% when you look on an annual basis.

Speaker Change: so

Speaker Change: When I think about those two things...

Speaker Change: And I look at our MSR portfolio where 96% of our MSRs are out of the money, call it gross WAC, roughly a 4%, 282 basis points out of the money.

Michael Nierenberg: Yeah, I'm worried about MSRs. I'm more worried about how we hedge them and MSR marks. I don't think you're going to have a huge refinancing market right now. We're not seeing that. We're not seeing a lot of turnover in our portfolio. I think when you look at the housing market, home prices, you know, yesterday there was some more home price data that was released. Home prices are continuing to increase, although activity levels are down, so it's almost like I'm not sure why they're increasing, quite frankly. So, I do think something needs to give, but I don't see a robust origination market.

Michael Nierenberg: I'm more worried about how we hedge them in MSR marks. I don't think you're gonna have a huge refinancing market right now.

Speaker Change: on our MSRs.

Speaker Change: Yeah, I'm worried about MSRs. I'm more worried about how we hedge them in MSR marks. I don't think you're going to have a huge...

Speaker Change: Refinancing market right now. We're not seeing that.

Michael Nierenberg: We're not seeing a lot of turnover in our portfolio. I think when you look at the housing market, home prices, you know, yesterday there was some more home price data that was released. Home prices are continuing to increase, although activity levels are down.

Speaker Change: We're not seeing a lot of turnover in our portfolio. I think when you look at the housing market Home prices, you know yesterday. There was some more home price data that was released home prices are

Michael Nierenberg: So, it's almost like I'm not sure why they're increasing, quite frankly. So, I do think something needs to give, but I don't see a robust origination market. The other thing I would say is today the capacity in the origination market is extremely high because production numbers, you know, I think for this year we're gonna, I think we're estimating something around 1.6 trillion. I don't, you know, there's a lot of capacity.

Speaker Change: continue to increase.

Speaker Change: Although activity levels are down, so it's almost like...

Speaker Change: I'm not sure why they're increasing, quite frankly. So I do think something needs to give, but I don't see a robust origination market. The other thing I would say is today, the capacity in the origination market.

Michael Nierenberg: The other thing I would say is today the capacity in the origination market is extremely high because production numbers, you know, I think for this year we're going to, I think estimating something around 1.6 trillion. I don't, you know, there's a lot of capacity. I don't see a lot of refinancing activity. I think they're ahead wins against the refinancing activity. While saying all that, are recapture, are focused on recapture brand building, and everything else that's going on in the mortgage company is extremely high these days. So, amonization 6 will increase if rates continue to rally here, but I don't see a huge move right now in the levels of refinancing activity we're going to see.

Speaker Change: is extremely high because production numbers.

Speaker Change: You know, I think for this year, we're going to I think we're estimating something around 1.6 trillion.

Michael Nierenberg: I don't see a lot of refinancing activity. I think there are headwinds against refinancing activity. While saying all that, our recapture, our focus on recapture, brand building, and everything else that's going on in the mortgage company these days is extremely high. So, amortization six will increase, you know, if rates continue to rally here, but I don't see a huge move right now in the levels of refinancing activity we're gonna see. As far as how we finance our business, a great question. I have, you know, we've been on the road for the course of the past kind of six weeks in multiple cities.

Speaker Change: There's a lot of capacity. I don't see a lot of refinancing activity. I think there are headwinds against the refinancing activity. While saying all that, our focus on recapture, brand building, and everything else that's going on in the mortgage company is extremely high these days.

Speaker Change: So amortization six will increase, you know, if rates continue to rally here But I don't I don't I don't see a huge move right now in in the levels of refinancing activity. We're going to we're going to see

Michael Nierenberg: As far as how we finance our business, great question. We've been on the road for the course of the past six weeks in multiple cities. We will be a more frequent issuer over time in the high yield market. Relying list on some of the bank funding that we get. The other thing we'll likely do is we'll hit the capital markets with more securitizations around our MSR business. We've done that over the course over the years. So I feel good about where we are. One of the more important things I want to get out there is that there's no race for us as for a size in how we think about assets in the MSR world.

Speaker Change: As far as how we finance our business, great question. We've been on the road for the course of the past kind of six weeks in multiple cities. We will be a more frequent issuer over time in the high-yield market.

Michael Nierenberg: We will be a more frequent issuer over time in the high-yield market, relying less on some of the bank funding that we get. The other thing we'll likely do is we'll hit the capital markets with more securitizations around our MSR business. We've done that over the course of years.

Speaker Change: Relying less on some of the bank

Speaker Change: The other thing we'll likely do is we'll hit the capital markets with more securitizations around our MSR business. We've done that over the course of years.

Michael Nierenberg: So I feel good about where we are. One of the more important things I want to get out there is that there's no race for us as far as size and how we think about assets in the MSR world. Currently, I would tell you we have everything we need. We see most opportunities that are put in front of us. The business will grow if we think the opportunity set creates a great return for shareholders and LPs.

Speaker Change: So, I feel good about where we are. One of the more important things I want to get out there is that

Speaker Change: There is no race for us as far as size and how we think about assets in the MSR world.

