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, 2017
 
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 ¨     Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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: 307,334,117 shares outstanding as of April 26, 2017.




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, Ditech and other third parties;
events, conditions or actions that might occur at Nationstar, Ocwen, OneMain, Ditech 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 MSRs, Excess MSRs, Servicer Advances, RMBS and loan portfolios;
the risks that default and recovery rates on our MSRs, 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 MSRs or Excess MSRs;
the risk that projected recapture rates on the loan pools underlying our MSRs or 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 Investment Company Act of 1940 (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;
effects of the pending merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.; and
the risk that GSE or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs.

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)
 
March 31, 2017
 
December 31, 2016
 
(Unaudited)
 
Assets
 
 
 
Investments in:
 
 
 
Excess mortgage servicing rights, at fair value
$
1,369,341

 
$
1,399,455

Excess mortgage servicing rights, equity method investees, at fair value
185,870

 
194,788

Mortgage servicing rights, at fair value
1,694,792

 
659,483

Servicer advances, at fair value(A)
5,037,172

 
5,706,593

Real estate securities, available-for-sale
5,938,743

 
5,073,858

Residential mortgage loans, held-for-investment
182,939

 
190,761

Residential mortgage loans, held-for-sale
1,058,184

 
696,665

Real estate owned
79,331

 
59,591

Consumer loans, held-for-investment(A)
1,679,818

 
1,799,486

Cash and cash equivalents(A)
236,557

 
290,602

Restricted cash
158,373

 
163,095

Trades receivable
1,857,537

 
1,687,788

Deferred tax asset, net
147,866

 
151,284

Other assets
403,464

 
326,080

 
$
20,029,987

 
$
18,399,529

 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
Liabilities
 
 
 
Repurchase agreements
$
6,277,636

 
$
5,190,631

Notes and bonds payable(A)
7,557,578

 
7,990,605

Trades payable
1,446,276

 
1,381,968

Due to affiliates
23,119

 
47,348

Dividends payable
147,520

 
115,356

Accrued expenses and other liabilities
276,098

 
205,444

 
15,728,227

 
14,931,352

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Equity
 
 
 
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 307,334,117 and 250,773,117 issued and outstanding at March 31, 2017 and December 31, 2016, respectively
3,073

 
2,507

Additional paid-in capital
3,755,561

 
2,920,730

Retained earnings
184,358

 
210,500

Accumulated other comprehensive income (loss)
159,120

 
126,363

Total New Residential stockholders’ equity
4,102,112

 
3,260,100

Noncontrolling interests in equity of consolidated subsidiaries
199,648

 
208,077

Total Equity
4,301,760

 
3,468,177

 
$
20,029,987

 
$
18,399,529


(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 per share data)
 
 
 
Three Months Ended 
 March 31,
 
 
2017
 
2016
Interest income
 
$
292,538

 
$
190,036

Interest expense
 
98,229

 
81,228

Net Interest Income
 
194,309

 
108,808

 
 
 
 
 
Impairment
 
 
 
 
Other-than-temporary impairment (OTTI) on securities
 
2,112

 
3,254

Valuation and loss provision on loans and real estate owned
 
17,910

 
6,745

 
 
20,022

 
9,999

 
 
 
 
 
Net interest income after impairment
 
174,287

 
98,809

Servicing revenue, net
 
40,602

 

Other Income
 
 
 
 
Change in fair value of investments in excess mortgage servicing rights
 
821

 
7,926

Change in fair value of investments in excess mortgage servicing rights, equity method investees
 
(244
)
 
3,022

Change in fair value of investments in servicer advances
 
2,559

 
(31,224
)
Gain on consumer loans investment
 

 
9,943

Gain on remeasurement of consumer loans investment
 

 
71,250

Gain (loss) on settlement of investments, net
 
(13,674
)
 
(12,246
)
Other income (loss), net
 
6,844

 
(16,749
)
 
 
(3,694
)
 
31,922

 
 
 
 
 
Operating Expenses
 
 
 
 
General and administrative expenses
 
11,827

 
12,081

Management fee to affiliate
 
13,074

 
10,008

Incentive compensation to affiliate
 
12,460

 
1,196

Loan servicing expense
 
13,376

 
1,731

Subservicing expense
 
17,704

 

 
 
68,441

 
25,016

 
 
 
 
 
Income Before Income Taxes
 
142,754

 
105,715

Income tax expense (benefit)
 
