UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2014
 
or
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________to________________
 
Commission File Number: 001-35777
New Residential Investment Corp.
(Exact name of registrant as specified in its charter)
Delaware
 
45-3449660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
 
(212) 798-3150
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x  Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨    No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 141,382,603 shares outstanding as of October 31, 2014.




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, our financing needs and the size and attractiveness of market opportunities. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations, cash flows or financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
 
reductions in cash flows received from our investments;
the quality and size of the investment pipeline and our ability to take advantage of investment opportunities at attractive risk-adjusted prices;
servicer advances may not be recoverable or may take longer to recover than we expect, which could cause us to fail to achieve our targeted return on our investment in servicer advances;
our ability to deploy capital accretively and the timing of such deployment;
our counterparty concentration and default risks in Nationstar, Springleaf and other third-parties;
a lack of liquidity surrounding our investments, which could impede our ability to vary our portfolio in an appropriate manner;
the impact that risks associated with subprime mortgage loans and consumer loans, as well as deficiencies in servicing and foreclosure practices, may have on the value of our Excess MSRs, servicer advances, RMBS and consumer loan portfolios;
the risks that default and recovery rates on our Excess MSRs, servicer advances, real estate securities, residential mortgage loans and consumer loans deteriorate compared to our underwriting estimates;
changes in prepayment rates on the loans underlying certain of our assets, including, but not limited to, our Excess MSRs;
the risk that projected recapture rates on the portfolios underlying our Excess MSRs are not achieved;
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
the relative spreads between the yield on the assets we invest in and the cost of financing;
changes in economic conditions generally and the real estate and bond markets specifically;
adverse changes in the financing markets we access affecting our ability to finance our investments on attractive terms, or at all;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or not entering into new financings with us;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities or loans are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;
the availability and terms of capital for future investments;
competition within the finance and real estate industries;
the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, U.S. government programs intended to stabilize the economy, the federal conservatorship of Fannie Mae and Freddie Mac and legislation that permits modification of the terms of loans;




our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business; and
our ability to maintain our exclusion from registration under the 1940 Act and the fact that maintaining such exclusion imposes limits on our operations.

We also direct readers to other risks and uncertainties referenced in this report, including those set forth under “Risk Factors.” We caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.
 




SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about New Residential Investment Corp. (the “Company,” “New Residential” or “we,” “our” and “us”) or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements provide to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov. See “Business – Corporate Governance and Internet Address; Where Readers Can Find Additional Information.”
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 




NEW RESIDENTIAL INVESTMENT CORP.
FORM 10-Q
 
INDEX
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
 
 
September 30, 2014
 
December 31, 2013
 
(Unaudited)
 
Assets
 
 
 
Investments in:
 
 
 
Excess mortgage servicing rights, at fair value
$
409,236

 
$
324,151

Excess mortgage servicing rights, equity method investees, at fair value
342,538

 
352,766

Servicer advances, at fair value
3,214,113

 
2,665,551

Real estate securities, available-for-sale
2,079,712

 
1,973,189

Residential mortgage loans, held-for-investment
629,398

 
33,539

Residential mortgage loans, held-for-sale
492,399

 

Consumer loans, equity method investees
264,039

 
215,062

Cash and cash equivalents
187,601

 
271,994

Restricted cash
29,962

 
33,338

Real estate owned
52,740

 

Derivative assets
28,686

 
35,926

Other assets
42,977

 
53,142

 
$
7,773,401

 
$
5,958,658

 
 
 


Liabilities and Equity
 

 


 
 
 


Liabilities
 

 


Repurchase agreements
$
2,738,349

 
$
1,620,711

Notes payable
2,847,251

 
2,488,618

Trades payable
213,050

 
246,931

Due to affiliates
35,141

 
19,169

Dividends payable
49,484

 
63,297

Deferred tax liability
22,485



Accrued expenses and other liabilities
11,780

 
6,857

 
5,917,540

 
4,445,583

 
 
 


Commitments and Contingencies


 


 
 
 


Equity
 

 


Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 141,382,603 and 126,598,987 issued and outstanding at September 30, 2014 and December 31, 2013, respectively
1,414

 
1,266

Additional paid-in capital
1,330,090

 
1,158,384

Retained earnings
237,284

 
102,986

Accumulated other comprehensive income, net of tax
6,628

 
3,214

Total New Residential stockholders’ equity
1,575,416

 
1,265,850

Noncontrolling interests in equity of consolidated subsidiaries
280,445

 
247,225

Total Equity
1,855,861

 
1,513,075

 
$
7,773,401

 
$
5,958,658

 
See notes to condensed consolidated financial statements.

