| FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). The Company holds a variety of assets, certain of which are not publicly traded or that are otherwise illiquid. Significant judgment and estimation go into the assumptions that drive the fair value of these assets. Due to the inherent uncertainty of valuations of investments that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material. US GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is impacted by a number of factors, including the type and the specific characteristics of the assets and liabilities, including existence and transparency of transactions between market participants. Assets and liabilities with readily available actively quoted prices or for which fair value can be measured from actively-quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value. Assets and liabilities measured at fair value are classified and disclosed into one of the following categories based on the observability of inputs used in the determination of fair values: Level 1 – Quoted prices in active markets for identical instruments. Level 2 – Valuations based principally on other observable market parameters, including: • Quoted prices in active markets for similar instruments, • Quoted prices in less active or inactive markets for identical or similar instruments, • Other observable inputs, such as interest rates, yield curves, volatilities, prepayment rates, loss severities, credit risks and default rates (“CDR”), and • Market corroborated inputs (derived principally from or corroborated by observable market data). Level 3 – Valuations based significantly on unobservable inputs. Rithm Capital follows this hierarchy for its fair value measurements. The classifications are based on the lowest level of input that is significant to the fair value measurement. The carrying values and fair values of assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of September 30, 2024 were as follows: Principal Balance or Notional Amount Carrying Value Fair Value Level 1 Level 2 Level 3 Net Asset Value (“NAV”) Total Assets: Excess MSRs (A) $ 55,052,726 $ 375,923 $ — $ — $ 375,923 $ — $ 375,923 MSRs and MSR financing receivables (A) 588,865,550 9,300,989 — — 9,300,989 — 9,300,989 Servicer advance investments 297,741 341,303 — — 341,303 — 341,303 Government and government-backed securities (B) 10,091,127 10,134,897 3,322,027 6,812,900 — — 10,134,927 Non-Agency securities and CLOs 9,454,837 855,488 — 210,383 645,105 — 855,488 Residential mortgage loans, HFS 78,339 69,939 — — 69,939 — 69,939 Residential mortgage loans, HFS, at fair value 3,057,651 3,115,934 — 3,087,603 28,331 — 3,115,934 Residential mortgage loans, HFI, at fair value 409,000 378,032 — — 378,032 — 378,032 Residential mortgage loans subject to repurchase 2,409,992 2,409,992 — 2,409,992 — — 2,409,992 Consumer loans 882,783 805,577 — — 805,577 — 805,577 Derivative and hedging assets 15,903,606 50,514 — 11,459 39,055 — 50,514 Mortgage loans receivable 1,841,259 1,869,852 — — 1,869,852 — 1,869,852 Notes receivable 481,740 384,126 — — 384,126 — 384,126 Loans receivable 29,114 29,114 — — 29,114 — 29,114 Equity investment, at fair value 192,500 194,450 — — 194,450 — 194,450 Cash, cash equivalents and restricted cash 1,946,072 1,946,072 1,946,072 — — — 1,946,072 Investments of consolidated CFEs - funds (C) 319,020 350,623 — — — 350,623 350,623 Investments of consolidated CFEs - loan securitizations (D) 3,963,145 3,873,569 — 2,956,663 916,906 — 3,873,569 Other assets N/A 95,596 — — 95,596 — 95,596 $ 36,581,990 $ 5,268,099 $ 15,489,000 $ 15,474,298 $ 350,623 $ 36,582,020 Liabilities: Secured financing agreements $ 15,359,853 $ 15,357,630 $ — $ 15,173,637 $ 183,993 $ — $ 15,357,630 Secured notes and bonds payable (D) 9,467,281 9,410,773 — — 9,888,638 — 9,888,638 Unsecured notes, net of issuance costs 1,293,911 1,200,791 — — 1,228,174 — 1,228,174 Residential mortgage loan repurchase liability 2,409,992 2,409,992 — 2,409,992 — — 2,409,992 Derivative liabilities 12,134,306 85,415 2,207 60,196 23,012 — 85,415 Excess spread financing (A) 15,709,784 107,524 — — 107,524 — 107,524 Notes receivable financing 371,446 367,373 — — 373,042 — 373,042 Notes payable