5,596

 
(10,223
)
Net Income
 
$
137,158

 
$
115,938

Noncontrolling Interests in Income of Consolidated Subsidiaries
 
$
15,780

 
$
4,202

Net Income Attributable to Common Stockholders
 
$
121,378

 
$
111,736

 
 
 
 
 
Net Income Per Share of Common Stock
 
 
 
 
Basic
 
$
0.42

 
$
0.48

Diluted
 
$
0.42

 
$
0.48

 
 
 
 
 
Weighted Average Number of Shares of Common Stock Outstanding
 
 
 
 
Basic
 
286,600,324

 
230,471,202

Diluted
 
288,241,188

 
230,538,712

 
 
 
 
 
Dividends Declared per Share of Common Stock
 
$
0.48

 
$
0.46

 
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,
 
 
2017
 
2016
Comprehensive income (loss), net of tax
 
 
 
 
Net income
 
$
137,158

 
$
115,938

Other comprehensive income (loss)
 
 
 
 
Net unrealized gain (loss) on securities
 
31,638

 
(19,969
)
Reclassification of net realized (gain) loss on securities into earnings
 
1,119

 
3,121

 
 
32,757

 
(16,848
)
Total comprehensive income
 
$
169,915

 
$
99,090

Comprehensive income attributable to noncontrolling interests
 
$
15,780

 
$
4,202

Comprehensive income attributable to common stockholders
 
$
154,135

 
$
94,888

 
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, 2017
(dollars in thousands)
 
 
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, 2016
250,773,117

 
$
2,507

 
$
2,920,730

 
$
210,500

 
$
126,363

 
$
3,260,100

 
$
208,077

 
$
3,468,177

Dividends declared

 

 

 
(147,520
)
 

 
(147,520
)
 

 
(147,520
)
Capital contributions

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 
(24,209
)
 
(24,209
)
Issuance of common stock
56,545,787

 
566

 
833,963

 

 

 
834,529

 

 
834,529

Other dilution

 

 
625

 

 

 
625

 

 
625

Director share grants
15,213

 

 
243

 

 

 
243

 

 
243

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 
121,378

 

 
121,378

 
15,780

 
137,158

Net unrealized gain (loss) on securities

 

 

 

 
31,638

 
31,638

 

 
31,638

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

 

 

 

 
1,119

 
1,119

 

 
1,119

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
154,135

 
15,780

 
169,915

Equity - March 31, 2017
307,334,117

 
$
3,073

 
$
3,755,561

 
$
184,358

 
$
159,120

 
$
4,102,112

 
$
199,648


$
4,301,760

 
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,
 
2017
 
2016
Cash Flows From Operating Activities
 
 
 
Net income
$
137,158

 
$
115,938

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
(821
)
 
(7,926
)
Change in fair value of investments in excess mortgage servicing rights, equity method investees
244

 
(3,022
)
Change in fair value of investments in servicer advances
(2,559
)
 
31,224

(Gain) / loss on remeasurement of consumer loans investment

 
(71,250
)
(Gain) / loss on settlement of investments (net)
13,674

 
12,246

Unrealized (gain) / loss on derivative instruments
(4,326
)
 
24,557

Unrealized (gain) / loss on other ABS
(758
)
 
(268
)
(Gain) / loss on transfer of loans to REO
(6,634
)
 
(2,483
)
(Gain) / loss on transfer of loans to other assets
(212
)
 
(517
)
(Gain) / loss on Excess MSR recapture agreements
(627
)
 
(732
)
Accretion and other amortization
(192,424
)
 
(153,670
)
Other-than-temporary impairment
2,112

 
3,254

Valuation and loss provision on loans and real estate owned
17,910

 
6,745

Non-cash portions of servicing revenue, net
27,055

 

Non-cash directors’ compensation
243

 

Deferred tax provision
3,418

 
(10,681
)
Changes in:
 
 
 
Other assets
6,906

 
18,897

Servicing advance receivables
9,233

 

Due to affiliates
(24,229
)
 
(17,938
)
Accrued expenses and other liabilities
(33,337
)
 
15,872

Other operating cash flows:
 
 
 
Interest received from excess mortgage servicing rights
21,413

 
43,990

Interest received from servicer advance investments
52,124

 
50,229

Interest received from Non-Agency RMBS
40,801

 
29,449

Interest received from residential mortgage loans, held-for-investment
3,762

 
437

Interest received from PCD consumer loans, held-for-investment
14,824

 

Distributions of earnings from excess mortgage servicing rights, equity method investees
5,805

 
9,754

Purchases of residential mortgage loans, held-for-sale
(1,223,734
)
 
