Rithm Capital Corp.

Good day, and welcome to the Rhythm Capital fourth quarter and full year 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Phil Simmons. Please go ahead.

Thank you, and good morning, everyone. I'd like to thank you for joining us today for Rhythm Capital's fourth quarter and full year 2022 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of Rhythm Capital, and Nick Santoro, Chief Financial Officer of Rhythm Capital. Throughout the call, we are going to reference the earnings supplement that was posted to the Rhythm Capital website, www.rhythmcap.com, this morning. If you've not already done so, I'd encourage you to download the presentation now. I'd like to point out that certain statements today will be forward-looking statements. These statements by their nature are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplements regarding forward-looking statements and review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we'll be discussing some non-GAAP financial measures during today's call. Reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Phil. Good morning, everyone, and thanks for dialing in. 2022 was a transformational year for us in many ways. First on the markets, our broad experience in financial services investing served our shareholders well as we navigated some of the more difficult fixed income markets we've seen in a few years. With the Federal Reserve raising rates seven times for a total of 425 basis points, the mortgage basis widening between 70 and 100 basis points, high yield index wider by almost 200 basis points, and investment grade bond spreads wider by at least 25 basis points. Capital markets essentially shut down during different periods. We managed to grow our book value by 5% during 2022, generate a gap return on equity of 15%, 11% on our core business, and an economic return of 14%. This doesn't happen by chance. With a disciplined approach to investing, spending time with our partners, Positioning the company in our balance sheet for higher rates, we generated a very good result during these difficult times. Unfortunately, the equity does not reflect the performance with the stock price trading at too large of a discount, in my opinion, to book, and we'll continue to do all we can to see us normalized towards book. During the year, in June, the company rebranded to Rhythm Capital as the management contract was internalized. The results of these actions were to drive more earnings to our shareholders and begin the transition to an alternative asset manager. In the fourth quarter of 2022, we launched our private funds business with the intent of raising third-party funds. Our funds business will be a subsidiary of Rhythm Capital with all management fees and performance fees flowing through the parent. This will enable us to generate more earnings for our shareholders and ensure we are aligned with our shareholders and our employees. We are currently marketing a financial services fund and look forward to working with partners to take advantage of the wonderful opportunities we are seeing and expect to see in 23 and beyond. We will also be opening Rhythm Europe. Very excited about this. This will enable us to take advantage of dislocations in the EU and UK. This should happen in Q2, and I'm very excited about the what-if here. In December of 2022, we acquired a 50% stake in the private equity commercial real estate platform, formerly known as Normandy Partners and renamed as Green. This gives us real depth and expertise in conjunction with our rhythm employees to be opportunistic investors in the commercial real estate space, both on the debt and equity side. Regarding our operating business units, We right-sized our mortgage company, our G&A overall in the company, by over 50% year-on-year. We are now in the position to drive higher earnings as a result of the actions taken. Our MSR portfolios, which total $600 billion, have been fantastic, generating tons of cash flows into the higher-rate markets we've seen. We've been very vocal. We will not fight the Fed, and at this point, we will continue not to fight the Fed. Our average gross WAC on our portfolio is 3.7%, and that includes new production. We continue to explore different ways to engage our customer base of 3.1 million consumers by offering other products and are very focused on our customer retention. As you think about the housing and mortgage market, the weighted average mortgage rate for Fannie Mae and Freddie Mac loans in the United States is 3.62%. The weighted average mortgage rate for Ginnie Mae borrowers is 3.57%. I bring this up as the refi opportunity is way out of the money, with mortgage rates currently north of 6%. This should continue to lead to great performance in the MSR sector. Our Genesis business, which is our builder business, had a great year, originating a little shy of $2.5 billion in loans. Average coupons on that portfolio right now are approximately 10%, and we look forward to growing the business in 23 and beyond. On the single-family rental space, our Adore business had a good year, as our occupancy rates continue to, or as our lease-up rates continue to increase. A couple things there. One is we've halted our acquisitions very early in the year with the expectation that home prices would decline and cap rates would increase. We are seeing that. However, transactions have been very slow. As we go forward in 2023, and with home prices at this point down approximately 10% from peak, We think that housing supply shortages, home prices being less affordable where mortgage rates are, will be back acquiring units at some point later in the year. As you can tell, a lot to do here. Super excited for our future and super excited for the growth prospects for our business. With opportunities in the market across many asset classes and companies, we look forward to putting up great returns for shareholders and our partners in the private credit business. I'll now refer to the supplement, which we posted online, and I'm going to open up on page three. Just a couple things here. On the Rhythm side, currently 70 full-time employees here in the offices in New York. Balance sheet is approximately $32 billion as of the end of the year, a little under $7 billion of total equity. When you look at the portfolio of operating companies, keep in mind that This business was started in 2013 to be an asset manager of XSMSRs. Today, if you look across the board, we have a number of different operating companies in financial services, whether it be on the residential side, the commercial side, making loans to builders. We have property preservation businesses. We have a single-family rental business, and we have title and appraisal. We're very, very proud of the work that the team has done to build out these operating companies. which at all times is not the easiest place to be. Financial highlights, page 4, gap net income, $81.8 million, or $0.17 per diluted share. Earnings available for distribution, $0.33 per diluted share, or $156.9 million. Our dividend is $0.25. Cash and liquidity at the end of the year was $1.4 billion. Today is $1.3 billion. That includes all the payments made to Fortress. Total equity, $6.9 billion. That's for Q4. Full year, gap net income, $864.8 million or $1.80 per diluted share. Earnings available for distribution, $633 million or $1.31 per diluted share. Total economic return, 14%. Gap return in equity, 15%. Earnings available for distribution, Return on equity, 11, and book value growth, 5%. End of the year at $12. Book value right now we're probably something between 11 and 3 quarters and 12. Page five, business highlights. Internalized the manager, rebranded to Rhythm Capital, launched our private credit business, bought 50% of the operating entity of Green Barn, and then we successfully right-sized our mortgage company. Very, very good year. A lot of work, a lot of hard work by the team across the board. Page six, the evolution of Rhythm, again, started in 2013 as a manager of or to acquire excess MSR rights. As we progressed through the past 10 years, we drove growth through many different business lines, including becoming operators of different business lines, a lot of what I would call large-scale M&As, where we bought Caliber, for example, in 2021 for book value. That was $1.6 billion. We bought Genesis Capital in 2021. That was $1.4 billion. Everything we do when we think about acquiring assets and or companies is around trying to acquire these assets at book value with a view towards real value in the underlying assets in the event that, for example, in the Caliber business, we see rates go up and the origination side go down. As we go forward, 2023 and beyond, the growth of our private funds business, we've been running around the globe a little bit, meeting with different LPs and look forward to really developing the private credit business as we think it's going to give us the opportunity to deploy capital more opportunistically when those situations arise. Page 7, Rhythm 2.0, operating companies, I pointed out on the left side, Investment portfolio, no surprise what we have going on there, plus our private capital business. I think it puts us in a very, very good place. And again, really excited about what the future looks like for our business. Page eight, the economic landscape. This year is going to be hard. I mean, the rate market is going to be a little bit more challenging than I think what we saw in 2022. 2022 is very clear. The Fed was going to keep their foot on the pedal and raise rates extremely aggressively. We saw, as I pointed out, Fed funds rise by 400-plus basis points. Bond yields back up, and we positioned the company extremely well going into that. As we look at this year, the yield curve continues to remain inverted. Big employment print on Friday. The consumer seems like they are in very good shape. And I think you're going to see a fair amount more volatility in the rate market this year. And where we are now is we're much closer to home than I think where we were a year ago. And we'll continue to monitor rate moves and at some point likely put on some mortgages and hedge out some of our MSR portfolios. Page nine, the rhythm playbook. Again, some of this is a little repetitive. The investment portfolio. We're going to continue to seek opportunities to deploy capital, not just to deploy capital, but they must be at good risk-adjusted returns. Monitor the credit performance of the existing portfolio. What happens if we go into recession? How do we think about our business to make sure that we're ready for that? Servicing and origination. The hard work that Barron and his team did in 22 is in a very different place, I think, as we enter 23 to be able to grow that business again. From an employee standpoint, we are right-sized right now and look forward to growing our business throughout the course of the year. Private capital business, again, really excited. Going to be a lot of hard work there and look forward to really growing a proper funds business. Genesis Capital on the building side, we're going to grow that business. We love 10% unlevered yielding assets on our balance sheet. Adore, the single-family business, again, we'll enter the market when we deem it appropriate. with higher cap rates and when we think HPA or HPD is kind of leveled off. And then on the commercial real estate side, we're going to be more opportunistic as we think about employing equity and or debt in that business. Page 11, just our experience. I'm not going to spend a lot of time on this across different asset classes. It ranges from residential mortgage loans to commercial real estate to consumer loans. Obviously, we've been involved in what I would call distressed debt situations, even buying the assets from DITEC out of bankruptcy. So a lot of experience and a great team that's in the office every day working their tails off to put up very good results for our shareholders. Mortgage company overview, page 12. You know, for the fourth quarter, $24 million in pre-tax income. What I would caution everybody as you look at these numbers, make sure if you compare us or other organizations to us, make sure you look at everything apples to apples. Nick Santoro, CFO, and Barron are happy to walk you through any of the math in and around that. Year-over-year decline in G&A down 53%. Unfortunately, with rates rising, headcount reductions were very aggressive for us in 22%. Hopefully we're done with that as we go forward. There are some interesting opportunities in the mortgage space around MSRs and other potential entities that we're currently working on as we go forward here. Focus on 23, profitability, customer retention, and that leads into our recapture business. Page 13, our servicing business, very, very strong business. Right now we have $500 billion that we currently service in-house. That doesn't include assets that we service with third parties, either on the rhythm side or in some of the legacy mortgage company stuff that we have on the excess side. As you can see, gain on sale margins, Q4, 1.81%. Big focus is on us. We've right-sized our retail organization. It's going to be driven, real earnings will be driven around, in our view, new home sales, which plays extremely well for the retail side. and then the recapture business around DTC. On the non-QM front, just to point out a couple things there, we continue to try to grow that business. Not the easiest business to grow. Our credit team is taking measures now in light of our expectations that home prices continue to come down a little bit to lower LTVs, which may make us a little bit less competitive in what I would call some of the higher risk products, which we're more than happy to be able to take these actions. Page 14, the MSR portfolio, $600 billion, 3.7 gross WAC. On the excess side, 4.4. On the excess side, those are legacy credit-impaired MSRs. Love where we sit here. A lot of cash flow. As I pointed out before, with our mortgage rates well north of 6%, we expect those portfolios to perform extremely well as we go forward. Thank you. MSR values, we took them down a little bit in the fourth quarter. Weighted average multiple is 4.9. We think that's a little bit on the conservative side. As you can see to the right side of the slide here, amortization is dropped from fourth quarter of 2020 from 30 CPR down to 5 CPR in the fourth quarter of 2022. Service advances, nothing to talk about here. We continue to monitor performance on the underlying homeowner. Effectively, year over year, everything's unchanged. Should we see a material pickup in delinquencies and or the need to fund service advances? Our capital markets team led by Sanjeev Khan has done a great job, not only now, but over the years, having plenty of capacity in that space. Just to frame something, going back, I think it was to like 14 or 15, we had 11 billion of capacity in the service or advance business. And as you look at this, there's really not much going on there. Genesis Capital, I pointed out before, a little under $2.5 billion of origination. Love the business. Love the coupons. Tightened up underwriting guidelines, and we expect some really good growth here as we go forward to 2023 and beyond. And then finally, on the single-family rental space, 3,700 units. We are small in what I would call a sea of big fish to the extent that we see cap rates at attractive levels and we are able to grow that business when we think home prices have leveled off, we will do so. We're not seeing a ton of opportunity there now and our main focus continues to be on getting assets released. Current lease rates are give or take about 96% right now and as we go forward, we're seeing rent growth in and around 4%. So with that, That's my wrap right now. I'll turn it back to the operator for Q&A, and let's open up the lines.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

At this time, we will pause momentarily to assemble our roster. The first question today comes from Boze George with KBW.

Please go ahead.

Good morning. I wanted to ask just about the potential cadence for, you know, growth in alternative assets. And there's obviously a lot of chatter in the MSR market about, you know, wells potentially selling, et cetera. I mean, is there a potential for, you know, something meaningful kind of happening in that area?

So, good morning, both. Yeah, on the private capital business, you know, when you look at where our equity trades, we trade at, you know, give or take 20 to – I'm sorry, roughly south of 80% a book. When you think about where we are in the marketplace now with the investment opportunities – typically what happens is the investment opportunities will present themselves at a time when your equity is trading at a discount, which is really where we are now. Coupled out with our pivot from Fortress into being internally managed, we think the private credit business is going to be a big win for shareholders, and it's going to be a big win for all of us. as we're able to deploy capital more opportunistically and have access to those large pools overall throughout the financial services landscape that we invest capital in. As you think about wells and MSR opportunities, yeah, I mean, to the extent that wells or anybody else comes out with large pools of MSRs that we think the risk-adjusted returns are attractive, we're going to pounce on those opportunities. The one thing I would say is, Counter to that is we do have 600 billion of MSRs. We manufacture our own MSRs every day, so we're in a really good place in that business. But to the extent that things come out a little bit cheaper than where we're able to create them, we're going to be all over that. And we are starting to see some opportunities there.

Okay, great. Thanks. And then, actually, I wanted to ask about the servicing technology. You mentioned a couple of times that there might be some opportunities to monetize that or move stuff internally. Just, yeah, any update there?

Currently, our servicing plan is we have a bunch of servicing that's moved to service director, which is our own software. We continue to have dialogue and explore services. other ways to create value for shareholders with either third-party software or third-party servicing systems, I would say right now we're steady as she goes.

Okay, great. Thanks.

Thanks, Bose.

The next question comes from Doug Harder with Credit Suisse.

Please go ahead.

Hey, Doug.

Doug, you're live.

Morning.

You mentioned talking about potential opportunities in Europe. Do you envision that kind of being on balance sheet or would that be through the private capital?

Most likely through the private capital. Could be a little bit on balance sheet. We'll be pretty selective there. I mean, what I would say over the years in how long I'm doing this and some of my partners, Charles and others, managing businesses in Europe and having identified an individual to run our European business who should come online in Q2. I think we're going to look for more situations around distressed debt, and we'll likely raise some capital around that business, more likely in private funds, but I think initially it could come out of the public company.

Doug? Doug?

It looks like we lost Doug. The next question comes from Eric Hagan with BTIG. Please go ahead. So much fun, Doug.

Hey, Eric. Hey, good morning, guys. How you doing? You know, the MSR portfolio looks really stable here. Maybe two questions. The first, just asking about your expectations for recapture and the piece that isn't subserviced directly by you? How do you think about that?

I would say everything's added to money at this point. We do have some servicing with Cooper. That goes back to our longstanding relationship with Jay and his team when we were at Fortress, when Cooper was owned in the private equity funds there. We have some stuff with loan care. We'll continue to work with some third parties. We just want to make sure the economics are in line with the best way to think about recapture for our shareholders. But, you know, as I pointed out earlier in my remarks, you know, with the weighted average coupon in the U.S. housing market, give or take around 3.5% or so, these things are so far out of the money, you're not going to see a ton of recapture. Our thing, and probably similar to, I think, the approach that Rocket's had, you know, customer retention is a huge deal. Acquiring customers is a huge deal. We have 3 million of them. So that's a win. How we roll out other products to them, whether it be in consumer things, credit cards, and other things, is something that we are working hard on. And again, it's not necessarily to do a transaction on the mortgage side, because if they're not going to refinance, how do you keep them? How do you develop brand awareness? So we're spending a lot of time on the marketing side, as well as thinking about other LOBs that can be accretive and drive more earnings for shareholders.

Yep, that's helpful detail. Thanks. And then another one on the MSR. Do you have a rough idea for how big of a margin call you could withstand in that portfolio and anything that could bring about a margin call other than a change in interest rates? And really just how you cushion for that risk in the portfolio more generally. Thanks.

Either make sure your financing is done in the capital markets, you know, in term structures, which we do, or make sure that you have non-mark-to-market facilities, which we have. As it relates to shocks, I don't think we'll see a bigger shock than we saw in 2020. We withstood that extremely well. The other thing is, with our financing facilities all non-mark-to-market, the team graded in capital markets, And we have term structures on pretty much all of our what I would call non-agency assets. We feel really good where we are.

Yep. Great. Thank you guys very much.

The next question comes from Kevin Barker with Piper Sandler. Please go ahead.

Good morning. Thanks for taking my questions. I just wanted to follow up on the origination side. Do you see any particular opportunities emerging for within certain channels that may make it more advantageous to invest in that space. I appreciate the comments around limited amount of refi opportunity with mortgages at 3.5%, but there are certain channels that may be opening up, whether it's correspondent, broker, or even portions of the shelter business. Is there anything in there you see that you can reinvest in?

Barry, you want to take it? I mean, I think you're right. A Wells exiting correspondent has certainly opened things up in that sector. Michael talked about non-QM. We feel like the wholesale channel where we can basically utilize brokers to try to expand there. And you continue to see activity on the retail side, right? And you see it from an M&A perspective. Michael talked about that in the third quarter earnings as well. So, you know, I think that there are It feels like there are more opportunities within origination. So I would also just echo Michael's comment. We're not growing to grow, right? So we're going to be strategic in how we look at different opportunities.

And, Kevin, I mean, there's been a lot of work, obviously, on the retail side. We've consolidated the retail side with the shelter business. So we've taken out a lot of expense. And, you know, you can think of that almost like an internal merger of You look at the correspondent business, and pricing is still extremely competitive today when we put our rates. We're doing a fair amount of origination, but it's still, despite the fact that Wells has pulled out a correspondent, pricing around MSRs has been pretty competitive and pretty aggressive. While saying that, we do think some mortgage companies are going to need some solutions. you know, there could be opportunities for either M&A work. But I think right now we're in all the channels that we need to be. And unless something's a creative, you know, there's just no reason for us to do it.

And then could you just give us an update from an operational perspective where you are with all the various integrations that have taken place? I know you've done a ton of work the last couple of years, but is there any other bigger integrations that still need to you know, be finalized within either the origination channel or even in the servicing channel?

No, there's some servicing assets moving from, you know, the legacy caliber MSP side to service director. That should be done, I think, in the second quarter. On the origination side, that's all set. And really, some of the opportunities and as, you know, you think about the Genesis business, you think about the mortgage company, We have a ton of resources in all these different companies. The saves for shareholders are going to come as we integrate more around tech. One of the things we're going to do is we're going to create a tech hub that sits at the top of the house for all of our operating businesses. That'll create efficiencies and save us some money, and we look forward to doing that. I think it's really going to be saves in and around synergies on bringing these operating businesses together, not necessarily just the mortgage company. Thank you, Michael. Thank you, Barron. Thanks, Kevin.

As a reminder, if you would like to ask a question, please press star then one to be joined into the question queue. The next question comes from Stephen Laws with Raymond James. Please go ahead.

Hi, good morning. Michael, you know, looking at the new segment, you know, you've really pieced together a broad investment platform. You know, as we take maybe more of a medium term outlook, say two to four years, you know, which of these segments do you think have the ability to have kind of outsized growth or an outsized capital allocation as you think about, you know, what the business should look like in a handful of years?

