How does Onity view the evolving role of banks in the mortgage market, particularly their increased volumes and market share, and what is the competitive landscape in the correspondent channel?

Glen Messina acknowledged banks as significant MSR buyers, which supports valuations, and expects banks with strong mortgage franchises to grow. He noted that wholesale strategy changes are unlikely for banks not currently in mortgages. He praised Onity's correspondent team for achieving record origination volumes and improved margins (23 to 26 bps) through value-based selling and an enterprise strategy, despite the channel's competitiveness. “banks have always been a force to be reckoned with. When they want to play in this space, they typically come in and buy and buy aggressively.”

Could management elaborate on the ongoing share buyback, the sustainability of the 'other revenue' line, and how to track the expected lower volatility in MSRs following the reverse MSR sale?

Glen Messina confirmed the ongoing $20 million share repurchase program via a 10b5-1 plan, with details in the upcoming 10-Q. He quantified forward MSR volatility as a $0 to $4 million loss on $150B-$170B UPB in Q2, calling it well-controlled. In contrast, reverse MSR had extreme volatility with a $12 million unfavorable impact on $10B UPB in Q2, which will be significantly reduced by selling 80% of these assets. Sean O'Neil clarified that 'other revenue' is driven by ancillary income from owned MSRs and is sustainable. “by virtue of decreasing, we're selling about 80% of our MSRs to Finance of America... I think on a go-forward basis, we would expect to see much less volatility in the reverse MSR.”

What caused the recent bump in GSE delinquencies and their subsequent improvement?

Glen Messina confirmed a spike in 30-day GSE delinquencies, particularly in June, which he attributed to an 'unusual seasonal spike' around the 4th of July holiday, historically followed by a decline. Sean O'Neil added that this is often due to people missing payments around the holiday and making two payments in July, and that the company focuses on 60- and 90-plus day metrics for longer-term stress. “there's this unusual seasonal spike in delinquencies right around the 4th of July holiday... we do see -- tend to see delinquencies, 30-day delinquencies rise just in the month of June before the 4th of July holiday and then fall after the 4th of July holiday.”

ONIT

Onity Group (ONIT) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 6, 2026

Source: earnings call transcript

Executive summary

Onity Group Q2 FY26 — Double-Digit Revenue Growth and Record Origination Volume

Onity Group delivered strong Q2 FY26 results, marked by double-digit revenue growth and record origination volumes, driven by its balanced business model and technology investments. Strategic actions, including the reverse asset sale and subservicing transfer, aim to simplify operations and improve long-term profitability. Despite market volatility and transaction-related costs impacting net income, the company is focused on enhancing ROE through servicing scale, portfolio optimization, and productivity gains.

Highlights

Double-digit year-over-year revenue growth
Record origination volume of $15.5 billion in Q2 FY26
Servicing UPB increased 10% year-over-year
Refinance recapture rate improved to 51% in Q2 FY26, up 3 percentage points versus prior year
First half subservicing additions of $35 billion exceeded guidance

Concerns

Net loss includes $33 million of pretax costs related to reverse asset sale and legacy subservicing transfer, plus market-driven unfavorable asset fair value adjustments
Servicing adjusted pretax income decreased over 60% versus last year due to increased MSR runoff
Full-year 2026 adjusted ROE expected to be at the low end of the 10% to 15% guidance range
Reverse MSR experienced significant volatility, with $12 million net unfavorable fair value adjustments in Q2 FY26

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Adjusted ROE	low end of 10% to 15% range high materiality	FY26	Medium
First half 2026 Subservicing Additions	$35 billion medium materiality	H1 2026 · FY26	High
Annual Savings from AI-powered Solutions	$3 million low materiality	Annual	High

Deals & partnerships

Finance of America Sale of reverse mortgage assets

Completed the reverse asset sale, transferring the majority of reverse MSRs to Finance of America. This is expected to simplify the business and reduce volatility.

Rithm Transfer of legacy subservicing

Transferred most of the legacy subservicing back to Rithm, simplifying the business and improving profitability.

Blend Real-time agentic AI integration

Partnership to integrate real-time agentic AI to optimize customer and employee workflows and enhance the overall experience.

Risks & headwinds

Geopolitical instability, inflation, and market volatility FY26

Full-year 2026 adjusted ROE expected to be at the low end of the 10% to 15% guidance range

Mitigation:Focused and deliberate actions to improve ROE long term, including servicing scale, portfolio optimization, and technology-driven productivity.

