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 March 31, 2016
 
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: 230,471,202 shares outstanding as of April 28, 2016.




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, Ocwen, OneMain 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 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 loan pools 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 in which we invest 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 residential mortgage 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;
our ability to maintain our exclusion from registration under the 1940 Act and the fact that maintaining such exclusion imposes limits on our operations;
the risks related to HLSS liabilities that we have assumed;
the impact of current or future legal proceedings and regulatory investigations and inquiries;
the impact of any material transactions with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest; and
events, conditions or actions that might occur at Ocwen.

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 proved 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.
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    General
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
    Inflation
 
 
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
Assets
 
 
 
Investments in:
 
 
 
Excess mortgage servicing rights, at fair value
$
1,547,004

 
$
1,581,517

Excess mortgage servicing rights, equity method investees, at fair value
209,901

 
217,221

Servicer advances, at fair value(A)
7,001,004

 
7,426,794

Real estate securities, available-for-sale
3,441,790

 
2,501,881

Residential mortgage loans, held-for-investment
324,734

 
330,178

Residential mortgage loans, held-for-sale
633,160

 
776,681

Real estate owned
56,402

 
50,574

Consumer loans, held-for-investment(A)
1,970,565

 

Cash and cash equivalents(A)
258,622

 
249,936

Restricted cash
170,364

 
94,702

Trades receivable
1,509,016

 
1,538,481

Deferred tax asset, net
196,189

 
185,311

Other assets
253,026

 
239,446

 
$
17,571,777

 
$
15,192,722

 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
Liabilities
 
 
 
Repurchase agreements
$
3,973,512

 
$
4,043,054

Notes and bonds payable(A)
8,870,851

 
7,249,568

Trades payable
1,431,003

 
725,672

Due to affiliates
5,847

 
23,785

Dividends payable
106,017

 
106,017

Accrued expenses and other liabilities
105,551

 
58,046

 
14,492,781

 
12,206,142

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Equity
 
 
 
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 230,471,202 and 230,471,202 issued and outstanding at March 31, 2016 and December 31, 2015, respectively
2,304

 
2,304

Additional paid-in capital
2,640,893

 
2,640,893

Retained earnings
154,519

 
148,800

Accumulated other comprehensive income (loss)
(12,912
)
 
3,936

Total New Residential stockholders’ equity
2,784,804

 
2,795,933

Noncontrolling interests in equity of consolidated subsidiaries
294,192

 
190,647

Total Equity
3,078,996

 
2,986,580

 
$
17,571,777

 
$
15,192,722


(A)
New Residential’s Condensed Consolidated Balance Sheets include the assets and liabilities of certain consolidated VIEs, the Buyer (Note 6) and the Consumer Loan SPVs (Note 9), which primarily hold investments in servicer advances and consumer loans, respectively, financed with notes and bonds payable. The Buyer’s balance sheet is included in Note 6 and the Consumer Loan SPVs’ balance sheet is included in Note 9. The creditors of the Buyer and the Consumer Loan SPVs do not have recourse to the general credit of New Residential and the assets of the Buyer and the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.

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 
 March 31,
 
2016
 
2015
Interest income
$
190,036

 
$
84,373

Interest expense
81,228

 
33,979

Net Interest Income
108,808

 
50,394

 
 
 
 
Impairment
 
 
 
Other-than-temporary impairment (OTTI) on securities
3,254

 
1,071

Valuation and loss provision on loans and real estate owned
6,745

 
977

 
9,999

 
2,048

 
 
 
 
Net interest income after impairment
98,809

 
48,346

 
 
 
 
Other Income
 
 
 
Change in fair value of investments in excess mortgage servicing rights
7,926

 
(1,761
)
Change in fair value of investments in excess mortgage servicing rights, equity method investees
3,022

 
4,921

Change in fair value of investments in servicer advances
(31,224
)
 
(7,669
)
Gain on consumer loans investment
9,943

 
10,447

Gain on remeasurement of consumer loans investment
71,250

 

Gain (loss) on settlement of investments, net
(14,500
)
 
14,767

Other income (loss), net
(14,495
)
 
(8,410
)
 
31,922

 
12,295

 
 
 
 
Operating Expenses
 
 
 
General and administrative expenses
12,081

 
8,560

Management fee to affiliate
10,008

 
5,126

Incentive compensation to affiliate
1,196

 
3,693

Loan servicing expense
1,731

 
4,891

 
25,016

 
22,270

 
 
 
 
Income Before Income Taxes
105,715

 
38,371

Income tax expense (benefit)
(10,223
)
 
(3,427
)
Net Income
$
115,938

 
$
41,798

Noncontrolling Interests in Income of Consolidated Subsidiaries
$
4,202

 
$
5,823

Net Income Attributable to Common Stockholders
$
111,736

 
$
35,975

 
 
 
 
Net Income Per Share of Common Stock
 
 
 
Basic
$
0.48

 
$
0.25

Diluted
$
0.48

 
$
0.25

 
 
 
 
Weighted Average Number of Shares of Common Stock Outstanding
 
 
 
Basic
230,471,202

 
141,434,905

Diluted
230,538,712

 
144,911,309

 
 