Michael Nierenberg: Currently, I would tell you we have everything we need. We see most opportunities that are put in front of us. The business will grow if we think the opportunity set creates a great return for shareholders and LPs. If not, we have plenty of other places we can deploy capital. I use the commercial real estate sector as an example. I brought up the sculptor franchise as an example on this captive, see a little equity fund. So looking at us thinking about us in all these different direct lending businesses, being in the investment business. I think we feel very good about where we are, capital allocation, where we are from an overall financing perspective.

Speaker Change: Currently, I would tell you we have everything we need we see, you know, most opportunities that are put in front of us

Speaker Change: The business will grow if we think the opportunities set.

Michael Nierenberg: If not, we have plenty of other places we could deploy capital. I use the commercial real estate sector as an example. I brought up the Sculptor franchise as an example on this captive CLO equity fund. Looking at us, thinking about us in all these different direct lending businesses, being in the investment business, I think we feel very good about where we are capital allocation, where we are from an overall financing perspective. You will see more high yield over time from us. That'll pay down some of the secured financing, but we're excited again about telling our

Speaker Change: Creates a great return for shareholders and LPs. If not, we have plenty of other places we could deploy capital I use the commercial real estate

Speaker Change: Sector as an example, I brought up the Sculptor franchise as an example on this captive CLO equity fund.

Speaker Change: So looking at us, thinking about us in all these different direct lending businesses.

Speaker Change: being in the investment business. I think we feel very good about where we are capital allocation, where we are from an overall financing perspective. You will see more high yield over time from us. That will pay down some of the secured financing, but we're excited again about telling our story.

Michael Nierenberg: You will see more high yield over time from us. That'll pay down some of the securit financing. But we're excited again about telling our story.

Michael Nierenberg: Super thoughtful.

Michael Nierenberg: Thank you so much.

Michael Nierenberg: What's the growth outlook for Genesis? Do you feel like lower interest rates could catalyze a lot of new production there? How much do you maybe expect to produce there? Do you feel like you could allocate more capital over there?

Speaker Change: Super thoughtful. Thank you so much. You know, what's the last one here? I mean, what's the growth outlook for Genesis? I mean, do you feel like lower interest rates could catalyze a lot of new production there? And how much do you maybe expect to, you know, produce there?

Speaker Change: Do you feel like you could allocate more capital over there?

Michael Nierenberg: The company has grown pretty substantially. This business, I will say, is a credit-first business. There are some new market participants that are entering the market who are fairly well-capitalized. While saying that, our business is focused on some of the strongest sponsors, whether they be builders, whether they be folks that are renovating homes, whether they be bridge loans, some of the strongest sponsors in the business. We're going to continue with the credit first business. So, as long as credit performs, we'll grow. If credit doesn't perform or we're concerned about markets or headwinds and housings coming off, etc., that'll drive, you know, I think the overall direction of the business.

Speaker Change: Yeah, the company's grown pretty substantially. This business, and you know, I will say is a credit first business. There are some new market participants that are entering the market.

Speaker Change: who are fairly well capitalized. While saying that, you know, our, our business is focused on some of the

Speaker Change: strongest sponsors, whether they be builders, whether they be folks that are renovating homes, whether they be bridge loans, some of the strongest sponsors in the business, we're going to continue with a credit first business.

Speaker Change: So as long as credit performs

Speaker Change: [inaudible]

Michael Nierenberg: But we think the business could grow pretty substantially over time as there's a huge need in the direct lending space as the regional banks pull back.

Michael Nierenberg: Yep, that's really helpful.

Eric J. Hagen: Super thoughtful. Thank you so much.

Michael Nierenberg: Thank you guys so much.

Speaker Change: Yep, that's really helpful. Thank you guys so much.

Bose George: The next question comes from Bose George with KBW. Please go ahead.

Eric J. Hagen: You know, what's the last one here? I mean, what's the growth outlook for Genesis? Do you feel like lower interest rates could catalyze a lot of new production there? And how much do you maybe expect to produce there?

Eric J. Hagen: Thanks, Eric.

Michael Nierenberg: Do you feel like you could allocate more capital over there? Yeah, the company's grown pretty substantially. This business, and you know, I will say it is a credit-first business. There are some new market participants that are entering the market. Who are fairly well capitalized while saying that our business is focused on some of the strongest sponsors, whether they be builders, whether they be folks that are renovating homes, whether they be bridge loans, some of the strongest sponsors in the business. We're going to continue with a credit-first business.

Eric J. Hagen: The next question comes from Bose George with KBW. Please go ahead.

Bose George: Hey guys, good morning. Actually, I wanted to talk about URED. You know, as you noted, an event you show a show in slide 5, some of the peers are valued, you know, very quite a bit higher than you are in the market in the market.

Michael Nierenberg: So as long as credit performs, we'll grow. If credit doesn't perform or we're concerned about markets or headwinds and housing prices coming off, et cetera, that'll drive, you know, I think the overall direction of the business. But we think the business could grow pretty substantially over time, as there's a huge need in the direct lending space as the regional banks pull back. Yeah, that's really helpful.

Bose Thomas George: Hey guys, good morning. Actually, I wanted to talk about URED. You know, as you noted, and it was shown in slide five, some of the peers are valued, you know, very

Michael Nierenberg: So, for URED, I mean, do you think that a listing is something that needs to be done to bridge that gap, or kind of how are you thinking about that? You know, Bose, I knew you were going to ask that question. We get this, you know; this is something that's a recurring theme for us. We're working very closely internally, as well as with some of our external advisors, some of our banking friends, on maximizing our capital structure so we get properly valued. I think the reason that we put in slide 5 and 6 is really to show the value of the franchise.