Market-driven unfavorable asset fair value adjustments Q2 FY26

$24 million of pretax asset fair value change in Q2 FY26, with about half related to reverse mortgages

Mitigation:Sale of approximately 80% of reverse MSRs to Finance of America, as the remaining assets are older and less sensitive to spread movements, expected to greatly reduce future impact.

Increased MSR runoff Q2 FY26

MSR runoff increased almost 80% versus prior year levels, leading to a decrease of over 60% in servicing adjusted pretax income year-over-year

Mitigation:If interest rates remain elevated, MSR runoff is theoretically expected to improve over time, which would boost servicing adjusted pretax income.

Elevated Consumer Direct operating expense Q2 FY26

Lower lock volume in Q2 FY26 by 30% quarter-over-quarter, combined with elevated operating expense due to lagging commissions from Q1 refinance surge

Mitigation:Optimizing capacity levels to balance current earnings growth and accommodate any future interest rate decline; origination staffing maintained to support higher than current volumes.

Temporary spike in GSE delinquencies Q2 FY26

Bump up in 30-day delinquency bucket for GSEs in June

Mitigation:Attributed to an unusual seasonal spike around the 4th of July holiday, with historical patterns showing recovery in the following month; company focuses on 60- and 90-plus day metrics for longer-term stress.

What to watch in Q3 FY26

Adjusted ROE

next quarter

Current low end of 10% to 15% range (for FY26)

Target Improvement towards the mid-point of the 10-15% range

Why it matters

Key profitability metric, management is taking actions to improve it and expects to move towards the guidance range.

considering persistent geopolitical instability, inflation and market volatility, we expect our full year 2026 adjusted ROE to be at the low end of our guidance range.

Find out whether ONIT delivers this. Inve re-checks your case every morning.

Q&A highlights

How will Onity bridge the gap to the lower end of its 10-15% adjusted ROE range, given current market volatility and the company's current 9% ROE?

Management stated that ROE expansion actions (servicing scale, portfolio optimization, productivity) are expected to drive improvement. They also noted that if interest rates remain elevated, high MSR runoff should improve over time, boosting servicing adjusted pretax income, and originations continue to generate income even in difficult quarters.

“if rates do stay elevated, that theoretically should improve over time. That improves servicing adjusted pretax income, and we continue to show an ability to generate pretax income in originations even a rather difficult quarter like the one that just happened.”

asked by Francesco Labetti · answered by Glen Messina

2 min read 5 chapters

Detailed narrative

Strategic Actions and Business Simplification

Onity Group completed the reverse asset sale to Finance of America and transferred most of its legacy subservicing back to Rithm. These transactions are expected to simplify the business, improve profitability, and enhance strategic flexibility. The sale of approximately 80% of the company's reverse MSRs is anticipated to significantly reduce future MSR fair value volatility, as the remaining assets are older and less sensitive to spread movements.

Servicing Scale and Portfolio Optimization

The company is focused on improving ROE through increased servicing scale, aiming to reduce fixed cost per loan by 13% for every $50 billion in servicing. The strategy involves maintaining a balanced 50-50 mix of owned and subservicing, and leveraging machine learning to identify and focus on the most profitable MSRs for origination activities.

Investment in reverse MSRs has been reduced due to their lower yields and higher volatility compared to forward MSRs.

Technology-Driven Productivity and Innovation

Onity Group has made foundational investments in technology, significantly reducing expenses since the PHH acquisition while growing its servicing portfolio and building a top-tier origination platform. The company utilizes robotic process automation, intelligent document processing, and natural language processing to reduce manual effort and transform document management and customer engagement.

Future investments are concentrated on AI, analytics, and automation to enhance recapture rates, customer connectivity, and sales performance, including the use of voice agents and AI call monitoring analytics.

Balanced Business Model and Growth

Onity's balanced business model, with complementary profitability dynamics between origination and servicing, demonstrates resiliency through interest rate cycles. The company continuously optimizes its operations capacity, scalability, and MSR investment profile to ensure this model performs as intended. Originations grew 64% year-over-year, outpacing industry volume, and subservicing additions of $35 billion in the first half of 2026 exceeded guidance, driven by new client wins and expanded product offerings in business purpose residential and commercial subservicing.

MSR Valuation and Delinquency Trends

The company has refined its adjusted pretax income methodology to reflect MSR runoff based on actual servicing UPB runoff, classifying changes due to rates, inputs, and assumptions as notables to address investor feedback and align with peers. While Ginnie Mae delinquencies improved, GSE 30-day delinquencies saw a temporary spike in June, which management attributes to seasonal patterns around the 4th of July holiday, expecting a return to normal levels.

The company monitors 60- and 90-plus day metrics for longer-term stress.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.