 
 
Dividends Declared per Share of Common Stock
$
0.46

 
$
0.38

 
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 
 March 31,
 
2016
 
2015
Comprehensive income (loss), net of tax
 
 
 
Net income
$
115,938

 
$
41,798

Other comprehensive income (loss)
 
 
 
Net unrealized gain (loss) on securities
(19,969
)
 
15,132

Reclassification of net realized (gain) loss on securities into earnings
3,121

 
(23,626
)
 
(16,848
)
 
(8,494
)
Total comprehensive income
$
99,090

 
$
33,304

Comprehensive income attributable to noncontrolling interests
$
4,202

 
$
5,823

Comprehensive income attributable to common stockholders
$
94,888

 
$
27,481

 
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 THREE MONTHS ENDED MARCH 31, 2016
(dollars in thousands, except share data)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total New Residential Stockholders’ Equity
 
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2015
230,471,202

 
$
2,304

 
$
2,640,893

 
$
148,800

 
$
3,936

 
$
2,795,933

 
$
190,647

 
$
2,986,580

Dividends declared

 

 

 
(106,017
)
 

 
(106,017
)
 

 
(106,017
)
SpringCastle Transaction (Note 1)

 

 

 

 

 

 
110,438

 
110,438

Capital contributions

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 
(11,095
)
 
(11,095
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
111,736

 

 
111,736

 
4,202

 
115,938

Net unrealized gain (loss) on securities

 

 

 

 
(19,969
)
 
(19,969
)
 

 
(19,969
)
Reclassification of net realized (gain) loss on securities into earnings

 

 

 

 
3,121

 
3,121

 

 
3,121

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
94,888

 
4,202

 
99,090

Equity - March 31, 2016
230,471,202

 
$
2,304

 
$
2,640,893

 
$
154,519

 
$
(12,912
)
 
$
2,784,804

 
$
294,192


$
3,078,996

 
See notes to condensed consolidated financial statements.


4


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
Three Months Ended March 31,
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net income
$
115,938

 
$
41,798

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
(7,926
)
 
1,761

Change in fair value of investments in excess mortgage servicing rights, equity method investees
(3,022
)
 
(4,921
)
Change in fair value of investments in servicer advances
31,224

 
7,669

(Gain) / loss on settlement of investments (net)
14,500

 
(17,701
)
Loss on extinguishment of debt

 
2,934

(Gain) on remeasurement of consumer loans investment
(71,250
)
 

Unrealized loss on derivative instruments
22,303

 
7,030

Unrealized (gain) / loss on other ABS
(268
)
 
290

(Gain) / loss on transfer of loans to REO
(2,483
)
 
544

(Gain) on transfer of loans to other assets
(687
)
 
(11
)
(Gain) on Excess MSR recapture agreements
(732
)
 
(730
)
Accretion and other amortization
(153,670
)
 
(61,345
)
Other-than-temporary impairment
3,254

 
1,071

Valuation and loss provision on loans and real estate owned
6,745

 
977

Deferred tax provision
(10,681
)
 
(3,007
)
 
 
 
 
Changes in:
 
 
 
Restricted cash
(1,058
)
 
1,093

Other assets
19,067

 
(1,838
)
Due to affiliates
(17,938
)
 
(50,959
)
Accrued expenses and other liabilities
15,872

 
618

Other operating cash flows:
 
 
 
Interest received from excess mortgage servicing rights
43,990

 
12,692

Interest received from servicer advance investments
50,229

 
23,168

Interest received from Non-Agency RMBS
29,449

 
8,050

Interest payments from residential mortgage loans, held-for-investment
437

 

Distributions of earnings from excess mortgage servicing rights, equity method investees
9,754

 
12,226

Purchases of residential mortgage loans, held-for-sale
(173,270
)
 

Proceeds from sales of purchased residential mortgage loans, held-for-sale
231,390

 

Principal repayments from purchased residential mortgage loans, held-for-sale
18,186

 
3,178

Net cash provided by (used in) operating activities
169,353

 
(15,413
)

Continued on next page.

5


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
Three Months Ended March 31,
 
2016
 
2015
Cash Flows From Investing Activities
 
 
 
Acquisition of investments in excess mortgage servicing rights
(2,022
)
 
(23,831
)
SpringCastle Transaction (Note 1), net of cash acquired
(49,943
)
 

Purchase of servicer advance investments
(3,844,638
)
 
(1,765,294
)
Purchase of Agency RMBS
(1,684,194
)
 
(1,026,525
)
Purchase of Non-Agency RMBS
(314,547
)
 
(26,649
)
Purchase of residential mortgage loans
(319
)
 
(19,032
)
Purchase of derivatives
(1,355
)
 

Purchase of real estate owned
(9,196
)
 

Payments for settlement of derivatives
(33,553
)
 
(25,007
)
Return of investments in excess mortgage servicing rights
42,149

 
17,122

Return of investments in excess mortgage servicing rights, equity method investees
588

 
202

Principal repayments from servicer advance investments
4,267,612

 
1,802,188

Principal repayments from Agency RMBS
18,426

 
46,967

Principal repayments from Non-Agency RMBS
48,014

 
14,952

Principal repayments from residential mortgage loans
8,754

 
5,844

Proceeds from sale of residential mortgage loans

 
627,719

Proceeds from sale of Agency RMBS
1,727,673

 
1,060,569

Proceeds from sale of Non-Agency RMBS
38,471

 
389,719

Proceeds from settlement of derivatives
1,837

 
2,417

Proceeds from sale of real estate owned
8,142

 
34,930

Net cash provided by (used in) investing activities
221,899

 
1,116,291


Continued on next page.