Bose Thomas George: quite a bit higher than you are in the market. So for New Res, I mean, do you think that a listing is something that needs to be done to bridge that gap? Or kind of how are you thinking about that?

Bose Thomas George: The next question comes from Bose George with KBW.

Speaker Change: Folks, I knew you were going to ask that question. We get this. This is something that's a recurring theme for us. We're working very closely internally as well as with some of our external advisors, some of our banking friends.

Bose Thomas George: Hey guys, good morning. Actually, I wanted to talk about New Res. You know, as you noted, and then showed in slide five, some of the peers are valued, you know, very, quite a bit higher than you are in the market. So for New Res, do you think that a listing is something that needs to be done to bridge that gap? Or, you know, kind of how are you thinking about that?

Michael Nierenberg: You know, Bose, I knew you were going to ask that question. We get this, you know; this is something that's a recurring theme for us. We're working very closely internally, as well as with some of our external advisors, some of our banking friends, on maximizing our capital structure so we get properly valued. I think the reason that we put in slides five and six is really to show the value of the franchise. Having everything under the Rhythm umbrella gives us a lot of flexibility.

Speaker Change: on maximizing our capital structure so we get properly valued. I think the reason that we put in slides five and six is really to show the value of the franchise.

Michael Nierenberg: Having everything under the rhythm umbrella gives us a lot of flexibility. If you look at, you know, just to give you a sense, if you look at capital deployment in 24, we've done, you know, from an asset perspective, I think we've acquired about 4.2 billion of assets. We've done a bunch of financing in and around the business. We put, you know, a little bit north of a billion dollars of equity work, equity to work. What's going to end up happening is what is we want to illustrate the power of the franchise, and I think you see that in our numbers.

Speaker Change: Have everything under the Rhythm umbrella gives us a lot of flexibility, if you look at, you know, just to give you a sense, if you look at Capital Deployment in 20...

Michael Nierenberg: If you look at, you know, just to give you a sense, if you look at capital deployment in 24, we've done, you know, from an asset perspective, I think we've acquired about 4.2 billion of assets. We've done a bunch of financing in and around the business. We've put, you know, a little bit north of a billion dollars of equity work. Equity to Work, what's going to end up happening is one is we want to illustrate the power of the franchise.

Speaker Change: For we've done you know from an asset perspective. I think we've acquired about 4.2 billion of assets We've done a bunch of financing in and around the business We put you know a little bit north of a billion dollars of equity work

Michael Nierenberg: And I think you see that in our numbers. And when you look at the mortgage company compared to others, obviously, it's very, it's extremely undervalued, or the overall franchise is undervalued. To Eric's questions around capital structure, you're going to see more high yield, hopefully, that enables us to tell a better story around some of the financing stuff that we do. But in general, you know, we are looking at anything and everything as a way to get our equity and our company performing in line with what I would call some of the pure play mortgage players out there. You know, if you look where we trade, we trade at give or take six times EBITDA, something like that. I think COOP and PFSI are nine times, just to give you a sense.

Speaker Change: What's going to end up happening is, one is we want to illustrate the power of the franchise, and I think you see that in our numbers.

Michael Nierenberg: And when you look at the mortgage company compared to others, obviously, it's extremely undervalued or the overall franchise is undervalued. To Eric's questions around capital structure, you're going to see more high yield. Hopefully, that enables us to tell a better story around some of the financing stuff that we do. But in general, you know, we are looking at anything and everything as a way to get our equity and our company performing, you know, in line with what I would call some of the pure playing mortgage players out here. You know, if you look where we trade, we trade, I give or take 6 times EBITDA, something like that.

Speaker Change: And when you look at the mortgage company compared to others, obviously it's extremely undervalued or the overall franchise is undervalued.

Speaker Change: To Eric's questions around capital structure, you're going to see more high yield. Hopefully that that enables us to tell a better story around.

Speaker Change: Some of the financing stuff that we do. But in general, you know, we are looking at anything and everything as a way to get our equity and our company performing, you know, in line with what I would call some of the pure play mortgage players out there. You know, if you look where we trade, we trade give or take six times EBITDA.

Michael Nierenberg: I think, you know, poop and PFSI are 9 times just to give you a 7.

Speaker Change: something like that. I think, you know, COOP and PFSI are nine times just to give you a sense. So just to sort of summarize, is it fair to say that listing remains an option?

Michael Nierenberg: So just to sort of summarize, is it fair to say that listing remains an option?

Michael Nierenberg: Yeah, I don't know if it's just a direct listing or something, but yeah, I mean, again, we're looking at anything and everything as a way to increase value for shareholders.

Michael Nierenberg: I don't know if it's just a direct listing or something, but yeah, I mean, again, it's we're looking at anything and everything as a way to increase value for shareholders.

Speaker Change: Yeah, I don't know if it's just a direct listing or something, but yeah, I mean, again, we're looking at anything and everything as a way to increase value for shareholders.

