SERVICER ADVANCE INVESTMENTS

9 Months Ended

Sep. 30, 2022

Investments, All Other Investments [Abstract]

Rithm Capital’s Servicer Advance Investments consist of arrangements to fund existing outstanding servicer advances and the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans in exchange for the basic fee component of the related MSR. Rithm Capital elected to record its Servicer Advance Investments, including the right to the basic fee component of the related MSRs, at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of market factors.

A taxable wholly owned subsidiary of Rithm Capital is the managing member of Advance Purchaser LLC (the “Buyer”), a joint venture entity, and owned an approximately 89.3% interest in the Buyer as of December 31, 2021 and September 30, 2022. The Buyer is a limited liability company which was established in December 2013 for the purpose of investing in residential mortgage related advances. As of September 30, 2022, third-party co-investors, owning the remaining interest in the Buyer,

have funded capital commitments to the Buyer of $75.0 million and Rithm Capital has funded capital commitments to the Buyer of $627.4 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including Rithm Capital. As of September 30, 2022, the noncontrolling third-party co-investors and Rithm Capital had previously funded their commitments; however, the Buyer may recall $71.5 million and $597.9 million of capital distributed to the third-party co-investors and Rithm Capital, respectively. Neither the third-party co-investors nor Rithm Capital is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.

The following table summarizes Servicer Advance Investments, including the right to the basic fee component of the related MSRs:


	Amortized Cost Basis		Carrying Value(A)		Weighted Average Discount Rate		Weighted Average Yield		Weighted Average Life (Years)(B)
September 30, 2022
Servicer Advance Investments	$	358,225	$	371,418	5.2	%	5.4	%	7.8
December 31, 2021
Servicer Advance Investments	$	405,786	$	421,807	5.2	%	5.5	%	6.9

(A)Represents the fair value of the servicer advance investments, including the basic fee component of the related MSRs.

(B)Represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

The following table provides additional information regarding the Servicer Advance Investments and related financing:


	UPB of Underlying Residential Mortgage Loans		Outstanding Servicer Advances		Servicer Advances to UPB of Underlying Residential Mortgage Loans		Face Amount of Secured Notes and Bonds Payable		Loan-to-Value (“LTV”)(A)				Cost of Funds(C)
									Gross		Net(B)		Gross		Net
September 30, 2022
Servicer Advance Investments(D)	$	17,491,636	$	334,818	1.9	%	$	318,590	91.1	%	90.3	%	1.2	%	1.2	%
December 31, 2021
Servicer Advance Investments(D)	$	20,314,977	$	369,440	1.8	%	$	356,580	91.4	%	90.7	%	1.3	%	1.2	%

(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.

(B)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.

(C)Annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees.

(D)The following table summarizes the types of advances included in Servicer Advance Investments:


	September 30, 2022		December 31, 2021
Principal and interest advances	$	65,388	$	67,014
Escrow advances (taxes and insurance advances)	148,576		174,681
Foreclosure advances	120,854		127,745
Total	$	334,818	$	369,440

The following table summarizes interest income related to Servicer Advance Investments:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest income, gross of amounts attributable to servicer compensation	$	5,320	$	(1,426)	$	26,664	$	16,079
Amounts attributable to base servicer compensation	(367)		897		(2,673)		(849)
Amounts attributable to incentive servicer compensation	(4,436)		892		(16,620)		(8,144)
Interest income (expense) from servicer advance investments	$	517	$	363	$	7,371	$	7,086