6


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
 
Three Months Ended 
 March 31,
 
2016
 
2015
Cash Flows From Financing Activities
 
 
 
Repayments of repurchase agreements
(5,062,857
)
 
(2,016,777
)
Margin deposits under repurchase agreements and derivatives
(106,952
)
 
(123,289
)
Repayments of notes and bonds payable
(1,894,548
)
 
(396,125
)
Payment of deferred financing fees
(5,555
)
 
(666
)
Common stock dividends paid
(106,017
)
 
(53,745
)
Borrowings under repurchase agreements
4,993,318

 
1,121,121

Return of margin deposits under repurchase agreements and derivatives
98,138

 
145,378

Borrowings under notes and bonds payable
1,713,002

 
482,334

Issuance of common stock

 

Costs related to issuance of common stock

 

Noncontrolling interest in equity of consolidated subsidiaries - contributions

 

Noncontrolling interest in equity of consolidated subsidiaries - distributions
(11,095
)
 
(12,760
)
Net cash provided by (used in) financing activities
(382,566
)
 
(854,529
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
8,686

 
246,349

 
 
 
 
Cash and Cash Equivalents, Beginning of Period
249,936

 
212,985

 
 
 
 
Cash and Cash Equivalents, End of Period
$
258,622

 
$
459,334

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
75,690

 
$
32,880

Cash paid during the period for income taxes
265

 
305

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Dividends declared but not paid
$
106,017

 
$
53,745

Reclassification resulting from the application of ASU No. 2014-11

 
85,955

Purchase of investments, primarily RMBS, settled after quarter end
1,431,003

 
196,000

Sale of Agency RMBS settled after quarter end
1,509,016

 

Transfer from residential mortgage loans to real estate owned and other assets
36,485

 

Non-cash contingent consideration
5,581

 

Non-cash distributions from Consumer Loan Companies
25

 

Real estate securities retained from loan securitizations
36,902

 

Remeasurement of Consumer Loan Companies noncontrolling interest
110,438

 

 
See notes to condensed consolidated financial statements.

7



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

1. ORGANIZATION AND BASIS OF PRESENTATION
 
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. 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 New York Stock Exchange (“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”), pursuant to which the Manager provides a management team and other professionals who are responsible for implementing New Residential’s business strategy, 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, investment funds that indirectly own a majority of the outstanding interests in Nationstar Mortgage LLC (“Nationstar”), a leading residential mortgage servicer, and investment funds that own a majority of the outstanding common stock of OneMain Holdings, Inc. (formerly known as Springleaf Holdings, Inc.) (together with its subsidiaries, “OneMain”), former managing member of the Consumer Loan Companies (Note 9).
 
As of March 31, 2016, New Residential conducted its business through the following segments: (i) investments in excess mortgage servicing rights (“Excess MSRs”), (ii) investments in servicer advances (including the basic fee component of the related mortgage servicing rights (“MSRs”)), (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 March 31, 2016. In addition, Fortress, through its affiliates, held options relating to approximately 9.2 million shares of New Residential’s common stock as of March 31, 2016.
 
Interim Financial Statements

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 note disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion 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 condensed consolidated financial statements should be read in conjunction with New Residential’s consolidated financial statements for the year ended December 31, 2015 and notes thereto included in New Residential’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). Capitalized terms used herein, and not otherwise defined, are defined in New Residential’s consolidated financial statements for the year ended December 31, 2015.
 
Certain prior period amounts have been reclassified to conform to the current period’s presentation.


8

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 effect, companies will be required to exercise further judgment and make more estimates prospectively. 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. ASU No. 2014-09 is effective for New Residential in the first quarter of 2018. Early adoption is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in ASU No. 2014-09. New Residential is currently evaluating the new guidance to determine the impact it may have on its condensed 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. ASU No. 2014-15 is effective for New Residential for the annual period ending on December 31, 2016. Early adoption was permitted. New Residential is currently evaluating the new guidance to determine the impact that it may have on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for New Residential in the first quarter of 2018. Early adoption is generally not permitted. An entity should apply ASU No. 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. New Residential is currently evaluating the new guidance to determine the impact it may have on its condensed 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, restricted cash 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. 

SpringCastle Transaction

On March 31, 2016, certain of New Residential’s indirect wholly owned subsidiaries (collectively, the “NRZ SpringCastle Buyers”) entered into a Purchase Agreement (the “SpringCastle Purchase Agreement”) primarily with (i) certain direct or indirect wholly owned subsidiaries of OneMain (the “SpringCastle Sellers”), (ii) BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership - NQ - ESC L.P. (together, the “Blackstone SpringCastle Buyers,” and the Blackstone SpringCastle Buyers together with the NRZ SpringCastle Buyers, collectively, the “SpringCastle Buyers”). Pursuant to the SpringCastle Purchase Agreement, the SpringCastle Sellers sold their collective 47% limited liability company interests in the Consumer Loan Companies (Note 9) to the SpringCastle Buyers for an aggregate purchase price of $111,625,000 (the “SpringCastle Transaction”).