Bose Thomas George: Okay, great. And actually just one more on New-Res. The $2.7 billion of book value that you show on slide five, so is that allocating all of the corporate debt to New-Res? Is that how you get from the $4 billion of book value down to that level?

Michael Nierenberg: Okay, great.

Michael Nierenberg: Actually, just one more on you guys. The 2.7 billion of book value that you show in slide five. So is that allocating all of the corporate debt to new residues that how you get from the 4 billion of book value down to that level. Yes, it is, Bose. It's allocation of the corporate sector. Okay. Great. Thank you. Thanks, Bose.

Speaker Change: Okay, great. And actually just one more on New Res. The $2.7 billion of book value that you've shown on slide five, so is that allocating all of the corporate debt to New Res? Is that how you get from the $4 billion of book value down to that level?

Michael Nierenberg: Yes, it is, Bose. It's the allocation of the corporate sector.

Stephen Albert Laws: Okay, great. Thank you.

Bose Thomas George: Great

Boaz: Yes it is, Bose. It's allocation of the corporate sector.

Boaz: Okay, great. Thank you. Thanks, Bose.

Stephen Laws: The next question comes from Stephen Laws with Raymond James. Please go ahead.

Stephen Albert Laws: The next question comes from Stephen Laws with Raymond James. Please go ahead.

Speaker Change: The next question comes from Stephen Laws with Raymond James. Please go ahead.

Stephen Laws: Good morning. I'm Barry. That's on volumes and market share, you know, strong quarter particularly corresponding to talk about outlook, you know, back after the year.

Stephen Albert Laws: I'm very much on volumes and market share, you know, strong quarter, particularly in corresponding can talk about outlook, you know, back after the year into 25, you know, rates seem to be coming down, you know, what channels do you expect to drive growth and kind of, you know, I don't know if you have market share targets, I know, it's dependent on margins. But can you talk about your outlook for continued growth on the origination side?

Stephen Albert Laws: Hi, good morning.

Baron: Barry, I want to touch on volumes and market share, you know, strong quarter, particularly in corresponding. Can you talk about outlook, you know, back after the year?

Baron Silverstein: Into 25, you know, racing to be coming down, you know, what channels do you expect to drive growth and kind of, you know, I don't know if you have market share targets. I know it's dependent on margins. Like, can you talk about your outlook for continued growth on the original side? We don't, we don't really have a, you know, a target for where we're basically looking at from a market share perspective. We look at the markets, and we take advantage of where we feel like we have the best return for the company overall. Right. And correspondent today has been, you know, the best place for us to, you know, basically at the best overall return, best profitability.

Stephen Albert Laws: In the 25, you know, rates seem to be coming down, you know, what channels do you expect to drive growth and kind of, you know, I don't know if you have market share targets. I know it's dependent on margins. But can you talk about your outlook for continued growth on the origination side?

Baron Silverstein: We don't really have a target for where we're basically looking at from a market share perspective. We look at the markets and we take advantage of where we feel like we have the best return for the company overall. And Correspondent today has been the best place for us to basically have the best overall return, best profitability, and then we've really been able to kind of drive the business there. And we talked about that in the first quarter.

Speaker Change: We don't we don't really have a

Speaker Change: you know, a target for where we're basically looking at from a market share perspective, we look at the markets and we take advantage of where we feel like we have the best return for the company overall.

Speaker Change: Right, and Correspondent today has been, you know, the best place for us to, you know, basically have the best overall return, best profitability, and then we've really been able to kind of...

Baron Silverstein: And then we've really been able to kind of, you know, drive the business there, and we talked about that in the first quarter, second quarter. Actually, we were able to drive additional market share and wholesale, and, you know, why we did give up margin from where we were in the first quarter. You know, we were, you know, very happy with kind of, you know, how we were able to position ourselves overall from, you know, our market share growth going into, you know, the second quarter.

Baron Silverstein: Second quarter, actually, we were able to drive additional market share and wholesale. And while we did give up margin from where we were in the first quarter, we were very happy with kind of how we were able to position ourselves overall from our market share growth going into the second quarter. Our core focus, as Michael talked about it as well, is given the size of our servicing portfolio, really kind of expanding our brand, being there for our customers, and improving our customer experience.

Speaker Change: And, you know, while we did give up margin from where we were in the first quarter, you know, we were, you know, very happy with kind of

Speaker Change: You know how we were able to position ourselves overall from

Speaker Change: You know, our market share growth going into

Baron Silverstein: You know, our core focus really is, Michael talked about it as well, is, you know, given the size of our servicing portfolio, is really kind of, you know, expanding our brand, being there for our customers, improving our customer experience. You know, and then we believe we can gain significant market share without actually going out to the market overall by just continuing to offer, you know, better products for our customers overall. And that's how we kind of evaluate the business today versus necessarily having a target as to where we need more.

Baron Silverstein: And then we believe we can gain significant market share without actually going out to the market overall by just continuing to offer better products for our customers overall. And that's how we kind of evaluate the business today versus necessarily having a target as to where we think we are.

Baron Silverstein: Thanks, Baron.

Stephen Albert Laws: Thanks, Baron. Michael, can you talk about the sculptor business? AUM revenue was up a pretty good bit sequentially. I believe performance fees typically occur at the end of the year. So kind of can you talk about what drove that sequential increase and how we think about that line moving forward?

