Onity Group’s Earnings Call Contradictions: MSR Volatility Solutions and Delinquency Trends Don’t Match

Date of Call: Aug 6, 2026

Financials Results

• Revenue: Revenue up 24% year-over-year; servicing and originations contributed to growth.

Guidance:

• Full year 2026 adjusted ROE expected at the low end of guidance range.
• Adjusted pre-tax income growth guided to low end of 10%-15% range based on current market conditions and first half results.
• Other areas of guidance unchanged: continue strong servicing book growth, improve operating efficiency, maintain strong hedging performance.

Business Commentary:

Revenue Growth and Record Origination Volume:

• Onity Group reported double-digit year-over-year revenue growth and achieved record origination volume in Q2 2026.
• This growth was driven by strong performance in both servicing and originations, with increased adjusted pre-tax income from origination activities and improved execution.

Servicing and Portfolio Management:

• The company's total servicing additions were up 2.8 times versus the prior year, driven by strong originations and subservicing additions.
• The growth in servicing was supported by a 10% year-over-year increase in total servicing UPV, despite industry-wide challenges and client asset sale-driven deboardings.

Impact of Interest Rates on Financial Metrics:

• With rising interest rates, Onity Group's servicing adjusted pre-tax income improved, while origination adjusted pre-tax income decreased over 60% year-over-year.
• The decline in origination income was due to lower interest rates driving increased MSR runoff, while servicing benefits were from better float income and runoff due to elevated mortgage rates.

Cost Management and Efficiency Improvements:

• Onity Group reduced servicing advances by 33% over two years, focusing on strategies to target loans that drive the most advances.
• This improvement was achieved through the use of AI-enabled agents and automation, which optimized customer engagement and reduced manual effort.

Strategic Transactions and Business Simplification:

• The company completed a reverse asset sale to Finance of America and transferred legacy subservicing back to Rhythm, resulting in $33 million of pre-tax costs related to these transactions.
• These actions were aimed at simplifying the business, improving profitability, and increasing strategic flexibility.

Sentiment Analysis:

Overall Tone: Positive

• "We're looking forward to sharing our results for the second quarter, as well as reviewing our strategy and financial objectives to deliver long-term value for our shareholders." "Our sound strategy and strong operating fundamentals delivered double-digit year-over-year revenue growth and record origination volume." "We believe the reverse asset sale ... simplify the business, improve profitability and focus, and increase strategic flexibility." "We are well positioned to navigate the current environment, capitalize on attractive opportunities, and continue delivering sustainable, prudent growth."

Q&A:

• Question from Frank DeLaBette (KBW): Can you help quantify what bridges the gap to the lower end of the ROE range given you're in this 9% range currently and market is pretty volatile?
  Response: Management believes focused actions on servicing scale, portfolio optimization, and technology-driven productivity will improve ROE, and feels better about managing market volatility after improved Q2 origination margins and record volumes.

• Question from Frank DeLaBette (KBW): How do you see banks evolving in the market, and can you talk about competition in the correspondent channel?
  Response: Banks are aggressively buying MSR assets, which is good for valuations but creates competition; most existing banks will grow their franchises, making non-banks like Onity more valuable. Onity's correspondent team achieved record volumes with improved margins via value-based selling.

• Question from Randy Banner (Texas Capital): Can you comment on the plan to execute the ongoing buyback, the sustainability of other revenue, and how to track reduced MSR volatility?
  Response: Share buybacks (recently $10M completed, $20M reauthorized) will continue at Q2 rates. 'Other revenue' is driven by ancillary income and is sustainable. Forward MSR volatility is within a reasonable range; reverse MSR volatility was extreme in Q2 but will decrease after selling 80% to Finance of America.

• Question from Randy Banner (Texas Capital): What caused the recent GSE delinquency spike and subsequent improvement?
  Response: The increase in GSE 30-day delinquencies is attributed to a seasonal spike around the Fourth of July holiday, with delinquencies typically recovering in the following month; longer-term metrics like 60 and 90-day delinquencies are more indicative of consumer payment behavior.

Contradiction Point 1

MSR Volatility Assessment and Mitigation

Contradiction on the primary cause and solution for managing extreme reverse MSR volatility.

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2026Q2: Volatility was extreme in Q2 (~$12M unfavorable impact on a $10B UPV) due to sensitivity to rates and inputs. The sale of ~80% of this book to Finance of America should significantly reduce future volatility. - Glenn Messina(CEO) and Sean O'Neill(CFO)

How do we assess and monitor decreased volatility in the MSR portfolio, particularly following the sale of reverse assets? - Randy Benner (Texas Capital)

2026Q2: The recent 80% sale of reverse MSR portfolio to Finance of America should significantly reduce forward MSR volatility going forward. - Glenn Messina(CEO) and Sean O'Neill(CFO)

Contradiction Point 2

GSE Delinquency Trend Analysis

Contradiction on the attribution and significance of a spike in GSE delinquencies.

Randy Banner (Texas Capital) - Randy Banner (Texas Capital)

2026Q2: A spike in the 30-day delinquency bucket for GSE loans was observed in June 2026. This is attributed to a known seasonal pattern around the Fourth of July holiday... The spike appears to be a temporary seasonal fluctuation. - Sean O'Neill(CFO)

What caused the spike and subsequent improvement in GSE delinquencies, and is this a trend? - Randy Benner (Texas Capital)

2026Q2: There was an unusual seasonal spike in GSE 30-day delinquencies around the Fourth of July holiday (historically observed)... This typically recovers in the following month. - Glenn Messina(CEO) and Sean O'Neill(CFO)

Contradiction Point 3

FHA Delinquency Impact and Normalization Timeline

Conflicting statements on the timing for FHA delinquency-related impacts to resolve.

Randy Banner (Texas Capital) - Randy Banner (Texas Capital)

2026Q2: The spike in delinquencies was attributed to a known seasonal pattern... The spike appears to be a temporary seasonal fluctuation. - Sean O'Neill(CFO)

What caused the spike and subsequent improvement in GSE delinquencies, and is this a trend? - Doug Harter (BTIG)

2026Q1: The company expects FHA delinquencies to normalize by the end of the second quarter... Most of the related impact is expected to bleed through in Q2 and Q3. - Glen Messina(CEO)

Contradiction Point 4

Pipeline Hedging Impact on P&L and Gain on Sale Line Item

Inconsistent explanation of how hedging volatility affects financial results.

Bose George (KBW) - Bose George (KBW)

2026Q2: Improved execution in Q2 (vs. Q1) in areas like hedging and origination margins demonstrates better management of market volatility. - Glenn Messina(CEO) and Sean O'Neill(CFO)

"What factors contribute to the gap between adjusted ROE and the lower end of guidance amid market volatility?" - Bose George (KBW)

2026Q1: Yes, the impact of market volatility on origination pipeline hedging flows through to the gain on sale line item, resulting in lower margins. - Glen Messina(CEO)

Contradiction Point 5

Predictability of FHA-Related MSR Delinquency Impact

Contradiction on ability to forecast specific financial impacts from FHA policy changes.

Randy Banner (Texas Capital) - Randy Banner (Texas Capital)

2026Q2: The spike appears to be a temporary seasonal fluctuation... The more concerning long-term metrics are the 60-day and 90-day+ delinquency buckets... - Sean O'Neill(CFO)

What caused the spike and subsequent improvement in GSE delinquencies, and is this a trend? - Bose George (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q4: It is difficult to predict the exact impact for Q1 and Q2. The company expects delinquencies to stabilize by Q2 2026. - Glen Messina(CEO)