of consolidated CFEs - funds (D) 222,250 217,259 — — 217,259 — 217,259 Notes payable of consolidated CFEs - loan securitizations (D) 3,501,010 3,382,544 — 2,520,164 862,380 — 3,382,544 $ 32,539,301 $ 2,207 $ 20,163,989 $ 12,884,022 $ — $ 33,050,218 (A) The notional amount represents the total UPB of the residential mortgage loans underlying the MSRs, MSR financing receivables, excess MSRs and excess spread financing. Rithm Capital does not receive an excess mortgage servicing amount on non-performing loans in agency portfolios. (B) Includes US Treasury Bills classified as Level 1 and held at amortized cost basis of $24.7 million (see Note 6). (C) Represents assets and notes issued of consolidated VIEs accounted for under the CFE election. (D) Includes $197.2 million of SCFT 2020-A (as defined below in Note 20) MBS as of September 30, 2024, for which the fair value option for financial instruments was elected. The following table summarizes the changes in the Company’s Level 3 financial assets for the period presented: Level 3 Excess MSRs (A) MSRs and MSR Financing Receivables (A) Servicer Advance Investments Real Estate and Other Securities Derivatives (B) Residential Mortgage Loans Consumer Loans Other Assets Mortgage Loans Receivable (C) Total Balance at December 31, 2023 $ 271,150 $ 8,405,938 $ 376,881 $ 804,029 $ 23,804 $ 513,381 $ 1,274,005 $ 525,642 $ 2,232,913 $ 14,427,743 Transfers: Transfers from Level 3 — — (7,873) (227,216) — (28,985) — — — (264,074) Transfers to Level 3 — — — — — 82,325 — — — 82,325 Computershare Acquisition (Note 3) (1,032) 697,494 — — — — — — — 696,462 Gain (Loss) Included in Net Income: Credit losses on securities (D) — — — (1,187) — — — — — (1,187) Servicing Revenue, Net (E) : Included in servicing revenue (E) — (748,702) — — — — — — — (748,702) Fair Value Adjustments Due to: Other factors (D) 11,599 — (3,535) 10,973 (7,700) 16,536 (49,003) 15,088 36,920 30,878 Instrument-specific credit risk (D) — — — — — 28,127 (20,738) — 17,995 25,384 Gain (loss) on settlement of investments, net (D) (656) — — (101) — — — — — (757) Other income (loss), net (D) — — — — — 10,633 — 4,654 — 15,287 Gains (losses) included in OCI (F) — — — 7,287 — — — — — 7,287 Interest income 18,893 — 18,649 21,828 — — 21,331 — — 80,701 Purchases, Sales and Repayments: Purchases, net (G) 122,887 — 590,261 142,979 — 248,606 — 214,349 — 1,319,082 Sales and fundings — 2,748 — — (173,250) 15,996 — — (154,506) Proceeds from repayments (46,918) — (633,080) (113,487) — (53,773) (436,014) (56,447) (1,479,447) (2,819,166) Originations and other — 943,511 — — (61) (167,298) — — 1,978,377 2,754,529 Balance at September 30, 2024 $ 375,923 $ 9,300,989 $ 341,303 $ 645,105 $ 16,043 $ 476,302 $ 805,577 $ 703,286 $ 2,786,758 $ 15,451,286 (A) Includes the recapture agreement for each respective pool, as applicable. (B) For the purpose of this table, the IRLC asset and liability positions and other commitment derivatives are shown net. (C) Includes mortgage loans receivable of consolidated CFEs classified as Level 3 in the fair value hierarchy. (D) Gain (loss) recorded in earnings during the period is attributable to the change in unrealized gain (loss) relating to Level 3 assets still held at the reporting dates and realized gain (loss) recorded during the period. (E) See Note 5 for further details on the components of servicing revenue, net. (F) Gain (loss) included in unrealized gain (loss) on available-for-sale securities, net in the consolidated statements of comprehensive income. (G) Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection. Real estate and other securities includes Non-Agency securities retained through securitizations accounted for as sales. The following table summarizes the changes in the Company’s Level 3 financial liabilities for the period presented: Level 3 Asset-Backed Securities Issued Notes Payable of CFEs - Consolidated Funds Notes Payable of CFEs - Mortgage Loans Receivable Excess Spread Financing Notes Receivable Financing Total Balance at December 31, 2023 $ 235,770 $ 218,157 $ 318,998 $ — $ — $ 772,925 Transfers: Transfers to Level 3 — — — — 373,042 373,042 Computershare Acquisition (Note 3) — — — 125,168 125,168 Gains (Losses) Included in Net Income: Servicing revenue, net (A) — — — (17,644) — (17,644) Other income (A) 6,714 (898) 9,888 — — 15,704 Purchases, Issuance Proceeds and Repayments: Issuance proceeds — — 858,828 — — 858,828 Payments (45,250) — (324,062) — — (369,312) Other — — (1,272) — — (1,272) Balance at September 30, 2024 $ 197,234 $ 217,259 $ 862,380 $ 107,524 $ 373,042 $ 1,757,439 (A) Gain (loss) recorded in earnings during the period is attributable to the change in unrealized gain (loss) relating to Level 3 financial liabilities still held at the reporting dates and realized gain (loss) recorded during the period. The full fair value change during the period was due to factors other than instrument-specific credit risk. See Note 21 in the Company’s Amended 2023 Form 10-K/A for a listing of criteria used to determine the significant inputs for each asset class. Excess MSRs, MSRs and MSR Financing Receivables and Excess Spread Financing Valuation Fair value estimates of Rithm Capital’s MSRs and related excess spread financing and excess MSRs were based on internal pricing models. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included expectations of prepayment rates, delinquency rates, recapture rates, mortgage servicing amount or excess mortgage servicing amount of the underlying residential mortgage loans, as applicable, and discount rates that market participants would use in determining the fair values of MSRs on similar pools of residential mortgage loans. In addition, for MSRs, significant inputs included the market-level estimated cost of servicing. Significant increases (decreases) in the discount rates, prepayment or delinquency rates, or costs of servicing, in isolation would result in a significantly lower (higher) fair value measurement, whereas significant increases (decreases) in the recapture rates or mortgage servicing amount or excess mortgage servicing amount, as applicable, in isolation would result in a significantly higher (lower) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the prepayment rate. The following table summarizes certain information regarding the ranges and weighted averages of inputs used as of September 30, 2024: Significant Inputs (A) Prepayment (B) Delinquency (C) Recapture (D) Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps) (E) Collateral Weighted Average Maturity (Years) (F) Excess MSRs Directly Held 0.0% – 13.3% (7.8%) 0.0% – 14.7% (5.0%) 0.0% – 91.2% (56.6%) 7 – 32 (21) 11 – 23 (19) MSRs, MSR Financing Receivables, Excess Spread Financing: Agency 2.5% – 99.4% (7.3%) 0.0% – 100.0% (1.9%) 7.6% – 21.9% (16.5%) 2 – 159 (28) 0 – 40 (23) Non-Agency 1.8% – 100.0% (9.5%) 0.0% – 100.0% (24.8%) 0.0% – 15.8% (1.8%) 1 – 156 (45) 0 – 58 (21) Ginnie Mae 2.1% – 78.5% (9.7%) 0.0% – 100.0% (9.4%) 8.0% – 26.1% (24.9%) 8 – 154 (46) 0 – 42 (26) Total/Weighted Average — MSRs, MSR Financing Receivables, Excess Spread Financing 1.8% – 100.0% (8.2%) 0.0% – 100.0% (6.1%) 0.0% – 26.1% (20.0%) 1 – 159 (34) 0 – 58 (24) (A) Weighted by fair value of the portfolio. (B) Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector. (C) Projected percentage of residential mortgage loans in the pool for which the borrower is expected to miss a mortgage payment. (D) Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable. (E) Weighted average total mortgage servicing amount, in excess of the base fee as applicable, measured in basis points (“bps”). As of September 30, 2024, weighted average costs of subservicing of $6.87 (range of $6.84 – $6.94) per loan per month was used to value the Agency MSRs. Weighted average costs of subservicing of $9.71 (range of $8.65 – $11.52) per loan per month was used to value the Non-Agency MSRs, including MSR financing receivables. Weighted average cost of subservicing of $8.23 per loan per month was used to value the Ginnie Mae MSRs. (F) Weighted average maturity of the underlying residential mortgage loans in the pool. With respect to valuing the PHH-serviced MSRs and MSR financing receivables, which include a significant servicer advances receivable component, the cost of financing servicer advances receivable is assumed to be SOFR plus 95 bps. As of September 30, 2024, a