1



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 Interest income
$
97,587

 
$
21,885

 
$
261,733

 
$
61,075

 Interest expense
33,307

 
3,443

 
108,816

 
6,993

Net Interest Income
64,280

 
18,442

 
152,917

 
54,082

 
 
 
 
 
 
 
 
Impairment
 
 
 
 
 
 
 
 Other-than-temporary impairment ("OTTI") on securities

 

 
943

 
3,756

 Valuation provision on loans
1,134

 

 
1,591

 

 
1,134

 

 
2,534

 
3,756

 


 


 


 


  Net interest income after impairment
63,146

 
18,442

 
150,383

 
50,326

 
 
 
 
 
 
 
 
Other Income
 
 
 
 
 
 
 
Change in fair value of investments in excess mortgage servicing rights
28,566

 
208

 
40,670

 
43,899

Change in fair value of investments in excess mortgage servicing rights, equity method
    investees
31,833

 
20,645

 
50,950

 
41,741

Change in fair value of investments in servicer advances
22,948

 

 
105,825

 

Earnings from investments in consumer loans, equity method investees
22,490

 
24,129

 
60,185

 
60,293

Gain on settlement of investments
938

 
11,213

 
57,834

 
11,271

Other income
15,289

 

 
19,539

 

 
122,064

 
56,195

 
335,003

 
157,204

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 General and administrative expenses
7,499

 
2,449

 
14,886

 
5,640

 Management fee allocated by Newcastle

 

 

 
4,134

 Management fee to affiliate
5,124

 
4,484

 
14,525

 
6,747

              Incentive compensation to affiliate
10,910

 
4,470

 
33,111

 
5,348

 Loan servicing expense
1,778

 
89

 
2,210

 
219

 
25,311

 
11,492

 
64,732

 
22,088

 


 


 


 


Income (Loss) Before Income Taxes
159,899

 
63,145

 
420,654

 
185,442

              Income tax expense
7,801

 

 
29,483

 

Net Income (Loss)
$
152,098

 
$
63,145

 
$
391,171

 
$
185,442

Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries
$
25,726

 
$

 
$
92,524

 
$

Net Income (Loss) Attributable to Common Stockholders
$
126,372

 
$
63,145

 
$
298,647

 
$
185,442

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Per Share of Common Stock


 


 


 


  Basic
$
0.89

 
$
0.50

 
$
2.22

 
$
1.47

  Diluted
$
0.88

 
$
0.49

 
$
2.16

 
$
1.45

 


 


 


 


Weighted Average Number of Shares of Common Stock Outstanding


 


 


 


  Basic
141,211,580

 
126,536,394

 
134,814,020

 
126,520,766

  Diluted
144,166,601

 
129,944,643

 
137,972,639

 
128,274,974

 
 
 
 
 
 
 
 
Dividends Declared per Share of Common Stock
$
0.35

 
$
0.35

 
$
1.20

 
$
0.49

 
See notes to condensed consolidated financial statements.
 

2



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Net income (loss)
$
152,098

 
$
63,145

 
$
391,171

 
$
185,442

Other comprehensive income (loss)
 

 
 

 
 
 
 
Net unrealized gain (loss) on securities
1,308

 
7,687

 
67,915

 
7,677

Reclassification of net realized (gain) loss on
   securities into earnings
(3,668
)
 
(11,213
)
 
(64,501
)
 
(7,515
)
 
(2,360
)
 
(3,526
)
 
3,414

 
162

Total comprehensive income (loss)
$
149,738

 
$
59,619

 
$
394,585

 
$
185,604

Comprehensive income (loss) attributable to
    noncontrolling interests
$
25,726

 
$

 
$
92,524

 
$

Comprehensive income (loss) attributable to common
    stockholders
$
124,012

 
$
59,619

 
$
302,061

 
$
185,604

 
See notes to condensed consolidated financial statements.


3



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(dollars in thousands, except share data)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total New Residential Stockholders’ Equity
 
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2013
126,598,987

 
$
1,266

 
$
1,158,384

 
$
102,986

 
$
3,214

 
$
1,265,850

 
$
247,225

 
$
1,513,075

Dividends declared

 

 

 
(164,349
)
 

 
(164,349
)
 

 
(164,349
)
Capital contributions

 

 

 

 

 

 
142,082

 
142,082

Capital distributions

 

 

 

 

 

 
(200,368
)
 
(200,368
)
Issuance of common stock
14,375,000

 
144

 
169,761

 

 

 
169,905

 

 
169,905

Option exercise
383,536

 
4

 
599

 

 

 
603

 

 
603

Dilution impact of distributions from consolidated subsidiaries

 

 
1,018

 

 

 
1,018

 
(1,018
)
 

Director share grant
25,080

 

 
328

 

 

 
328

 

 
328

Comprehensive income (loss) (net of tax)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)

 

 

 
298,647

 

 
298,647

 
92,524

 
391,171

Net unrealized gain (loss) on securities

 

 

 

 
67,915

 
67,915

 

 
67,915

Reclassification of net realized (gain) loss on securities into earnings

 

 

 

 
(64,501
)
 
(64,501
)
 

 
(64,501
)
Total comprehensive income (loss)

 

 

 

 

 
302,061

 
92,524

 
394,585

Equity - September 30, 2014
141,382,603

 
$
1,414

 
$
1,330,090

 
$
237,284

 
$
6,628

 
$
1,575,416

 
$
280,445


$
1,855,861

 
See notes to condensed consolidated financial statements.


