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Onity Group Inc.(ONIT) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Unaudited Consolidated Financial Statements Unaudited consolidated financial statements for Q2 2025 and 2024, covering balance sheets, income, equity, cash flows, and detailed accounting notes Consolidated Balance Sheets | Metric | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :----------------------------- | :--------- | :--------- | | Total Assets | 16,531.3 | 16,435.4 | 95.9 | 0.6 | | Total Liabilities | 15,999.5 | 15,942.5 | 57.0 | 0.4 | | Total Stockholders' Equity | 481.9 | 442.9 | 39.0 | 8.8 | - Total assets increased by $95.9 million, or 0.6%, from December 31, 2024, to June 30, 2025, primarily driven by a $758.1 million increase in Loans held for sale and a $166.4 million increase in MSRs, partially offset by a $654.5 million decrease in Loans held for investment11258 - Total liabilities increased by $57.0 million, or 0.4%, mainly due to a $667.3 million increase in Mortgage loan financing facilities and a $260.7 million increase in MSR financing facilities, partially offset by a $619.1 million decrease in HMBS-related borrowings11259 Consolidated Statements of Operations | Metric | 3 Months Ended June 30, 2025 (Millions $) | 3 Months Ended June 30, 2024 (Millions $) | Change ($) | Change (%) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Total Revenue | 246.6 | 246.4 | 0.2 | 0.1 | | MSR valuation adjustments, net | (27.3) | (32.7) | 5.4 | -16.5 | | Total Operating Expenses | 109.5 | 104.0 | 5.5 | 5.3 | | Income before income taxes | 22.8 | 13.5 | 9.3 | 68.9 | | Net income attributable to common stockholders | 20.5 | 10.5 | 10.0 | 95.2 | | Basic EPS | 2.55 | 1.34 | 1.21 | 90.3 | | Diluted EPS | 2.40 | 1.33 | 1.07 | 80.5 | | Metric | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | Change ($) | Change (%) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Total Revenue | 496.4 | 485.5 | 10.9 | 2.2 | | MSR valuation adjustments, net | (66.2) | (44.3) | -21.9 | 49.4 | | Total Operating Expenses | 229.4 | 208.4 | 21.0 | 10.1 | | Income before income taxes | 32.0 | 45.3 | -13.3 | -29.4 | | Net income attributable to common stockholders | 41.6 | 40.6 | 1.0 | 2.5 | | Basic EPS | 5.23 | 5.23 | 0.00 | 0.0 | | Diluted EPS | 4.90 | 5.09 | -0.19 | -3.7 | - Net income attributable to common stockholders increased by $10.0 million (95.2%) for the three months ended June 30, 2025, compared to the same period in 2024, primarily due to higher income before income taxes and lower MSR valuation adjustments13 Consolidated Statements of Comprehensive Income | Metric | 3 Months Ended June 30, 2025 (Millions $) | 3 Months Ended June 30, 2024 (Millions $) | Change ($) | Change (%) | | :----------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Net income | 21.5 | 10.5 | 11.0 | 104.8 | | Comprehensive income | 21.6 | 11.8 | 9.8 | 83.1 | | Metric | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | Change ($) | Change (%) | | :----------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Net income | 43.6 | 40.6 | 3.0 | 7.4 | | Comprehensive income | 43.8 | 42.0 | 1.8 | 4.3 | Consolidated Statements of Changes in Equity | Metric | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :----------------------------- | :--------- | :--------- | | Total Stockholders' Equity | 481.9 | 442.9 | 39.0 | 8.8 | | Accumulated Deficit | (74.0) | (117.6) | 43.6 | -37.1 | | Common Stock Shares Outstanding | 8,055,222 | 7,873,053 | 182,169 | 2.3 | - Total stockholders' equity increased by $39.0 million, or 8.8%, from December 31, 2024, to June 30, 2025, primarily due to $43.6 million in net income, partially offset by preferred stock dividends and the exercise of common stock warrants19260 - The accumulated deficit improved by $43.6 million, moving from $(117.6) million at December 31, 2024, to $(74.0) million at June 30, 2025, reflecting the net income generated during the period19 Consolidated Statements of Cash Flows | Cash Flow Activity | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | Change ($) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :--------- | | Net cash used in operating activities | (746.9) | (375.0) | (371.9) | | Net cash provided by investing activities | 886.5 | 128.4 | 758.1 | | Net cash provided by (used in) financing activities | (148.6) | 240.8 | (389.4) | | Net decrease in cash, cash equivalents and restricted cash | (9.0) | (5.7) | (3.3) | | Cash, cash equivalents and restricted cash at end of period | 256.6 | 249.4 | 7.2 | - Operating activities used $746.9 million in cash for the six months ended June 30, 2025, a significant increase from $375.0 million used in the prior year, primarily due to higher net cash paid on loans held for sale and increased originated MSRs22395 - Investing activities provided $886.5 million in cash, a substantial increase from $128.4 million in the prior year, mainly driven by $1,018 million net cash received from HECM reverse mortgages, partially offset by MSR investments22396 - Financing activities used $148.6 million in cash, a shift from providing $240.8 million in the prior year, largely due to net repayments on HMBS-related borrowings and advance match funded liabilities, despite drawdowns on MSR and mortgage loan financing facilities22397 Notes to Unaudited Consolidated Financial Statements Note 1 - Organization and Basis of Presentation - Onity Group Inc. is a non-bank mortgage servicer and originator, operating through its primary subsidiary PHH Mortgage Corporation, with approximately 4,200 employees globally, including significant operations in India and the Philippines2428 - The company performs primary and subservicing activities for its MSR portfolio and on behalf of other servicers and investors, including GSEs and Ginnie Mae, and originates various types of mortgage loans2627 - Onity completed the sale of its 15% equity interest in MAV Canopy HoldCo I, LLC, effective November 27, 202425 Note 2 – Securitizations and Variable Interest Entities - Onity securitizes and sells forward loans, generally retaining MSRs, and accounts for these as sales. For reverse mortgages, transfers are accounted for as secured financings, with HECM loans classified as Loans held for investment3743 | Metric | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :----------------------------------- | :-------------------------- | :----------------------------- | | Carrying value of MSRs (forward loans) | 819.7 | 734.2 | | UPB of loans transferred (forward loans) | 55,313.1 | 49,641.2 | | Maximum exposure to loss (forward loans) | 56,234.5 | 50,505.0 | - The company consolidates various Special Purpose Entities (SPEs) or Variable Interest Entities (VIEs) for financing loans held for sale, advances, and MSRs, where recourse is generally limited to the assets of the respective SPEs44464850 Note 3 – Fair Value - Fair value measurements are categorized into a three-level hierarchy, with Level 3 inputs reflecting unobservable assumptions. A significant portion of Onity's financial instruments, including MSRs, Loans held for investment, and HMBS-related borrowings, are classified as Level 3525391403 | Asset/Liability | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------------ | :-------------------------- | :----------------------------- | | Loans held for sale, at fair value | 2,048.3 | 1,290.2 | | Loans held for investment, at fair value | 10,470.8 | 11,125.3 | | MSRs, at fair value | 2,632.6 | 2,466.3 | | HMBS-related borrowings, at fair value | 10,253.1 | 10,872.1 | | Other financing liabilities, at fair value | 818.1 | 846.9 | - Key unobservable assumptions for Level 3 assets and liabilities include conditional prepayment rates, discount rates, delinquency rates, and cost to service, with changes in these assumptions potentially leading to significant fair value changes575859646568697273 Note 4 – Loans Held for Sale - Fair Value | Metric | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Total fair value | 2,048.3 | 1,290.2 | | UPB of Originations and purchases | 10,162.0 | 7,409.4 | | Proceeds from sales | (9,215.6) | (6,837.4) | | Fair value gain (loss) on loans held for sale, at fair value | (108.9) | (82.2) | - The fair value of Loans held for sale increased by $758.1 million to $2,048.3 million at June 30, 2025, driven by higher originations and purchases, with a net fair value loss of $108.9 million for the six months ended June 30, 20257577 | Component of Gain (Loss) | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :----------------------------------------- | :------------------------------------ | :------------------------------------ | | MSRs retained on transfers | 