weighted average discount rate of 8.8% (range of 8.5% – 9.0%) was used to value Rithm Capital’s Excess MSRs. As of September 30, 2024, a weighted average discount rate of 8.8% (range of 8.5% – 10.3%) was used to value Rithm Capital’s MSRs, MSR financing receivables and excess spread financing. The following table summarizes the estimated change in fair value of Rithm Capital’s interests in the Agency MSRs, owned as of September 30, 2024, given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate: Fair value at September 30, 2024 $ 5,767,835 Discount rate shift in % -20% -10% 10% 20% Estimated fair value $ 6,265,455 $ 6,006,434 $ 5,547,521 $ 5,343,621 Change in Estimated Fair Value: Amount $ 497,620 $ 238,599 $ (220,314) $ (424,214) Percentage 8.6 % 4.1 % (3.8) % (7.4) % Prepayment rate shift in % -20% -10% 10% 20% Estimated fair value $ 6,091,779 $ 5,907,778 $ 5,638,897 $ 5,521,963 Change in Estimated Fair Value: Amount $ 323,944 $ 139,943 $ (128,938) $ (245,872) Percentage 5.6 % 2.4 % (2.2) % (4.3) % Delinquency rate shift in % -20% -10% 10% 20% Estimated fair value $ 5,814,988 $ 5,776,130 $ 5,759,303 $ 5,750,635 Change in Estimated Fair Value: Amount $ 47,153 $ 8,295 $ (8,532) $ (17,200) Percentage 0.8 % 0.1 % (0.1) % (0.3) % Recapture rate shift in % -20% -10% 10% 20% Estimated fair value $ 5,696,242 $ 5,732,039 $ 5,803,631 $ 5,839,427 Change in Estimated Fair Value: Amount $ (71,593) $ (35,796) $ 35,796 $ 71,592 Percentage (1.2) % (0.6) % 0.6 % 1.2 % The following table summarizes the estimated change in fair value of Rithm Capital’s interests in the Non-Agency MSRs, including MSR financing receivables, owned as of September 30, 2024, given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate: Fair value at September 30, 2024 $ 818,978 Discount rate shift in % -20% -10% 10% 20% Estimated fair value $ 897,886 $ 856,713 $ 784,295 $ 752,331 Change in Estimated Fair Value: Amount $ 78,908 $ 37,735 $ (34,683) $ (66,647) Percentage 9.6 % 4.6 % (4.2) % (8.1) % Prepayment rate shift in % -20% -10% 10% 20% Estimated fair value $ 868,833 $ 843,064 $ 796,317 $ 775,039 Change in Estimated Fair Value: Amount $ 49,855 $ 24,086 $ (22,661) $ (43,939) Percentage 6.1 % 2.9 % (2.8) % (5.4) % Delinquency rate shift in % -20% -10% 10% 20% Estimated fair value $ 821,809 $ 820,025 $ 818,054 $ 816,107 Change in Estimated Fair Value: Amount $ 2,831 $ 1,047 $ (924) $ (2,871) Percentage 0.3 % 0.1 % (0.1) % (0.4) % Recapture rate shift in % -20% -10% 10% 20% Estimated fair value $ 817,035 $ 818,007 $ 819,950 $ 820,921 Change in Estimated Fair Value: Amount $ (1,943) $ (971) $ 972 $ 1,943 Percentage (0.2) % (0.1) % 0.1 % 0.2 % The following table summarizes the estimated change in fair value of Rithm Capital’s interests in the Ginnie Mae MSRs, owned as of September 30, 2024, given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate: Fair value at September 30, 2024 $ 2,714,176 Discount rate shift in % -20% -10% 10% 20% Estimated fair value $ 2,942,070 $ 2,823,133 $ 2,612,046 $ 2,518,097 Change in Estimated Fair Value: Amount $ 227,894 $ 108,957 $ (102,130) $ (196,079) Percentage 8.4 % 4.0 % (3.8) % (7.2) % Prepayment rate shift in % -20% -10% 10% 20% Estimated fair value $ 2,860,583 $ 2,782,842 $ 2,650,936 $ 2,594,258 Change in Estimated Fair Value: Amount $ 146,407 $ 68,666 $ (63,240) $ (119,918) Percentage 5.4 % 2.5 % (2.3) % (4.4) % Delinquency rate shift in % -20% -10% 10% 20% Estimated fair value $ 2,752,014 $ 2,732,677 $ 2,694,399 $ 2,675,564 Change in Estimated Fair Value: Amount $ 37,838 $ 18,501 $ (19,777) $ (38,612) Percentage 1.4 % 0.7 % (0.7) % (1.4) % Recapture rate shift in % -20% -10% 10% 20% Estimated fair value $ 2,652,488 $ 2,682,966 $ 2,743,924 $ 2,774,402 Change in Estimated Fair Value: Amount $ (61,688) $ (31,210) $ 29,748 $ 60,226 Percentage (2.3) % (1.1) % 1.1 % 2.2 % Each of the preceding sensitivity analyses is hypothetical and is provided for illustrative purposes only. There are certain limitations inherent in the sensitivity analyses presented. In particular, the results are calculated by stressing a particular economic assumption independent of changes in any other assumption; in practice, changes in one factor may result in changes