4



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
 
Nine Months Ended September 30,
 
2014
 
2013
Cash Flows From Operating Activities
 
 
 
Net income (loss)
$
391,171

 
$
185,442

Adjustments to reconcile net income to net cash provided by (used in) operating activities:


 


Change in fair value of investments in excess mortgage servicing rights
(40,670
)
 
(43,899
)
Change in fair value of investments in excess mortgage servicer rights, equity method
    investees
(50,950
)
 
(41,741
)
              Change in fair value of investments in servicer advances
(105,825
)
 

Earnings from consumer loan equity method investees
(60,185
)
 
(60,293
)
Change in fair value of investments in derivative assets
(2,355
)
 

Accretion and other amortization
(213,945
)
 
(40,156
)
(Gain) / loss on settlement of investments (net)
(57,834
)
 
(11,271
)
(Gain) / loss on transfer of loans to REO
(11,861
)
 

(Gain) / loss on mortgage servicing rights recapture agreement
(323
)
 

Other-than-temporary impairment (“OTTI”)
943

 
3,756

Valuation provision on loans
1,591

 

Non-cash directors’ compensation
328

 

       Deferred tax provision
22,485

 

Changes in:


 


Restricted cash
3,376

 

Other assets
(8,961
)
 
(7,145
)
Due to affiliates
15,972

 
1,973

Accrued expenses and other liabilities
4,665

 
1,752

      Reduction of liability deemed as capital contribution by Newcastle

 
11,515

Other operating cash flows:
 
 
 
Interest received from excess mortgage servicing rights
38,548

 
12,399

Interest received from servicer advance investments
91,829

 

Interest received from residential mortgage loans, held-for-investment
5,536

 
2,432

Distributions of earnings from excess mortgage servicing rights, equity method investees
34,680

 
23,659

Distributions of earnings from consumer loan equity method investees
10,599

 
60,293

Cash proceeds from investments, in excess of interest income

 
41,435

Net cash proceeds deemed as capital distributions to Newcastle

 
(35,571
)
Net cash provided by (used in) operating activities
68,814

 
104,580

 


 
 
Cash Flows From Investing Activities


 
 
Acquisition of investments in excess mortgage servicing rights
(75,206
)
 
(46,421
)
Acquisition of investments in excess mortgage servicing rights, equity method investees

 
(226,837
)
Purchase of servicer advance investments
(5,569,238
)
 

Purchase of Agency RMBS
(1,229,580
)
 
(292,980
)
Purchase of Non-Agency RMBS
(1,148,631
)
 
(202,484
)
Purchase of residential mortgage loans, held-for-investment
(1,357,268
)
 

Purchase of derivative assets
(70,027
)
 

Purchase of real estate owned
(6,314
)
 

Payment for settlement of derivatives
(22,643
)
 

Return of investments in excess mortgage servicing rights
30,615

 
15,132

Return of investments in excess mortgage servicing rights, equity method investees
26,498

 
4,018

Principal repayments from servicing advance investments
5,188,295

 

Principal repayments from Agency RMBS
213,993

 
219,187

Principal repayments from Non-Agency RMBS
71,019

 
50,878

Principal repayments from residential mortgage loans, held-for-investment
33,235

 
2,400

Return of investments in consumer loan equity method investees

 
52,923

Proceeds from sale of Agency RMBS
796,392

 

Proceeds from sale of Non-Agency RMBS
1,273,191

 
123,130

Proceeds from settlement of derivatives
14,107

 

Proceeds from sale of residential mortgage loans
249,690

 

Proceeds from sale of real estate owned
4,140

 

Net cash provided by (used in) investing activities
(1,577,732
)
 
(301,054
)
 

5



Continued on next page.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
 
Nine Months Ended September 30,
 
2014
 
2013
Cash Flows From Financing Activities
 
 
 
Repayments of repurchase agreements
(2,839,051
)
 
(1,283,567
)
Margin deposits under repurchase agreements and derivatives
(221,598
)
 
(210,507
)
Repayments of notes payable
(5,019,000
)
 

Payment of deferred financing fees
(8,389
)
 
(166
)
Common stock dividends paid
(178,162
)
 
(17,712
)
Borrowings under repurchase agreements
3,957,212

 
1,425,413

Return of margin deposits under repurchase agreements and derivatives
243,658

 
210,158

Borrowings under notes payable
5,377,633



Issuance of common stock
173,201



Costs related to issuance of common stock
(2,693
)


Capital contributions


245,058

Noncontrolling interest in equity of consolidated subsidiaries - contributions
142,082

 

Noncontrolling interest in equity of consolidated subsidiaries - distributions
(200,368
)
 

Net cash provided by (used in) financing activities
1,424,525

 
368,677

 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(84,393
)
 
172,203

 
 
 
 
Cash and Cash Equivalents, Beginning of Period
271,994

 

 
 
 
 
