10-Q: Onity Q3 2025 Earnings: Revenue Up, Rithm Exit Looms

Onity Group Inc. reported increased revenue for Q3 2025, driven by strong originations, but faces a significant portfolio reduction with Rithm Capital's non-renewal of subservicing agreements effective January 2026.

Summary

• Net income attributable to common stockholders for Q3 2025 was $17.7 million, down from $21.4 million in Q3 2024.
• Basic earnings per share decreased to $2.19 in Q3 2025 from $2.72 in Q3 2024.
• Total revenue for Q3 2025 increased to $280.3 million, up 14% from Q2 2025 and 5.5% from Q3 2024's $265.7 million.
• MSR valuation adjustments, net, resulted in a $45.0 million loss in Q3 2025, a larger loss compared to $31.5 million in Q3 2024.
• Operating expenses rose to $125.8 million in Q3 2025 from $112.4 million in Q3 2024.
• Total servicing and subservicing UPB increased to $315.5 billion as of September 30, 2025, up from $298.9 billion a year prior.
• Originations production volume (funded UPB) grew 23% quarter-over-quarter to $7.01 billion in Q3 2025 and 44% year-over-year to $16.78 billion for the nine months ended September 30, 2025.
• On October 31, 2025, Rithm Capital Corp. notified Onity of its intent not to renew subservicing agreements effective January 31, 2026, impacting approximately $33.0 billion UPB, or 10% of the total servicing and subservicing portfolio.
• Total liquidity stood at $221.3 million as of September 30, 2025, including $172.8 million of unrestricted cash.

Sentiment

Score: 4

Explanation: While revenue and originations volume showed strong growth, net income and EPS declined year-over-year. The increased MSR valuation losses and operating expenses are concerning. The significant future impact of Rithm's subservicing non-renewal introduces substantial uncertainty and a negative outlook, outweighing current operational strengths.

Positives

• Total revenue increased to $280.3 million in Q3 2025, up 14% from Q2 2025 and 5.5% from Q3 2024, driven by higher servicing and subservicing fees and strong originations.
• Originations production volume (funded UPB) grew significantly, outpacing the industry with a 23% increase quarter-over-quarter and a 44% increase year-over-year for the nine months ended September 30, 2025.
• The MSR portfolio increased by $296.7 million to $2,762.9 million as of September 30, 2025, primarily due to $493.0 million in MSR additions.
• Management believes it is reasonably possible to release some of the U.S. deferred tax asset valuation allowance by December 31, 2025, which would increase net income and stockholders' equity.
• Licensed entities were in compliance with all minimum net worth and liquidity regulatory requirements as of September 30, 2025.
• Fitch upgraded PHH's residential servicer ratings and affirmed its stable outlook for all products on May 29, 2025, reflecting growth strategy and effective risk management.

Negatives

• Net income attributable to common stockholders decreased to $17.7 million in Q3 2025 from $21.4 million in Q3 2024.
• Basic EPS declined to $2.19 in Q3 2025 from $2.72 in Q3 2024.
• MSR valuation adjustments, net, resulted in a larger loss of $45.0 million in Q3 2025 compared to a $31.5 million loss in Q3 2024, primarily due to higher runoff expense and unfavorable market rate changes.
• Operating expenses increased by $13.4 million to $125.8 million in Q3 2025 compared to $112.4 million in Q3 2024.
• Total assets decreased by $328.0 million, or 2%, to $16,107.4 million between December 31, 2024, and September 30, 2025, mainly due to a decline in reverse Loans held for investment.
• Total liquidity decreased to $221.3 million at September 30, 2025, from $248.5 million at December 31, 2024.

Risks

• The non-renewal of subservicing agreements by Rithm Capital Corp. effective January 31, 2026, will significantly reduce servicing and subservicing fees and may negatively impact business, liquidity, financial condition, and results of operations.
• Ongoing disruption in financial markets and commercial activity generally related to changes in monetary and fiscal policy, U.S. political developments, geopolitical events, and other sources of instability.
• Impacts of inflation, employment disruption, and other financial difficulties facing borrowers.
• Breach or failure of information technology or other security systems or privacy protections, including failure to protect customer data.
• Reliance on technology vendors to adequately maintain and support systems, and uncertainty in transitioning to alternative vendors.
• Ability to interpret and comply with current or future liquidity, net worth, and other financial requirements of regulators and agencies (Fannie Mae, Freddie Mac, Ginnie Mae).
• Ability to repay, renew, and extend borrowings, borrow additional amounts, meet MSR or other asset investment objectives, and comply with debt agreements.
• Increased servicing costs and reduced or delayed servicing income due to rising borrower delinquency levels, forbearance plans, moratoria on evictions, and delays in foreclosure proceedings.
• An increase in severe weather or natural disaster events resulting in costly disruptions to operations and increased servicing costs.
• Adverse effects on business related to past, present, or future claims, litigation, cease and desist orders, and investigations by regulatory agencies or private parties.
• Uncertainty related to changes in legislation, regulations, government programs and policies, industry initiatives, and media scrutiny.
• Ability to recruit and retain senior managers and key employees.
• Increased compensation and benefits expense as a result of rising inflation and labor market trends.
• Political or economic stability in foreign countries where operations are conducted (India, Philippines).