Michael Nierenberg: Michael, can you talk about the sculptor business AUM revenue was up a pretty good bit sequentially. You know, I believe performance fees typically occur in the years, so kind of can you talk about what drove that squintial increase and how we think about that while I'm moving forward. Yeah, I think it's going to be, again, this is more of what I would say is of a growth story or rebuilding of the so-called growth story. Again, it's so I think what you saw in the quarter is in some off-cycle realizations of some prior investments across the platform.

Baron: Thanks, Baron. Michael, can you talk about the sculpture business? AUM revenue was up a pretty good bit sequentially. I believe performance fees typically occur end of year, so can you talk about what drove that sequential increase and how we think about that line moving forward?

Michael Nierenberg: Yeah, I think it's going to be, again, this is more of what I would say is a growth story or a rebuilding of the so-called growth story. Again, I think what you saw in the quarter was some off-cycle realizations of some prior investments across the platform. But again, it's going to be lumpy, and that's truly just the nature of that business until you grow real AUM that's generating fee-related earnings. So the way I would think about it is a little bit of off-cycle realizations showing the power, honestly, of good investments within the overall Sculptor franchise, but it'll be episodic over time.

Michael Nierenberg: Yeah, I think it's going to be again. It's it's this is more of what I would say is of a growth story or a rebuilding of

Michael Nierenberg: But again, it's going to be lumpy, and that's truly just the nature of that business until you grow real AUM that's generating fee-related earnings. So the way I would think about is a little bit of off-cycle realizations. It shows the power honestly of good investments in within the overall sculptor franchise, but OB episodic over time.

Speaker Change: But again, it's going to be lumpy, and that's truly just the nature of that business until you grow real AOM that's generating fee-related earnings.

Speaker Change: So, the way I would think about it is a little bit of off-cycle realizations, shows the power honestly of good investments within the overall Sculptor franchise, but it will be episodic over time.

Stephen Albert Laws: Thanks, and lastly, I think the Series A and B press float this quarter or back half of the year. Any thoughts on taking those out or how you think about managing your you know, that part of the capital stack in the coming years? tour. So, you know, one of

Michael Nierenberg: Thanks, and last thing I think the Series A and B press float this quarter or back half of the year any thoughts to taking those out or how you think about managing your, you know, that that part of the capital stock in the coming months.

Speaker Change: Thanks. And lastly, I think the Series A and B prefs float this quarter or back half of the year. Any thoughts to taking those out or how you think about managing your, you know, that part of the capital stack in the coming months?

Michael Nierenberg: So, you know, one of the things when you look at our business overall, whether it be at the mortgage company, whether it be at the bond portfolio, you know, the mortgage company, for example, could have just using, you know, rough math, 10 to 15 billion of escrow deposits if the Fed cuts rates, SOFR is 533, we get paid SOFR or SOFR plus a fee on our deposits that we have with the, you know, with the large banks. So if you think about it this way, those are floating rates, I think 400 million is resetting now.

Michael Nierenberg: Sure, so, you know, one of the things when you look at our business overall, whether it be at the mortgage company, whether it be at the bond portfolio. You know, the mortgage company, for example, could have just using, you know, rough math 10 to 15 billion of escrow deposits. If the Fed cuts rates, so for 533 we get paid. So for so for plus a fee on our deposits that we have with the, you know, with the, with the large banks. So, if you think about it this way, those are floating rate.

Speaker Change: So, you know, one of the things when you look at our business overall, whether it be at the mortgage company, whether it be at the bond portfolio,

Speaker Change: You know, the mortgage company, for example, could have, just using, you know, rough math, 10 to 15 billion of escrow deposits if the Fed cuts rates.

Speaker Change: Sofra is $533. We get paid Sofra or Sofra plus a fee on our deposits that we have with the large banks.

Michael Nierenberg: I think 400 million is resetting now, but some point will take those out quite frankly. But for now, I think they'll likely stay there as the markets, as the yield curve steepens and the Fed cuts rates, will either do an exchange offer or come back to market to take those out over time. But the point is you look at the broad business model and how we think about duration and how we think about hedging. This is this one piece of the overall pie.

Speaker Change: So, if you think about it this way, those are floating rates. I think $400 million is resetting now. At some point, we'll take those out, quite frankly, but for now, I think...

Michael Nierenberg: At some point, we'll take those out, quite frankly, but for now, I think they'll likely stay there. As the markets, as the yield curve steepens, and the Fed cuts rates, we'll either do an exchange offer or come back to market to take those out over time, business model, and how we think about duration and how we think about hedging. This is just one piece of the overall pie.

Speaker Change: They'll likely stay there as the markets, as the yield curve steepens and the Fed cuts rates, we'll either do an exchange offer or come back to market to take those out over time. But the point is, you look at the broad...

Stephen Albert Laws: The other thing, just, you know, a quick note on hedging. You know, we are not one, we're not going to fight the Fed here; we've added a significant amount of hedge to our MSR portfolios, where I would, you know, we could tell you that the overall protection of that book is probably at the highest level that we've seen in years. You know, when the Fed was raising rates, quite frankly, we were biased the other way, for higher rates and short the bond market. Here we are, you know; we're neutral right now. So just to give you a little bit more color on the hedging strategy.