Cash and Cash Equivalents, End of Period
$
187,601

 
$
172,203

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
105,937

 
$
6,853

Cash paid during the period for income taxes
9,119

 

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities Prior to Date of Cash Contribution by Newcastle
Cash proceeds from investments, in excess of interest income
$

 
$
41,435

Acquisition of real estate securities

 
242,750

Acquisition of investments in excess mortgage servicing rights, equity method investees at fair value

 
125,099

Acquisition of residential mortgage loans, held-for-investment

 
35,138

Acquisition of investments in consumer loan equity method investees

 
245,421

Borrowings under repurchase agreements

 
1,179,068

Repayments of repurchase agreements

 
3,902

Capital contributions by Newcastle

 
648,408

Contributions in-kind by Newcastle

 
1,093,684

Capital distributions to Newcastle

 
1,228,054

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities Subsequent to Date of Cash Contribution by Newcastle
 
 
 
 
Dividends declared but not paid
$
49,484

 
$
44,308

Non-cash distribution from Consumer Loan Companies
609



 
See notes to condensed consolidated financial statements.

6



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 
1. GENERAL
 
New Residential Investment Corp. (together with its subsidiaries, “New Residential”) is a Delaware corporation that was formed as a limited liability company in September 2011 for the purpose of making real estate related investments and commenced operations on December 8, 2011. On December 20, 2012, New Residential was converted to a corporation. Newcastle Investment Corp. (“Newcastle”) was the sole stockholder of New Residential until the spin-off (Note 13), which was completed on May 15, 2013. Newcastle is listed on the New York Stock Exchange (“NYSE”) under the symbol “NCT.”
 
Following the spin-off, New Residential is an independent publicly traded real estate investment trust (“REIT”) primarily focused on investing in residential mortgage related assets. New Residential is listed on the NYSE under the symbol “NRZ.”
 
New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 17 regarding New Residential's taxable REIT subsidiaries.
 
New Residential has entered into a management agreement (the “Management Agreement”) with FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), under which the Manager advises New Residential on various aspects of its business and manages its day-to-day operations, subject to the supervision of New Residential’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement. The Manager also manages Newcastle and investment funds that own a majority of Nationstar Mortgage LLC (“Nationstar”), a leading residential mortgage servicer, and Springleaf Holdings, Inc. (“Springleaf”), managing member of the Consumer Loan Companies (Note 9).
 
As of September 30, 2014, New Residential conducted its business through the following segments: (i) investments in Excess MSRs, (ii) investments in servicer advances, (iii) investments in real estate securities, (iv) investments in real estate loans, (v) investments in consumer loans and (vi) corporate.
 
Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals as of September 30, 2014. In addition, Fortress, through its affiliates, held options to purchase approximately 9.0 million shares of New Residential’s common stock as of September 30, 2014.

The consolidated financial statements for periods prior to May 15, 2013 have been prepared on a spin-off basis from the consolidated financial statements and accounting records of Newcastle and reflect New Residential’s historical results of operations, financial position and cash flows, in accordance with U.S. GAAP. As presented in the Consolidated Statements of Cash Flows, New Residential did not have any cash balance during periods prior to April 5, 2013, which is the first date Newcastle contributed cash to New Residential. All of its cash activity occurred in Newcastle’s accounts during these periods. The consolidated financial statements for periods prior to May 15, 2013 do not necessarily reflect what New Residential’s consolidated results of operations, financial position and cash flows would have been had New Residential operated as an independent company prior to the spin-off.
 
Certain expenses of Newcastle, comprised primarily of a portion of its management fee, have been allocated to New Residential to the extent they were directly associated with New Residential for periods prior to the spin-off on May 15, 2013. The portion of the management fee allocated to New Residential prior to the spin-off represents the product of the management fee rate payable by Newcastle (1.5%) and New Residential’s gross equity, which management believes is a reasonable method for quantifying the expense of the services provided by the employees of the Manager to New Residential. The incremental cost of certain legal, accounting and other expenses related to New Residential’s operations prior to May 15, 2013 are reflected in the accompanying consolidated financial statements. New Residential and Newcastle do not share any expenses following the spin-off.
 
The accompanying condensed consolidated financial statements and related notes of New Residential have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion

7

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

of management, all adjustments considered necessary for a fair presentation of New Residential’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with New Residential’s consolidated financial statements for the year ended December 31, 2013 and notes thereto included in New Residential’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Capitalized terms used herein, and not otherwise defined, are defined in New Residential’s consolidated financial statements for the year ended December 31, 2013.
 
Certain prior period amounts have been reclassified to conform to the current period's presentation. In addition, New Residential completed a one-for-two reverse stock split in October 2014 (Notes 13 and 18). The impact of this reverse stock split has been retroactively applied to all periods presented.
Recently Adopted Accounting Policies
Purchased Credit-Impaired ("PCI") Loans

New Residential evaluates the credit quality of its loans, as of the acquisition date, for evidence of credit quality deterioration. Loans with evidence of credit deterioration since their origination, and where it is probable that New Residential will not collect all contractually required principal and interest payments, are PCI loans. At acquisition, New Residential aggregates PCI loans into pools based on common risk characteristics and loans aggregated into pools are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows.

The excess of the total cash flows (both principal and interest) expected to be collected over the carrying value of the PCI loans is referred to as the accretable yield. This amount is not reported on New Residential’s Condensed Consolidated Balance Sheets but is accreted into interest income at a level rate of return over the remaining estimated life of the pool of loans.

On a quarterly basis, New Residential estimates the total cash flows expected to be collected over the remaining life of each pool. Probable decreases in expected cash flows trigger the recognition of impairment. Impairments are recognized through the valuation provision for loans and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated life of the pool of loans.

The excess of the total contractual cash flows over the cash flows expected to be collected is referred to as the nonaccretable difference. This amount is not reported on New Residential's Condensed Consolidated Balance Sheets and represents an estimate of the amount of principal and interest that will not be collected.

The liquidation of PCI loans, which may include sales of loans, receipt of payment in full by the borrower, or foreclosure, results in removal of the loans from the underlying PCI pool. When the amount of the liquidation proceeds, if any, is less than the unpaid principal balance of the loan, the difference is first applied against the PCI pool’s nonaccretable difference. When the nonaccretable difference for a particular loan pool has been fully depleted, any excess of the unpaid principal balance of the loan over the liquidation proceeds is written off against the PCI pool’s allowance for loan losses.

Loans Held-for-Sale

Loans acquired with the intent to sell are classified as held-for-sale. Loans held-for-sale are measured at the lower of cost or fair value, with valuation changes recorded in other income. Purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred discounts or premiums are an adjustment to the basis of the loan and are included in the quarterly determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.

Real Estate Owned ("REO")

REO assets are those individual properties where New Residential receives the property in satisfaction of a debt (e.g., by taking legal title or physical possession). New Residential measures REO assets at the lower of cost or fair value, with valuation changes recorded in other income. See Note 12 for further details on the fair value measurement of REO.



8

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

Reclassification of Loans upon Foreclosure

In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The standard clarifies the timing of when a creditor is considered to have taken physical possession of residential real estate collateral for a consumer mortgage loan, resulting in the reclassification of the loan receivable to REO. A creditor has taken physical possession of the property when either (1) the creditor obtains legal title through foreclosure, or (2) the borrower transfers all interests in the property to the creditor via a deed in lieu of foreclosure or a similar legal agreement. The standard also requires disclosure of the amount of foreclosed residential real estate property held by the creditor and the recorded investment in residential real estate mortgage loans that are in process of foreclosure. New Residential has included this disclosure through an early adoption of this guidance with prospective application. New Residential’s adoption of this guidance did not have an impact on its consolidated financial statements as this guidance was consistent with its prior practice. See Note 8 for the new disclosure.

Classification of Government-Guaranteed Loans upon Foreclosure

In August 2014, the FASB issued ASU No. 2014-14, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The standard provides guidance on how to classify and measure certain government-guaranteed mortgage loans upon foreclosure. A mortgage loan is to be derecognized and a separate other receivable is to be recognized upon foreclosure in the amount of the loan balance (principal and interest) expected to be recovered from the guarantor if (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The ASU is effective in the first quarter of 2015 and early adoption is permitted.

New Residential has adopted ASU No. 2014-14 as of September 30, 2014, as it relates to the reverse mortgage portfolio. This portfolio is comprised primarily of U.S. Department of Housing and Urban Development (HUD)-guaranteed reverse mortgage loans.
Upon foreclosure of a reverse mortgage loan, New Residential receives the real estate property in satisfaction of the loan and intends to dispose of the property for the best possible economic value. To the extent the liquidation proceeds are less than the unpaid principal balance (UPB) of the loan, New Residential submits a claim to HUD for the lesser of the remaining UPB or the pre-determined HUD claim amount. New Residential’s exposure to market risk while the foreclosed property is in its possession is limited to the extent the HUD claim amount is unlikely to cover any shortfall in property disposal proceeds.
After adoption of ASU No. 2014-14, upon foreclosure of a guaranteed reverse mortgage loan, New Residential records a separate other receivable for the expected liquidation proceeds, comprised of both the property disposal proceeds and the maximum HUD claim amount.
New Residential has used the modified retrospective transition method of adoption, that resulted in no cumulative-effect adjustment as of the beginning of the current fiscal year.
Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU is effective for New Residential in the first quarter of 2017. Early adoption is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. New Residential is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The standard changes the accounting for repurchase-to-maturity transactions and linked repurchase financing transactions to

9

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

secured borrowing accounting. The ASU also expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers accounted for as secured borrowings. The ASU is effective for New Residential in the first quarter of 2015. Early adoption is not permitted. Disclosures are not required for comparative periods presented before the effective date. New Residential is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The standard provides guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern by requiring management to assess an entity’s ability to continue as a going concern by incorporating and expanding on certain principles that are currently in U.S. auditing standards. The ASU is effective for New Residential for the annual period ending on December 31, 2016. Early adoption is permitted. New Residential is currently evaluating the new guidance to determine the impact that it may have on its consolidated financial statements.
The FASB has recently issued or discussed a number of proposed standards on such topics as consolidation, financial statement presentation, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on New Residential’s reporting. New Residential has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.
 
