Onity Group reported stronger fourth-quarter earnings, driven by a deferred tax asset valuation, and executives said they see opportunity in industry consolidation. But they signaled the company may take a different approach than some of its peers.

Net income to common shares was $126 million, compared to a $107 million to $131 million range the company estimated last month. This improved on $18 million in the third quarter and a $29 million loss a year earlier. 

The full-year number of $185 million also came in within the company's estimated range and topped prior period results. Onity had estimated it would be in the $166 million to $190 million range for 2025 and its net income was $33 million in 2024.

"While we're not the largest servicer in the industry, we deliver top tier performance for customers and investors in our position to fiercely compete with anyone, regardless of size," Chairman, CEO and President Glen Messina said during the company's earnings call on Thursday.

Onity's M&A outlook and status updates

When asked about Pennymac's recently announced plan to buy Cenlar's subservicing business in line with a larger wave of nonbank consolidation, Messina said "it looks like it was a good transaction for them," and added that broader opportunities could arise from it too.

He pointed to potential client shifts and noted that Onity may not necessarily be jumping on the bandwagon when it comes to merger and acquisition activity, but has it on its radar screen.

"We remain committed to driving organic growth enabled by our enterprise sales approach, value delivery model and new product development," Messina said. "We will evaluate opportunistic bulk acquisitions and M&A if the economics are compelling and we believe it contributes to maximizing value for shareholders. Investing in technology remains a key."

Messina also updated the status of Onity's plan to reposition its PHH's subsidiary's reverse mortgage business by selling that unit's loan pipeline and multibillion-dollar MSR portfolio to Finance of America while remaining involved as a subservicer and niche securitizer.

"We have not yet closed our Finance of America reverse MSR transaction, which is awaiting Ginnie Mae approval, but when that closes, we will recognize roughly $100 million in proceeds as disclosed," Messina said, noting that when it closes, it will free up that amount of capital.

Onity plans to de-risk its balance sheet by replacing mark-to-market MSR bank financing with longer term non-MTM, high yield proceeds when capital becomes available, and then go on to consider other uses like bulk purchases or M&A, Chief Financial Officer Sean O'Neil said

The Finance of America transaction and a transition out of a Rithm subservicing deal are projected to result in indemnifications and restructuring costs in the $19 billion to $20 billion range, according to O'Neil.

Those indemnifications and restructuring will impact net income under generally accepted accounting principals, but not the company's adjusted return on equity, he added.

Onity remains on track to keep growing its total unpaid principal balance of its servicing portfolio on a net basis, according to O'Neil.

"We anticipate a 5% to 15% increase in servicing book UPB growth, and this includes the nonrenewal of the Rithm contract, which had roughly $32 billion of UPB at the end of 2025," he said.

Comparison to analysts' consensus

Almost all Onity's results in the fourth quarter outperformed the December Standard & Poor's Capital IQ consensus prior to the release of its own estimates. Analysts at that time had projected that its bottom lines would be more similar to the third quarter's.

Results outside the $120 billion DTA benefit, which the company had estimated would be in the $102 million-$122 million range, were the only exception. Onity reported $8 million in pre-tax income in its earnings presentation. The consensus mean in December had been $24.90.

This was "a miss primarily driven by a $1 million increase in MSR runoff," Bose George and Frankie Labetti, equity analysts at Keefe, Bruyette & Woods, said in a research note referring to mortgage servicing rights challenges the company had flagged earlier.

Final results for servicing and origination

The company confirmed $14 million in MSR runoff after estimating a negative line item in the $13 million to $15 million. Onity has attributed this to the 2025 government shutdown and changes to the Federal Housing Administration's modification program.

Some other earnings to date also have reflected servicing challenges amid a reduction in mortgage rates, which have impacted certain portfolios more than others, depending on their composition and valuation methodologies.

Messina said Onity's MSR hedging strategy "performed effectively as rates moved lower in the second half of 2025 with higher origination earnings offsetting lower servicing earnings" but it has faced some temporary challenges associated with its focus on the distressed market.

"While the requirements are more complex than performing residential servicing, we believe the returns are better," Messina said, noting that the company fills a market need for a specialist in this area.

He projected that the impact of the 2025 shutdown and FHA rule change would persist into 2026 but lift later this year.

"We believe the FHA modification rule changes will continue to adversely impact delinquencies and MSR runoff before normalizing through the second quarter at levels slightly below year end 2025," Messina said, noting that this assumes consistent policy through this time.

Finalized earnings also showed the average unpaid balance of servicing Onity recorded on its balance sheet at year-end was $328 million compared to a $323 estimate.

Onity recorded an average $313 billion servicing UPB during the previous fiscal period.

The company reported full-year production volumes in line with an earlier estimate at $43 billion for the year in 2025, up from $30 billion in 2024.