Michael Nierenberg: The other thing just, you know, a quick note on hedging. You know, we are not one; we're not going to fight the Fed here. We've added a significant amount of hedge to our MSR portfolio's, where I'd, you know, where we could tell you that the overall protection of that book is probably at the highest level that we've seen in years. You know, when the Fed was racing rates, quite frankly, we were biased the other way, you know, for higher rates and short the bond market. Here, we're, you know, we're new to right now.

Speaker Change: where we can tell you that the overall protection of that book is probably at the highest level that we've seen in years. When the Fed was raising rates, quite frankly, we were biased the other way for higher rates and short the bond market. Here, we're neutral right now. So just to give you a little bit more color on the hedging strategy.

Michael Nierenberg: So just to give you a little bit more color on the hedging strategy. Thank you.

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

Speaker Change: Great. Great talk. Thank you. Thank you.

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

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

Crispin Elliot Love: Thanks, good morning everyone. Just looking at Sculptor and building on a previous question there, so it shows solid profitability, revenues improved, comp expense was down by about 15% or so. Can you discuss what drove comp lower in the quarter for asset management, whether it was seasonal or not from the first quarter, and then can you just size the crystallization in the second quarter?

Crispin Love: Thanks.

Michael Nierenberg: Good morning, everyone. Just looking at sculptor building on previous question there. So you showed solid profitability. Revenue has improved. So we've got a lot of conflict. I think there.

Crispin Love: Thanks. Good morning, everyone. Just looking at the sculpture I'm building on...

Speaker Change: Previous question there. So you showed solid profitability, revenues improved, comp expense was down over about 15% or so. Can you discuss what drove comp lower in the quarter for asset management, whether it was seasonal or not from the first quarter? And then can you just size the crystallization in the second quarter?

Michael Nierenberg: So the comp numbers typically hit in the fourth quarter, and you'll see more, most likely you'll probably see more realizations in the fourth quarter. During the second quarter, I think we saw realizations of $50 million. So what you'll see is, again, you're going to see more comp expenses hit in the fourth quarter. And you'll probably see more realizations in the fourth quarter. For this quarter, like I mentioned, it's just an off-cycle period where you're seeing realizations on some of the investments across the broader platform. Hopefully, that's, you know, that's helpful.

Speaker Change: So the comp numbers typically hit in the fourth quarter and you'll see more, most likely you'll see probably more realizations in the fourth quarter. During the second quarter I think we saw realizations of 50 million.

Crispin Elliot Love: That is helpful. Thanks, Michael. And then just on the new res side, you did mention earlier that you don't expect to see a refi market in the near term, but can you discuss at what level of mortgage rates you might need to get to to drive refis for you, and then how you can take advantage of that on a recapture perspective when we do get there?

Speaker Change: Hopefully that's, you know, that's helpful.

Michael Nierenberg: Yeah, so here's what I say: if our gross wax of 4%, you got a 682 mortgage rate, you got a home insurance cost higher, and you got a, you know, yesterday, I think it's 35 trillion with the expectation that there'll be a couple trillion dollars of issuance coming to the treasury market. I still think while, while the curve, we do believe the curve is going to steepen out and that the federal likely lower rates here in September. I don't know where long rates ultimately go. So I'm probably less bullish on the origination market, maybe, or we are more so than others.

Michael Nierenberg: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional in both the U.S. and Israel.

Michael Nierenberg: Yesterday I think it's $35 trillion, with the expectation that it'll be a couple trillion dollars of issuance coming to the Treasury market. I still think, while the curve, we do believe the curve's going to steepen out and that the Fed will likely lower rates here in September, I don't know where long rates ultimately go. So I'm probably less bullish on the origination market, maybe, or we are, more so than others. I think the one thing to keep in mind, and the prior question asked in Baron about the correspondent business, the mortgage origination business, when you really, really break it down.., is not that profitable.

Speaker Change: Yesterday, I think it's $35 trillion.

Speaker Change: with the expectation that it will be a couple trillion dollars of issuance coming to the Treasury market. I still think, while the curve, we do believe the curve is going to steepen out and that the Fed will likely lower rates here in September .

Speaker Change: I don't know where long rates ultimately go. So I'm probably less bullish on the origination market, maybe, or we are, more so than others.

Michael Nierenberg: I think the one thing to keep in mind, and the prior question has embarrassed about the correspondive business, the mortgage origination business when you're really, really break it down, is not that profitable; retaining the customer is, and keeping that MSR so you have cash flow is important. So if we break it down and think about one unit of somebody that took out a 7% mortgage and mortgage rates go to 6%, and you want to refi that person and you're competing against every other mortgage banker out there, really think about the real origination gain you're going to see. You know, I'm probably less constructive on origination gains than others doing this for a long period of time.

Speaker Change: I think the one thing to keep in mind and the prior question asked in Baron about the correspondent business, the mortgage origination business, when you really, really break it down.

Speaker Change: is not that profitable.

Speaker Change: Retaining the customer is is and keeping that MSR. So you have cash flow is important

Michael Nierenberg: Retaining the customer and keeping that MSR so you have cash flow is important. So if we break it down and think about one unit of somebody that took out a 7% mortgage, and mortgage rates go to 6%, and you want to refi that person, and you're competing against every other mortgage banker out there, really think about the real origination gain you're going to see. I'm probably less constructive on origination gains than others who have done this for a long period of time.