2. OTHER INCOME, ASSETS AND LIABILITIES
 
Other income is comprised of the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Gain (loss) on derivative instruments
$
4,799

 
$

 
$
2,355

 
$

Gain (loss) on transfer of loans to REO
5,167

 

 
11,861

 

Fee earned on deal termination
5,000

 

 
5,000

 

Other income
323

 

 
323

 

 
$
15,289

 
$

 
$
19,539

 
$

 
Gain on settlement of investments is comprised of the following:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Gain on sale of real estate securities, net
$
3,668

 
$
11,213

 
$
65,444

 
$
11,271

Gain (loss) on sale of derivatives
(2,403
)
 

 
(6,186
)
 

Gain (loss) on liquidated residential
mortgage loans, held-for-investment
782

 

 
782

 

Gain (loss) on sale of REO
(159
)
 

 
(801
)
 

Other gains (losses)
(950
)
 

 
(1,405
)
 

 
$
938

 
$
11,213

 
$
57,834

 
$
11,271



10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

Other assets and liabilities are comprised of the following:
 
Other Assets
 
 
 
Accrued Expenses and Other Liabilities
 
September 30, 2014
 
December 31, 2013
 
 
 
September 30, 2014
 
December 31, 2013
Margin receivable, net
$
17,220

 
$
40,132

 
Interest payable
 
$
246

 
$
4,010

Interest and other receivables
8,530

 
7,548

 
Accounts payable
 
10,586

 
2,829

Deferred financing costs, net(A)
5,487

 
4,773

 
Derivative liability
 
345

 
18

Other assets
11,740

 
689

 
Current taxes payable
 
584

 

 
$
42,977

 
$
53,142

 
Other liabilities
 
19

 

 
 
 
 
 
 
 
$
11,780

 
$
6,857


(A)
Deferred financing costs is net of accumulated amortization of $8,443 and $768 as of September 30, 2014 and December 31, 2013, respectively.

As reflected on the Condensed Consolidated Statements of Cash Flows, accretion and other amortization is comprised of the following:
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Accretion of servicer advance interest income
 
$
153,790

 
$

Accretion of excess mortgage servicing rights income
 
37,703

 
30,541

Accretion of net discount on securities and loans(A)
 
30,127

 
9,644

Amortization of deferred financing costs
 
(7,675
)
 
(29
)
 
 
$
213,945

 
$
40,156


(A)    Includes accretion of the accretable yield on PCI loans.
 
3. SEGMENT REPORTING
 
New Residential conducts its business through the following segments: (i) investments in Excess MSRs, (ii) investments in servicer advances, (iii) investments in real estate securities, (iv) investments in real estate loans, (v) investments in consumer loans, and (vi) corporate. The corporate segment consists primarily of (i) general and administrative expenses, (ii) the allocation of management fees by Newcastle until the spin-off on May 15, 2013, (iii) the management fees and incentive compensation owed to the Manager by New Residential following the spin-off, (iv) corporate cash and related interest income, and (v) the secured corporate loan and related interest expense.
 

11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

Summary financial data on New Residential’s segments is given below, together with a reconciliation to the same data for New Residential as a whole:
 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
Servicer Advances
 
Real Estate Securities
 
Real Estate Loans
 
Consumer Loans
 
Corporate
 
Total
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
12,914

 
$
50,967

 
$
11,179

 
$
22,526

 
$

 
$
1

 
$
97,587

Interest expense
3

 
25,157

 
1,932

 
5,065

 
1,149

 
1

 
33,307

Net interest income (expense)
12,911

 
25,810

 
9,247

 
17,461

 
(1,149
)
 

 
64,280

Impairment

 

 

 
1,134

 

 

 
1,134

Other income
60,722

 
22,948

 
955

 
14,950

 
22,490

 
(1
)
 
122,064

Operating expenses
103

 
4,796

 
169

 
3,163

 
632

 
16,448

 
25,311

Income (Loss) Before Income Taxes
73,530

 
43,962

 
10,033

 
28,114

 
20,709

 
(16,449
)
 
159,899

Income tax expense

 
7,403

 

 
306

 
92

 

 
7,801

Net Income (Loss)
$
73,530

 
$
36,559

 
$
10,033

 
$
27,808

 
$
20,617

 
$
(16,449
)
 
$
152,098

Noncontrolling interests in income
   (loss) of consolidated subsidiaries
$

 
$
25,726

 
$

 
$

 
$

 
$

 
$
25,726

Net income (loss) attributable to
   common stockholders
$
73,530

 
$
10,833

 
$
10,033

 
$
27,808

 
$
20,617

 
$
(16,449
)
 