in another, which might counteract or amplify the sensitivities. Also, changes in the fair value based on a 10% variation in an assumption generally may not be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Servicer Advance Investments Valuation The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing the servicer advance investments, including the base fee component of the related MSRs, as of September 30, 2024: Significant Inputs Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans Prepayment Rate (A) Delinquency Mortgage Servicing Amount (B) Discount Rate Collateral Weighted Average Maturity (Years) (C) Servicer advance investments 2.4% 5.0% 19.7% 19.9 bps 6.2% 21.2 (A) Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector. (B) Mortgage servicing amount is net of 3.0 bps which represents the amount Rithm Capital paid its servicers as a monthly servicing fee. (C) Weighted average maturity of the underlying residential mortgage loans in the pool. Real Estate and Other Securities Valuation Rithm Capital’s real estate and other securities valuation methodology and results are detailed below. Treasury securities are valued using market-based prices published by the US Department of the Treasury and are classified as Level 1. The table below is as of September 30, 2024: Fair Value Asset Type Outstanding Face Amount Amortized Cost Basis Multiple Quotes (A) Single Quote (B) Total Level Government-backed securities (C) $ 6,816,127 $ 6,650,778 $ 6,812,900 $ — $ 6,812,900 2 CLOs (D) 277,100 268,750 210,383 65,388 275,771 2 & 3 Non-agency and other securities (D) 9,177,737 538,211 555,406 24,311 579,717 3 $ 16,270,964 $ 7,457,739 $ 7,578,689 $ 89,699 $ 7,668,388 (A) Rithm Capital generally obtains pricing service quotations or broker quotations from two sources. Rithm Capital evaluates quotes received, determines one as being most representative of fair value and does not use an average of the quotes. Even if Rithm Capital receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for Non-Agency securities, there is a wide disparity between the quotes Rithm Capital receives. Rithm Capital believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on Rithm Capital’s own fair value analysis, it selects one of the quotes which is believed to most accurately reflect fair value. Rithm Capital has not adjusted any of the quotes received in the periods presented. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to purchase the security at the quoted price. Rithm Capital’s investments in government-backed securities are classified within Level 2 of the fair value hierarchy because the market for these securities is active and market prices are readily observable. The third-party pricing services and brokers engaged by Rithm Capital (collectively, “valuation providers”) use either the income approach or the market approach, or a combination of the two, in arriving at their estimated valuations of securities. Valuation providers using the market approach generally look at prices and other relevant information generated by market transactions involving identical or comparable assets. Valuation providers using the income approach create pricing models that generally incorporate such assumptions as discount rates, expected prepayment rates, expected default rates and expected loss severities. Rithm Capital has reviewed the methodologies utilized by its valuation providers and has found them to be consistent with GAAP requirements. In addition to obtaining multiple quotations, when available, and reviewing the valuation methodologies of its valuation providers, Rithm Capital creates its own internal pricing models for Level 3 securities and uses the outputs of these models as part of its process of evaluating the fair value estimates it receives from its valuation providers. These models incorporate the same types of assumptions as the models used by the valuation providers, but the assumptions are developed independently. These assumptions are regularly refined and updated at least quarterly by Rithm Capital and reviewed by its independent valuation group, which is separate from its investment acquisition and management group, to reflect