Pursuant to the SpringCastle Purchase Agreement, the NRZ SpringCastle Buyers collectively acquired an additional 23.5% limited liability company interest in the Consumer Loan Companies (representing 50% of the limited liability company interests being sold by the SpringCastle Sellers in the SpringCastle Transaction) and the Blackstone SpringCastle Buyers acquired the other 50% of the limited liability company interests being sold in the SpringCastle Transaction. The SpringCastle Buyers collectively paid $100,462,500 of the aggregate purchase price to the SpringCastle Sellers on March 31, 2016, with the remaining $11,162,500 to be paid into an escrow account within 120 days following March 31, 2016. The NRZ SpringCastle Buyers’ obligation with respect to purchase price was, and the escrow obligation will be, 50% of the total paid, or to be paid, by the SpringCastle Buyers. The

9

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

escrowed funds are expected to be held in escrow for a period of up to five years following March 31, 2016 and, subject to the terms of the SpringCastle Purchase Agreement and depending on the achievement of certain portfolio performance requirements, paid (in whole or in part) to the SpringCastle Sellers at the end of such five year period. Any portion of the escrowed funds that the SpringCastle Sellers are not entitled to receive at the end of such five year period, based on the failure to achieve certain portfolio performance requirements, will be returned to the SpringCastle Buyers. The SpringCastle Buyers are also entitled (but not required) to use the escrowed funds as a source of recovery for any indemnification payments to which they become entitled pursuant to the SpringCastle Purchase Agreement. The SpringCastle Purchase Agreement includes customary representations, warranties, covenants and indemnities.

The SpringCastle Transaction was unanimously approved by a special committee composed entirely of independent directors to which New Residential’s board of directors had delegated full authority to consider, negotiate and determine whether to engage in the SpringCastle Transaction.

Following the SpringCastle Transaction, New Residential, through the NRZ SpringCastle Buyers, owns 53.5% of the limited liability company interests in the Consumer Loan Companies and the Blackstone SpringCastle Buyers, collectively with their affiliates, own the remaining 46.5% interests in the Consumer Loan Companies. OneMain will remain as servicer of the loans held by the Consumer Loan Companies and their subsidiaries immediately following the SpringCastle Transaction.

In connection with the closing of the SpringCastle Transaction, each NRZ SpringCastle Buyer entered into a Second Amended & Restated Limited Liability Company Agreement (each, a “Second A&R LLC Agreement”) for each of the Consumer Loan Companies in which it acquired limited liability company interests. All of the Second A&R LLC Agreements contain substantially identical terms and conditions and designate the respective NRZ SpringCastle Buyer that is a party thereto as managing member of the applicable Consumer Loan Company. Pursuant to each Second A&R LLC Agreement, the managing member has the exclusive power and authority to manage the business and affairs of the applicable Consumer Loan Company, subject to the rights of the members to approve specified significant actions outside of the ordinary course of business and certain affiliate transactions, and subject to the other terms, conditions and limitations set forth in the Second A&R LLC Agreements. Each Second A&R LLC Agreement contains certain customary restrictions on the members’ ability to transfer their interests in the applicable Consumer Loan Companies.

As a result of the SpringCastle Transaction, New Residential obtained a controlling financial interest in the Consumer Loan Companies, which triggered the application of the acquisition model in ASC No. 805, including the fair value recognition of all net assets over which control has been obtained and the remeasurement of any previously held noncontrolling interest. Based on the guidance in ASC No. 805, New Residential has consolidated all of the assets and the related liabilities of the Consumer Loan Companies assuming a gross purchase price of $237.5 million. This gross purchase price is representative of the fair value, measured in accordance with ASC No. 820, of 100% of the net assets of the Consumer Loan Companies, which was used to derive the $111.6 million purchase price for an aggregate 47.0% of the equity ownership acquired by the SpringCastle Buyers. The remeasurement of New Residential’s previously held equity method investment resulted in a gain of $71.3 million, which was recorded to Gain on Remeasurement of Consumer Loans Investment.


10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

New Residential has performed a preliminary allocation of the purchase price to the Consumer Loans Companies’ assets and liabilities, as set forth below. The final allocation of purchase price may differ from the amounts included herein. The preliminary allocation of the total consideration, following reclassifications to conform to New Residential’s presentation, is as follows:
Total Consideration ($ in millions)
$
237.5

Assets
 
Consumer loans, held-for-investment
$
1,970.6

Cash and cash equivalents
0.3

Restricted cash
74.6

Total Assets Acquired
$
2,045.5

 
 
Liabilities
 
Notes and bonds payable
1,803.2

Accrued expenses and other liabilities
4.8

Total Liabilities Assumed
$
1,808.0

 
 
Net Assets
$
237.5


The acquisition of the Consumer Loans Companies resulted in no goodwill because the total consideration transferred was equal to the fair value of the net assets acquired.