I think we're going to be, well, here's what I would say. Our approach, and this goes back to when the company was first formed at Fortress, has always been to be more opportunistic investors rather than just be an investor to deploy capital to do that, including our capital formation when we would do an M&A deal. We would typically raise capital around M&A deals, not just to raise capital. So when you look at where we are going forward, let's use the Green Barn Company. Green Barn was formerly the old Normandy Partners, then they rebranded to Senlac. They do redevelopment work in office here in the Northeast, and they have a very good footprint with a great track record that goes back, I think, to the mid-'90s. David Wells, who leads that business, great guy and a great operator. that's a good example of something that will be grown strategically over time, and we'd like to allocate more capital there, and we'll probably also use either capital from the balance sheet and third-party funds to grow that business. MSRS, as I point out, we have $600 billion. We can go out and buy another X hundreds of billions, but we want to make sure the risk-adjusted returns are something that warrant either growing that or if you thought about it, if your last dollar of capital was X, where would you put that money? We like the Genesis business a lot. I think at some point you'll see some consumer companies come out towards the end of the year from folks in the private equity business that have some of these. So that could be an opportunity for growth. We're seeing some other opportunities around MH and other things. So It depends, but it's really going to be more opportunistically across the board, not just to grow a certain sector that we're in. The one thing I want to be clear to everybody on the phone and others that will listen to this is that we will always stay true to our core competency, which is financial services. So even on the funds that we're raising, we are going to stay, whether it be in commercial space, residential space, consumer space, everywhere where we have experience, or have the teams that have experience, that's where we're going to deploy capital. So it's going to be more opportunistic where we think we could generate what I would call, you know, teams-type returns. And if you look at our track record going back to 13 on our core business, our real returns are probably in and around, you know, 12% on a return on equity basis while paying a $4.5 billion of dividends. Great. Thanks, Michael. Thank you.

The next question comes from Trevor Cranston with JMP Securities. Please go ahead.

Hey, thanks. Good morning. Good morning. One more question on the origination segment. You guys have obviously done a lot to reduce the expense level of the company over the course of the year. Would you say that the run rate numbers you show on slide 12 for expenses are Is that kind of fully reflective of everything you've done, or are there any actions you've taken that are still kind of yet to show up in the Q4 expense numbers for originations?

I would say that's fully reflective of what we've done. And go forward reactions are actions are not going to be material.

Trevor, I think it all depends on the rate market. As I pointed out in my opening remarks, I thought the way that we positioned the company last year to higher rates was, and that included, unfortunately, reducing headcount pretty dramatically in the business. Going back to Kevin's question about integration, we're through that, but we're going to have to adapt to markets. I think right now we feel real good where we are headcount. We feel real good where we are, the way the company's positioned. Um, you know, but we'll want to make sure that obviously that we manage expenses across our entire operating platform and that'll include all of our businesses. Got it.

Okay. Um, you mentioned potentially, um, looking to, to add mortgages and hedge out the fair value of the MSR, um, at some point, can you maybe expand on a little bit, what you'd be, what you'd be looking for in the market to, um, start trying to implement those strategies.

Thanks. If we think the Fed is done and we feel that the rate, like, I mean, here's our general view or my general view is that mortgages will do better over time. You know, you'll have periods of volatility. When we think the Fed is closer to being done, I think we'll begin adding some hedges. Across our broader portfolios, all of our portfolios are hedged with either interest rate swaps and or mortgages. And for now, I think in the MSR business, we'll stay the course. But at some point, we'll likely have a more balanced portfolio where the MSR business will hedge. And the other thing to keep in mind there is a 3.5 coupon is not going to refinance right now, other than just through housing turnover. So that's an area where, unless we think the mortgage basis is really cheap, We don't need to hedge out that coupon right now. And even if the Fed is done, unless we think tenure rate is going to go to whatever, 1.5% and you have some COVID type event, then we'll react to that accordingly. But for now, I think we've got to stay the course. The thing I would tell you about our team, and we have third-party consultants on the economic side that we meet with monthly. We have a very strong presence, I think, in the markets as we think about you know, the macro picture. And that's something that's really, really important for us to maintain discipline in the business and make sure we try to catch both the ups and downs of where rates go and mortgages go. Okay. Makes sense. Thank you.

Thank you.

The next question comes from Juliano Bologna with Compass Points. Please go ahead.