market developments and actual performance. For 86.9% of Non-Agency securities, the ranges and weighted averages of assumptions used by Rithm Capital’s valuation providers are summarized in the table below. The assumptions used by Rithm Capital’s valuation providers with respect to the remainder of Non-Agency securities were not readily available. Fair Value Discount Rate Prepayment Rate (a) CDR (b) Loss Severity (c) Non-Agency $ 503,651 4.5% – 20.0% (6.8%) 0.0% – 20.0% (6.8%) 0.0% – 1.5% (0.5%) 25.0% – 50.0% (32.0%) (a) Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool. (b) Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool. (c) Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance of the loans in default. (B) Rithm Capital was unable to obtain quotations from more than one source on these securities. (C) Presented within government and government-backed securities on the consolidated balance sheets. (D) Presented within other assets on the consolidated balance sheets. Residential Mortgage Loans Valuation Rithm Capital, through Newrez, originates residential mortgage loans that it intends to sell into Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securitizations. Residential mortgage loans HFS, at fair value are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate and credit quality. Newrez also originates non-qualified residential mortgage (“Non-QM”) loans that do not meet the qualified mortgage rules per the Consumer Financial Protection Bureau that it intends to sell to private investors. Residential mortgage loans HFS, at fair value are valued using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, Rithm Capital classifies these valuations as Level 2 in the fair value hierarchy. Originated residential mortgage loans HFS for which there is little to no observable trading activity of similar instruments are valued using Level 3 measurements based upon (i) internal pricing models to forecast loan level cash flows using inputs such as default rates, prepayments speeds and discount rates or (ii) consensus pricing (broker quotes) or historical sale transactions for similar loans. Residential mortgage loans HFS, at fair value also include nonconforming seasoned mortgage loans acquired and identified for securitization, which are valued using internal pricing models to forecast loan level cash flows based on a potential securitization exit using inputs such as default rates, prepayments speeds and discount rates, and may include adjustments based on consensus pricing (broker quotes). Residential mortgage loans HFI, at fair value include nonconforming seasoned mortgage loans acquired and not identified for sale or securitization, which are valued using internal pricing models to forecast loan level cash flows using inputs such as default rates, prepayments speeds and discount rates, and may include adjustments based on consensus pricing (broker quotes). As the internal pricing models are based on certain unobservable inputs, Rithm Capital classifies these valuations as Level 3 in the fair value hierarchy. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and estimated home price levels. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Rithm Capital classifies these valuations as Level 3 in the fair value hierarchy. The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans HFS, at fair value classified as Level 3 as of September 30, 2024: Performing Loans Fair Value Discount Rate Prepayment Rate CDR Loss Severity Acquired loans $ 18,239 8.0% – 8.6% (8.1%) 0.1% – 3.4% (0.8%) 0.4% – 3.7% (1.5%) 26.9% – 38.4% (30.5%) Non-Performing Loans Fair Value Discount Rate Annual change in home prices CDR Current Value of Underlying Properties Acquired loans $ 10,092 8.6% - 9.0% (8.6%) 5.9% - 17.3% (6.8%) 1.9% - 2.4% (2.3%) 245.6% - 446.9% (262.1%) The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans HFI, at fair value classified as Level 3 as of September 30, 2024: Fair Value Discount Rate Prepayment Rate CDR Loss Severity Residential mortgage loans HFI, at fair value $ 378,032 8.0% – 9.0% (8.1%) 0.1% – 0.8% (0.5%) 0.4% – 3.7% (2.2%) 13.1% – 38.4% (32.0%) Consumer Loans Valuation The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing consumer loans HFI, at fair value classified as Level 3 as of September 30, 2024: Fair Value Discount Rate Prepayment Rate CDR Loss Severity SpringCastle $ 231,039 9.2% – 10.2% (9.4%) 12.1% – 37.6% (14.5%) 2.6% – 8.5% (5.1%) 72.8% – 100.0% (93.3%) Marcus 574,538 7.3% - 10.1% (7.4%) 3.2% - 22.1% (19.0%) 8.0% - 50.0% (14.7%) 75.0% Consumer Loans, HFI, at Fair Falue $ 805,577 Mortgage Loans Receivable Valuation Rithm Capital classifies certain mortgage loans receivable as Level 3 in the fair value hierarchy. Performing originated mortgage loans are valued using (i) a market-based approach by utilizing the fair value of securities backed by similar loans adjusted for certain factors to approximate the fair value of a whole loan or (ii) current commitments to acquire the loans. Non-performing loan liquidation cash flows are derived based on the estimated value of the collateral, estimated recoveries and costs, and estimated time to liquidate the asset. Acquired mortgage loans receivable are valued using internal pricing models to forecast cash flows with inputs such as default rates, prepayments speeds and discount rates, and may include adjustments based on consensus pricing (broker quotes). The following table summarizes certain information regarding the weighted averages of inputs used in valuing mortgage loans receivable, at fair value classified as Level 3 as of September 30, 2024: Fair Value Discount Rate Prepayment Rate CDR Loss Severity Acquired mortgage loans receivable $ 36,593 10.0% 0.0% 1.8% – 2.5% (2.0%) 25.0% Originated mortgage loans receivable 1,833,259 8.3% N/A N/A N/A Mortgage Loans Receivable, at Fair Value $ 1,869,852 Derivatives and Hedging Valuation Rithm Capital enters into economic hedges including interest rate swaps, caps and TBAs, which are categorized as Level 2 in the valuation hierarchy. Rithm Capital generally values such derivatives using quotations, similarly to the method of valuation used for Rithm Capital’s other assets that are classified as Level 2 in the fair value hierarchy. Treasury short sales are valued using market-based prices published by the US Department of the Treasury and classified as Level 1. Other commitment relates to an agreement entered into by a subsidiary of Rithm Capital with its affiliate requiring a payment under certain circumstances dependent upon amounts realized from an investment of the affiliate. It is valued at the excess of cost basis over the intrinsic value of the underlying investment and classified as Level 3 in the fair value hierarchy. In addition, Rithm Capital enters into IRLCs, which are valued using internal pricing models (i) incorporating market pricing for instruments with similar characteristics, (ii) estimating the fair value of the servicing rights expected to be recorded at sale of the loan and (iii) adjusting for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and therefore, IRLCs are classified as Level 3 in the fair value hierarchy. The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing IRLCs as of September 30, 2024: Fair Value Loan Funding Probability Fair Value of Initial Servicing Rights (Bps) IRLCs, net $ 32,122 0.0% – 100.0% (81.8%) 8.1 – 362.3 (266.0) Asset-Backed Securities Issued As of September 30, 2024, Rithm Capital was the primary beneficiary of the SCFT 2020-A (as defined below in Note 20) securitization, and therefore, Rithm Capital’s consolidated balance sheets include the asset-backed securities issued by the trust in the SCFT 2020-A securitization. Rithm Capital elected the fair value option for the securities and valued them consistently with Non-Agency securities described above. The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing asset-backed securities issued as of September 30, 2024: Fair Value Discount Rate Prepayment Rate CDR Loss Severity Asset-backed securities issued $ 197,234 5.1% 14.5% 5.1% 93.3% Notes Receivable, Notes Receivable Financing and Loans Receivable From time to time, Rithm Capital purchases notes and loans receivable that are generally collateralized by commercial real estate assets. Rithm Capital generally uses internal discounted cash flow pricing models to estimate the fair |