Future Outlook

The company expects continued growth in its servicing and subservicing portfolio through its multi-channel Originations platform, MSR bulk acquisitions, and subservicing additions. Ancillary float income is expected to trend with short-term interest rates and portfolio growth. Gain on sale of loans is anticipated to grow, particularly in the Consumer Direct channel, though competitive pressures and interest rate volatility are expected. MSR valuation adjustments will reflect portfolio growth and hedging strategies, aiming to largely offset interest rate-driven fair value changes. Operating expenses are expected to correlate with volumes, with productivity gains from technology initiatives. Net interest expense will vary with debt balances and short-term interest rates. The company anticipates continued net income generation and equity growth in 2026, absent material adverse impacts. A potential release of the U.S. deferred tax asset valuation allowance by December 31, 2025, could further increase net income and equity. The non-renewal of Rithm subservicing agreements will lead to reduced servicing fees and require restructuring of operations and support functions, with a restructuring obligation expected upon transfer.

Management Comments

• We believe it is reasonably possible that by December 31, 2025, we could release some of our valuation allowance that currently offsets our net U.S. deferred tax asset.

Industry Context

The 30-year fixed rate mortgage (FRM) declined 47 basis points in Q3 2025, driving higher refinancing and home purchase activity, though rates remain elevated compared to the past decade. The 1-month SOFR largely followed the federal funds rate, declining 98 basis points year-over-year. The overall mortgage origination market volume grew 3% quarter-over-quarter and 16% year-over-year in Q3 2025, primarily due to increased refinance activity. Onity's Originations volume growth outpaced the industry for all periods presented, indicating strong market share gains.

Comparison to Industry Standards

• Onity's Originations volume growth (funded volume of Correspondent and Consumer Direct) outpaced the estimated industry volume growth for Q3 2025 vs. Q2 2025 (Onity: 23% vs. Industry: 3%).
• Onity's Originations volume growth significantly exceeded the estimated industry volume growth for Q3 2025 vs. Q3 2024 (Onity: 53% vs. Industry: 16%).
• Onity's year-to-date Originations volume growth also surpassed the estimated industry growth for YTD 2025 vs. YTD 2024 (Onity: 44% vs. Industry: 15%).

Legal Proceedings

• Reached an agreement in principle to settle the legacy RESPA litigation, Munoz v. PHH Mortgage Corp. et al., with preliminary approval granted on August 11, 2025, and final approval expected in Q4 2025.
• Settlement approved in Weiner v. Ocwen Financial Corp., et al., a class action regarding marked-up fees for property valuations and title searches.
• Ongoing litigation with the United States Virgin Islands (USVI) regarding income tax refunds and a new lawsuit filed by the USVI alleging non-compliance with Economic Development Commission Certificate conditions.
• Settled five consolidated loan repurchase cases against Nomura Credit & Capital, Inc. in January 2025.
• Defending against class action lawsuits challenging 'convenience fees' charged to borrowers (Jones v. PHH Mortg. Corp., et al. and Smith-Fowler v. PHH Mortgage Corp.).
• Resolved a regulatory matter with HUD regarding convenience fees charged on FHA-insured loans since May 1, 2020, requiring credit/refund to consumers.

Related Party Transactions

• Onity completed the sale of its 15% equity interest in MAV Canopy HoldCo I, LLC on November 27, 2024.
• PHH entered into agreements to sell MSR portfolios to its related party MAV, for which PHH has been retained as subservicer, with transactions not qualifying for sale accounting treatment.
• Onity and PHH entered into agreements to sell MSRs and related servicing advances to Rithm Capital Corp., with an $8.5 billion MSR portfolio (Rights to MSRs) accounted for as secured financings due to retained legal title and termination restrictions.

Stakeholder Impact

• Shareholders: Impacted by declining net income and EPS, potential increase in equity from tax allowance release, and significant uncertainty from Rithm's non-renewal.
• Employees: Potential restructuring and downsizing of servicing and support functions due to Rithm's non-renewal, which could lead to employee attrition.
• Customers: Servicing changes for Rithm's portfolio customers, potential refunds for convenience fees on FHA-insured loans.
• Lenders/Creditors: Compliance with debt covenants and regulatory liquidity requirements remains critical, especially with potential liquidity adjustments due to Rithm's exit.

Next Steps

• Servicing transfer of Rithm Capital Corp.'s portfolio to its own platform, expected in Q1 and Q2 2026.
• Restructuring of servicing operations and support functions to align with reduced subservicing volume.
• Evaluation of the impact of the servicing transfer on future results of operations.
• Repayment of float amount associated with Rithm's advance collections and servicing fees upon transfer.
• Continued efforts to replenish and profitably grow the servicing and subservicing business through enterprise sales and diversification.
• Potential release of a portion of the U.S. deferred tax asset valuation allowance by December 31, 2025.

Key Dates

Recommendation

While Onity demonstrated strong revenue growth and outpaced industry origination volumes, the decline in net income and EPS for Q3 2025, coupled with increased MSR valuation losses and operating expenses, presents a mixed financial picture. The subsequent announcement of Rithm Capital Corp.'s non-renewal of subservicing agreements, representing 10% of the total servicing portfolio, introduces a significant future headwind that will impact revenue and necessitate operational restructuring. The potential release of a deferred tax asset valuation allowance offers a future positive, but its timing and amount are uncertain. Given the current profitability, ongoing growth initiatives in other areas, and active management of the business, a 'hold' recommendation is appropriate, but investors should monitor the execution of the Rithm transfer and its financial implications closely.

Keywords

Mortgage Servicing, Loan Origination, SEC Filing, 10-Q, Financial Results, MSR, Reverse Mortgage, PHH Mortgage, Liberty Reverse Mortgage, Rithm Capital, Subservicing, Capital Markets, Interest Rates, Regulatory Compliance, Liquidity