Onity Group announced downscaled servicing-rights sales in its Finance of America agreement and reported a drop in earnings due to interest rate and delinquency-related pressures on Tuesday.

Net income to common shareholders was $7 million, compared with a S&P Capital IQ Pro consensus estimate of $17.8 million. Onity had earned $126 million in the fourth quarter of 2025 and $21 million a year earlier.

The company cited higher arrears in Federal Housing Administration-insured loans linked to a rule change, refinancing's impact on its servicing book and interest rate volatility as the drivers of its earnings decline.

"We are taking decisive actions to address these items while continuing to execute on our growth initiatives and the fundamentals of our balanced business model," Glen Messina, chairman, president and CEO of Onity, said during an earnings call.

Among the planned actions are improved pipeline hedging, expanded capacity to capture future refinancing volume, better runoff management and greater use of artificial intelligence.

Those moves collectively could deliver up to $27 million in incremental adjusted pre tax income, he said.

Meanwhile, the $294 million in revenue reported under generally accepted accounting principles was up 18% on the year but was flat compared to the previous quarter due to a seasonal reduction in float income, according to Chief Financial Officer Sean O'Neil.

The company completed the rebranding of its PHH Mortgage subsidiary as planned during the quarter, in line with an overhaul of legacy names that started in 2024 when the parent organization changed its title from Ocwen to Onity.

Total assets grew to $17.74 billion during the quarter from $16.17 million in the previous fiscal period and $16.26 billion a year ago.

Servicing developments

The $9.6 billion servicing sales originally planned as part of Onity's previously announced pact with Finance of America were reduced to $5.1 billion last week after review by government securitization guarantor Ginnie Mae, the company revealed.

This reduces estimated proceeds from $100 million-$110 million to $70 million-$80 million. About 70% of the remaining portfolio is anticipated to run off within four years, Messina said.

The company has resubmitted the downsized transaction to Ginnie for review.

Other elements of the agreement, through which Onity plans to exit FHA-insured reverse mortgage originations, remain in place. 

The company also reported $28 billion in servicing additions during the past quarter. Around $20 billion of these additions were mortgage servicing rights. Subservicing goals also are on track, Messina said.

Onity ended the quarter with an unpaid principal balance of $338 billion in servicing.

The company's MSR hedge performed effectively and was based on in-house valuations with some additional third-party input serving as guardrails, O'Neil said.

Delinquencies impacted by the FHA rules change are in the process of normalizing, according to Messina and O'Neil.

Onity's origination results

Mortgage originations partially offset higher MSR runoff in the quarter as rates fell, contributing $97 million to adjusted pretax income over the last 12 months as compared with $52 million from servicing, according to the company's investor presentation.

In a comparison showing how the company's balanced business model shifts as interest rates do, the company noted that the same metric a year earlier showed servicing contributing $168 million to adjusted pretax income with $39 million from originations.

The unpaid principal balance of loan production totaled $14 billion for the first quarter, roughly in line with the previous fiscal period and double year-ago numbers.

Third-party origination channels produced the majority of the volume, but the correspondent total was down 3% on a consecutive quarter basis and margins dropped from 26 basis points to 23, according to Keefe, Bruyette & Woods analysts.

Consumer-direct contributed $1.2 billion of the total, representing a volume around four times higher than year-ago levels and 1.5 times fourth-quarter 2025's $800 million. Margins fell from 256 basis points to 243, KBW noted.

"The shares remain inexpensive, but we would expect a modestly negative reaction given the miss," Bose George and Frankie Labetti, analysts at KBW, said in their research note. 

Onity's share price was down around 14% on the day at $40.51 shortly after 10 a.m. Eastern on Tuesday.