Unaudited Supplemental Pro Forma Financial Information - The following table presents New Residential’s unaudited pro forma combined Interest Income and Income Before Income Taxes for the three months ended March 31, 2016 and 2015 prepared as if the SpringCastle Transaction had been consummated on January 1, 2015.
 
Three Months Ended 
 March 31,
 
2016
 
2015
 
(unaudited)
 
(unaudited)
Pro Forma
 
 
 
Interest Income
$
238,464

 
$
148,263

Income Before Income Taxes
55,294

 
136,837

Noncontrolling Interests in Income of Consolidated Subsidiaries
17,834

 
24,040


The 2016 unaudited supplemental pro forma financial information has been adjusted to exclude, and the 2015 unaudited supplemental pro forma financial information has been adjusted to include, (i) the gain on remeasurement of New Residential’s Consumer Loans investment of $71.3 million and (ii) approximately $1.5 million of acquisition related costs incurred by New Residential in 2016. The unaudited supplemental pro forma financial information does not include any other anticipated benefits of the SpringCastle Transaction and, accordingly, the unaudited supplemental pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the SpringCastle Transaction occurred on January 1, 2015.

See Note 9 for further information on the Consumer Loan Companies and Note 11 for further information on related financing.


11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

2. OTHER INCOME, ASSETS AND LIABILITIES
 
Other income (loss), net, is comprised of the following:
 
Three Months Ended March 31,
 
2016
 
2015
Unrealized gain (loss) on derivative instruments
$
(22,303
)
 
$
(7,030
)
Unrealized gain (loss) on other ABS
268

 
(290
)
Gain (loss) on transfer of loans to REO
2,483

 
(544
)
Gain on Excess MSR recapture agreements
732

 
730

Other income (loss)
4,325

 
(1,276
)
 
$
(14,495
)
 
$
(8,410
)
 
Gain (loss) on settlement of investments, net is comprised of the following:
 
Three Months Ended March 31,
 
2016
 
2015
Gain (loss) on sale of real estate securities, net
$
16,133

 
$
24,697

Gain (loss) on sale of residential mortgage loans, net
109

 
20,830

Gain (loss) on settlement of derivatives
(32,633
)
 
(22,590
)
Gain (loss) on liquidated residential mortgage loans

 
400

Gain (loss) on sale of REO
151

 
(5,636
)
Other gains (losses)
1,740

 
(2,934
)
 
$
(14,500
)
 
$
14,767


Other assets and liabilities are comprised of the following:
 
Other Assets
 
 
 
Accrued Expenses
and Other Liabilities
 
March 31, 2016
 
December 31, 2015
 
 
 
March 31, 2016
 
December 31, 2015
Margin receivable, net
$
63,273

 
$
54,459

 
Interest payable
 
$
19,988

 
$
18,268

Other receivables
16,305

 
10,893

 
Accounts payable
 
37,826

 
18,650

Principal paydown receivable
822

 
795

 
Derivative liabilities (Note 10)
 
34,942

 
13,443

Receivable from government agency
75,514

 
68,833

 
Current taxes payable
 
2,180

 
1,573

Call rights
414

 
414

 
Other liabilities
 
10,615

 
6,112

Derivative assets (Note 10)
1,720

 
2,689

 
 
 
$
105,551

 
$
58,046

Interest receivable
38,431

 
36,963

 
 
 
 
 
 
Ginnie Mae EBO servicer advance receivable, net
44,652

 
49,725

 
 
 
 
 
 
Other assets
11,895

 
14,675

 
 
 
 
 
 
 
$
253,026

 
$
239,446

 
 
 
 
 
 


12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

As reflected on the Condensed Consolidated Statements of Cash Flows, accretion and other amortization is comprised of the following:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Accretion of servicer advance interest income
 
$
78,637

 
$
42,349

Accretion of excess mortgage servicing rights income
 
42,968

 
15,037

Accretion of net discount on securities and loans(A)
 
37,128

 
5,399

Amortization of deferred financing costs
 
(4,785
)
 
(1,440
)
Amortization of discount on notes and bonds payable
 
(278
)
 

 
 
$
153,670

 
$
61,345


(A)
Includes accretion of the accretable yield on PCD 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 management fees and incentive compensation related to the Management Agreement and (iii) corporate cash and related interest income. Securities owned by New Residential (Note 7) that are collateralized by servicer advances are included in the Servicer Advances segment. Secured corporate loans effectively collateralized by Excess MSRs are included in the Excess MSRs segment.
 
