Onity Group Inc.: Form 10-Q for the period ended Jun 30, 2025

(Dollars in millions, except per share amounts and unless otherwise indicated. Amounts may not add in certain tables due to rounding.)

OVERVIEW

General

We are a leading non-bank mortgage servicer and originator providing solutions through our primary brands, PHH Mortgage and Liberty Reverse Mortgage. PHH is one of the largest non-bank servicers in the country based on UPB, focused on delivering a variety of servicing and lending programs. PHH is also one of the largest correspondent lenders in the U.S. based on origination UPB. Liberty is one of the nation’s largest reverse mortgage lenders and servicers based on origination and securitization UPB, dedicated to education and providing loans that help customers meet their personal and financial needs by drawing upon their home equity. We serviced or subserviced 1.4 million loans with a total UPB of $309.5 billion on behalf of more than 3,900 investors and 122 subservicing clients as of June 30, 2025. We service all mortgage loan classes, including conventional, government-insured, non-Agency, small-balance commercial and multi-family loans. Our Originations business is part of our balanced business model to generate gains on loan sales and profitable returns, and to support the replenishment and the growth of our servicing portfolio. Through our retail, correspondent and wholesale channels, we originate and purchase conventional and government-insured forward and reverse mortgage loans that we sell or securitize on a servicing retained basis. In addition, we grow our mortgage servicing volume through MSR flow purchase agreements, Agency Cash Window and co-issue programs, bulk MSR purchase transactions, and subservicing agreements.

Volume Overview

The table below summarizes the volume of Originations by channel on a current and comparative basis. The volume of Originations is a key driver of the profitability of our Originations segment, along with margins, and also a key driver of the replenishment and growth of our Servicing segment. In the second quarter of 2025, we added $15.2 billion of new volume, with $5.5 billion of subservicing additions, $9.4 billion of new Originations production and $0.3 billion bulk acquisitions, as further detailed in the below table.

$ In billions

(1) Represents the UPB of loans that have been originated or purchased (funded) during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.

(2) Represents the UPB of loans for which the MSR is purchased.

(3) Represents the UPB of reverse mortgage loans that have been securitized on a servicing retained basis. The loans are recognized on our consolidated balance sheets under GAAP without any separate recognition of MSRs.

(4) Includes interim subservicing, including the volume of UPB associated with short-term interim subservicing for certain clients as a support to their originate-to-sell business.

The following table summarizes the average volume of our Servicing segment, on a current and comparative basis. The average servicing volume is a key driver of the profitability of our Servicing segment. The relative weight of performing and delinquent loans or servicing and subservicing also drive the amount and timing of gross revenue and expenses. Our average total servicing and subservicing UPB increased by $2.5 billion or 0.8% during the second quarter of 2025 compared to the prior quarter (3.3% annualized) and increased by $8.4 billion or 2.8% as compared to the prior year six months, net of runoff. For comparison purposes, the total industry mortgage debt outstanding increased 2.6% quarter over quarter (annualized) and 2.8% year over year (source: Mortgage Bankers Association (MBA) Mortgage Finance Forecast as of July 17, 2025).

$ In billions

As of June 30, 2025 and March 31, 2025, the total servicing and subservicing UPB amounted to $309.5 billion and $304.6 billion, respectively, a net increase of $4.9 billion or 1.6% (6.4% annualized).

Market Update

The following table presents key market interest rates which are important drivers of our businesses. As further discussed, the 30-year fixed rate mortgage is a key driver of Originations volume and prepayments in Servicing, the 10-year Treasury rate is a key benchmark for MSR valuation and hedging activities, and the 1-month SOFR is a key benchmark for the profitability of our Servicing segment (including float earnings and asset-backed financing cost).

(1) Source: Freddie Mac PMMS - Primary Mortgage Market Survey

The average 30-year fixed rate mortgage rate was mostly flat for all periods presented at elevated levels relative to the past decade, impacting borrower affordability and overall origination market volumes. The average 30-year fixed rate mortgage between 2015 to 2024 was 4.85% excluding the 2020 and 2021 years impacted by Covid 19.

In 2024, the Federal Reserve reduced its federal funds target rate a total of 1 percentage point between September and December 2024 (50-basis point reduction in September and two consecutive 25-basis point reductions in November and December). In the first half of 2025, the Federal Reserve kept the federal funds rate unchanged. The 1-month SOFR largely followed the Federal Reserve actions in 2024, as illustrated in the below graph, resulting in a 101 basis points decline year over year, and remained flat in its quarterly average in 2025.

As further illustrated in the below graph, the 10-year Treasury rate remained mostly flat in the second quarter 2025 and declined 35 basis points in the first quarter of 2025. The 10-year Treasury rate declined 34 basis points during the six months ended June 30, 2025 compared to an increase of 48 basis points during the same period of 2024.

The following graph compares market interest rates over the current and comparative periods:

In April 2025, capital markets experienced a sharp, temporary rise in volatility. Interest rate volatility spiked in early April 2025, as measured by the Intercontinental (ICE) Bank of America/Merrill Lynch Option Volatility Estimate (MOVE) Index, raising to 140 in April 2025 and returning in May-June 2025 to the 90-100 range or levels observed in the first quarter of 2025.

Another key driver of our Originations business is the overall mortgage origination market volume, that is sensitive to home sales and home prices and other macroeconomic conditions, such as gross domestic product and unemployment. We source a large part of our Originations volume from Correspondent lenders and the industry volume is a relevant benchmark. The following graphs present the average of industry volumes (in $ billions) released by the MBA and Fannie Mae in the current and comparative periods. The average industry volume grew 42% quarter over quarter (Q2’25 vs Q1’25), largely driven by seasonality, and 23% year over year (Q2’25 vs Q2’24), largely driven by the impact of interest rates on refinance. On a year-to-date basis, the average industry volume grew 16% in the first six months of 2025 as compared with the first six months of 2024. Comparatively, our Originations volumes (Correspondent and Consumer Direct channels) grew 39% in the second quarter of 2025 vs first quarter of 2025 and 32% vs second quarter of 2024, and 38% in the first six months of 2025 vs first six months of 2024.

Source: MBA Mortgage Finance Forecast as of July 17, 2025 and Fannie Mae Housing Forecast as of July 11, 2025. Most recent current period volumes are forecasts. In $ billions.

Financial Highlights

Results of operations for the second quarter of 2025

• Net income attributable to common stockholders of $20 million, or $2.55 per share basic and $2.40 diluted
• Servicing and subservicing fee revenue of $211.3 million
• Originations gain on sale of $15.4 million
• $16.2 million MSR valuation gain attributable to input and assumption changes, net of hedging

Financial condition at June 30, 2025

• Stockholders’ equity of $481.9 million, or $59.82 book value per common share
• MSR investment of $2.6 billion, and $309.5 billion total servicing and subservicing UPB
• Cash position of $194.3 million
• Total assets of $16.5 billion

Business Strategy

We established the following strategy to return to sustainable profitability and create long-term value for shareholders:

• Balance and diversification: Maintain a scale position in origination and servicing to address market-cycle opportunities;
• Prudent capital-light growth: Emphasize on capital-light subservicing to drive servicing portfolio UPB growth and expand higher margin products and origination channels to drive accretive MSR investments;
• Industry-leading cost structure: Achieve industry cost leadership through continuous cost and process improvement, optimizing global operations and technology, and drive innovation, including artificial intelligence based solutions;
• Top-tier operating performance and capabilities: Deliver industry top-tier servicing operational performance and increase borrower and client satisfaction;
• Dynamic asset management: Optimize investment returns and liquidity through dynamic and opportunistic asset purchases and sales.

Our growth and asset management strategy includes purchasing assets and/or operations of complementary businesses, by means of acquisition, merger or other transaction forms. Our strategy may also include pursuing large transactions, including bulk purchases or sales of MSRs. We have engaged in such transactions in the past, and we continue to explore opportunities that may be accretive to our business and stockholders’ value.

Results of Operations and Financial Condition

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations appearing in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2024.

Onity reported $21.5 million net income in the second quarter of 2025, flat compared to the $22.1 million net income in the first quarter of 2025, with the following considerations:

• $3.2 million decrease in revenue, largely attributed to a $11.1 million decrease in gains on our reverse mortgage portfolio of loans held for investment and HMBS-related borrowings, net driven by an unfavorable change in market interest rates and assumptions that are part of our MSR hedging strategy (see below). Partially offsetting this decrease, Servicing and subservicing fees increased by $7.9 million mostly due to increased float earnings as well as higher servicing fees with a 3% higher average servicing UPB.
• $11.7 million lower loss on MSR valuation adjustments, net largely driven by favorable assumption updates and the impact of interest rates, net of hedging derivatives. While separately presented in our consolidated financial statements, the change in fair value of our reverse mortgage portfolio attributable to interest rates discussed above is included as a partial offset to the change in fair value of our MSR portfolio attributable to interest rates, for hedging and risk management purposes.
• $10.4 million decrease in Operating expenses, driven by litigation accruals recorded in the first quarter of 2025 in connection with the settlement of a legacy litigation matter, and reimbursements received in the second quarter of 2025 related to prior years’ legal expenses.
• $5.1 million increase in Other expense, net largely driven by higher net interest expense to finance the MSR growth.
• $14.3 million Income tax expense variance, mostly due to the favorable resolution of a $13.3 million prior year uncertain tax position recognized in the first quarter of 2025.

Revenue

The below table presents revenue by type and segment:

Total revenue for the three months ended June 30, 2025 decreased $3.2 million, or 1% compared to the three months ended March 31, 2025 due to a $4.1 million, or 2% decrease in Servicing revenue, partially offset by a $0.9 million, or 3% increase in Originations revenue.

• The 2% decrease in Servicing revenue is primarily due to an $11.1 million decrease in Gain on reverse loans held for investment and HMBS-related borrowings, net largely driven by an unfavorable change in market interest rates vs. the prior quarter and certain unfavorable assumption updates in the second quarter of 2025. Such changes in fair value due to market rates are included as a partial offset to the change in fair value of our MSR portfolio attributable to interest rates, as part of our MSR hedging strategy. Servicing and subservicing fees increased by $7.9 million largely due to seasonally increased float earnings as well as higher servicing fees with a 3% higher average servicing UPB.
• The 3% increase in Originations revenue is primarily attributed to higher fees (other revenue) due to higher funded volume. Gain on loans held for sale remained mostly flat with margins adversely impacted by market volatility in April 2025.

Compared to the six months ended June 30, 2024, total revenue for the six months ended June 30, 2025 was $10.9 million, or 2% higher due to a $2.1 million increase in Servicing revenue and an $8.8 million, or 18% increase in Originations revenue.

