Onity Group Inc. Q3 FY2025 earnings call

• The balanced business delivered sustained results with originations profitability offsetting MSR runoff. Adjusted ROE exceeded guidance. - Originations saw 39% y-o-y and 26% q-o-q volume growth, with consumer direct and B2B driving growth. New products/services launched. - Recapture platform: Consumer direct funded volume 1.8x prior year, refinance recapture rate 85%. Invested in talent, AI, etc. - Subservicing: Signed 9 new clients, expects $32B subservicing additions in H2 2025, Rithm portfolio transfer planned with minimal impact. - Technology investment: AI across 4 categories to drive cost leadership, revenue growth, etc., with award-winning RPA center and innovation lab.

Originations Segment: Adjusted pretax income was significantly higher year-over-year and versus last quarter. Driven by strong recapture execution, improved B2B channel performance, record funding levels, and margin gains. Consumer Direct had strong growth, B2B saw elevated volumes and margins, and reverse originations maintained profitability. Servicing Segment: Remained a solid contributor to adjusted pretax income at $31 million. Forward servicing had growth in average UPB but was offset by higher runoff; reverse servicing rebounded to positive $4 million. Owned MSR portfolio had improved delinquency statistics, e.g., Ginnie Mae MSR portfolio had better metrics than the broader market.

• Adjusted ROE exceeded Q3 and YTD guidance, expects to exceed full-year 16%-18% guidance. - UPB growth for full year now estimated 5%-10% vs prior 10+%. - Rithm subservicing portfolio transfer expected with minimal financial impact on 2026.

• Rithm subservicing portfolio is run down, has high delinquencies and cost of servicing, uneconomical to maintain. - Uncertainty around trustee and other consents for Rithm portfolio transfer. - Interest rate fluctuations affecting MSR valuation and origination margins; prepayment speed uncertainties impacting servicing revenue.

Q: Just on the Rithm, the transfer that's going to happen. When you look at that portfolio, what's the present value?

A: That portfolio is run down, one of lowest margin portfolios, had marginal profit contribution left, uneconomical to maintain.

Q: Your ROE guidance, and with VA release, how does that shake out?

A: VA release increases equity, effective tax rate goes up; partial release would be in between, full release in line with normal corporate taxpayer.

Q: With valuation allowance expected to be released, comment on appetite to hedge portfolio?

A: No material impact on how we think about hedging MSR; hedge strategy based on protecting book earnings, etc.

Q: Perspectives on prepayment speeds through September and October, and MSR pricing?

A: Speeds up, MSR valuation affected by interest rates; fourth quarter volumes dependent on mortgage rates.

Q: Any perspectives on MSR portfolio shocks and risk harnessing?

A: Dynamic approach to MSR management, hedging performed well, rate shock analysis done for plus or minus 100 basis points