142.9 | 102.4 | | Gain (loss) on sale of forward mortgage loans | (116.6) | (77.8) | | Change in fair value of loans held for sale | 9.5 | (3.4) | | Gain on loans held for sale, at fair value | 34.0 | 20.2 | | Gain (loss) on economic hedge derivatives | (28.2) | 9.7 | | Change in fair value of IRLCs | 17.8 | (1.6) | | Total Gain on loans held for sale, net | 22.2 | 27.4 | Note 5 - Reverse Mortgages | Metric | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------------ | :-------------------------- | :----------------------------- | | Fair value of reverse mortgage loans held for investment | 10,470.8 | 11,125.3 | | HECM loans - securitized, pledged to HMBS-related borrowings | 10,341.3 | 10,950.8 | | New HECM loan originations and HECM loan tails - unsecuritized | 129.5 | 174.5 | - The fair value of reverse mortgage loans held for investment decreased by $654.5 million to $10,470.8 million at June 30, 2025, primarily due to repayments exceeding new originations and securitizations8082258 | Component of Gain (Loss) | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :---------------------------------------------------------------- | :------------------------------------ | :------------------------------------ | | Fair value gains (losses) of Reverse loans held for investment | 374.6 | 334.4 | | Fair value gains (losses) of HMBS related borrowings | (340.7) | (312.0) | | Total fair value gains (losses) included in earnings | 33.9 | 22.4 | | Gain on new originations | 11.1 | 11.0 | | Net interest income (servicing fee) | 16.4 | 12.0 | | Total Gain on Reverse Loans Held for Investment and HMBS related Borrowings, Net | 35.7 | 23.9 | Note 6 – Advances | Advance Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Principal and interest | 131.2 | 150.1 | | Taxes and insurance | 211.9 | 314.2 | | Foreclosures, bankruptcy, REO and other | 124.6 | 120.3 | | Total advances, before allowance for losses | 467.8 | 584.6 | | Allowance for losses | (6.4) | (7.4) | | Advances, net | 461.4 | 577.2 | - Net servicing advances decreased by $115.8 million, or 20%, to $461.4 million at June 30, 2025, primarily due to a seasonal reduction in taxes and insurance (T&I) balances and lower delinquencies in the non-Agency MSR portfolio86258395 | Investor | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :--------- | :-------------------------- | :----------------------------- | | GSE | 43.9 | 94.0 | | Ginnie Mae | 51.6 | 70.6 | | Non-Agency | 365.9 | 412.6 | | Total, net | 461.4 | 577.2 | Note 7 – Mortgage Servicing | MSR Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------------------ | :-------------------------- | :----------------------------- | | Owned MSRs | 2,051.8 | 1,869.6 | | Total transferred MSR, subject to Pledged MSR liability | 580.8 | 596.7 | | Total MSRs (Fair Value) | 2,632.6 | 2,466.3 | | Total MSRs (UPB in billions) | 181.5 | 170.3 | - The fair value of the total MSR portfolio increased by $166.4 million, or 6.7%, to $2,632.6 million at June 30, 2025, driven by $278.6 million in net additions (including recognized MSRs on loan sales and purchases), partially offset by fair value losses recognized in earnings8991258 | Servicing Revenue Component | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Servicing fee | 199.3 | 182.1 | | Subservicing fee | 46.5 | 54.3 | | MAV - Servicing fee / Transferred MSR | 26.7 | 35.8 | | Rithm and Others-Servicing fee/Transferred MSR | 38.2 | 37.8 | | Custodial accounts (float earnings) | 59.4 | 59.1 | | Total Servicing and subservicing fees | 414.6 | 415.3 | Note 8 — Other Financing Liabilities, at Fair Value | Liability Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | Pledged MSR liability, at fair value | 569.6 | 583.5 | | ESS financing liability, at fair value | 248.6 | 263.3 | | Total Other financing liabilities, at fair value | 818.1 | 846.9 | - Other financing liabilities, at fair value, decreased by $28.8 million to $818.1 million at June 30, 2025, primarily due to derecognition of financing liabilities and realization of expected cash flows, partially offset by MSR transfers97100 | Pledged MSR Liability Expense | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | | Rithm and others net servicing fee remittance | 36.0 | 34.3 | | MAV net servicing fee remittance | 22.8 | 30.7 | | ESS servicing spread remittance | 26.1 | 26.1 | | Total Pledged MSR liability expense | 84.9 | 91.0 | Note 9 – MSR Valuation Adjustments, Net | Component | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | | Total MSRs | (112.2) | 79.2 | | Pledged MSR liabilities | 15.9 | (17.5) | | ESS financing liabilities | 14.8 | (1.7) | | Derivative fair value gain (loss) (MSR economic hedges) | 15.3 | (104.3) | | MSR valuation adjustments, net | (66.2) | (44.3) | - MSR valuation adjustments, net, resulted in a $66.2 million loss for the six months ended June 30, 2025, an increase from a $44.3 million loss in the prior year, primarily driven by the impact of interest rate changes, net of hedge activity, and higher runoff due to MSR portfolio growth110244 - The total changes in fair value due to rates and assumptions resulted in a $18.4 million gain for the six months ended June 30, 2025, compared to a $33.7 million gain in the prior year, reflecting less favorable input and assumption updates110245 Note 10 – Receivables | Receivable Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | Government-insured loan claims - Reverse | 112.5 | 83.3 | | Government-insured loan claims - Forward | 25.2 | 31.5 | | Income taxes receivable | 29.2 | 28.2 | | Total Receivables, net | 204.6 | 176.4 | | Allowance for losses | (15.3) | (18.1) | - Net receivables increased by $28.2 million, or 16%, to $204.6 million at June 30, 2025, primarily due to an increase in government-insured loan claims for reverse mortgages114258 - The allowance for losses decreased by $2.8 million to $15.3 million at June 30, 2025, reflecting net charge-offs exceeding provision expense115 Note 11 – Other Assets | Asset Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | REO | 48.3 | 43.9 | | Derivatives, at fair value | 41.2 | 15.4 | | Prepaid expenses | 23.1 | 26.1 | | Deferred tax assets, net | 3.7 | 3.2 | | Total Other assets | 129.1 | 111.3 | - Other assets increased by $17.9 million, or 16%, to $129.1 million at June 30, 2025, largely driven by an increase in derivatives at fair value116258 Note 12 – Borrowings | Borrowing Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | Advance match funded liabilities | 342.5 | 417.1 | | Mortgage loan financing facilities, net | 2,195.5 | 1,528.2 | | MSR financing facilities, net | 1,218.6 | 957.9 | | Senior notes, net | 488.5 | 487.4 | | Total Borrowings | 4,245.1 | 3,390.6 | - Mortgage loan financing facilities, net, increased by $667.3 million to $2,195.5 million, and MSR financing facilities, net, increased by $260.7 million to $1,218.6 million, reflecting growth in the Originations pipeline and MSR portfolio121126259 - Advance match funded liabilities decreased by $74.6 million to $342.5 million, consistent with the seasonal decline in servicing advances117259 - Onity issued $500.0 million aggregate principal amount of 9.875% Senior Notes due November 1, 2029, on November 6, 2024, which are guaranteed by Onity and certain subsidiaries131 Note 13 – Other Liabilities | Liability Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | Servicing-related obligations | 61.4 | 65.1 | | Checks held for escheat | 56.0 | 54.1 | | Other accrued expenses | 54.8 | 78.4 | | Due to Rithm - Advance collections and servicing fees | 49.2 | 63.4 | | Derivatives, at fair value | 26.8 | 27.6 | | Total Other liabilities | 365.0 | 420.6 | - Other liabilities decreased by $55.6 million, or 13%, to $365.0 million at June 30, 2025, mainly due to the payment of annual bonuses, reduction of servicing float balance due to Rithm, and favorable resolution of a prior-year uncertain tax position144259 Note 14 – Stockholders' Equity - On February 13, 2025, Oaktree exercised warrants to purchase 261,248 shares of common stock, settled in cash for $3.5 million, which reduced stockholders' equity without changing the number of issued and outstanding shares147 - The warrants, originally issued in 2021, were amended in October 2024 to allow Oaktree to elect a cash exercise option only with Onity's consent, otherwise requiring net share settlement145146 Note 15 – Derivative Financial Instruments and Hedging Activities | Derivative Type | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | Total Derivative Assets | 41.2 | 15.4 | | Total Derivative Liabilities | (26.8) | (27.6) | | Net Derivative Position | 14.4 | (12.2) | | Gain (Loss) | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | | Forward loans IRLCs | 17.8 | (1.6) | | TBA trades (economic hedge) | (25.4) | 9.7 | | Interest rate futures, TBA trades (MSR valuation adjustments) | 15.3 | (104.3) | | Total Net Gain (Loss) | 5.3 | (96.0) | - Onity uses derivative instruments, including forward sales of MBS/Agency TBAs, exchange-traded interest rate futures, and options, to economically hedge MSR and loan pipeline interest rate risk, with changes in fair value reported in MSR valuation adjustments, net or gain on loans held for sale, net155157 - The targeted MSR hedge coverage ratio was adjusted to 85% with a range of 80% to 100% in May 2025, aiming to protect shareholders' equity and earnings against fair value volatility153 Note 16 – Interest Expense | Interest Expense Type | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Mortgage loan financing facilities | 57.9 | 43.5 | | MSR financing facilities | 40.2 | 37.5 | | Senior Notes Due 2029 | 25.7 | — | | Advance match funded liabilities | 15.7 | 19.8 | | Onity Senior Secured Notes | — | 22.6 | | PMC Senior Secured Notes | — | 13.9 | | Total Interest Expense | 142.7 | 140.5 | - Total interest expense increased by $2.2 million, or 1.6%, for the six months ended June 30, 2025, compared to the prior year, primarily due to higher interest on mortgage loan and MSR financing facilities, partially offset by the redemption of prior corporate debt159252323 Note 17 - Income Taxes | Metric | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :----------------------- | :------------------------------------ | :------------------------------------ | | Income before income taxes | 32.0 | 45.3 | | Income tax expense (benefit) | (11.7) | 4.7 | | Effective tax rate | (36.6)% | 10.3% | - Onity recognized an income tax benefit of $11.7 million for the six months ended June 30, 2025, compared to an expense of $4.7 million in the prior year, primarily due to the favorable resolution of a $13.3 million prior-year uncertain tax position160255 - The company maintains a full valuation allowance on its net U.S. federal and state deferred tax assets ($179.8 million as of December 31, 2024) due to a history of cumulative operating losses, but believes it is reasonably possible to release some or all of this allowance by December 31, 2025, contingent on continued profitability161162254257 Note 18 – Basic and Diluted Earnings (Loss) per Share | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net income attributable to common stockholders (Millions $) | 41.6 | 40.6 | | Basic EPS | 5.23 | 5.23 | | Diluted EPS | 4.90 | 5.09 | | Weighted average common shares outstanding (Basic) | 7,947,992 | 7,766,331 | | Dilutive weighted average shares of common stock (Diluted) | 8,486,158 | 7,982,429 | - Basic EPS remained flat at $5.23 for the six months ended June 30, 2025, compared to the prior year, while diluted EPS decreased slightly to $4.90 from $5.09, despite an increase in net income attributable to common stockholders165 Note 19 – Business Segment Reporting - Onity operates through three reportable segments: Servicing, Originations, and Corporate, with performance evaluated based on pre-tax income167270 | Segment | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | | :---------------- | :------------------------------------ | :------------------------------------ | | Servicing Revenue | 438.3 | 436.2 | | Originations Revenue | 58.1 | 49.3 | | Corporate Revenue | — | — | | Servicing Income (loss) before taxes | 73.5 | 86.7 | | Originations Income (loss) before taxes | 18.6 | 10.5 | | Corporate Income (loss) before taxes | (60.2) | (51.9) | - Servicing segment income before income taxes decreased by 15% for the six months ended June 30, 2025, while Originations segment income before income taxes increased by 76% for the same period170171 Note 20 – Regulatory Requirements - Onity is subject to extensive federal, state, local, and foreign regulations, including capital and liquidity requirements from agencies like GSEs, HUD, FHA, VA, and Ginnie Mae172173175177 | Entity | Required Net Worth (Millions $) | Reported Net Worth (Millions $) | Required Liquidity (Millions $) | Reported Liquidity (Millions $) | | :----- | :---------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | | PHH | 300.0 | 354.3 | 65.8 (FHFA), 71.5 (Ginnie Mae) | 151.2 (FHFA), 523.1 (Ginnie Mae) | | PAS | 256.6 | 301.0 | 80.7 (FHFA) | 221.9 (FHFA) | - PHH received a waiver from Ginnie Mae extending the deadline to meet risk-based capital ratio (RBCR) requirements to October 1, 2025, and transferred certain GSE MSR investment activities to PAS to achieve compliance179384 Note 21 — Commitments - As a servicer, Onity is obligated to advance loan principal and interest, property taxes, and insurance premiums, with recovery mechanisms varying by loan type (PLS, Ginnie Mae, GSE)184185186187 - Onity has unfunded lending commitments of $3.0 billion for floating-rate reverse mortgage loans and $2.0 billion for forward and reverse mortgage loan IRLCs at June 30, 2025190 - Rithm, a major subservicing client, represented 11% of total serviced UPB and 20% of loan count, and 59% of all delinquent loans at June 30, 2025, with $5.7 billion in UPB transferred to another subservicer in Q1 2025196 Note 22 – Contingencies - Onity is involved in numerous legal proceedings, including class actions and regulatory investigations, primarily related to mortgage servicing and lending activities, with an accrual for probable and estimable legal and regulatory matters of $24.5 million at June 30, 2025199200202212213 - The company is in ongoing litigation with the USVI regarding income tax refunds and a new lawsuit alleging non-compliance with Economic Development Commission Certificate conditions207 - Onity has exposure to representation, warranty, and indemnification obligations from lending and loan sales, with outstanding repurchase demands of $37.8 million UPB (122 loans) at June 30, 2025214215 Note 23 – Subsequent Events - On July 10, 2025, Onity purchased a portfolio of government-insured reverse mortgage loan buyouts for $100.4 million, financed through a private placement securitization (OLIT 2025-HB1) with total proceeds of $309.5 million219 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Detailed analysis of Onity's Q2 2025 financial condition and results, including overall performance, segment results, and key trends Overview - Onity is a leading non-bank mortgage servicer and originator, servicing 1.4 million loans with a total UPB of $309.5 billion as of June 30, 2025, and aims for sustainable profitability through a balanced business model220237 | Metric | 3 Months Ended June 30, 2025 (Millions $) | 3 Months Ended March 31, 2025 (Millions $) | Change ($) | Change (%) | | :----------------------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Net income attributable to common stockholders | 20.5 | 22.1 | (1.6) | -7.2 | | Servicing and subservicing fee revenue | 211.3 | 203.3 | 8.0 | 3.9 | | Originations gain on sale | 15.4 | 15.6 | (0.2) | -1.3 | | MSR valuation gain (net of hedging) | 16.2 | (18.6) | 34.8 | -187.1 | - The company's strategy focuses on capital-light growth, industry-leading cost structure, top-tier operating performance, and dynamic asset management, including opportunistic MSR purchases and sales237 Segment Results of Operations - The Servicing segment's income before income taxes decreased by 15% for the six months ended June 30, 2025, compared to the prior year, while the Originations segment's income before income taxes increased by 76%170171 - The Corporate segment's loss before income taxes increased by 16% for the six months ended June 30, 2025, primarily due to higher professional services and compensation and benefits expenses170171356 Servicing Segment - The Servicing segment is primarily comprised of mortgage servicing and subservicing, earning fees and incurring costs based on loan delinquency status and MSR ownership. It serviced 1.4 million loans with an aggregate UPB of $309.5 billion as of June 30, 2025271 | Metric | June 30, 2025 (Billions $) | March 31, 2025 (Billions $) | Change ($) | Change (%) | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | | Performing loans UPB | 299.0 | 293.8 | 5.2 | 1.8 | | Non-performing loans UPB | 10.1 | 10.4 | (0.3) | -2.9 | | Total Servicing and Subservicing UPB | 309.5 | 304.6 | 4.9 | 1.6 | - Servicing and subservicing fees for the six months ended June 30, 2025, remained flat compared to the prior year, with an $8.6 million decrease in subservicing fees offset by an $8.6 million increase in servicing fees due to portfolio growth301 Originations Segment - The Originations segment originates and purchases loans and MSRs through Consumer Direct, Correspondent Lending, Reverse Originations, and Co-Issue Programs, generating gain on sale and fee revenue330331332333335 | Metric | 6 Months Ended June 30, 2025 (Billions $) | 6 Months Ended June 30, 2024 (Billions $) | Change ($) | Change (%) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Forward loans funded UPB | 9.78 | 7.09 | 2.69 | 37.9 | | Reverse loans funded UPB | 0.34 | 0.35 | (0.01) | -2.9 | | UPB of MSR Purchases | 11.46 | 5.18 | 6.28 | 121.2 | | Total Originations UPB | 21.57 | 12.62 | 8.95 | 70.9 | - Gain on loans held for sale, net, increased by $5.2 million for the six months ended June 30, 2025, driven by a 121% increase in Consumer Direct channel gain, partially offset by a 40% decrease in Correspondent channel gain due to margin decline343 Corporate Segment - The Corporate segment includes expenses for corporate support services not directly related to other segments, with certain expenses and corporate debt interest allocated to Servicing and Originations351353 | Metric | 6 Months Ended June 30, 2025 (Millions $) | 6 Months Ended June 30, 2024 (Millions $) | Change ($) | Change (%) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Total operating expenses before corporate overhead allocations | 83.7 | 63.6 | 20.1 | 31.6 | | Total operating expenses (after allocations) | 50.4 | 33.7 | 16.7 | 49.6 | | Loss before income taxes | (60.2) | (51.9) | (8.3) | 16.0 | - Operating expenses before corporate overhead allocations increased by $20.2 million, or 32%, for the six months ended June 30, 2025, primarily due to higher professional services and compensation and benefits expenses356 Liquidity and Capital Resources - Onity actively manages its debt agreements and completed several key transactions in H1 2025, including increasing borrowing capacity for GSE MSR and GNMA MSR facilities and entering a new PLS MSR financing agreement359361 | Borrowing Capacity | June 30, 2025 (Millions $) | December 31, 2024 (Millions $) | | :------------------------------------ | :-------------------------- | :----------------------------- | | Total Borrowing Capacity | 4,996 | 4,467 | | Remaining Borrowing Capacity - Committed | 671 | 681 | | Remaining Borrowing Capacity - Uncommitted | 1,020 | 1,413 | - Total liquidity at June 30, 2025, was $218.1 million, comprising $194.3 million of unrestricted cash and $23.8 million in available borrowing capacity, a decrease from $248.5 million at December 31, 2024, mainly due to originations growth in owned MSRs362 - The company's licensed entities are adequately capitalized and comply with regulatory requirements, with a high leverage ratio due to securitized reverse mortgage loans being reported on the balance sheet but risk-weighted at zero percent by Ginnie Mae376377384 Critical Accounting Policies and Estimates - Onity's critical accounting policies and estimates involve significant judgments related to fair value measurements, income taxes, allowance for losses, and loss contingencies, with 92% of assets and 69% of liabilities reported at fair value at June 30, 2025, primarily classified as Level 3 instruments403 Recent Accounting Developments - The adoption of ASU 2023-05 (Business Combinations - Joint Venture Formations) did not have a material impact on Onity's consolidated financial statements33 - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for Onity in the 2025 annual period and 2026 interim periods, requiring disaggregated information on effective tax rate reconciliation and income taxes paid3435 Item 3. Quantitative and Qualitative Disclosures about Market Risk Details Onity's market risk exposure, primarily from interest rate changes, and its management strategies through MSR, pipeline hedging, and sensitivity analyses Interest Rates - Onity's primary market risk is the impact of interest rate changes on mortgage-related assets (MSRs, loans held for sale/investment, IRLCs) and commitments, as well as on float income and variable-rate borrowings405 - The Market Risk Committee establishes policies for risk appetite and hedging programs, including duration, interest rate sensitivity measures, limits, and targeted hedge coverage ratios406 MSR Hedging Strategy - The MSR hedging policy aims to protect shareholders' equity and earnings from fair value volatility of the interest-rate sensitive MSR