Recent technology investments have Newrez expecting significant expense reductions beginning this year, while prospects of mergers or a mortgage spinoff from parent Rithm Capital wane, according to company executives.

In their first-quarter earnings call, leaders at Newrez said savings benefits on the originations side should appear in the second half of 2026 after the company started the year with two notable artificial intelligence partnerships. 

Along with an investment in underwriting platform HomeVision, Rithm also opted to take a stake in servicing platform Valon in the first quarter.

"Our expense initiatives are laser focused on harnessing technology to deliver operating leverage," said Newrez President Baron Silverstein during the call. "We project an additional 15% reduction from our current run rate."

Speaking about the likely impact of AI on the mortgage industry overall, Rithm Capital CEO Michael Nierenberg echoed the sentiment, saying the technology will lead it to "change dramatically." 

The leaders' comments come in a first quarter where Newrez delivered pre-tax profits of $250.6 million, which factored in mark-to-market changes in fair value of mortgage-servicing rights. The number surged from fourth-quarter 2025's $32.6 million and $90 million over the same three months one year ago. 

Excluding mark-to-market impacts, first-quarter pretax net income finished at $273.7 million.

Revenues garnered between January and March totaled $828.2 million, which represented a 24.4% quarterly rise from $665.9 million. Year over year, revenues increased 66% from $498.7 million.

While the company has also made several moves to grow Newrez through acquisition of mortgage-specific assets in the past five years, including additions that helped it expand servicing capabilities, it has no plans to join the latest round of home lender consolidation, Nierenberg said.  

"Historically, our M&A around the mortgage company space has been where we think we can acquire cheap assets as part of the overall acquisition," he remarked. 

"When you look at the adoption of AI and some of the partnerships that we've set up as a company, we don't have a need to buy another mortgage company."

Originations and servicing by the numbers

Newrez ended Q1 with $116.9 million in pre-tax profit from originations compared to $126.8 million three months earlier and $65.1 million one year ago. 

Loan production fell quarter over quarter to $15.5 billion from $18.8 billion, primarily due to seasonality, interest rate pressure as well as increased competition in the non-qualified mortgage segment, according to Silverstein. 

Meanwhile, gain on sale margins pulled back to 144 basis points, dropping from 150 in the prior three-month period but rising from 137 one year earlier.  

"When you look at our performance in Q4 especially on the wholesale side, we definitely had a good quarter," Silverstein said. "We just basically normalized back to margins as to where we landed."

Servicing pre-tax income, on the other hand, surged to $203.6 million from $167.3 million in the fourth quarter. The number decreased from $227.6 million in first-quarter 2025. 

Unpaid balance at the end of March stood at $850.4 billion, just off $851.7 billion at the end of 2025. In the first quarter last year, total servicing UPB sat at $844.9 billion.  

While the full impact of transitioning onto the Valon servicing platform won't materialize for several months, Newrez said it has high expectations for the partnership to deliver beginning in 2027. 

"The magnitude of these benefits of moving to an AI native and modern servicing technology solution cannot be overstated. We expect to materially improve our processes and workflows, providing us a significant competitive advantage," Silverstein said.

Mortgage numbers at Newrez helped drive total profits at Rithm Capital to $67.8 million from fourth-quarter's $53.1 million and $36.5 million in the first three months of 2025. Along with the mortgage company, Rithm has extensive operations in asset management, investment property lending and commercial real estate.  

The company boosted its presence in the latter sector through an acquisition of Paramount Group last year, and this week announced the CRE firm would rebrand as Elecor Properties.

Nierenberg addresses Newrez spinoff prospects

Over the last decade Rithm itself has looked at a possible spinoff of Newrez as an independent public firm to tap into its value, but recent investor sentiment has also effectively quashed the wisdom in pursuing such a plan, Nierenberg added during the call. 

"I'm not sure that it's the best time to do that," Nierenberg said. "Obviously, you looked at one of the peer mortgage companies — their stock. When you miss earnings and the stock goes down by 35% in a day, no investor wants to be in that position," he continued, referring to an earnings miss in the fourth quarter at PennyMac Financial Services that immediately led its equity value to plummet earlier this year.