$
126,372


 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
Servicer Advances
 
Real Estate Securities
 
Real Estate Loans
 
Consumer Loans
 
Corporate
 
Total
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
37,703

 
$
153,790

 
$
41,939

 
$
28,300

 
$

 
$
1

 
$
261,733

Interest expense
1,294

 
86,885

 
9,513

 
6,454

 
4,170

 
500

 
108,816

Net interest income (expense)
36,409

 
66,905

 
32,426

 
21,846

 
(4,170
)
 
(499
)
 
152,917

Impairment

 

 
943

 
1,591

 

 

 
2,534

Other income
91,943

 
105,657

 
59,410

 
17,808

 
60,185

 

 
335,003

Operating expenses
488

 
5,815

 
800

 
4,140

 
745

 
52,744

 
64,732

Income (Loss) Before Income Taxes
127,864

 
166,747

 
90,093

 
33,923

 
55,270

 
(53,243
)
 
420,654

Income tax expense

 
29,085

 

 
306

 
92

 

 
29,483

Net Income (Loss)
$
127,864

 
$
137,662

 
$
90,093

 
$
33,617

 
$
55,178

 
$
(53,243
)
 
$
391,171

Noncontrolling interests in income
    (loss) of consolidated subsidiaries
$

 
$
92,524

 
$

 
$

 
$

 
$

 
$
92,524

Net income (loss) attributable to
    common stockholders
$
127,864

 
$
45,138

 
$
90,093

 
$
33,617

 
$
55,178

 
$
(53,243
)
 
$
298,647



12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
Servicer Advances
 
Real Estate Securities
 
Real Estate Loans
 
Consumer Loans
 
Corporate
 
Total
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
751,774

 
$
3,214,113

 
$
2,079,712

 
$
1,121,797

 
$
264,039

 
$

 
$
7,431,435

Cash and cash equivalents

 
88,770

 
13,273

 
2,889

 
9,766

 
72,903

 
187,601

Restricted cash

 
29,962

 

 

 

 

 
29,962

Derivative assets

 

 
1,115

 
27,571

 

 

 
28,686

Other assets
1,122

 
7,768

 
22,879

 
62,695

 
609

 
644

 
95,717

Total assets
$
752,896

 
$
3,340,613

 
$
2,116,979

 
$
1,214,952

 
$
274,414

 
$
73,547

 
$
7,773,401

Debt
$

 
$
2,824,007

 
$
1,725,737

 
$
910,856

 
$
125,000

 
$

 
$
5,585,600

Other liabilities
1,715

 
27,557

 
214,018

 
4,973

 
1,132

 
82,545

 
331,940

Total liabilities
1,715

 
2,851,564

 
1,939,755

 
915,829

 
126,132

 
82,545

 
5,917,540

Total equity
751,181

 
489,049

 
177,224

 
299,123

 
148,282

 
(8,998
)
 
1,855,861

Noncontrolling interests in equity
    of consolidated subsidiaries

 
280,445

 

 

 

 

 
280,445

Total New Residential
    stockholders’ equity
$
751,181

 
$
208,604

 
$
177,224

 
$
299,123

 
$
148,282

 
$
(8,998
)
 
$
1,575,416

Investments in equity method
    investees
$
342,538

 
$

 
$

 
$

 
$
264,039

 
$

 
$
606,577

 
 
Servicing Related Assets

Residential Securities and Loans

 

 

 
 
Excess MSRs

Servicer Advances

Real Estate Securities

Real Estate Loans

Consumer Loans

Corporate

Total
Three Months Ended September 30, 2013
 

 

 

 

 

 

 
Interest income
$
9,761


$


$
11,437


$
683


$


$
4


$
21,885

Interest expense




3,443








3,443

    Net interest income (expense)
9,761




7,994


683




4


18,442

Impairment













Other income
20,853




11,213




24,129




56,195

Operating expenses
82




10


94


1


11,305


11,492

Income (Loss) Before Income Taxes
30,532




19,197


589


24,128


(11,301
)

63,145

Income tax expense













Net Income (Loss)
$
30,532


$


$
19,197


$
589


$
24,128


$
(11,301
)

$
63,145

Noncontrolling interests in income
    (loss) of consolidated subsidiaries
$


$


$


$


$


$


$

Net income (loss) attributable to
    common stockholders
$
30,532


$


$
19,197


$
589


$
24,128


$
(11,301
)

$
63,145



13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
Servicer Advances
 
Real Estate Securities
 
Real Estate Loans
 
Consumer Loans
 
Corporate
 
Total
Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
30,541

 
$

 
$
28,625

 
$
1,867

 
$

 
$
42

 
$
61,075

Interest expense

 

 
6,993

 

 

 

 
6,993

Net interest income (expense)
30,541

 

 
21,632

 
1,867

 

 
42

 
54,082

Impairment

 

 
3,756

 

 

 

 
3,756

Other income
85,640

 

 
11,271

 

 
60,293

 

 
157,204

Operating expenses
178

 

 
32

 
224

 
1,952

 
19,702

 
22,088

Income (Loss) Before Income Taxes
116,003

 