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 March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
42,968

 
$
80,967

 
$
45,913

 
$
19,493

 
$
1

 
$
694

 
$
190,036

Interest expense
2,934

 
63,075

 
7,484

 
7,390

 
345

 

 
81,228

Net interest income (expense)
40,034

 
17,892

 
38,429

 
12,103

 
(344
)
 
694

 
108,808

Impairment

 

 
3,254

 
6,745

 

 

 
9,999

Other income
11,693

 
(27,391
)
 
(36,461
)
 
2,873

 
81,193

 
15

 
31,922

Operating expenses
232

 
994

 
461

 
4,334

 
1,604

 
17,391

 
25,016

Income (Loss) Before Income Taxes
51,495

 
(10,493
)
 
(1,747
)
 
3,897

 
79,245

 
(16,682
)
 
105,715

Income tax expense (benefit)

 
(10,002
)
 

 
(221
)
 

 

 
(10,223
)
Net Income (Loss)
$
51,495

 
$
(491
)
 
$
(1,747
)
 
$
4,118

 
$
79,245

 
$
(16,682
)
 
$
115,938

Noncontrolling interests in income (loss) of consolidated subsidiaries
$

 
$
4,202

 
$

 
$

 
$

 
$

 
$
4,202

Net income (loss) attributable to common stockholders
$
51,495

 
$
(4,693
)
 
$
(1,747
)
 
$
4,118

 
$
79,245

 
$
(16,682
)
 
$
111,736



13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(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
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
1,756,905

 
$
7,432,012

 
$
3,010,782

 
$
1,014,296

 
$
1,970,565

 
$

 
$
15,184,560

Cash and cash equivalents
919

 
198,116

 
670

 
11,753

 
1,670

 
45,494

 
258,622

Restricted cash
1,235

 
94,525

 

 

 
74,604

 

 
170,364

Other assets
14

 
207,255

 
1,579,924

 
121,524

 
2,050

 
47,464

 
1,958,231

Total assets
$
1,759,073

 
$
7,931,908

 
$
4,591,376

 
$
1,147,573

 
$
2,048,889

 
$
92,958

 
$
17,571,777

Debt
$
181,602

 
$
7,372,351

 
$
2,616,625

 
$
836,370

 
$
1,837,415

 
$

 
$
12,844,363

Other liabilities
437

 
24,625

 
1,469,071

 
21,233

 
12,250

 
120,802

 
1,648,418

Total liabilities
182,039

 
7,396,976

 
4,085,696

 
857,603

 
1,849,665

 
120,802

 
14,492,781

Total equity
1,577,034

 
534,932

 
505,680

 
289,970

 
199,224

 
(27,844
)
 
3,078,996

Noncontrolling interests in equity of consolidated subsidiaries

 
183,754

 

 

 
110,438

 

 
294,192

Total New Residential stockholders’ equity
$
1,577,034

 
$
351,178

 
$
505,680

 
$
289,970

 
$
88,786

 
$
(27,844
)
 
$
2,784,804

Investments in equity method investees
$
209,901

 
$

 
$

 
$

 
$

 
$

 
$
209,901

 

Servicing Related Assets

Residential Securities and Loans







Excess MSRs

Servicer Advances

Real Estate Securities

Real Estate Loans

Consumer Loans

Corporate

Total
Three Months Ended March 31, 2015













Interest income
$
15,037


$
42,349


$
14,263


$
12,724


$


$


$
84,373

Interest expense
769


23,637


3,480


6,093






33,979

Net interest income (expense)
14,268


18,712


10,783


6,631






50,394

Impairment




1,071


977






2,048

Other income
3,890


(10,727
)

(5,090
)

13,775


10,447




12,295

Operating expenses
88


575


(102
)

6,104


57


15,548


22,270

Income (Loss) Before Income Taxes
18,070

 
7,410

 
4,724

 
13,325

 
10,390

 
(15,548
)

38,371

Income tax expense (benefit)

 
(3,240
)
 

 
(187
)
 

 


(3,427
)
Net Income (Loss)
$
18,070

 
$
10,650

 
$
4,724

 
$
13,512

 
$
10,390

 
$
(15,548
)

$
41,798

Noncontrolling interests in income (loss) of consolidated subsidiaries
$

 
$
5,823

 
$

 
$

 
$

 
$


$
5,823

Net income (loss) attributable to common stockholders
$
18,070

 
$
4,827

 
$
4,724

 
$
13,512

 
$
10,390

 
$
(15,548
)

$
35,975




14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

4. INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
The following table presents activity related to the carrying value of New Residential’s investments in Excess MSRs:
 
 
Servicer
 
 
Nationstar
 
SLS(A)
 
Ocwen(B)
 
Total
Balance as of December 31, 2015
 
$
698,304

 
$
5,307

 
$
877,906

 
$
1,581,517

Purchases
 

 

 

 

Interest income
 
19,435

 
(7
)
 
23,540

 
42,968

Other income
 
732

 

 

 
732

Proceeds from repayments
 
(37,676
)
 
(272
)
 
(48,191
)
 
(86,139
)
Change in fair value
 
3,527

 
(57
)
 
4,456

 
7,926

Balance as of March 31, 2016
 
$
684,322

 
$
4,971

 
$
857,711

 
$
1,547,004


(A)
Specialized Loan Servicing LLC (“SLS”).
(B)
Ocwen Loan Servicing LLC, a subsidiary of Ocwen Financial Corporation (together with its subsidiaries, including Ocwen Loan Servicing LLC, “Ocwen”), services the loans underlying the Excess MSRs and Servicer Advances acquired from HLSS.