• The increase in Servicing revenue is mostly due to an $11.4 million increase in Gain on reverse loans held for investment and HMBS-related borrowings, net largely offset by a $10.5 million decrease in Gain on loans held for sale. The increase in Gain on reverse loans held for investment and HMBS-related borrowings, net is mostly driven by a favorable decrease in market interest rates vs. an increase in the prior year period, partially offset by unfavorable assumption updates in the current year period (including less favorable yield spread tightening vs. the prior year period). The unfavorable variance in Gain on loans held for sale is mostly driven by losses on new buyouts (largely attributed to the reverse portfolio acquired from Waterfall in the fourth quarter of 2024), and gains recognized in the first quarter of 2024 on previously acquired reverse mortgage buyouts.
• The increase in Originations revenue is primarily driven by an increase in Gain on loans held for sale, net in our Consumer Direct channel, attributed to our increased recapture operational capability. In our Correspondent channel, although loan production volume increased, the gain for the six months ended June 30, 2025 decreased mostly due to a margin decline attributed to the volatile market conditions at the beginning of the second quarter of 2025. In addition, fee revenue increased due to higher production volume in both our Consumer Direct and Correspondent channels.

MSR Valuation Adjustments, Net

The table below presents the key components of MSR valuation adjustments, net which include MSRs, MSR pledged liabilities and ESS financing liabilities at fair value, together with MSR hedging derivatives:

(1) Excludes fair value changes of reverse mortgage loans held for investment and HMBS related borrowing due to rates and assumptions that are part of the MSR hedging strategy. Refer to MSR Hedging Strategy section of Item 3. Quantitative and Qualitative Disclosures about Market Risk for further detail and the discussion below within Servicing.

The $27.3 million loss on MSR valuation adjustments, net for the three months ended June 30, 2025 is comprised of $43.4 million runoff expense, $21.7 million fair value gain attributed to input and assumption changes and $5.5 million loss on MSR hedging derivatives.

• MSRs are subject to runoff, a fair value decline due to the realization of expected cash flows and yield based on projected borrower behavior, including scheduled amortization of the loan UPB together with projected voluntary and involuntary prepayments. The unfavorable $2.3 million higher runoff quarter-over-quarter is mostly due to MSR portfolio growth.
• The $21.7 million fair value gain due to input and assumption changes is mostly attributed to favorable other input and assumption updates to reflect strong MSR market transaction prices. The change from an $18.6 million fair value loss in the three months ended March 31, 2025 to a $21.7 million fair value gain in the three months ended June 30, 2025 is also driven by changes in market interest rates, as the 10-year Treasury rate remained flat in the three months ended June 30, 2025 and declined 35 basis points in the three months ended March 31, 2025.
• MSR hedging derivative fair value changes are designed to partially offset the expected fair value changes of the net MSR, MSR pledged liabilities and ESS exposure, commensurate with our target hedge coverage ratio. The $5.5 million derivative loss recognized in the three months ended June 30, 2025 and the variance from the prior quarter are driven by the rate changes discussed above and hedge costs. We maintained a high hedge coverage ratio in both quarters. Also refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk for further detail on our hedging strategy and its effectiveness.

The $66.2 million loss on MSR valuation adjustments, net for the six months ended June 30, 2025 is comprised of $84.6 million runoff expense and $18.4 million fair value gain attributed to input and assumption changes net of hedges. The $21.9 million higher loss in MSR valuation adjustments, net in the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 is primarily driven by the impact of interest rate changes, net of hedge activity, and higher runoff mostly due to MSR portfolio growth.

• The unfavorable $6.7 million increase in runoff expense is mostly due to MSR portfolio growth.
• The change from a $138.0 million fair value gain in the six months ended June 30, 2024 to a $3.1 million fair value gain in the six months ended June 30, 2025 is primarily driven by changes in market interest rates, as the 10-year Treasury rate declined 34 basis points during the six months ended June 30, 2025 compared to an increase of 48 basis points during the same period of 2024.
• The change from a $104.3 million loss from derivatives in the six months ended June 30, 2024 to a $15.3 million gain in the six months ended June 30, 2025 is mainly due to the market interest rate changes noted above.

Operating Expenses

The table below presents the key components of operating expenses:

Compensation and benefits expense for the three months ended June 30, 2025 increased $3.5 million, or 6% compared to the three months ended March 31, 2025, largely due to an increase in incentive compensation expenses (increase in the fair value of cash-settled share-based awards driven by our stock price increase) and higher commissions on higher Originations production volume.

Compared to the six months ended June 30, 2024, Compensation and benefits expense for the six months ended June 30, 2025 increased $9.8 million, or 9% largely due to the same factors described above. Our total average headcount declined 4%, mostly due to a decrease in Servicing headcount attributed to efficiencies and runoff of our reverse subservicing portfolio, partially offset by an increase in Originations headcount mostly related to the growth of our Consumer Direct channel.

Servicing and origination expense for the three months ended June 30, 2025 was flat compared to the three months ended March 31, 2025, with some offset between the two segments. The higher Originations expense in the second quarter of 2025 driven by higher production volume, was offset by the lower provision expense on non-Agency servicing advances.

Compared to the six months ended June 30, 2024, Servicing and origination expenses for the six months ended June 30, 2025 decreased $3.0 million largely due to a lower provision expense for Ginnie Mae claim receivables and servicing advances, partly offset by an increase in provision for indemnification obligations mostly driven by favorable resolutions in 2024, among other offsetting factors.

Professional services expense for the three months ended June 30, 2025 decreased $14.3 million compared to the three months ended March 31, 2025 primarily due to an increase in our accrual for probable losses during the three months ended March 31, 2025 in connection with the settlement of a legacy matter, and reimbursements received in the three months ended June 30, 2025 related to prior years’ legal expenses.

Compared to the six months ended June 30, 2024, Professional services expense for the six months ended June 30, 2025 increased $8.3 million, mostly driven by an increase in litigation-related expenses recorded in the first quarter of 2025, as discussed above.

Other Income (Expense)

During March 2024, we repurchased a total of $47.4 million of the PMC Senior Secured Notes and recognized a gain on debt extinguishment, net of the associated write-off of unamortized discount and debt issuance costs.

Refer to the segments for discussion and analysis of Interest income and Interest expense. Refer to the Servicing segment for discussion and analysis of Pledged MSR liability expense and earnings of our former equity method investee, MAV Canopy, sold in the fourth quarter of 2024.

Income Tax Expense (Benefit)

Our annual effective tax rate is generally lower than the 21% federal statutory income tax rate primarily due to the full valuation allowance recorded on our net U.S. federal and state deferred tax assets ($179.8 million as of December 31, 2024). We evaluated all positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods, and due primarily to our history of cumulative operating losses, we determined that a full valuation allowance at June 30, 2025 remains appropriate.

Our income tax benefit for the six months ended June 30, 2025 is primarily driven by the favorable resolution of a prior-year uncertain tax position during the first quarter of 2025. The decrease in the effective tax rate for the six months ended June 30, 2025 compared to the same period of 2024 is primarily due to recognizing income tax benefit of $13.3 million related to the reversal of the uncertain tax liability.

Under our transfer pricing agreements, our operations in India and Philippines are compensated on a cost-plus basis for the services they provide, such that even when we have a consolidated pre-tax loss from operations these foreign operations have taxable income, which is subject to statutory tax rates in these jurisdictions that are higher than the U.S. statutory rate of 21%.

We believe it is reasonably possible that by December 31, 2025, we could release some or all of our valuation allowance that currently offsets our net U.S. deferred tax asset. Any release of our valuation allowance requires significant judgment and is contingent on continued analysis of the positive and negative evidence and actual and expected future profitability. As such, the exact timing and amount of any valuation allowance release is subject to change. Refer to Note 17 - Income Taxes for additional information.

Financial Condition

Total assets increased $96.0 million, or 1%, between December 31, 2024 and June 30, 2025 with a $758.1 million increase in our Loans held for sale portfolio driven by the growth of our Originations pipeline, and a $166.4 million increase in our MSR portfolio due to $290.2 million MSR additions, partially offset by runoff. The $654.5 million decrease in reverse Loans held for investment was driven by the runoff of the portfolio exceeding originations since the acquisition of the $2.9 billion portfolio of reverse mortgage loans from Waterfall in November 2024 that is relatively more aged (faster runoff). In addition, servicing advances declined $115.8 million largely driven by seasonal reduction of taxes and insurance (T&I) balances.

Total liabilities increased by $57.0 million compared to December 31, 2024, due largely to the factors described above. Our borrowings under Mortgage loan financing facilities increased $667.3 million due to the higher loans held for sale balance, and MSR financing facilities increased $260.7 million with the increase in our MSR portfolio. HMBS-related borrowings decreased by $619.1 million with repayments exceeding new securitizations after the $2.9 billion acquisition of reverse mortgage loans and assumption of HMBS-related borrowings in November 2024, and Advance match funded liabilities decreased $74.6 million consistent with the seasonal decline in servicing advances (mainly T&I). The $55.6 million decline in Other liabilities is mainly driven by the payment of annual bonuses, the reduction of the servicing float balance due to Rithm, and the favorable resolution of a prior-year uncertain tax position.

Total equity increased $38.9 million during the six months ended June 30, 2025 mainly due to $43.6 million net income for the period partially offset by the exercise of common stock warrants by Oaktree and the quarterly dividends on preferred stock.

Key Trends and Outlook

The following discussion provides information regarding certain key drivers of our financial performance and includes certain forward-looking statements that are based on the current beliefs and expectations of Onity’s management and are subject to significant risks and uncertainties. Refer to Forward-Looking Statements beginning on page 2 of this Form 10-Q and Part I, Item 1.A. of our Annual Report on Form 10-K for the year ended December 31, 2024, for discussion of certain of those risks and uncertainties and other factors that could cause Onity’s actual results to differ materially because of those risks and uncertainties. There is no assurance that actual results will be in line with the outlook information set forth below, and Onity does not undertake to update any forward-looking statements. Refer to the Segment results of operations section for further detail, the description of our business environment, initiatives and risks.

Servicing and subservicing fee revenue - Our servicing fee revenue is a function of the volume being serviced - UPB for servicing fees and loan count for subservicing fees. We expect we will continue to grow our servicing and subservicing portfolio through our multi-channel Originations platform, MSR bulk acquisitions, and subservicing additions. We expect ancillary float income to trend with short-term interest rates also considering changes in average float balances due to seasonality and portfolio growth.

Gain on sale of loans held for sale - Our gain on sale is driven by both Originations volume and margin, and is channel-sensitive. The updated industry forecasts (average of MBA, July 2025 and Fannie Mae, July 2025) suggest a 14% increase in loan origination in 2025 as compared to 2024, with the 30-year fixed rate mortgage expected to end 2025 mostly flat at 6.6%. However, macroeconomic conditions and their impact on the housing and capital markets remain highly uncertain. We anticipate growth in our Consumer Direct channel driven by our increased recapture capabilities that may be curtailed if interest rates remain at the current levels or increase. If this should occur, we expect home equity lending products will be more attractive to consumers and will be a more important product. We expect to continue to prudently grow year-over-year our Correspondent volume at margins that are accretive to the business as part of our MSR replenishment and growth strategy after the opportunistic MSR bulk sales in 2024. We also expect continued competitive pressure on margins across all channels and volatility of gain on sale associated with GSE pricing dependency and volatile interest rates. We expect some further volatility of gain (loss) on sale on loans held for sale related to reverse mortgage buyouts (mostly inactive loans) due to the increased size of the portfolio.

