Onity Group plans for servicing gains in 2025

Onity Group touted servicing segment wins behind a profitable first quarter, with recent mergers and acquisitions and potential economic headwinds driving growth prospects for 2025.

The West Palm Beach, Florida-based originator and servicer ended the first quarter in the black and said the recent deal between Rocket Cos. and Mr. Cooper should further accelerate dealmaking within the mortgage industry, which will lead to a realignment in subservicing. 

"M&A activity over the past 12 to 18 months amongst companies who had large concentrations of subservicing is giving rise to an increase in financial institutions exploring their options for subservicing providers," said Onity President and CEO Glen Messina in the company's earnings call. 

His comments echo thoughts of other home lending leaders, who alluded to coming servicing opportunities after the Rocket/Mr. Cooper deal was announced. 

Mortgage rates are also likely to contribute to segment profits, as it reduces the likelihood of run-off, with Fannie Mae forecasting them to remain above 6% this year, higher than recent historical levels. The Mortgage Bankers Association also predicted them to rise above 7% at some point during the second quarter. 

"Given the current outlook for interest rates, we expect servicing will continue to be the predominant earnings contributor 2025 with industry origination volume projected to increase modestly," Messina also said.

Onity by the numbers
Onity, which until last year went by the name Ocwen Financial, posted net income attributable to shareholders of $21.1 million in the first quarter, improving from a loss of $28.1 million three months earlier. The marks included one-time charges as well as portfolio valuation adjustments from rate volatility and were determined according to Generally Accepted Accounting Principles.

On a year-over-year basis, earnings decreased almost 30% from $30.1 million in the first quarter 2024. 

Revenue came in at $249.8 million, up 11.1% from $224.8 million during the fourth quarter, and 4.5% from $239.1 million a year earlier.

The company's originations arm contributed approximately $10 million on a pre-tax GAAP basis to overall profits, on par with its fourth-quarter 2024 number. New loan production totaled $7 billion.

Servicing brought in pre-tax income of $33 million, down from $38 million three months earlier. The unpaid principal balance equaled $305 billion, and subservicing made up over half of Onity's portfolio. 

The opportunities ahead
As Onity looks ahead to opportunities, Messina pointed out the company's special servicing expertise in severely delinquent loans stood out as an area that would fuel growth in 2025's economic environment.

"We believe our special servicing skills are an asset that can be converted to revenue through delinquent subservicing and a recessionary cycle," he said but added that he had not seen deterioration in Onity's portfolio. 

"We are attacking the marketplace with passion and energy and trying to continue to grow that service," he added, referring to subservicing activity.

Given its prospects, the company maintained guidance for return on equity between 16% and 18% this year. Onity's stock price, which trades on the New York Stock Exchange under the ticker ONIT, opened trading at $37 Wednesday, up 5% from the previous day's close of $35.41.

The company also acknowledged lawsuits in front of it and the industry at large regarding convenience fees paid by customers for making payments by phone or online. The charges have also been referred to as "pay-to-pay" fees.

Since entering office, President Trump has loosened regulatory enforcement and attempted to rescind some past legal judgments but has not made moves in regards to the pay-to-pay issue. 

"We and others have been defending ourselves in a number of different pending actions or inquiries regarding convenience fees, and we believe we've complied with the law in every one of those examples," Messina said.