Speaker Change: So, if we break it down and think about one unit of somebody that took out a 7% mortgage and mortgage rates go to 6% and you want to refi that person and you're competing against every other mortgage banker out there.

Speaker Change: Really think about the real origination gain you're going to see.

Speaker Change: You know, I'm probably less constructive on origination gains than others doing this for a long period of time.

Michael Nierenberg: I do think if you got into a so-called COVID-like scenario, if you're going to play that, and you think that the refi market will pick up, then it could become a capacity issue where you're able to drive more outside origination gains. But when you look at some of the best in the business, whether they be on the wholesale side, whether it be on the correspondence side, and we're pretty large players on the correspondence side, I think, in general, the market's going to remain extremely competitive on the origination side.

Michael Nierenberg: I do think if you got into a so-called COVID-like scenario, you know, if you're going to play that, and you think that the refi market will pick up, then it could become a capacity issue where you're able to drive more outside origination gain. So when you look, and you think about some of the best in the business, whether they be at the wholesale side, whether it be at the correspondents side, and we're pretty large players in the correspondents side, I think in general, the market's going to remain extremely competitive on the origination side. And the main thing for us to do is to try to keep our customers and keep the cash flow from the MSR side.

Speaker Change: I do think if you got into a so-called COVID-like scenario,

Speaker Change: The Refined Market will pick up. Then it could become a capacity issue where you're able to drive more outside origination gains.

Speaker Change: But when you look and you think about some of the best in the business, whether they be at the wholesale side, whether it be at the correspondence side, and we're pretty large players in the correspondence side.

Speaker Change: I think in general, the market's going to remain extremely competitive on the origination side. And the main thing for us to do is to try to keep our customers and keep the cash flow from the MSR side.

Michael Nierenberg: And the main thing for us to do is to try to keep our customers and maintain the cashflow from the MSR side. And just, you know, those are just thoughts, my thoughts on the origination market and where we think about origination gains. Keep in mind, though, the other thing I'm pointing out: when you think about the correspondence business, you're buying a closed loan. So you buy a closed loan, you deliver it to the agencies, and then you just capitalize your MSR. So it's a pretty, pretty competitive market.

Michael Nierenberg: And just, you know, those are just thoughts, my thoughts on the origination market and where we think about origination gains. Keep in mind, the other thing I point out when you think about the correspondents is if you're buying a closed loan, so you buy a closed loan, you deliver to the agencies, and then you just capitalize your MSR. So you have to think about what that advantage you're going to have in the correspondents as well. So it's a pretty competitive market.

Speaker Change: And just, you know, those are just thoughts, my thoughts on the origination market and where we think about origination gains. Keep in mind, the other thing I'm pointing out, when you think about the correspondent business, you're buying a closed loan. So you buy a closed loan, you deliver it to the agencies, and then you just capitalize your MSR.

Speaker Change: So, you have to think about what that advantage you're going to have in the correspondent business as well. So, it's a pretty competitive market.

Unknown Executive: Thanks, very helpful, and I appreciate you taking my questions. Thank you. Again, if you have a question, please press star, then one.

Crispin Elliot Love: Thanks, very helpful, and I appreciate you taking the time to answer my question. Thank you.

Speaker Change: Thanks, very helpful and I appreciate you taking my questions.

Trevor John Cranston: Again, if you have a question, please press star then one. The next question comes from Trevor Cranston with Citizens JMP. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Again, if you have a question, please press star then one. The next question comes from Trevor Cranston with Citizens JMP. Please go ahead.

Trevor Cranston: The next question comes from Trevor Cranston with Citizens' JMP. Please go ahead.

Trevor Cranston: Okay, thanks.

Trevor John Cranston: Thanks. Follow up question on the servicing portfolio and potential for refi. Obviously, the way to average WAC is pretty far out of the money on the servicing book. But do you guys have any statistics on sort of how much of it how much of the MSR is? you know, and higher-rate mortgages are close to current coupons, and you know what the scale of the recapture opportunity could be in a potential rallying rights scenario.

Michael Nierenberg: Follow a question on the servicing portfolio and potential for RE-5. Obviously, the way to have a whack is pretty far over the money on the servicing book, but do you guys have any statistics on sort of how much of the MSR is, you know, in higher rate mortgages or close to current coupons? And, you know, what the scale of the recapture opportunity could be in a potential value rates scenario. Thanks.

Trevor John Cranston: Hey, thanks. A follow-up question on the servicing portfolio and potential for refi. You know, obviously the way to average WAC is

Trevor John Cranston: pretty far out of the money on the servicing book. But do you guys have any statistics on sort of how much of the MSR is in higher rate mortgages or close to current coupons?

Trevor Cranston: You know what the what the scale of the recapture opportunity could be in a potential rallying rights scenario. Thanks

Michael Nierenberg: Yeah, so we have approximately 100 billion notional with the coupon of 6% in above. Got it, okay.

Michael Nierenberg: Yeah, so we have approximately $100 billion in nominal value with a coupon of 6% and above.

Speaker Change: Yeah, so we have approximately $100 billion notional with a coupon of 6% and above.

Michael Nierenberg: Got it. Okay. On the commercial real estate opportunity, can you guys maybe dive into a little bit how you see that playing out in terms of, you know, potentially adding some investment to Rhythm's balance sheet versus, you know, doing that in other funds or through the Great Ajax vehicle?

Michael Nierenberg: On the commercial real estate opportunity, did you guys maybe dive into a little bit how you see that playing out in terms of potentially adding some investment to Rhythm balance sheet versus doing that in other funds or through the great AJAX vehicle? Thanks. So on the green AJAX side, what we've been doing recently is buying AAA CNBS, which, you know, when you put an eternal leverage on, looks like it's a teen type returns versus in that vehicle before where you had kind of reforming and non-performing loans. And if you think about it, if you're a dividend payer, you got you're really not getting a lot of cash flow.

Speaker Change: Got it. Okay. On the commercial real estate opportunity,

Speaker Change: Can you guys maybe dive into a little bit how you see that playing out in terms of you know potentially adding some investment to Rhythm Balance Sheet versus you know doing that in other funds or through the Great Ajax vehicle. Thanks.

Michael Nierenberg: So, on the Greenhatch side, what we've been doing recently is buying AAAC MBS, which, you know, when you put a turn of leverage on it, looks like it's teens-type returns versus in that vehicle before, where you had kind of re-performing and non-performing loans. And if you think about it, if you're a dividend payer, you're really not getting a lot of cash flow The coupons there were for big discounts.

Speaker Change: So on the Green HF side, what we've been doing recently is buying AAAC MBS.

Speaker Change: versus in that vehicle before where you had kind of re-performing and non-performing loans.

Speaker Change: And if you think about it, if you're a dividend payer, you're really not getting a lot of cash flow.

Michael Nierenberg: The coupons there were big discounts and and here we're generating cash flow assets. You look at the real estate opportunity; the sculptor guys are best in class. I mean, they've done a fantastic job in creating great returns for their LPs for 20 plus years. The team's been together; the leadership there has been together for 20 plus years. Big focus on what I would say real estate, private equity, more niche type investing over time. I mentioned in my opening remarks, the more capital coming in now on the credit side there as well. When you look at the rhythm balance sheet, it's small.

Speaker Change: The coupons there were big discounts, and here we're generating cash flow assets. You look at the real estate opportunity, the Sculptor guys are best in class. I mean, they've done a fantastic job in creating great returns for their LPs for 20 plus years.

Michael Nierenberg: And here we're generating cash flow assets. You look at the real estate opportunity, the Sculptor guys are best in class. I mean, they've done a fantastic job of creating great returns for their LPs for 20 plus years. The team's been together. The leadership there has been together for 20 plus years.

Michael Nierenberg: Big focus on what I would say real estate private equity, more, you know, niche type investing over time. I mentioned in my opening remarks that there is more capital coming in now on the credit side there as well. When you look at the Rhythm balance sheet, it's small. We don't have a large amount of capital outstanding.

Michael Nierenberg: We don't have a large amount of capital outstanding. We all of us that have been doing this for a long period of time have a ton of relationships with different folks in the business. But what you'll see off the Rhythm balance sheet is more of a direct lending business today, not competing with anything on other sides of the house. At some point, maybe you do stuff together. But for now, I would look at rhythm as more direct lending off the balance sheet. At some point, you know, we'll have partners as well. And sculptors really a funds business with all third party capital with, you know, quite frankly, best in class from an overall investment professional standpoint.

Michael Nierenberg: All of us that have been doing this for a long period of time have a ton of relationships with different folks in the business. But what you'll see on the Rhythm Balance Sheet is more of a direct lending business today, not competing with anything on the other sides of the house. At some point, maybe you can do stuff together, but for now, I would look at Rhythm as more direct lending off the balance sheet. At some point, you know, we'll have partners as well. And Sculptor is really a funds business with all third-party capital, which is, quite frankly, best in class from an overall investment professional standpoint.

Speaker Change: [inaudible]

Trevor John Cranston: Okay, that makes sense. Thank you.

Speaker Change: Not competing with anything on other sides of the house at some point, maybe you do stuff together, but for now I would look at Rhythm as more direct lending off the balance sheet.

Speaker Change: At some point, you know, we'll have partners as well and Sculptor is really a funds business with all third-party capital with, you know, quite frankly, best in class from an overall investment professional standpoint.

Michael Nierenberg: Okay, next up. Thank you.

Speaker Change: Okay, makes sense. Thank you.

Unknown Executive: This concludes our question and answer session.

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

Speaker Change: Thank you.

Michael Nierenberg: I would like to turn the conference back over to Michael Nirenberg for any closing remarks. Well, thanks for thanks for the questions. Have a great rest of the summer. Have a look at our deck. I do think there's some good information in there. I know we're happy to do follow up with everybody. Thanks so much.

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

Michael Nierenberg: Well, thanks for the questions. Have a great rest of the summer.

Speaker Change: Well, thanks for the questions. Have a great rest of the summer. Have a look at our deck. I do think there's some good information in there. And always happy to do follow-up with everybody. Thanks so much.

Michael Nierenberg: Have a look at our deck. I do think there's some good information in there, and I'm always happy to do follow-up with everybody. Thanks so much.

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

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Unknown Executive: You may now disconnect. Thank you.

Q2 2024 Rithm Capital Corp Earnings Call

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