 
29,115

 
1,643

 
58,341

 
(19,660
)
 
185,442

Income tax expense

 

 

 

 

 

 

Net Income (Loss)
$
116,003

 
$

 
$
29,115

 
$
1,643

 
$
58,341

 
$
(19,660
)
 
$
185,442

Noncontrolling interests in income (loss) of consolidated subsidiaries
$

 
$

 
$

 
$

 
$

 
$

 
$

Net income (loss) attributable to common stockholders
$
116,003

 
$

 
$
29,115

 
$
1,643

 
$
58,341

 
$
(19,660
)
 
$
185,442

  
4. INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
Acquisitions

On January 17, 2014, New Residential completed an additional closing of Excess MSRs that it agreed to acquire as part of a previously committed transaction between Nationstar and First Tennessee Bank. New Residential invested approximately $19.1 million on loans with an aggregate UPB of approximately $8.1 billion.

On May 12, 2014 New Residential invested approximately $33.9 million to acquire a one-third interest in the Excess MSRs on each of three portfolios of Agency residential mortgage loans with an aggregate UPB of $12.8 billion. Fortress managed funds and Nationstar each agreed to acquire a one-third interest in the Excess MSRs. Nationstar as servicer will perform all servicing and advancing functions, and retain the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by New Residential, the Fortress-managed funds and Nationstar, subject to certain limitations.

On May 13, 2014, New Residential invested approximately $2.2 million to acquire a one-third interest in the Excess MSRs on a portfolio of Agency residential mortgage loans with an aggregate UPB of $0.7 billion. Fortress-managed funds and Nationstar each agreed to acquire a one-third interest in the Excess MSRs. Nationstar as servicer will perform all servicing and advancing functions, and retain the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by New Residential, the Fortress-managed funds and Nationstar, subject to certain limitations.

On July 8, 2014, New Residential invested approximately $14.2 million to acquire a 32.5% interest in the Excess MSRs on a portfolio of Agency residential mortgage loans with an aggregate UPB of $5.9 billion. Fortress-managed funds and Nationstar agreed to acquire a 32.5% and 35.0% interest in the Excess MSRs, respectively. New Residential also invested approximately $5.7 million to acquire a one-third interest in the Excess MSRs on a portfolio of Agency residential mortgage loans with an aggregate UPB of $2.1 billion. Fortress-managed funds and Nationstar each agreed to acquire a one-third interest in the Excess MSRs. Nationstar as servicer will perform all servicing and advancing functions, and retain the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in each of the portfolios. Under the terms of these investments, to the extent that any loans in the portfolios are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by New Residential, the Fortress-managed funds and Nationstar, subject to certain limitations.


14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
(dollars in tables in thousands, except share data) 
 

New Residential has entered into a “Recapture Agreement” in each of the Excess MSR investments to date, including those Excess MSR investments made through investments in joint ventures (Note 5). As described above, under the Recapture Agreements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any initial or subsequent refinancing by Nationstar of a loan in the original portfolio. These Recapture Agreements do not apply to New Residential’s investments in servicer advances (Note 6).
 
New Residential elected to record its investments in Excess MSRs at fair value pursuant to the fair value option for financial instruments in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on the Excess MSRs.
 
The following is a summary of New Residential’s direct investments in Excess MSRs:
 
September 30, 2014
 
December 31, 2013
 
Unpaid Principal Balance ("UPB") of Underlying Mortgages
 
Interest in Excess MSR
 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value
Agency


 

 

 


 


 


Original and Recaptured Pools
$
46,264,414

 
32.5%-66.7%
 
5.5
 
$
134,087

 
$
176,482

 
$
120,271

Recapture Agreements

 
32.5%-66.7%
 
12.5
 
8,760

 
29,868

 
24,389

 
46,264,414

 

 
5.9
 
142,847

 
206,350

 
144,660

 
 
 
 
 

 
 
 
 
 
 
Non-Agency(D)


 

 
 
 


 


 


Original and Recaptured Pools
$
52,776,751

 
33.3%-80.0%
 
5.2
 
$
151,734

 
$
193,676

 
$
173,007

Recapture Agreements

 
33.3%-80.0%
 
12.7
 
11,265

 
9,210

 
6,484

 
52,776,751

 

 
5.7
 
162,999

 
202,886

 
179,491

Total
$
99,041,165

 

 
5.8
 
$
305,846

 
$
409,236

 
$
324,151

 
(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
The amortized cost basis of the Recapture Agreements is determined based on the relative fair values of the Recapture Agreements and related Excess MSRs at the time they were acquired.
(C)
Carrying Value represents the fair value of the pools or Recapture Agreements, as applicable.
(D)
Excess MSR investments in which New Residential also invested in related servicer advances, including the basic fee component of the related MSR as of September 30, 2014 (Note 6).

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Original and Recaptured Pools

$
24,124

 
$
(238
)
 
$
34,012

 
$
36,240

Recapture Agreements

4,442

 
446

 
6,658

 
7,659

 
 
$
28,566

 
$
208