On January 4, 2016, New Residential invested the remaining $2.0 million to complete its acquisition of a 66.7% interest in the Excess MSRs on a portfolio of Fannie Mae residential mortgage loans with an aggregate UPB of $17.2 billion. Nationstar agreed to acquire the remaining 33.3% interest in the Excess MSRs.

Nationstar, SLS or Ocwen, as applicable, as servicer, performs all servicing and advancing functions, and retains the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in each portfolio.

New Residential has entered into a “recapture agreement” with respect to each of the Excess MSR investments serviced by Nationstar and SLS, including those Excess MSR investments made through investments in joint ventures (Note 5). 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 or SLS, as applicable, of a loan in the original portfolio. New Residential has a similar recapture agreement with Ocwen; however, this agreement allows for Ocwen to retain the Excess MSR on recaptured loans up to a specified threshold and no payments have been made to New Residential under such arrangement to date. 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.
 

15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

The following is a summary of New Residential’s direct investments in Excess MSRs:
 
March 31, 2016
 
December 31, 2015
 
UPB of Underlying Mortgages
 
Interest in Excess MSR
 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value(C)
 
 
 
New Residential
 
Fortress-managed funds
 
Nationstar
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
90,119,338

 
32.5% - 66.7%

 
0.0% - 40.0%

 
20.0% - 35.0%

 
5.9
 
$
325,508

 
$
367,004

 
$
378,083

Recapture Agreements

 
32.5% - 66.7%

 
0.0% - 40.0%

 
20.0% - 35.0%

 
12.2
 
34,348

 
58,896

 
59,118

 
90,119,338

 
 
 
 
 
 
 
6.5
 
359,856

 
425,900

 
437,201

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(D)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
91,277,078

 
33.3% - 80.0%

 
0.0% - 50.0%

 
0.0% - 33.3%

 
5.3
 
$
205,633

 
$
247,957

 
$
250,662

Recapture Agreements

 
33.3% - 80.0%

 
0.0% - 50.0%

 
0.0% - 33.3%

 
12.3
 
13,641

 
15,436

 
15,748

Ocwen Serviced Pools
136,143,859

 
100.0
%
 
%
 
%
 
6.3
 
811,778

 
857,711

 
877,906

 
227,420,937

 
 
 
 
 
 
 
6.2
 
1,031,052

 
1,121,104

 
1,144,316

Total
$
317,540,275

 
 
 
 
 
 
 
6.3
 
$
1,390,908

 
$
1,547,004

 
$
1,581,517

 
(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 March 31, 2016 (Note 6).

Changes in fair value recorded in other income are comprised of the following:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Original and Recaptured Pools

$
5,697

 
$
(1,976
)
Recapture Agreements

2,229

 
215

 
 
$
7,926

 
$
(1,761
)

In the first quarter of 2016, a weighted average discount rate of 9.8% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).


16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the direct investments in Excess MSRs:
 
 
Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration
 
March 31, 2016
 
December 31, 2015
California
 
26.7
%
 
26.7
%
Florida
 
8.9
%
 
8.9
%
New York
 
7.9
%
 
7.8
%
Texas
 
4.3
%
 
4.3
%
New Jersey
 
4.1
%
 
4.1
%
Maryland
 
3.8
%
 
3.8
%
Illinois
 
3.4
%
 
3.4
%
Virginia
 
3.1
%
 
3.1
%
Washington
 
2.7
%
 
2.7
%
Massachusetts
 
2.7
%
 
2.7
%
Other U.S.
 
32.4
%
 
32.5
%
 
 
100.0
%
 
100.0
%

Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the Excess MSRs.

5. INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
 
New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
 
March 31, 2016
 
December 31, 2015
Excess MSR assets
 
$
404,863

 
$
421,999

Other assets
 
14,939

 
12,442

Other liabilities
 

 

Equity
 
$
419,802

 
$
434,441

New Residential’s investment
 
$
209,901

 
$
217,221

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended March 31,
 
 
2016
 
2015
Interest income
 
$
8,081

 
$
11,701

Other income (loss)
 
(2,014
)
 
(1,835
)
Expenses
 
(23
)
 
(25
)
Net income
 
$
6,044

 
$
9,841



17

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

New Residential’s investments in equity method investees changed during the three months ended March 31, 2016 as follows:
Balance at December 31, 2015
$
217,221

Contributions to equity method investees

Distributions of earnings from equity method investees
(9,754
)
Distributions of capital from equity method investees
(588
)
Change in fair value of investments in equity method investees
3,022

Balance at March 31, 2016
$
209,901


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
March 31, 2016
 
Unpaid Principal Balance
 
Investee Interest in Excess MSR(A)
 
New Residential Interest in Investees
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Weighted Average Life (Years)(D)
Agency
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
70,087,028

 
66.7
%
 
50.0
%
 
$
264,544

 
$
336,113

 
5.7
Recapture Agreements

 
66.7
%
 
50.0
%
 
41,563

 
68,750

 
11.8
Total
$
70,087,028

 
 
 
 
 
$
306,107

 
$
404,863

 
6.6
 
(A)
The remaining interests are held by Nationstar.
(B)
Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. 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)
Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools or recapture agreements, as applicable.
(D)
The weighted average life represents the weighted average expected timing of the receipt of cash flows of each investment.