portfolio exposure, which includes Agency MSRs, expected bulk transactions, and reverse MSRs409416 - A new targeted hedge coverage ratio of 85% (range 80%-100%) was established in May 2025, acknowledging that partial coverage means hedging instruments may not fully offset MSR fair value changes due to various market factors410411 - Derivative instruments used for MSR hedging, such as forward trades of MBS/Agency TBAs, interest rate futures, and options, are not designated as accounting hedges and are subject to daily margin requirements413414 Loans Held for Investment and HMBS-related Borrowings - The fair value of reverse mortgage loans held for investment (HECM) generally decreases with rising market interest rates and increases with falling rates, as higher rates accelerate loan balance accrual to the maximum claim amount415 - The net fair value of securitized HECM loans and HMBS-related borrowings (reverse mortgage economic MSR or HMSR) is used as a partial offset to forward MSR exposure and managed within the overall MSR hedging strategy416417 Pipeline Hedging Strategy - Loans Held for Sale and IRLCs - Onity hedges interest rate and price risk in its Originations business from interest rate lock commitment (IRLC) through loan sale/securitization using derivative instruments like forward sales of Agency TBAs418 - The objective is to reduce fair value volatility of IRLCs and loans, preserving the initial gain on sale margin, with daily monitoring of net market risk position and a daily limit of +/- 5%418 EBO and Loan Modification Hedging – Loans Held for Sale, at fair value - In its Servicing business, Onity hedges certain Ginnie Mae EBO loans repurchased for modification and reperformance with TBAs to manage interest rate risk while these loans await redelivery419 Advance Match Funded Liabilities - Onity monitors the impact of interest rate changes on the interest paid on its variable-rate advance financing debt, with earnings on cash and float balances providing a partial offset to this exposure420 Sensitivity Analysis - Onity uses daily sensitivity analyses to assess the impact of hypothetical instantaneous parallel shifts in the yield curve (+/- 25 basis points) on the fair value of MSRs, HECM loans, loans held for sale, and related derivatives421422 | Asset/Liability | Down 25 bps (Millions $) | Up 25 bps (Millions $) | | :------------------------------------------------ | :----------------------- | :--------------------- | | Asset value of securitized HECM loans, net of HMBS-related borrowing | 5 | (5) | | Loans held for sale | 19 | (23) | | Derivative instruments | 14 | (11) | | Total MSRs - Agency and non-Agency | (40) | 39 | | IRLCs | (2) | 2 | | Total, net | (5) | 2 | - A hypothetical 100 bps decrease in interest rates is estimated to have a net positive impact of approximately $4.7 million on profitability, resulting from a $28.3 million decrease in annual interest income and a $33.0 million decrease in annual interest expense on variable-rate debt425 Item 4. Controls and Procedures Management evaluated disclosure controls and procedures as effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated as effective and functioning as of June 30, 2025, ensuring material information is communicated and reported timely427 - No material changes to internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025428 PART II - OTHER INFORMATION Item 1. Legal Proceedings Material legal proceedings are incorporated by reference from Note 22 to the Unaudited Consolidated Financial Statements - Material legal proceedings are detailed in Note 22 – Contingencies, which is incorporated by reference430 Item 1A. Risk Factors Significant risks are referenced from the 2024 Annual Report on Form 10-K, with no material changes since that filing - Significant risks are detailed in the Annual Report on Form 10-K for the year ended December 31, 2024, and no material changes have occurred since that filing431432 Item 6. Exhibits Lists exhibits filed with Form 10-Q, including organizational documents, certifications, and supplemental information - Exhibits include Amended and Restated Articles of Incorporation and Bylaws, certifications from principal executive and financial officers (Sections 302 and 906 of Sarbanes-Oxley Act), and supplemental information pursuant to the Senior Notes Indenture433436