Gain on reverse loans held for investment and HMBS-related borrowings, net - The reverse mortgage origination gain is driven by the same factors as gain on sale of loans held for sale, with smaller volumes in the reverse mortgage market and generally larger margins. With our experience and brand in the marketplace, we expect our origination volume to largely follow the industry growth albeit with some channel mix changes. We expect continued uncertain market interest rate and spread conditions. The fair value of the net reverse servicing asset is expected to continue to follow market conditions, with fair value gains or losses generally associated with declining or increasing interest rates and spread, respectively, and is part of our forward MSR hedging strategy. Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk for further detail on our hedge strategy.

MSR valuation adjustments, net - Our net MSR fair value changes include multiple components. First, amortization of our investment is a function of the UPB, capitalized value of the MSR relative to the UPB, and prepayments. We expect the MSR realization of expected cash flows to generally follow the growth or size of our MSR portfolio net of ESS financing liabilities and pledged MSR liabilities with our MSR capital partners. Second, MSR fair value changes are driven by changes in interest rates and assumptions, such as forecasted prepayments. Third, the MSR fair value changes due to changes in interest rates are partially offset by derivative fair value changes that economically hedge the MSR portfolio to the extent of our hedge coverage ratio and hedge performance. We expect increased uncertainties related to hedge performance and higher hedge cost in an environment of higher economic and capital market volatility. Refer to the sensitivity analysis in Item 3. Quantitative and Qualitative Disclosures About Market Risk for further detail.

Operating expenses - Compensation and benefits are a significant component of our cost-to-service and cost-to-originate and is directly correlated to headcount levels. Headcount in Servicing is primarily driven by the number of loans or UPB being serviced and subserviced, and by the relative mix of performing, delinquent and defaulted loans. As servicing volume is expected to increase with relatively more performing loans (see above), we expect a stable workforce with productivity gains. We expect our Originations headcount and operating expenses to align with the expected growth in volume. Our operating expenses are expected to correlate with volumes, with some productivity and efficiencies expected through our technology and continuous improvement initiatives.

Net interest expense - Interest expense varies based on changes in average debt balance and changes in short-term interest rates on our variable rate debt. The average balance of collateralized financing facilities trends with the balance of the underlying assets discussed above (including MSR, advances, loans and reverse buyouts). Interest expense on our warehouse loan facilities is expected to be largely offset by interest income on our Originations pipeline loans. We also expect interest expense on our corporate debt to decline vs prior year as a result of the corporate debt refinancing transactions in the fourth quarter of 2024.

Stockholders’ equity - With the above considerations, we expect our businesses to continue to generate net income and increase our equity in 2025, absent any significant adverse change in interest rates, hedge performance and cost, or other factors. In addition, we believe it is reasonably possible that by December 31, 2025, we could release some or all of our valuation allowance that currently offsets our net U.S. deferred tax asset, resulting in an increase to net income and stockholders’ equity.

SEGMENT RESULTS OF OPERATIONS

Our activities are organized into two reportable business segments that reflect our primary lines of business - Servicing and Originations - as well as a Corporate segment.

SERVICING

This segment is primarily comprised of our mortgage servicing and subservicing business. We earn servicing and subservicing fees, including ancillary income, and incur cost to service the loans which varies depending on delinquency status. We are exposed to MSR valuation adjustments and advancing obligations when we own the MSR. Our servicing portfolio includes conventional, government-insured and non-Agency mortgage loans, including reverse mortgage loans classified as loans held for investment on our balance sheet. As of June 30, 2025, we serviced 1.4 million mortgage loans with an aggregate UPB of $309.5 billion.

In addition, the Servicing segment includes our wholly-owned captive reinsurance business (referred to as CRL), which provides re-insurance related to direct physical loss coverage on foreclosed real estate properties owned or serviced by us. CRL assumes a 90% (60% through January 2024) quota share of insurance coverage written by a third-party insurer issued to PHH.

Concentration

Rithm is one of our largest subservicing clients. Rithm’s servicing portfolio is in a run-off mode and we continue to diversify and grow our total servicing portfolio. Servicing and subservicing fees from Rithm amounted to $41.6 million, or 13% of total servicing and subservicing fees (excluding ancillary income) in the six months ended June 30, 2025 ($49.5 million and 16% in the six months ended June 30, 2024, respectively), and the related remittances to Rithm presented as Pledged MSR liability expense amounted to $18.6 million. Rithm accounted for $33.8 billion, or 11% and 20% of the total serviced UPB and loan count, respectively, of our servicing and subservicing portfolio as of June 30, 2025, and 59% of all delinquent loans that Onity serviced, for which the cost to service and the associated risks are higher ($43.1 billion, 14%, 25% and 64% as of June 30, 2024, respectively). Consistent with a subservicing relationship, Rithm is responsible for funding the advances we service on its behalf. The servicing agreements automatically renew annually unless notice of termination is provided.

Loan Resolutions

We have a strong track record of success as a leader in the servicing industry in foreclosure prevention and loss mitigation that helps homeowners stay in their homes and improves financial outcomes for mortgage loan investors. Reducing delinquencies also enables us to recover advances and recognize additional ancillary income such as late fees, which we do not recognize on delinquent loans until they are brought current. Loan resolution activities address the pipeline of delinquent loans and generally lead to (i) modification of the loan terms, (ii) repayment plan alternatives, (iii) a discounted payoff of the loan (e.g., a “short sale”), or (iv) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting REO. To select an appropriate loan modification option for a borrower in accordance with the applicable servicing agreement, we perform a structured analysis, using a proprietary model, of all options using information provided by the borrower as well as external data, including recent broker price opinions to value the mortgaged property. Our proprietary model includes, among other things, an assessment of re-default risk.

Advance Obligation

As a servicer, we are generally obligated to advance funds in the event borrowers are delinquent on their monthly mortgage related payments. We advance principal and interest (P&I Advances), taxes and insurance (T&I Advances) and legal fees, property valuation fees, property inspection fees, maintenance costs and preservation costs on properties that have been foreclosed (Corporate Advances). For certain loans in non-Agency securitization trusts, we have the ability to cease making P&I advances and immediately recover advances previously made from the general collections of the respective trust if we determine that our P&I advances cannot be recovered from the projected future cash flows. With T&I and Corporate advances, we continue to advance if net future cash flows exceed projected future advances without regard to advances already made. Refer to Note 21 — Commitments for further discussion on our servicing advance obligations.

Most of our advances have the highest reimbursement priority (i.e., they are “top of the waterfall”), so we are entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. The costs incurred in meeting these obligations consist principally of the interest expense incurred in financing the servicing advances. Most subservicing agreements, including our agreements with Rithm and MAV, provide for prompt reimbursement of any advances from the owner of the servicing rights.

MSR Valuation Adjustments

The financial performance of our Servicing segment is impacted by the changes in fair value of the MSR portfolio due to changes in market interest rates, among other factors. Our MSR hedging policy is designed to reduce the expected volatility of the MSR portfolio fair value due to market interest rates commensurate with the target hedge coverage ratio determined by our Market Risk Committee. Refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk for further detail on our hedging strategy.

We report all fair value changes of our MSR portfolio and MSR hedges within MSR valuation adjustments, net. MSR valuation adjustments, net includes the loss on the MSR portfolio associated with the realization of its expected cash flows, or runoff, due to the passage of time, and any fair value gains or losses due to inputs, market interest rates or assumptions, net of hedging gains and losses. Included in MSR valuation adjustments, net are fair value gains and losses of the MSR pledged liability associated with the MSR transfers that do not meet sale accounting and the ESS financing liabilities for which we elected the fair value option and that is collateralized by MSRs.

Reverse Mortgages

Our reverse business activities include both the subservicing of reverse mortgage loans on behalf of investors and the servicing of our owned portfolio. Owned portfolio loans are insured by the FHA, which provides protection against risk of borrower default, and are securitized through the Ginnie Mae program.

Our servicing activities of reverse loans are generally consistent with forward mortgage loan servicing as described above, with the following additional functions: the funding of borrower advances or draws under their approved borrowing capacity and the repurchase of loans upon reaching a limit:

a. Borrower draw funding obligation - Under the terms of ARM-based HECM loan agreements, the borrowers have additional borrowing capacity. Borrower draws or tails are funded by the servicer and are securitized. We do not incur any substantive underwriting, marketing or compensation costs in connection with any future draws, although we must maintain sufficient capital resources and available borrowing capacity to ensure that we are able to fund these future draws prior to securitization with Ginnie Mae (generally less than 30 days).

b. Loan repurchase obligation - As an HMBS issuer, we are required to purchase loans out of the Ginnie Mae securitization pools once they reach 98% of the maximum claim amount (MCA buyouts). Active buyouts are assigned to HUD and payment is received from HUD through a claims process, generally within 30 days. HUD reimburses us for the outstanding principal balance on the loan up to the maximum claim amount; we bear the risk of exposure if the outstanding balance on a loan exceeds the maximum claim amount. We may carry loans for some time in anticipation of payoff or favorable liquidation if we deem the investment accretive. Inactive buyouts (loans that are in default for one of the following reasons - title conveyances or the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments) are generally liquidated through foreclosure and subsequent sale of REO. State specific foreclosure and REO liquidation timelines have a significant impact on the timing and amount of our recovery. If we are unable to sell the property securing the inactive reverse loan for an acceptable price within the timeframe established by HUD (typically six months from obtaining marketable title of the property), we are required to make an appraisal-based claim to HUD. In such cases, HUD reimburses us for the loan balance, eligible expenses and interest, less the appraised value of the underlying property. Thereafter, all the risks and costs associated with maintaining and liquidating the property remain with us; we may incur additional losses on REO properties as they progress through the liquidation processes related to delayed timelines due to market conditions, sales commissions, property preservation costs or property tax and insurance advances. The significance of future losses associated with appraisal-based claims is dependent upon the volume of inactive loans, condition of foreclosed properties and the general real estate market.

The Gain on reverse loans held for investment and HMBS-related borrowings, net reported within the Servicing segment includes the net fair value changes of securitized reverse mortgage loans held for investment and HMBS-related borrowings, that comprise the following:

• contractual interest income earned on securitized reverse mortgage loans, or HECM loans, net of interest expense on HMBS-related borrowings, that is, on a net basis, the servicing fee we are contractually entitled to and collect on a monthly basis under the Ginnie Mae MBS Guide regarding servicing HMBS; and
• other fair value changes of the net balance of securitized loans held for investment and HMBS-related borrowings, that effectively represents tails and servicing value. Tails are participations in previously securitized HECM loans and are created by additions to principal for borrower draws on lines-of-credit (scheduled and unscheduled), interest, servicing fees, and mortgage insurance premiums.

The fair value of our Ginnie Mae securitized HECM loan portfolio net of HMBS-related Borrowings generally decreases as market interest rates rise and increases as market rates fall. The interest rate exposure is managed as part of our MSR hedging strategy (see Item 3 - Quantitative and qualitative disclosures about market risk, Loans Held for Investment and HMBS-related Borrowings and the associated interest rate sensitivity disclosure).

Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net strictly reflects the financial performance of owned loans/servicing and excludes any subservicing activity. The financial performance associated with the subservicing of reverse mortgage loans on behalf of investors is primarily reflected within Servicing and subservicing fees, net.

Since 2023, we have opportunistically acquired reverse mortgage assets from financial institutions, including active and inactive reverse mortgage loan buyouts, advances, HUD claim receivables, and real estate properties. We finance our asset acquisitions along with the buyouts of our own portfolio through on-balance sheet private placement securitizations (referred to as OLIT). The financial performance of such reverse asset management is reported within the Servicing segment, largely within Gains (losses) on loans held for sale, that are driven by multiple factors, including liquidation timeline and changes in market interest rates.

Third-Party Servicer Ratings

Like other servicers, we are the subject of mortgage servicer ratings or rankings (collectively, ratings) issued and revised from time to time by rating agencies including Moody’s Investors Service, Inc. (Moody’s), S&P Global Ratings, Inc. (S&P) and Fitch Ratings, Inc.(Fitch). Favorable ratings from these agencies are important to the conduct of our loan servicing and lending businesses.

The following table summarizes our latest key servicer ratings and outlook:

On May 29, 2025, Fitch upgraded PHH’s residential primary servicer ratings and affirmed its stable outlook for all products. In addition, Fitch affirmed PHH’s residential Master Servicer rating. The rating actions reflect the company’s growth strategy based on diversification between its loan origination and servicing businesses as well as its third-party subservicing efforts, effective enterprise risk management controls and processes, and continuous technology enhancements. The ratings also take into consideration the company’s ongoing rebranding efforts, which commenced on June 10, 2024.

On June 11, 2025, Moody's upgraded the second lien servicer quality (SQ) assessment from SQ3+ to SQ 2- and affirmed the prime, subprime, special servicer, and master SQ assessments for PHH at SQ3+. The upgrade of PHH 's second lien servicing assessment is mainly driven by i) improvement in the company's second lien roll rates, ii) cure rates, and iii) recidivism rates.

Operating Metrics

The following table provides selected operating statistics for our Servicing segment:

(1) Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.

(2) Includes HECM reverse mortgage loans held for investment with a UPB of $10.0 billion that are recognized in our unaudited consolidated balance sheet at June 30, 2025.

(3) Includes $19.0 billion UPB subserviced and $20.7 billion UPB of MSRs sold to MAV that did not achieve sale accounting treatment at June 30, 2025.

(4) Loans serviced pursuant to our sale or transfer agreements with MAV, Rithm or others for which sale accounting is not achieved, and loans subserviced.

(5) Includes $25.1 billion UPB of subserviced loans on behalf of Rithm at June 30, 2025.

(6) Total 3-month % CPR includes voluntary and involuntary prepayments, as shown in the table, plus scheduled principal amortization.

(7) Related to our owned MSR forward servicing portfolio.

The following table provides the rollforward of activity of our portfolio of mortgage loans serviced that includes MSRs, whole loans and subserviced loans, both forward and reverse:

(1) Includes the volume of UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans may be boarded and deboarded within the same quarter.

The following table provides a breakdown of our servicer advances, net of allowance for losses:

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The following table provides selected operating statistics related to our reverse mortgage loans reported within our Servicing segment:

(1) Securitized loans only; excludes unsecuritized loans.

(2) Buyouts are reported as Loans held for sale, Accounts Receivable or REO depending on the loan and foreclosure status.

Financial Performance

The following table presents selected results of operations of our Servicing segment. The amounts presented are before the elimination of balances and transactions with our other segments:

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Servicing and Subservicing Fees

The following table and discussion present the drivers of servicing and subservicing fees.

(1) In $ billions, (2) In % of UPB, annualized, (3) In $ millions, (4) In thousands, (5) In dollars.

Servicing and subservicing fees (excluding Ancillary income) for the three months ended June 30, 2025 increased $1.7 million or 1% compared to the three months ended March 31, 2025, driven by a 3% increase in average servicing UPB (with additional $4.3 million servicing fee collection), partially offset by a 5% reduction in subservicing volume (with a $2.7 million decline in subservicing fee). The increase in average servicing UPB is primarily due to robust originations as part of our replenishment and growth initiative. The decline in subservicing fee is mostly driven by the deboarding of $5.7 billion UPB Rithm loans in the first quarter of 2025.

Compared to the six months ended June 30, 2024, our servicing and subservicing fees (excluding Ancillary income) for the six months ended June 30, 2025 remained flat, with an $8.6 million decrease in subservicing fees offset by an $8.6 million increase in servicing fees. The decrease in subservicing fees is largely due to runoff of the reverse subservicing portfolio, the acquisition of the reverse subservicing portfolio from Waterfall in the fourth quarter of 2024 and the deboarding of $5.7 billion UPB Rithm loans in the first quarter of 2025, partly offset by growth of the forward subservicing portfolio. The increase in servicing fees is driven by a 5% increase in average servicing UPB, primarily due to robust originations and bulk MSR acquisitions in the first quarter of 2025 as part of our replenishment and growth initiative.

The following table presents the detail of our ancillary income:

Ancillary income for the three months ended June 30, 2025 increased by $6.3 million, or 13% compared to the three months ended March 31, 2025 primarily due to a $5.1 million increase in float earnings attributable to seasonally higher average float balances.

Compared to the six months ended June 30, 2024, ancillary income for the six months ended June 30, 2025 remained flat, with some offsetting factors, including a $6.4 million decline in reverse subservicing ancillary fees driven by the acquisition of previously-subserviced client portfolio (from Waterfall) in the fourth quarter of 2024 and portfolio runoff, and a $2.7 million increase in late charges due to an increase in payoff volume. Float earnings remained flat with an offsetting impact of higher float balances due to increased servicing volume overall and lower average interest rates (as a benchmark, the average 1-month term SOFR decline by 101 basis points).

Gain (Loss) on Loans Held for Sale, Net

We recognized a $5.0 million loss on loans held for sale, net for the three months ended June 30, 2025, compared to a $3.8 million loss in the three months ended March 31, 2025, mostly attributed to losses on reverse mortgage buyouts (largely attributed to the reverse portfolio acquired from Waterfall in the fourth quarter of 2024). The $1.2 million unfavorable variance quarter-over-quarter is mostly driven by unrealized losses in the second quarter of 2025 on certain active loans, partly offset by a decrease in losses on new repurchases due to lower volume.

We recognized an $8.8 million loss on loans held for sale, net for the six months ended June 30, 2025, compared to a $1.7 million gain recognized in the six months ended June 30, 2024. The $10.5 million unfavorable variance year-over-year is mostly driven by losses on new repurchases (largely attributed to the reverse portfolio acquired from Waterfall in the fourth quarter of 2024), gains recognized in the first quarter of 2024 on previously acquired reverse mortgage buyouts, and unrealized losses during the second quarter of 2025 on certain active loans, partly offset by a favorable impact from market interest rate changes.

Gain (Loss) on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net

The following table presents the components of the fair value change of reverse loans held for investment and HMBS-related borrowings, net.

Gain on reverse loans held for investment and HMBS-related borrowings, net decreased $11.1 million for the three months ended June 30, 2025 compared to the three months ended March 31, 2025 mostly driven by a less favorable change in market interest rates vs. the prior quarter and certain unfavorable assumption updates in the second quarter of 2025. While not the only benchmark for the reverse mortgage exposure, the 10-year Treasury rate was mostly flat during the three months ended June 30, 2025 and declined 35 basis points during the three months ended March 31, 2025. Net interest income remained mostly flat (-3%), consistent with the average portfolio balance.

Compared to the six months ended June 30, 2024, Gain on reverse loans held for investment and HMBS-related borrowings, net for the six months ended June 30, 2025 increased $11.4 million mostly driven by a favorable decline in market interest rates vs. an increase in the prior year period, partly offset by changes in spreads (less favorable tightening vs. the prior year period) and certain unfavorable assumption updates in the second quarter of 2025. The 10-year Treasury rate declined 34 basis points during the six months ended June 30, 2025 compared to an increase of 48 basis points during the six months ended June 30, 2024. Net interest income increased $4.3 million (or 36%), consistent with the portfolio growth due to the acquisition of the previously subserviced portfolio of Waterfall in the fourth quarter of 2024.

MSR Valuation Adjustments, Net

Refer to the discussion above within Overview-Results of Operations and Financial Condition-MSR Valuation Adjustments, Net.

The following table summarizes the impact of our MSR interest rate hedging strategy on Servicing segment results along with the impact of fair value changes due to other input and assumption updates. Refer to MSR Hedging Strategy section of Item 3. Quantitative and Qualitative Disclosures about Market Risks for further detail. Net MSR portfolio exposure gains (losses) comprise the fair value changes of the MSR portfolio attributable to rates and assumption changes, the MSR hedging derivative gains and losses, and other fair value changes of the HECM loans and HMBS-related borrowings (reverse exposure) used as a hedge for risk management purposes.

(1) See MSR valuation adjustments, net within the Overview section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2) Excludes MSR valuations adjustments, net reported within the Originations Segment.

(3) See “Other change in fair value of securitized loans held for investment and HMBS-related borrowings, net” in above table.

With a high targeted hedge coverage ratio, the fair value volatility of the MSR portfolio due to changes in market interest rates, net of hedges (including the reverse exposure) was reduced for the periods presented. The Net MSR portfolio exposure gains of $9.8 million in the second quarter of 2025 and $7.8 million in the first quarter of 2025 are largely driven by favorable other input and assumption updates. The $11.4 million lower Net MSR portfolio exposure gains for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 is mainly driven by less favorable input and assumption updates driven by HECM spread tightening in 2025, partly offset by favorable market rate impact net of hedging compared to prior year period.

Compensation and Benefits

Compensation and benefits expense for the three months ended June 30, 2025 remained flat (decreased 1%), compared to the three months ended March 31, 2025, consistent with headcount.

Compared to the six months ended June 30, 2024, Compensation and benefits expense for the six months ended June 30, 2025 decreased $3.8 million or 8%, mostly driven by a 9% headcount reduction. The decrease in average headcount, with a 12% decrease in the U.S., is largely attributed to the runoff of our reverse subservicing portfolio and further efficiency gains.

Servicing Expense

Servicing expense primarily includes claim losses and interest curtailments on government-insured loans (provision for account receivables), provision expense for advances and servicing representation and warranties, other provision expense (incl. CRL), and certain loan-volume related expenses.

Servicing expense declined $1.1 million in the three months ended June 30, 2025 compared to the three months ended March 31, 2025, largely driven by additional provision expense on servicing advances with an increase in non-Agency claims in the first quarter of 2025.

Compared to the six months ended June 30, 2024, Servicing expense for the six months ended June 30, 2025 declined $2.2 million. The decline in servicing expenses is driven by a $1.3 million reduction in provision expenses for Ginnie Mae claim receivables and a $2.0 million decrease in provision expenses for forward servicing advances, partly offset by a $1.2 million increase in provision for indemnification obligations mostly driven by favorable resolutions in 2024, among other offsetting factors.