In the first quarter of 2016, a weighted average discount rate of 9.8% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments made through equity method investees:
 
 
Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration
 
March 31, 2016
 
December 31, 2015
California
 
12.8
%
 
12.9
%
Florida
 
7.3
%
 
7.4
%
Texas
 
6.1
%
 
6.1
%
New York
 
5.9
%
 
5.8
%
Georgia
 
5.7
%
 
5.7
%
New Jersey
 
4.3
%
 
4.3
%
Illinois
 
4.0
%
 
4.0
%
Maryland
 
3.2
%
 
3.2
%
Virginia
 
3.2
%
 
3.2
%
Pennsylvania
 
3.1
%
 
3.1
%
Other U.S.
 
44.4
%
 
44.3
%
 
 
100.0
%
 
100.0
%


18

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the Excess MSRs.

6. INVESTMENTS IN SERVICER ADVANCES
 
In December 2013, New Residential and third-party co-investors, through a joint venture entity (Advance Purchaser LLC, the “Buyer”) consolidated by New Residential, purchased the outstanding Servicer Advances related to a portfolio of residential mortgage loans that is serviced by Nationstar and is a subset of the same portfolio of loans in which New Residential has invested in a portion of the Excess MSRs (Notes 4 and 5), including the basic fee component of the related MSRs. A taxable wholly owned subsidiary of New Residential is the managing member of the Buyer and owned an approximately 44.5% interest in the Buyer as of March 31, 2016. As of March 31, 2016, noncontrolling third-party investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of March 31, 2016, the third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $256.9 million and $206.2 million of capital distributed to the third-party co-investors and New Residential, respectively.  Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.

The Buyer has purchased Servicer Advances from Nationstar, is required to purchase all future Servicer Advances made with respect to this portfolio of loans from Nationstar, and receives cash flows from advance recoveries and the basic fee component of the related MSRs, net of compensation paid back to Nationstar in consideration of Nationstar’s servicing activities. The compensation paid to Nationstar as of March 31, 2016 was approximately 9.3% of the basic fee component of the related MSRs plus a performance fee that represents a portion (up to 100%) of the cash flows in excess of those required for the Buyer to obtain a specified return on its equity.

New Residential also acquired a portion of the call rights related to this portfolio of loans.

In December 2014, New Residential agreed to acquire (the “SLS Transaction”) 50% of the Excess MSRs and all of the Servicer Advances and related basic fee portion of the MSR (the “SLS Advance Fee”), and a portion of the call rights related to a portfolio of residential mortgage loans which is serviced by SLS. Fortress-managed funds acquired the other 50% of the Excess MSRs. SLS will continue to service the loans in exchange for a servicing fee of 10.75 bps times the UPB of the underlying loans and an incentive fee (the “SLS Incentive Fee”) which is based on the ratio of the outstanding Servicer Advances to the UPB of the underlying loans.

On April 6, 2015, New Residential acquired Servicer Advances and Excess MSRs in connection with the HLSS Acquisition. Ocwen will continue to service the underlying loans in exchange for a servicing fee of approximately 5.3 bps times the UPB of the underlying loans and an incentive fee which is reduced by LIBOR plus 2.75% per annum of the amount, if any, of servicer advances outstanding in excess of a defined target.

In connection with the HLSS Acquisition, New Residential acquired from Ocwen the call rights related to the mortgage loans underlying the Excess MSRs and Servicer Advances acquired from HLSS.

New Residential continues to evaluate the call rights it acquired from Nationstar, SLS and Ocwen, and its ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. The actual UPB of the mortgage loans on which New Residential can successfully exercise call rights and realize the benefits therefrom may differ materially from its initial assumptions.

New Residential elected to record its investments in Servicer Advances, including the right to the basic fee component of the related MSRs, at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of market factors.
 

19

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2016
(dollars in tables in thousands, except share data) 
 

The following is a summary of the investments in Servicer Advances, including the right to the basic fee component of the related MSRs:
 
Amortized Cost Basis

Carrying Value(A)

Weighted Average Discount Rate
 
Weighted Average Yield

Weighted Average Life (Years)(B)
March 31, 2016
 
 
 
 
 
 
 
 
 
Servicer Advances(C)
$
7,005,501

 
$
7,001,004

 
5.5
%
 
5.3
%
 
4.5
As of December 31, 2015
 
 
 
 
 
 
 
 
 
Servicer Advances(C)
$
7,400,068

 
$
7,426,794

 
5.6
%
 
5.5
%
 
4.4
  
(A)
Carrying value represents the fair value of the investments in Servicer Advances, including the basic fee component of the related MSRs.
(B)
Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.
(C)
Excludes New Residential asset-backed securities collateralized by Servicer Advances, which have aggregate face amounts of $431.0 million and $431.0 million and aggregate carrying values of $431.0 million and $430.3 million as of March 31, 2016 and December 31, 2015, respectively. See Note 7 for details related to these securities.
 
 
Three Months Ended March 31,
 
 
2016

2015
Changes in Fair Value Recorded in Other Income
 
$
(31,224
)
 
$
(7,669
)

The following is additional information regarding the Servicer Advances and related financing: