Rithm Capital, formerly known as New Residential Investment, delivered a $124.5 million profit from July to September, due primarily to its servicing portfolio performance.

In the third quarter, the company intensified the diversification of its businesses and further downsized its mortgage business amid a challenging macroeconomic landscape. 

​”Our messaging and approach in prior quarters have been not to fight the Federal Reserve, and we remain biased to a higher rate environment with wider credit spreads. We will continue with this view until we feel like the Fed signals they will stop raising rates and or we see the economic data softening,” Rithm’s CEO Michael Nierenberg said in a call with analysts.

Until that happens, Rithm’s goal will be to “protect our balance sheet, maintain book value, maintain higher levels of liquidity and reduce expenses in our operating business lines while we drive consistent earnings and dividends for our shareholders,” Nierenberg said. 

Company’s executives announced on Wednesday an agreement to acquire a 50% interest in Senlac Ridge Partners, an investment management firm focused on commercial real estate, led by founder David Welsh. 

Welsh and his team of approximately 20 employees will bring their “vertically-integrated infrastructure and operations, development, sourcing and fund management capabilities to further Rithm’s ability to raise third-party capital around different strategies,” Nierenberg said.

That acquisition is another way to diversify Rithm’s businesses at a time when the company’s residential mortgage operations, mainly New Rez and Caliber, are being affected by surging mortgage rates. 

Rithm reported a $209.8 million profit in the third quarter for its mortgage businesses, driven primarily by a gain of $267 million in servicing. 

The company delivered a $57 million loss on the origination side. The funded volume declined to $13.8 billion in the third quarter, down by 28% quarter over quarter and 60% year over year. 

Consequently, the company adopted a plan to reduce expenses, which resulted in the payment of $16 million in severance, $14 million in lease termination fees and $12 million in write-offs related to software and contract termination fees in the third quarter. 

The real estate investment trust has shed hundreds of jobs at its mortgage companies throughout 2022, with the most recent round of layoffs occurring in September. 

“To give you another sense from a headcount perspective, at the time of the closing of Caliber in 2021, there were 13,500 employees in the system. Today, unfortunately, due to the current market environment, that number is down to about 6,000 people,” Nierenberg said.

Regarding Caliber’s operations, Nierenberg said Rithm has for the first time not been “the best at running that clearly.” Rithm acquired Caliber in August 2021.

He said the plan is to grow the company prudently while driving more revenue and cutting out expenses. One possibility is to acquire smaller platforms at a time when some competitors are “throwing the towel,” according to Nierenberg. 

Rithm’s servicing segment generated a net income in the third quarter, mainly due to a positive $131 million mark-to-market changes in mortgage servicing rights.  

The MSR portfolio totaled $615 billion UPB at the end of the quarter, down from $623 billion at the conclusion of the second quarter. Servicer advance balances came in at $2.9 billion as of September 30, 2022, down 3% from the end of the second quarter.

Rithm priced and closed two securitizations in the third quarter, one non-QM and one SFR, representing $633 million UPB of collateral. 

The company had a cash position of $1.8 billion at the end of the quarter.