Good morning, and congrats on continued execution, navigating a tough environment here. One thing I was curious about, and it's a topic that I think was kind of addressed earlier on in the Q&A, but I'd like to use a slightly different angle, is you obviously mentioned raising private capital on the fund side, and one of the slides was a little bit about your MSR funds. I'd be curious if you think there's any opportunity to leverage the mortgage company, leverage the subservicing capabilities to do some sort of, you know, acquisition of MSRs from a fund perspective because there's obviously a lot of capital chasing, you know, the MSR asset class. And obviously, you know, if the reports are correct and Wells is, you know, looking to sell 200 to 250 billion MSRs on top of everything else in the market, there could be a lot of supply. I'm curious if that could be an opportunity for the Rhythm platform as a whole to, you know, get some external capital in the fees and also leverage the subserver service.

The answer is yes, yes, and yes, if there were three questions. If there were two, I'm going to give you yes and yes. Right now, what I would tell you on the subservicing side, we have a very good subservicing business. That will grow. There's a little bit of uncertainty. There's a couple large subservices that potentially could come to market. We're extremely well suited to be in a position to, what I would say, grow our subservicing and take out costs. where I think that gives us an edge over others. On the MSR front, same thing. We think MSRs are extremely attractive here. We do think there'll be some supply. Obviously, the Wells announcement, until that actually comes, we'll see what happens. But we'll add, as long as we think the risk-adjusted returns have teens in front of them.

That makes sense. And this is hopefully not a three-part question, but When I look at the servicing side, you know, CPR is down at 5%. For IMAP, you know, just on a dollar basis, it looks like, you know, the amortization was, you know, 4.9%. In the quarter, obviously that trend can continue in the short term into the first quarter, and then it will obviously move around, you know, throughout the year. I'm curious, you know, how long do you think CPR is going to stay, you know, near historic lows? And on the other side of that, I'm curious, how far out do you think it might be to get the Origination platform back to profitability? Remove a little bit of the drag on the great servicing performance.

So let's take the last part of the question. On the Origination side, I think we should be back to profitability either Q1 or early Q2. We've taken actions, obviously, on the retail side, which is a very difficult business. as you can imagine, and I feel like we're well positioned now there. And in some of the earlier comments, we merged our JB business, the shelter business with retail. So again, creating more synergies and taking on more expense. Regarding MSRs and speeds, I mean, it's going to come down to housing turnover. I'm not sure who's going to refinance a three and a half coupon until mortgage rates go back to, you know, towards the lows. and housing becomes a little bit more affordable. So I think we're in this for a bit. There's no reason for somebody... The reason you see probably less housing transactions is why would somebody sell their house unless they need to if they have a 2.5% or 3% coupon mortgage rate? So I think it's really going to come down to housing turnover if home prices cheapen up, and I think it's more likely you'll see growth in the rental markets as things are less affordable today.

That's great. I really appreciate the answers to the questions, and I'll jump back in the queue. Thank you.

Thank you.

The next question comes from Bo George with KBW. Please go ahead.

Hey, thanks. Yeah, I just had a follow-up on the gain-on-sale margin trend. So this quarter, I mean, it looks like the gain-on-sale margin is up, you know, for each of the channels. I was curious if the, you know, if the market's kind of bottomed or is it just more your volume going down and you being more selective in terms of, you know, engagement?

Bo, we did see some improvement in margin in the quarter. And you also do see some... some impact from adjustments to prior quarter pull-through adjusted rates. So that impacted the margins for the quarter as well. But we are seeing improvement.

Okay. Actually, can you just explain the prior quarter adjustments?

In terms of prior quarter, you always estimate what your pull-through adjusted rate is when determining your margin for a given quarter. And to the extent you come in better, In the following, when the cash will come in better, you will see improvement in margin in the current quarter.

Okay. Okay. Okay. Great. Thanks very much.

Thanks, Bose.

This concludes our question and answer session. I would like to turn the conference back over to Michael Nirenberg for any closing remarks.

Thanks, everybody, for dialing in. Look forward to updating you throughout the course of the quarter and on our next call. Appreciate the support. Go Rhythm.

The conference has now concluded. Thank you for attending today's presentation.

You may now disconnect.