Other Operating Expenses

Other operating expenses (total operating expenses less Compensation and benefit expense and Servicing expense) for the three months ended June 30, 2025 decreased $4.6 million as compared to the three months ended March 31, 2025, mostly due to $5.9 million lower legal expenses reported within Professional services driven by recoveries of prior years’ legal expenses in the second quarter of 2025.

Compared to the six months ended June 30, 2024, Other operating expenses for the six months ended June 30, 2025 increased $3.6 million mostly due to a $3.8 million increase in Corporate overhead allocations primarily driven by higher Corporate services to support our growth initiatives.

Other Income (Expense)

Other income (expense) primarily includes net interest expense and pledged MSR liability expense.

Interest expense for the three months ended June 30, 2025 increased $3.2 million, or 7% compared to the three months ended March 31, 2025. The interest expense increase is primarily driven by a $3.0 million increase on MSR financing facilities due to our MSR portfolio growth.

Compared to the six months ended June 30, 2024, interest expense for the six months ended June 30, 2025 increased $6.1 million, or 7%, commensurate with the growth of our MSR and loan portfolio, partly offset by lower advance financing cost. Interest expense increased by $4.4 million due to the OLIT securitizations of reverse mortgage buyouts in February and September 2024. In addition, interest expense increased $4.3 million on warehouse facilities and $2.7 million on MSR facilities due to an increase in the average debt balance, offset in part by lower average short-term market interest rates. These increases were partially offset by a $4.1 million decrease in interest on Advance funding liabilities, mostly driven by the decline in average debt balances for servicing advances due to lower delinquencies and loan resolutions in our non-Agency MSR portfolio, and $1.2 million lower corporate debt interest allocation due to our corporate debt refinancing in November 2024, which resulted in a lower effective interest rate.

Interest income for the three months ended June 30, 2025 was flat (decreased $0.2 million) compared to the three months ended March 31, 2025. Compared to the six months ended June 30, 2024, interest income increased $9.6 million for the six months ended June 30, 2025, primarily due to the reverse mortgage buyouts acquired in the third and fourth quarters of 2024.

Pledged MSR liability expense includes the servicing fee remittance related to the MSR sales or transfers that do not meet sale accounting criteria and are presented on a gross basis in our consolidated financial statements, including the servicing spread remittance associated with our ESS financing liability at fair value. See Note 8 — Other Financing Liabilities, at Fair Value to the Unaudited Consolidated Financial Statements.

The following table provides the components of Pledged MSR liability expense:

(1) See Note 8 — Other Financing Liabilities, at Fair Value. The servicing fee and ancillary income collections on such transferred MSRs are recognized within Servicing and subservicing fees.

Pledged MSR liability expense for the three months ended June 30, 2025 remained mostly stable (increased 3%) as compared to the three months ended March 31, 2025 consistent with a stable volume serviced.

Compared to the six months ended June 30, 2024, Pledged MSR liability expense for the six months ended June 30, 2025 decreased $6.1 million mostly driven by MAV’s sale of MSRs (previously sold by Onity to MAV in a transaction which did not qualify for sale accounting) which resulted in the derecognition of the Pledged MSR liability during the three months ended September 30, 2024, partially offset by the increase in the portfolio of MSRs sold to MSR capital partners.

Earnings of equity method investee for the six months ended June 30, 2024 represents our previously owned 15% share of MAV Canopy which we sold in November 2024.

ORIGINATIONS

We originate and purchase loans and MSRs through multiple channels. Loans generally conform to the underwriting standards of Fannie Mae or Freddie Mac (GSEs) or are government-insured (FHA, VA or USDA). We generally sell the loans in the secondary mortgage market through GSE and Ginnie Mae mortgage securitizations on a servicing retained basis.

The Originations business generates a gain on sale of loans, which represents the difference between the origination or purchase value and the sale or securitization value of the loans, along with fee revenue.

We conduct our Originations business through the following channels:

1- Consumer Direct

Our Consumer Direct channel for forward mortgage loans focuses on targeting existing servicing customers by offering them competitive mortgage refinance opportunities, where permitted by the governing servicing and pooling agreement. A portion of our servicing portfolio is susceptible to refinance activity during periods of declining interest rates. Origination recapture volume and related gains are a natural economic hedge, to a certain degree, to the impact of declining MSR values as interest rates decline. In addition to rate and term refinance activities, our Consumer Direct channel targets purchase mortgage loans, cash-out, debt consolidation, mortgage insurance premium reduction, second lien loans, and new customer acquisition.

2- Correspondent Lending

Our correspondent lending channel drives the replenishment and growth of our MSR portfolio. We purchase closed loans that have been underwritten to investor guidelines from our network of correspondent sellers and sell and securitize them, on a servicing retained basis. We offer correspondent sellers the choice to take out mandatory or “best-efforts” contracts, under which the seller's obligation to deliver the mortgage loan becomes mandatory only when and if the mortgage is closed and funded. Additionally, we offer correspondent sellers the opportunity to leverage a non-delegated underwriting option for best-efforts deliveries. We provide customary origination representations and warranties to investors in connection with our loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved correspondent lenders. As of June 30, 2025, we have relationships with 726 approved correspondent sellers.

3- Reverse Originations

We originate and purchase reverse mortgage loans through our retail, wholesale and correspondent lending channels, under the guidelines of the HECM reverse mortgage insurance program of the FHA. Loans originated under this program are generally insured by the FHA, which provides protection against risk of borrower default. As the securitizations of reverse mortgage loans do not achieve sale accounting treatment and the loans remain reported as Loans held for investment, at fair value together with the securitization HMBS-related borrowings, revenue mostly include the fair value changes of the loan from lock date to securitization date that are reported in Gain on reverse loans held for investment and HMBS-related borrowings, net.

4- Co-Issue Programs

We purchase MSRs through flow purchase agreements, the Agency Cash Window co-issue programs and bulk MSR purchases. The Agency Cash Window programs we participate in, and purchase MSR from, allow mortgage companies and financial institutions to sell whole loans servicing released to the respective agency and sell the MSR to the winning bidder. In addition, we partner with other originators to replenish our MSRs through flow purchase agreements. As of June 30, 2025, we have relationships with 521 approved sellers through the Agency Cash Window co-issue programs. We initially recognize our MSR originations and purchases with the associated economics in our Originations segment, and transfer the MSR to our Servicing segment once the MSR is initially recognized on our balance sheet with all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes reflected in our Servicing segment.

Operating Metrics

The following table provides selected operating statistics for our Originations segment:

(1) Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination that are reported within the Servicing segment.

(2) Also refer to interest rate lock commitments in Note 15 – Derivative Financial Instruments and Hedging Activities. The amounts are presented before application of any pull-through adjustment.

Financial Performance

The following table presents the results of operations of our Originations segment. The amounts presented are before the elimination of balances and transactions with our other segments:

(1) Includes $1.0 million ancillary fee income related to MSR acquisitions reported as Servicing and subservicing fees at the consolidated level for the six months ended June 30, 2024.

Gain on Loans Held for Sale, Net

The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volumes and margins (excluding fees that are presented in Other revenue, net):

(1) Defined as the UPB of loans funded in the period.

(2) Ratio of gain on Loans held for sale to funded UPB. Note that the ratio differs from the day-one gain on sale margin upon lock.

Gain on loans held for sale, net for the three months ended June 30, 2025 was flat (decreased 1%) compared to the three months ended March 31, 2025, with a $1.8 million decrease in our Correspondent channel offset by a $1.6 million increase in Consumer Direct. The decrease in our Correspondent channel Gain on loans held for sale, net is largely due to a 51% decrease in margin, partly offset by a 40% increase in loan production volume, including Ginnie Mae loans, consistent with the seasonal industry volume trend (up 42% quarter over quarter, based on average of MBA and Fannie Mae data). The increase in our Consumer Direct channel Gain on loans held for sale, net is primarily driven by the 29% increase loan funded volume, partly offset by the 10% decrease in margin. The increase in volume is largely explained by the increase in our recapture capability despite elevated mortgage rates. The decline in margins of our Correspondent and Consumer Direct channels is mostly attributable to the volatile market conditions in April 2025.

Compared to the six months ended June 30, 2024, Gain on loans held for sale, net for the six months ended June 30, 2025 increased $5.2 million, with an $11.7 million increase in our Consumer Direct channel partly offset by a $6.4 million decrease in our Correspondent channel. The increase in Consumer Direct gain is driven by a 152% increase in loan funded volume, largely attributed to our increased recapture operational capability. In our Correspondent channel, the $6.4 million decrease is driven by the 55% decline in margin, partially offset by the 33% increased loan production volume, attributed to our MSR growth and replenishment strategy. The decline in margin is largely due to the volatile market conditions in the second quarter of 2025 discussed above.

Gain on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net

The following table provides information regarding Gain on reverse loans held for investment and HMBS-related borrowings, net, of the Originations segment that comprises fair value changes of the pipeline and unsecuritized reverse mortgage loans held for investment, at fair value, together with volume and margin (including loan fees):

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(1) Defined as the UPB of loans funded in the period.

(2) Ratio of origination gain to funded UPB; includes loan fees.

Gain on reverse loans held for investment and HMBS-related borrowings, net remained mostly flat for the periods presented, with both margins and volume relatively stable. The Reverse Originations production volume remains at a historical low level due to elevated interest rates.

Other Revenue, net

Other revenue, net consists primarily of correspondent and broker fees, and also includes setup fees earned for loans boarded on our servicing platform. Changes in Other revenue, net for the periods presented are primarily attributed to production volume changes, with a $1.0 million ancillary fee income related to MSR acquisitions recognized in the six months ended June 30, 2024.

MSR Valuation Adjustments, Net

MSR valuation adjustments, net includes revaluation gains on certain MSRs opportunistically purchased through the Agency Cash Window programs, and flow purchases. As an aggregator of MSRs, we may purchase MSRs from smaller originators with a purchase price at a discount to fair value and we recognize valuation adjustments for differences in exit markets in accordance with the accounting fair value guidance. We record such valuation adjustments as MSR valuation adjustments, net within the Originations segment since the segment’s business objective is the sourcing of new MSRs at targeted returns. Changes in MSR valuation adjustments, net period over period are largely due to volume changes.

Operating Expenses

Operating expenses for the three months ended June 30, 2025 increased $3.4 million, or 15% compared to the three months ended March 31, 2025 primarily due to $1.5 million higher Origination expense, driven by higher production volume, and $1.4 million higher Compensation and benefits largely due to higher commissions on higher production volume.

Compared to the six months ended June 30, 2024, Operating expenses for the six months ended June 30, 2025 increased $6.8 million primarily due to a $4.8 million increase or 22% in Compensation and benefits driven by higher commissions on higher production volume, as well as an increase in incentive compensation and an increase in average headcount. Origination expense was mostly flat (decreased 1%), as a provision release for representation and warranty indemnification obligations during the six months ended June 30, 2025 due to favorable demand resolutions was largely offset by increased other Origination expense on higher production volume.

Other Income (Expense)

Interest income consists primarily of interest earned on newly-originated and purchased loans during the pipeline period prior to securitization or sale to investors. Interest expense is incurred to finance the mortgage loans during the same pipeline period. We finance mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines generally indexed on short term rates like SOFR. Our net interest margin is driven by the difference between the average mortgage note rate and the average warehouse line cost of funds, the average balance of loans and by the average number of days loans remain in the pipeline. The improvement in our net interest margin, periods-over-periods is attributable to the reduction of short term interest rates relative to mortgage rates and the increase in the average pipeline loan balance.

CORPORATE

Corporate includes expenses of corporate support services and activities that are not directly related to other reportable segments.

• Certain expenses incurred by corporate support services, such as technology, legal, risk and compliance, or finance are allocated to the Servicing and Originations segments using various methodologies intended to approximate the utilization of such services.
• Interest expense on corporate debt is allocated to the Servicing and the Originations segments based on relative financing needs, with the exception of the Onity Senior Secured Notes through their redemption date in November 2024.

The following table presents selected results of operations of Corporate. The amounts presented are before the allocation and elimination of balances and transactions with our other segments:

Operating Expenses

Operating expenses before corporate overhead allocations declined by $7.1 million, or 16%, for the three months ended June 30, 2025 compared to the three months ended March 31, 2025, primarily driven by a $9.1 million decline in Professional services, partially offset by a $2.3 million increase in Compensation and benefits. The decline in Professional services is primarily due to an increase in our accrual for probable losses during the three months ended March 31, 2025 in connection with the settlement of a legacy litigation matter. The increase in Compensation and benefits is mostly due to higher incentive compensation expense primarily driven by an increase in the fair value of cash-settled share-based awards during the three months ended June 30, 2025 (higher stock price).

Operating expenses before corporate overhead allocations increased by $20.2 million, or 32%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. Professional services increased $10.7 million mostly driven by an increase in our accrual for probable losses during the three months ended March 31, 2025 in connection with the settlement of a legacy litigation matter, as disclosed above. Compensation and benefits increased $8.8 million mostly due to higher incentive compensation, primarily driven by an increase in the fair value of cash-settled share-based awards during the six months ended June 30, 2025 (increase in our stock price vs. a decrease in the comparative period), and higher salaries and benefits expense due to an increase in average headcount (mostly in the U.S.).

Other Income (Expense)

Interest expense for the three months ended June 30, 2025 was flat (decreased $0.1 million) as compared to the three months ended March 31, 2025.

The $9.6 million reduction in interest expense for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 is driven by the corporate debt refinancing which resulted in both a lower corporate debt balance and a lower effective interest rate. In the fourth quarter of 2024, we issued new corporate debt ($500.0 million principal balance of 9.875% Senior Notes Due 2029) and redeemed the existing corporate debt (the 7.875% PMC Senior Secured Notes due 2026 and the 12% Onity Senior Secured Notes due 2027.

LIQUIDITY AND CAPITAL RESOURCES

Overview

In the normal course of business, we are actively engaged with existing and potential lenders and as a result add, terminate, replace or extend our debt agreements to the extent necessary to finance our operations and growth and optimize our financing costs. In addition, we completed the following key transactions during the six months ended June 30, 2025 impacting our liquidity:

• Increased the borrowing capacity under a GSE MSR facility from $500.0 million to $650.0 million in January 2025, and subsequently decreased the borrowing capacity under another GSE MSR facility from $400.0 million to $250.0 million in February 2025.
• Entered into a one-year $70.0 million PLS MSR financing agreement in February 2025. The financing agreement is structured as a repurchase agreement and was entered into upon the final repayment of the amortizing PLS 2022 Notes.
• In connection with the transfer of certain GSE MSR investment activities between our licensed entities in the second quarter of 2025 (PHH and PAS - See Note 20 – Regulatory Requirements), we completed the following:
• Issued variable-rate advance receivable notes (PGAF Series 2025-VF1) with a maximum borrowing capacity of $350.0 million and an Expected Repayment Date of May 28, 2027. Concurrently, we reduced the maximum borrowing capacity under the existing OMART and OGAF advance facilities from $500.0 million to $350.0 million and from $200.0 million to $100.0 million, respectively.
• Entered into a new GSE MSR facility at PAS with similar terms to the existing PHH facility, with an aggregate capacity of $650.0 million, further increased to $750.0 million in June 2025.
• Repaid the amount due under an existing $250.0 million GSE MSR facility at PHH and PAS entered into a new facility with similar terms, including the same borrowing capacity and a maturity date of May 2027.
• Increased the borrowing capacity under the GNMA MSR facility from $300.0 million to $400.0 million in June 2025.

A summary of borrowing capacity under our advance facilities, mortgage warehouse facilities and MSR financing facilities is as follows (see Note 12 – Borrowings to the Unaudited Consolidated Financial Statements for additional information):

(1) Total Borrowing Capacity represents the maximum amount which can be borrowed, subject to eligible collateral. Remaining Borrowing Capacity represents Total Borrowing Capacity less outstanding borrowings, subject to eligible collateral.

We may utilize committed borrowing capacity under our financing facilities and MSR financing facilities to the extent we have sufficient eligible collateral to borrow against and otherwise satisfy the applicable conditions to funding. Uncommitted amounts can be advanced at the discretion of the lender, and there can be no assurance that any uncommitted amounts will be available to us at any particular time.

At June 30, 2025, we had $23.8 million total available committed and uncommitted borrowing capacity based on the amount of eligible collateral as follows:

At June 30, 2025, our total liquidity of $218.1 million included $194.3 million of unrestricted cash and $23.8 million total available committed and uncommitted borrowing capacity based on the amount of eligible collateral as described above. With total liquidity of $248.5 million at December 31, 2024, the decrease is mostly attributed to our originations growth in owned MSRs.

We manage our liquidity on a daily basis to fund our business and comply with debt covenants and regulatory liquidity requirements. Our liquidity position may vary significantly during a given month, generally with the lowest liquidity amount around mid-month due to the cash flow remittance requirements under our servicing agreements and the highest around or a few days after month end as we collect monthly installments from borrowers and benefit from float balances. Other factors include but are not limited to daily variation margins with our derivative instruments and MSR financing facilities. It is not uncommon for our liquidity to materially decline from peak to trough within a month and recover through borrower payment behaviors.

We optimize our daily cash position to reduce financing costs while closely monitoring our liquidity needs and ongoing funding requirements. We regularly monitor and project cash flows over various time horizons to anticipate and mitigate liquidity risk. We maintain liquidity buffers to be responsive to the level of risks, including liquidity peaks and troughs, stressed market interest rate conditions and operational risk.

Use of Funds

Our primary near-term uses of funds in the normal course include:

• Payment of operating costs and corporate expenses;
• Payments for servicing advances in excess of collections including advances and draws related to reverse mortgage assets (see below);
• Investment in MSRs (purchased and originated) and other related asset acquisitions;
• Originated, purchased and repurchased loans, including reverse mortgage buyouts;
• Payment of margin calls under our MSR financing facilities and derivative instruments;
• Debt service and repayments of borrowings, including under our MSR financing, advance financing, warehouse facilities and OLIT securitization notes, and payment of interest expense including on the Senior Notes Due 2029;
• Dividend payments on Series B Preferred Stock; and
• Net negative working capital and other general corporate cash outflows.

We have short-term commitments to lend $2.0 billion in connection with our forward and reverse mortgage loan IRLCs outstanding at June 30, 2025. In addition, we have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $3.0 billion at June 30, 2025. During the six months ended June 30, 2025, we funded $157.0 million of the $3.1 billion borrowing capacity available as of December 31, 2024. We are able to immediately securitize these borrower draws or advances under the Ginnie Mae program. As an HMBS issuer, we are required to repurchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the loan is equal to or greater than 98% of the maximum claim amount (MCA repurchases). We carry these repurchases until reimbursement by HUD and/or property liquidation if inactive. Our reverse subservicing clients bear the financial obligation and risks associated with purchasing loans out of securitization pools within the portfolio we subservice.

Regarding the current maturities of our borrowings, as of June 30, 2025, we have approximately $3.1 billion of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months. This amount is comprised of $1.9 billion of borrowings under forward and reverse mortgage loan financing facilities, $296.7 million outstanding under advance financing facilities based on expected repayment, $0.9 billion outstanding under GSE and Ginnie

Mae MSR financing facilities maturing in the next 12 months, and $63.9 million outstanding under a new MSR financing (repurchase) agreement.

With respect to liquidity management, we consider our servicing advance requirements during each investor remittance period and the uncertainties of daily margin calls on our collateralized debt facilities and derivative instruments due to interest rate fluctuations.

As servicer, we are required to advance to investors the loan P&I installments not collected from borrowers for those delinquent loans, including those on forbearance plans. Loan payoffs and prepayments are a source of additional liquidity and are dependent on the interest rate environment. We also advance T&I and Corporate advances primarily on properties that are in default or have been foreclosed. Our obligations to make these advances are governed by servicing agreements or guides, depending on investors or guarantor. As subservicer, we are also required to make P&I, T&I and Corporate advances on behalf of servicers following the servicing agreements or guides. However, servicers are generally required to reimburse us within 30 days of our advancing under the terms of the subservicing agreements, and we are generally reimbursed by Rithm the same day we fund P&I advances, or within no more than three days for certain servicing advances.

We are generally subject to daily margining requirements under the terms of our MSR financing facilities and daily cash calls for our TBAs, interest rate futures or other derivatives. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under MSR financing facilities. Similarly, declines in fair value of our derivative instruments require that we provide additional collateral to the clearing counterparties. While the objective of our hedging strategy is to reduce volatility due to interest rates, it is also designed to address cash and liquidity considerations. Refer to the sensitivity analysis in Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our medium- and long-term requirements for cash include:

• Payment of interest and principal repayment of our Senior Notes Due 2029(1);
• Payment of interest and principal repayment of our OLIT securitization note issuances that have a three-year mandatory call date;
• Any payments associated with the confirmation of loss contingencies; and
• Any other payments required under contractual obligations discussed above that extend beyond one year.

(1) Supplemental information required pursuant to the Indenture governing the Onity Senior Notes Due 2029 disclosed in Exhibit 99.1 .

Sources of Funds

Our primary sources of funds for near-term liquidity in normal course include:

• Collections of servicing and subservicing fees and ancillary revenues;
• Collections of advances in excess of new advances;
• Proceeds from match funded advance financing facilities;
• Proceeds from other borrowings, including warehouse facilities, MSR financing facilities, MSR transfers and ESS financing;
• Proceeds from sales and securitizations of originated loans and purchased loans; and
• Net positive working capital from changes in other assets and liabilities.

Servicing advances are an important component of our business and represent amounts that we, as servicer, are required to advance to, or on behalf of, our servicing clients if we do not receive such amounts from borrowers. Our use of advance financing facilities is integral to our cash and liquidity management strategy. Additionally, certain of our financing and subservicing agreements permit us to retain advance collections for a period ranging from one to two business days before remittance, thus providing a source of short-term liquidity.

We use mortgage loan repurchase and participation facilities (commonly called warehouse lines) to fund newly-originated or purchased loans on a short-term basis until they are sold or securitized to secondary market investors, including GSEs or other third-party investors, and to fund repurchases of certain Ginnie Mae forward loans, HECM loans, second-lien loans and other types of loans. These facilities contain eligibility criteria that generally include aging and concentration limits by loan type among other provisions. Currently, our financing agreements generally have maximum terms of 364 days. The funds are typically repaid using the proceeds from the sale of the loans to the secondary market investors, usually within 30 days.

We also rely on the secondary mortgage market as a source of liquidity to support our lending operations. Substantially all of the mortgage loans that we originate or purchase are sold or securitized in the secondary mortgage market in the form of residential mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac and, in the case of mortgage-backed securities guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA, VA or USDA. We issued private placement securitizations to finance reverse mortgage buyouts, expanding our access to capital markets and reducing our reliance on warehouse financing facilities.

We regularly evaluate financing structure options including asset-backed financing to support our investment plans and accommodate our business needs. We strive to diversify our sources of funds, optimize maturities and reduce our funding cost. We continuously evaluate the allocation of our capital to MSR and other investments, the related returns, funding and liquidity requirements.

Capital Adequacy and Leverage

Our licensed entities are subject to capital requirements by different agencies and regulators, including but not limited to the GSEs, Ginnie Mae and HUD. We believe our licensed entities are adequately capitalized at June 30, 2025 as reflected by the most restrictive regulatory requirements disclosed in Note 20 – Regulatory Requirements.

Our aggregate mezzanine and stockholders’ equity ($531.8 million at June 30, 2025) relative to total assets denotes a high leverage ratio. Our regulators assess our leverage ratio by deducting from total assets the amount of securitized reverse mortgage loans held for investment (HECM loans) pledged to HMBS due to the “lack of true sale accounting treatment of the HMBS Program” as per the Ginnie Mae guide. As of June 30, 2025, as illustrated below, out of $16.5 billion total assets, $10.3 billion securitized HECM loans remain reported on our balance sheet with the associated HMBS liability as they do not meet sale accounting treatment under GAAP. In addition, under the Ginnie Mae risk based capital ratio, HECM loans held for investment are risk-weighted at zero percent.

We conduct our Servicing and Originations businesses with asset-backed financing at high effective advance rates, resulting in a relatively low amount of equity required by lenders to finance our operations, consistent with these asset classes in the industry. Originations/pipeline mortgage loans held for sale are financed by our warehouse financing lines with an advance rate generally exceeding 95%, eligible servicing advances are financed by our match-funded advance financing facilities with an advance rate of approximately 90%, and reverse buyouts (loans held for sale, receivables and REO) are generally financed by OLIT securitization liabilities with an initial effective advance rate exceeding 90% of market value.

Accordingly, we assess our capital needs, structure and leverage predominantly with respect to our capital investments, mainly our owned MSR. We prudently manage amount, risks and returns of our owned MSR within the limits of our available capital, as summarized below:

(1) See Note 12 – Borrowings, Collateral table.

(2) Includes $1,724 million owned MSR and $1,183 million MSR financing facilities, excluding ESS ($541 million net).

(3) Includes $129 million unsecuritized HECM loans and tails, $77 million associated warehouse mortgage loan financing ($53 million net), and $88 million of HECM net asset value or economic reverse MSR.

(4) Other assets include Advances, net, Loans held for sale, at fair value, Ginnie Mae claim receivables, net, REO and Debt service accounts (a component of Restricted cash).

(5) Assets that are not subject/pledged to collateralized financing facilities and liabilities that are not financing facilities. Assets include Cash and cash equivalents, Other restricted cash, Contingent loan repurchase asset, Other assets excluding REO, Premises and equipment, and Receivables, net excluding Ginnie Mae claims. Liabilities include Other liabilities and Contingent loan repurchase liability.

Covenants

Our debt agreements contain various qualitative and quantitative covenants including financial covenants, covenants to operate in material compliance with applicable laws and regulations, monitoring and reporting obligations and restrictions on our ability to engage in various activities, including but not limited to incurring or guarantying additional debt, paying dividends or making distributions on or purchasing equity interests of Onity and its subsidiaries, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Onity and its subsidiaries, creating liens on assets to secure debt, and entering into transactions with affiliates. These covenants may limit the manner in which we conduct our business and may limit our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change, insolvency, bankruptcy, certain material judgments and litigation and changes of control. See Note 12 – Borrowings to the Unaudited Consolidated Financial Statements for additional information regarding our covenants. The most restrictive liquidity requirement under our debt agreements is for a minimum of $70.3 million in consolidated liquidity, as defined, under certain of our mortgage loan financing and MSR financing facilities agreements. At June 30, 2025, we held unrestricted cash in excess of this minimum amount. Refer to Note 20 – Regulatory Requirements for our regulatory capital and liquidity requirements.

Ginnie Mae announced a new risk-based capital ratio effective on December 31, 2024 for Ginnie Mae issuers. Ginnie Mae issued a waiver extending the deadline by which PHH must meet the risk-based capital ratio requirements to October 1, 2025. PHH will be required to maintain a minimum of 6% ratio of Adjusted Net Worth less Excess MSRs, as defined, to risk weighted assets. In the second quarter of 2025, in order to achieve and maintain compliance with the Ginnie Mae RBCR requirements, we transferred certain GSE MSR investment activities previously conducted by PHH to PAS, a wholly owned subsidiary of PHH Corporation, with PHH retaining the subservicing. As of June 30, 2025, we believe PHH was in compliance with RBCR requirements.

In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations, and other legal remedies, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. We believe that we are in compliance with the covenants in our debt agreements as of June 30, 2025.

Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a company’s debt obligations. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.

On October 21, 2024, Moody’s assigned a Caa1 rating to the new PHH Corporation Senior Notes due 2029. Moody’s also assigned a B3 corporate family rating to Onity and withdrew the B3 corporate family rating of PHH Mortgage Corporation. The entities’ outlooks are stable. Moody’s recognizes Onity's improving performance and return to profitability and adequate capitalization. At the same time, Moody’s explained the rating is constrained by Onity's modest scale compared to mortgage peers and history of uneven financial performance.

On October 21, 2024, S&P assigned a B- rating to the new PHH Corporation Senior Notes due 2029. S&P also affirmed the B- rating to Onity with a Stable Outlook. The Stable Outlook reflects S&P’s expectations that Onity will maintain certain levels of debt ratio and debt-interest coverage while continuing to grow and diversify its servicing portfolio.

It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.

Cash Flows

Our operating cash flow is primarily impacted by operating results, changes in our servicing advance balances, the level of mortgage loan production, the timing of sales, securitizations, or liquidation of mortgage loans, and the margin calls required under our MSR financing facilities or derivative instruments. As one of the main differences between proceeds from sale and origination or purchase of loans held for sale, newly originated MSRs are effectively classified as operating cash flows under GAAP. Purchases of MSRs through flow purchase agreements, Agency Cash Window and bulk acquisitions are classified as investing activity. MSR investments, whether originated or purchased, represent a key indicator of our ability to generate future income in our Servicing business.

We classify changes in HECM loans held for investment as investing activity and changes in the related HMBS borrowings as financing activity. Our MSR transfer agreements with MAV, Rithm and others that do not meet sale accounting criteria have a significant impact on our consolidated statements of cash flows. Because the payments we receive in connection with the HECM loan securitizations and MSR transfer agreements are recorded as secured financings, additions to, and reductions in, the balance of those secured financings are presented as financing activity in our consolidated statements of cash flows, excluding the changes in fair value attributable to inputs and assumptions.

Our cash flows are summarized as follows:

$ in millions

Our operating cash flows are further summarized below:

Cash flows for the six months ended June 30, 2025

Our operating activities used $747 million of cash during the period with $875 million net cash paid on loans held for sale, $101 million net collections of servicing advances and $153 million other operating cash inflows, net. The $875 million net cash paid on loans held for sale is attributed to the growth of the pipeline with loan production volume exceeding sales and $143 million originated MSRs. The $101 million net collections of servicing advances was mostly driven by seasonality, as well as lower delinquencies and loan resolutions in our non-Agency MSR portfolio. Operating cash flows included $126 million interest paid on our financing liabilities with relatively higher interest paid on our warehouse financing due to volume growth and lower corporate debt interest payment after our successful refinancing in the fourth quarter of 2024. Other operating cash inflows, net of $153 million, primarily includes collections of servicing fees and ancillary income, payment of operating expenses, and net cash outflow for our hedging derivative activities during the period.

Our investing activities provided $887 million of cash. Cash inflows primarily include $1,018 million net cash received in connection with our HECM reverse mortgages, with increased collections driven by the portfolio acquired from Waterfall, and $23 million proceeds from sales of real estate. The increase in our reverse mortgage collections in the six months ended June 30, 2025 was largely offset by the increase in our HMBS borrowings repayment under the terms of the Ginnie Mae securitization - see below paragraph. Offsetting cash outflows include $151 million to invest in MSRs as part of our growth strategy.

Our financing activities used $149 million of cash. Cash outflows primarily include $967 million net cash repaid in connection with our reverse HMBS related borrowings, with $1,545 million of repayments of borrowings (see above discussion of collection drivers), partly offset by $578 million received in connection with our reverse mortgage securitizations of our new production, and which are accounted for as secured financings. Other cash outflows include $75 million of net repayments on advance match funded liabilities due to the decline in servicing advances, and $35 million of net payments on the financing liabilities related to MSRs transferred and ESS financings due to runoff. Offsetting financing cash inflows are primarily comprised of $262 million net drawdown on MSR financing facilities due to the increase in the MSR portfolio and $656 million net from borrowings under our mortgage loan financing facilities due to the increase in loans held for sale.

Cash flows for the six months ended June 30, 2024

Our operating activities used $375 million of cash primarily due to net cash paid on loans held for sale of $521 million as loan production volume exceeded sales, including $95 million for the purchase of reverse mortgage buyouts (government-insured loans and claim receivables), and $102 million originated MSRs. Offsetting operating cash inflows include net collections of servicing advances of $113 million driven by seasonal activity and our increased collection efforts on legacy advances and earnings distributions of $6 million received from our equity method investee MAV Canopy.

Our investing activities provided $128 million of cash. Investing cash inflows primarily include $96 million proceeds from sales of MSRs, $79 million net cash inflows in connection with our HECM reverse mortgages, $12 million proceeds from sales of real estate as part of our asset recovery strategy, $9 million received from the sale of advances in connection with sales of

MSRs, and $6 million of capital distributions received, net of contributions, from our equity method investee MAV Canopy. Offsetting cash outflows include $62 million to purchase MSRs and $12 million to purchase real estate primarily in connection with our reverse mortgage buyout transaction.

Our financing activities provided $241 million of cash. Financing cash inflows are primarily comprised of $472 million net from borrowings under our mortgage loan financing facilities due to the increase in loans held for sale, including $247.8 million with the issuance of the OLIT securitization of reverse mortgage buyouts, $18 million of proceeds from the sale of MSRs accounted for as a financing in connection with sales of MSRs, and $13 million of net proceeds on MSR financing facilities. Offsetting cash outflows include $95 million of net repayments on advance match funded liabilities due to the decline in servicing advances, and $37 million of net payments on the financing liabilities related to MSRs transferred and ESS financings due to runoff. We also paid $45 million to repurchase $47 million of our 7.875% PMC Senior Secured Notes. Cash inflows of $508 million received in connection with our reverse mortgage securitizations, which are accounted for as secured financings, were more than offset by repayments on the related financing liability of $588 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on information available at the date of the financial statements. An accounting estimate is considered critical if it requires that management make assumptions about matters that were highly uncertain at the time the accounting estimate was made. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. We have processes in place to monitor these judgments and assumptions, and management is required to review critical accounting policies and estimates with the Audit Committee of the Board of Directors.

Our accounting policies and estimates involving significant judgments primarily relate to fair value measurements, income taxes, allowance for losses, and loss contingencies, including indemnification obligations and litigation proceedings. We use fair value measurements to record fair value adjustments to certain instruments in our statement of operations and to determine fair value disclosures, including but not limited to MSRs, Other financing liabilities, Loans held for sale, Loans held for investment-Reverse mortgages, and HMBS-related borrowings. As of June 30, 2025, 92% of our assets and 69% of our liabilities were reported at fair value, with fair value changes reported in our statement of operations. Substantially all our assets and liabilities at fair value were classified as Level 3 instruments due to unobservable inputs. See Note 3 – Fair Value for the carrying amounts and the estimated fair values of our financial instruments and certain of our nonfinancial assets measured at fair value on a recurring and nonrecurring basis or disclosed, but not measured, using fair value

Our significant accounting policies and critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024 in Note 1 to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Critical Accounting Policies and Estimates.” There have been no material changes to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

RECENT ACCOUNTING DEVELOPMENTS

See Note 1 - Organization and Basis of Presentation to the Unaudited Consolidated Financial Statements for information related to recent accounting standards updates.

Interest Rates

Our principal market risk exposure is the impact of interest rate changes on our mortgage-related assets and commitments, including MSRs, loans held for sale, loans held for investment, IRLCs and other derivative instruments. In addition, changes in interest rates could materially and adversely affect the amount of escrow and float income, the volume of mortgage loan originations or result in MSR fair value changes. We also have exposure to the effects of changes in interest rates on our floating-rate borrowings, including MSR and advance financing facilities.

Our management-level Market Risk Committee establishes and maintains policies that govern our risk appetite and associated hedging programs, including such factors as duration and interest rate sensitivity measures, limits, targeted hedge coverage ratios, the hedge instruments that we are permitted to use in our hedging activities, and the counterparties with whom we are permitted to enter into hedging transactions and our liquidity risk profile. See Note 15 – Derivative Financial

Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information regarding our use of derivatives.

MSR Hedging Strategy

MSRs are carried at fair value with changes in fair value being recorded in earnings in the period in which the changes occur. The fair value of MSRs is subject to changes in market interest rates, among other inputs and assumptions.

The objective of our MSR interest rate risk management and hedging policy is to protect shareholders’ equity and earnings against the fair value volatility of interest-rate sensitive MSR portfolio exposure, considering market, liquidity, cost and other conditions. The interest-rate sensitive MSR portfolio exposure is defined as follows:

• Agency MSR portfolio,
• expected Agency MSR bulk transactions subject to letters of intent (LOI),
• less the Agency MSRs subject to our sale agreements with MAV, Rithm and others, also referred to as Pledged MSR liabilities (See Note 8 — Other Financing Liabilities, at Fair Value),
• less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings (also referred to as HECM or reverse MSR for risk management purposes),
• other interest-rate sensitive exposures, including our ESS financing liabilities, as deemed appropriate by the Market Risk Committee.

The hedge coverage ratio, defined as the ratio of hedge (including reverse MSR) to asset rate sensitivity (referred to as DV01) is subject to lower and upper target thresholds under our policy. We regularly evaluate the hedge coverage ratio at the intended shock interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, liquidity impacts under shock scenarios, and other factors. As the market dictates, management may choose to maintain the hedge coverage ratio at different thresholds, with approval of the Market Risk Committee, in order to preserve liquidity, improve hedge effectiveness and/or optimize asset returns.

Effective December 2023, we established a targeted hedge coverage ratio range between 95% and 105%. In April 2024, we changed the risk measure to a dollar DV01 that resulted in an equivalent range of approximately 90% to 110%. In May 2025, we established a new targeted hedge coverage ratio of 85% with a range between 80% and 100%.

With a less-than 100% hedge coverage ratio, the changes in fair value of our hedging instruments may not fully offset the changes in fair value of our net MSR portfolio exposure attributable to interest rate changes. In addition, while interest rate sensitivity measures (DV01) may remain within the range of our hedging strategy’s objective, actual changes in fair value of the derivatives and MSR portfolio may not offset to the same extent, due to many factors. These factors include non-parallel changes in the interest rate curve, the convexity of the MSR, the basis risk inherent in the MSR profile and hedging instruments, model risk observed between actual vs. expected fair value changes, and hedge costs.

We continuously evaluate the use of hedging instruments with the objective of enhancing the effectiveness of our interest rate hedging strategy.

Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties, exchange-traded interest rate futures and interest rate options. These derivative instruments are not designated as accounting hedges. TBAs, or To-Be-Announced securities are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. From time to time, we enter into exchange-traded options contracts with purchased put options financed by written call options. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment.

The derivative instruments are subject to margin requirements, posted as either initial or variation margin. Onity may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value changes of the instruments. Changes in market factors, including interest rates, and our credit rating may require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity.

Loans Held for Investment and HMBS-related Borrowings

The fair value of our reverse mortgage loans held for investment (HECM) generally decreases as market interest rates rise and increases as market rates fall. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach a 98% maximum claim amount liquidation event more quickly, with lower interest rates extending the timeline to liquidation. Additionally, portfolio value is heavily influenced by market spreads for fixed and discount margin for ARMs.

The fair value of our securitized HECM loan portfolio net of the fair value of the HMBS-related borrowings represents a reverse mortgage economic MSR (HMSR) for risk management purposes. HECM loans have a longer duration than HMBS-related borrowings as a result of the future draw commitments, and our obligations as issuer of HMBS to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM loan is equal to 98% of the maximum claim amount. This HMSR exposure is used as a partial offset to our forward MSR exposure and managed as part of our MSR hedging strategy described above.

Pipeline Hedging Strategy - Loans Held for Sale and IRLCs

In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale or securitization of the resulting loan into the secondary mortgage market. Loan commitments for forward loans generally range from 5 to 75 days, with the majority of our commitments to borrowers for 40 to 60 days and our commitments to correspondent sellers for 5 to 30 days. Loans held for sale are generally funded and sold within 5 to 30 days. This interest rate exposure of loans and IRLCs is economically hedged with derivative instruments, including forward sales of Agency TBAs. The objective of our pipeline hedging strategy is to reduce the volatility of the fair value of IRLCs and loans due to market interest rates, thus preserving the initial gain on sale margin at lock date. The net daily market risk position of net pull-though adjusted locks and loans held for sale, less the offsetting hedges of the pipeline, is monitored daily and its daily limit is +/- 5%. Actual fair value changes of derivatives may not fully offset fair value changes of the IRLCs and loans due to many factors including basis risk or market volatility, We report changes in fair value of these derivative instruments as gain or loss on economic hedge instruments within either Gain on loans held for sale, net or Gain on reverse loans held for investment and HMBS-related borrowings, net in our consolidated statements of operations.

EBO and Loan Modification Hedging – Loans Held for Sale, at fair value

In our Servicing business, we hedge certain Ginnie Mae EBO loans repurchased out of securitization pools for modification and reperformance with TBAs to manage the interest rate risk while these loans await redelivery.

Advance Match Funded Liabilities

We monitor the effect of changes in interest rates on the interest paid on our variable-rate advance financing debt. Earnings on cash and float balances are a partial offset to our exposure to changes in interest expense.

Sensitivity Analysis

Fair Value MSRs, Loans Held for Sale, Loans Held for Investment and Related Derivatives

We assess and manage our interest rate risk on a daily basis primarily using sensitivity analyses. We develop sensitivity analyses to determine the impact on our earnings and financial condition across various interest rate scenarios that could be expected over different time horizons. Our interest rate exposure spans from overnight rates to 30-year rates, with increased sensitivity related to the 5-, 10-, and 30-year rates. Sensitivity analyses are based on hypothetical change in values of different interest-rate sensitive assets and liabilities together with our hedges and are presented under a set instantaneous +/- 25 basis point parallel move in rates. Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear and other factors may apply, such as change in yield, spreads or other assumptions.

The following table summarizes the estimated change in the fair value of our MSRs, HECM loans held for investment and loans held for sale that we have elected to carry at fair value as well as any related derivatives at June 30, 2025, given hypothetical instantaneous parallel shifts in the yield curve. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship to the change in fair value may not be linear, among other factors.

(1) Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio, Rithm and MAV pledged MSR financing liabilities and ESS financing liabilities.

Borrowings

The majority of the collateralized debt used to finance our operations is based on variable rates, but remains exposed to interest rate fluctuations between repricing dates. Our corporate debt is based on fixed interest rates. As servicer, we are also exposed to the impact of interest rate fluctuations on the float income we earn on balances held in trust from the date a loan payment is received from borrowers to the date funds are forwarded to investors.

Based on June 30, 2025 balances, if interest rates were to decrease by 100 bps, we estimate a net positive impact on our profitability of approximately $4.7 million resulting from a decrease of $28.3 million in annual interest income and other credits on cash deposits and float balances, and a decrease of $33.0 million in annual interest expense on our variable-rate debt.

Our management, under the supervision of and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2025.

Based on such evaluation, management concluded that our disclosure controls and procedures as of June 30, 2025 were (1) designed and functioning effectively to ensure that material information relating to Onity, including its consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) operating effectively in that they provided reasonable assurance that information required to be disclosed by Onity in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer or principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

An investment in our common stock involves significant risk. We describe the most significant risks that management believes affect or could affect us under Part I, Item 1.A. of our Annual Report on Form 10-K for the year ended December 31, 2024. Understanding these risks is important to understanding any statement in such reports and in our subsequent SEC filings (including this Form 10-Q) and to evaluating an investment in our common stock. You should carefully read and consider the risks and uncertainties described therein together with all the other information included or incorporated by reference in such Annual Report and in our subsequent SEC filings before you make any decision regarding an investment in our common stock. You should also consider the information set forth under “Forward-Looking Statements.” If any of the risks actually occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could significantly decline, and you could lose some or all of your investment.

There have been no material changes to the risks described in our Annual Report on Form 10-K for the year ended December 31, 2024.