(173,270
)
Proceeds from sales of purchased residential mortgage loans, held-for-sale
739,640

 
231,390

Principal repayments from purchased residential mortgage loans, held-for-sale
14,497

 
18,186

Net cash provided by (used in) operating activities
(378,842
)
 
170,411


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,
 
2017
 
2016
Cash Flows From Investing Activities
 
 
 
Acquisition of investments in excess mortgage servicing rights

 
(2,022
)
SpringCastle Transaction, net of cash acquired

 
(49,943
)
Restricted cash acquired from SpringCastle transaction

 
74,604

Purchase of servicer advance investments
(3,302,794
)
 
(3,844,638
)
Purchase of MSRs and Servicer Advances
(1,003,650
)
 

Purchase of Agency RMBS
(1,867,168
)
 
(1,684,194
)
Purchase of Non-Agency RMBS
(850,046
)
 
(314,547
)
Purchase of residential mortgage loans

 
(319
)
Purchase of derivatives

 
(1,355
)
Purchase of real estate owned and other assets
(9,730
)
 
(9,196
)
Purchase of consumer loans

 

Purchase of investment in consumer loans, equity method investees
(41,314
)
 

Draws on revolving consumer loans
(12,877
)
 

Payments for settlement of derivatives
(15,732
)
 
(33,553
)
Return of investments in excess mortgage servicing rights
41,566

 
42,149

Return of investments in excess mortgage servicing rights, equity method investees
2,869

 
588

Principal repayments from servicer advance investments
3,998,693

 
4,267,612

Principal repayments from Agency RMBS
18,779

 
18,426

Principal repayments from Non-Agency RMBS
159,247

 
48,014

Principal repayments from residential mortgage loans
4,481

 
8,754

Proceeds from sale of residential mortgage loans

 

Principal repayments from consumer loans
110,200

 

Proceeds from sale of Agency RMBS
1,682,689

 
1,727,673

Proceeds from sale of Non-Agency RMBS
28,339

 
38,471

Proceeds from settlement of derivatives
24,570

 
1,837

Proceeds from sale of real estate owned
17,999

 
8,142

Net cash provided by (used in) investing activities
(1,013,879
)
 
296,503


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,
 
2017
 
2016
Cash Flows From Financing Activities
 
 
 
Repayments of repurchase agreements
(8,788,534
)
 
(5,062,857
)
Margin deposits under repurchase agreements and derivatives
(285,881
)
 
(106,952
)
Repayments of notes and bonds payable
(2,653,967
)
 
(1,894,548
)
Payment of deferred financing fees
(4,494
)
 
(5,555
)
Common stock dividends paid
(115,356
)
 
(106,017
)
Borrowings under repurchase agreements
9,874,154

 
4,993,318

Return of margin deposits under repurchase agreements and derivatives
276,805

 
98,138

Borrowings under notes and bonds payable
2,220,907

 
1,713,002

Issuance of common stock
835,465

 

Costs related to issuance of common stock
(936
)
 

Noncontrolling interest in equity of consolidated subsidiaries - contributions

 

Noncontrolling interest in equity of consolidated subsidiaries - distributions
(24,209
)
 
(11,095
)
Purchase of Noncontrolling Interest in the Buyer

 

Net cash provided by (used in) financing activities
1,333,954

 
(382,566
)
 
 
 
 
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
(58,767
)
 
84,348

 
 
 
 
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period
453,697

 
344,638

 
 
 
 
Cash, Cash Equivalents, and Restricted Cash, End of Period
$
394,930

 
$
428,986

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
94,494

 
$
75,690

Cash paid during the period for income taxes
3

 
265

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Dividends declared but not paid
$
147,520

 
$
106,017

Purchase of Agency and Non-Agency RMBS, settled after quarter end
1,446,276

 
1,431,003

Sale of investments, primarily Agency RMBS, settled after quarter end
1,857,537

 
1,509,016

Transfer from residential mortgage loans to real estate owned and other assets
43,763

 
36,485

Non-cash distributions from Consumer Loan Companies

 
25

Non-cash contingent consideration

 
5,581

MSR purchase price holdback
60,001

 

Real estate securities retained from loan securitizations
81,888

 
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, 2017
(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. Drive Shack Inc. (“Drive Shack”), formerly Newcastle Investment Corp., was the sole stockholder of New Residential until the spin-off, 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 Drive Shack, 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 Springleaf Holdings, Inc.) (together with its subsidiaries, “OneMain”), former managing member of the Consumer Loan Companies (Note 9).
 
As of March 31, 2017, New Residential conducted its business through the following segments: (i) investments in excess mortgage servicing rights (“Excess MSRs”), (ii) investments in mortgage servicing rights (“MSRs”), (iii) investments in Servicer Advances (including the basic fee component of the related MSRs), (iv) investments in real estate securities, (v) investments in residential mortgage loans, (vi) investments in consumer loans and (vii) 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, 2017. In addition, Fortress, through its affiliates, held options relating to approximately 16.3 million shares of New Residential’s common stock as of March 31, 2017.
 
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, 2016 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, 2016.
 
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, 2017
(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 only permitted after December 31, 2016. 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 has evaluated the new guidance and determined that interest income, gains and losses on financial instruments and income from servicing residential mortgage loans are outside the scope of ASC No. 606. For income from servicing residential mortgage loans, New Residential considered that the FASB Transition Resource Group members generally agreed that an entity should look to ASC No. 860, Transfers and Servicing, to determine the appropriate accounting for these fees and ASC No. 606 contains a scope exception for contracts that fall under ASC No. 860. As a result, New Residential does not expect the adoption of ASU No. 2014-09 to have a material impact 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 does not expect the adoption of ASU No. 2016-01 to have a material impact on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset measured at amortized cost basis be presented at the net amount expected to be collected, net of an allowance for all expected (rather than incurred) credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. ASU No. 2016-13 is effective for New Residential in the first quarter of 2020. Early adoption is permitted beginning in 2019. An entity should apply ASU No. 2016-13 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, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on the treatment of certain transactions within the statement of cash flows. ASU No. 2016-15 is effective for New Residential in the first quarter of 2018. Early adoption is permitted. New Residential adopted ASU No. 2016-15 in the third quarter of 2016 and it did not have an impact on its condensed consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. The standard requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 is effective for New Residential in the first quarter of 2018. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued. New Residential does not expect the adoption of ASU No. 2016-16 to have a material impact on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. ASU No. 2016-18 is effective for New Residential in the first quarter of 2018. Early adoption

9

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, except share data) 
 

is permitted. New Residential adopted ASU No. 2016-18 in the fourth quarter of 2016 and has included changes in restricted cash in its statements of cash flows for all periods presented.

2. OTHER INCOME, ASSETS AND LIABILITIES
 
Other income (loss), net, is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2017
 
2016
Unrealized gain (loss) on derivative instruments
 
$
4,326

 
$
(24,557
)
Unrealized gain (loss) on other ABS
 
758

 
268

Gain (loss) on transfer of loans to REO
 
6,634

 
2,483

Gain (loss) on transfer of loans to other assets
 
212

 
517

Gain on Excess MSR recapture agreements
 
627

 
732

Other income (loss)
 
(5,713
)
 
3,808

 
 
$
6,844

 
$
(16,749
)
 
Gain (loss) on settlement of investments, net is comprised of the following:
 
Three Months Ended  
 March 31,
 
2017
 
2016
Gain (loss) on sale of real estate securities, net
$
993

 
$
16,133

Gain (loss) on sale of residential mortgage loans, net
2,565

 
2,277

Gain (loss) on settlement of derivatives
(11,836
)
 
(30,379
)
Gain (loss) on liquidated residential mortgage loans
(2,216
)
 
(275
)
Gain (loss) on sale of REO
(2,610
)
 
151

Other gains (losses)
(570
)
 
(153
)
 
$
(13,674
)
 
$
(12,246
)


10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, except share data) 
 

Other assets and liabilities are comprised of the following:
 
Other Assets
 
 
 
Accrued Expenses
and Other Liabilities
 
March 31, 2017
 
December 31, 2016
 
 
 
March 31, 2017
 
December 31, 2016
Margin receivable, net
$
64,557

 
$
55,481

 
Interest payable
 
$
22,821

 
$
23,108

Other receivables
9,986

 
16,350

 
Accounts payable
 
40,651

 
31,299

Principal and interest receivable
54,776

 
52,738

 
Derivative liabilities (Note 10)
 
16,685

 
3,021

Receivable from government agency
48,356

 
54,706

 
Current taxes payable
 
4,517

 
2,314

Call rights
337

 
337

 
Due to servicers
 
63,977

 
77,148

Derivative assets (Note 10)
4,159

 
6,762

 
MSR purchase price holdback
 
120,437

 
60,436

Servicing fee receivables
21,621

 
7,405

 
Other liabilities
 
7,010

 
8,118

Ginnie Mae EBO servicer advance receivable, net
13,184

 
14,829

 
 
 
$
276,098

 
$
205,444

Due from servicers
23,064

 
22,134

 
 
 
 
 
 
Servicer advances receivable, net(A)
104,764

 
81,582

 
 
 
 
 
 
Investment in consumer loans, equity method investees
41,314

 

 
 
 
 
 
 
Prepaid expenses
9,257

 
9,487

 
 
 
 
 
 
Other assets
8,089

 
4,269

 
 
 
 
 
 
 
$
403,464

 
$
326,080

 
 
 
 
 
 

(A)
Represents Servicer Advances due to New Residential’s licensed servicer subsidiary, New Residential Mortgage LLC (Note 5).

As reflected on the Condensed Consolidated Statements of Cash Flows, accretion and other amortization is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2017
 
2016
Accretion of servicer advance interest income
 
$
76,043

 
$
78,637

Accretion of excess mortgage servicing rights income
 
31,418

 
42,968

Accretion of net discount on securities and loans(A)
 
88,984

 
37,128

Amortization of deferred financing costs
 
(3,574
)
 
(4,785
)
Amortization of discount on notes and bonds payable
 
(447
)
 
(278
)
 
 
$
192,424

 
$
153,670


(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 MSRs, (iii) investments in Servicer Advances, (iv) investments in real estate securities, (v) investments in residential mortgage loans, (vi) investments in consumer loans, and (vii) 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.
 

11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(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
 
MSRs
 
Servicer Advances
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
31,418

 
$
25

 
$
76,704

 
$
93,808

 
$
17,993

 
$
72,406

 
$
184

 
$
292,538

Interest expense
10,072

 
987

 
43,876

 
20,881

 
7,540

 
14,873

 

 
98,229

Net interest income (expense)
21,346

 
(962
)
 
32,828

 
72,927

 
10,453

 
57,533

 
184

 
194,309

Impairment

 

 

 
2,112

 
(2,018
)
 
19,928

 

 
20,022

Servicing revenue, net

 
40,602

 

 

 

 

 

 
40,602

Other income (loss)
1,204

 
213

 
1,801

 
(5,596
)
 
(1,336
)
 
20

 

 
(3,694
)
Operating expenses
86

 
19,723

 
824

 
331

 
5,853

 
11,438

 
30,186

 
68,441

Income (Loss) Before Income Taxes
22,464

 
20,130

 
33,805

 
64,888

 
5,282

 
26,187

 
(30,002
)
 
142,754

Income tax expense (benefit)

 
(1,279
)
 
9,192

 

 
(2,317
)
 

 

 
5,596

Net Income (Loss)
$
22,464

 
$
21,409

 
$
24,613

 
$
64,888

 
$
7,599

 
$
26,187

 
$
(30,002
)
 
$
137,158

Noncontrolling interests in income (loss) of consolidated subsidiaries
$

 
$

 
$
5,820

 
$

 
$

 
$
9,960

 
$

 
$
15,780

Net income (loss) attributable to common stockholders
$
22,464

 
$
21,409

 
$
18,793

 
$
64,888

 
$
7,599

 
$
16,227

 
$
(30,002
)
 
$
121,378


 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
MSRs
 
Servicer Advances
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
1,555,211

 
$
1,694,792

 
$
5,137,320

 
$
5,838,595

 
$
1,320,454

 
$
1,679,818

 
$

 
$
17,226,190

Cash and cash equivalents
819

 
116,402

 
88,266

 
1,176

 
6,392

 
13,706

 
9,796

 
236,557

Restricted cash
16,664

 
4,166

 
73,772

 

 

 
63,771

 

 
158,373

Other assets
2,417

 
115,686

 
168,098

 
1,921,221

 
99,100

 
87,072

 
15,273

 
2,408,867

Total assets
$
1,575,111

 
$
1,931,046

 
$
5,467,456

 
$
7,760,992

 
$
1,425,946

 
$
1,844,367

 
$
25,069

 
$
20,029,987

Debt
$
804,835

 
$
341,896

 
$
5,013,133

 
$
4,974,549

 
$
1,059,165

 
$
1,641,636

 
$

 
$
13,835,214

Other liabilities
2,311

 
187,112

 
21,392

 
1,474,360

 
25,514

 
7,054

 
175,270

 
1,893,013

Total liabilities
807,146

 
529,008

 
5,034,525

 
6,448,909

 
1,084,679

 
1,648,690

 
175,270

 
15,728,227

Total equity
767,965

 
1,402,038

 
432,931

 
1,312,083

 
341,267

 
195,677

 
(150,201
)
 
4,301,760

Noncontrolling interests in equity of consolidated subsidiaries

 

 
164,702

 

 

 
34,946

 

 
199,648

Total New Residential stockholders’ equity
$
767,965

 
$
1,402,038

 
$
268,229

 
$
1,312,083

 
$
341,267

 
$
160,731

 
$
(150,201
)
 
$
4,102,112

Investments in equity method investees
$
185,870

 
$

 
$

 
$

 
$

 
$
41,314

 
$

 
$
227,184

 

12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, except share data) 
 


Servicing Related Assets

Residential Securities and Loans







Excess MSRs

Servicer Advances

Real Estate Securities

Residential Mortgage 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

Servicing revenue, net

 

 

 

 

 

 

Other income (loss)
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



4. INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
 
 
Servicer
 
 
Nationstar
 
SLS(A)
 
Ocwen(B)
 
Total
Balance as of December 31, 2016
 
$
611,293

 
$
3,935

 
$
784,227

 
$
1,399,455

Purchases
 

 

 

 

Interest income
 
13,120

 
(123
)
 
18,420

 
31,417

Other income
 
627

 

 

 
627

Proceeds from repayments
 
(31,745
)
 
(231
)
 
(31,003
)
 
(62,979
)
Change in fair value
 
4,582

 
115

 
(3,876
)
 
821

Balance as of March 31, 2017
 
$
597,877

 
$
3,696

 
$
767,768

 
$
1,369,341


(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.

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 the portfolio.

New Residential has entered into a “recapture agreement” with respect to each of the Excess MSR investments serviced by Nationstar and SLS. Under such arrangements, 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. 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 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.

13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, except share data) 
 

 
The following is a summary of New Residential’s direct investments in Excess MSRs:
 
March 31, 2017
 
December 31, 2016
 
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(D)
 
Fortress-managed funds
 
Nationstar
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
75,664,398

 
32.5% - 66.7% (53.2%)
 
0.0% - 40.0%

 
20.0% - 35.0%

 
6.0
 
$
287,439

 
$
318,612

 
$
330,323

Recapture Agreements

 
32.5% - 66.7% (53.2%)
 
0.0% - 40.0%

 
20.0% - 35.0%

 
12.6
 
23,123

 
50,844

 
51,434

 
75,664,398

 
 
 
 
 
 
 
6.5
 
310,562

 
369,456

 
381,757

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
74,698,518

 
33.3% - 100.0% (59.2%)
 
0.0% - 50.0%

 
0.0% - 33.3%

 
5.4
 
$
177,885

 
$
213,357

 
$
219,980

Recapture Agreements

 
33.3% - 100.0% (59.2%)
 
0.0% - 50.0%

 
0.0% - 33.3%

 
12.4
 
10,381

 
18,760

 
13,491

Ocwen Serviced Pools
116,902,804

 
100.0%
 
%
 
%
 
6.5
 
728,831

 
767,768

 
784,227

 
191,601,322

 
 
 
 
 
 
 
6.4
 
917,097

 
999,885

 
1,017,698

Total
$
267,265,720

 
 
 
 
 
 
 
6.4
 
$
1,227,659

 
$
1,369,341

 
$
1,399,455

 
(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)
Amounts in parentheses represent weighted averages.
(E)
New Residential also invested in related Servicer Advances, including the basic fee component of the related MSR as of March 31, 2017 (Note 6) on $177.9 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2017
 
2016
Original and Recaptured Pools
 
$
(7,248
)
 
$
5,697

Recapture Agreements
 
8,069

 
2,229

 
 
$
821

 
$
7,926


As of March 31, 2017, 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).

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.

14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, except share data) 
 


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, 2017
 
December 31, 2016
Excess MSR assets
 
$
353,746

 
$
372,391

Other assets
 
17,994

 
17,184

Other liabilities
 

 

Equity
 
$
371,740

 
$
389,575

New Residential’s investment
 
$
185,870

 
$
194,788

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended  
 March 31,
 
 
2017
 
2016
Interest income
 
$
4,182

 
$
8,081

Other income (loss)
 
(4,646
)
 
(2,014
)
Expenses
 
(25
)
 
(23
)
Net income
 
$
(489
)
 
$
6,044


New Residential’s investments in equity method investees changed during the three months ended March 31, 2017 as follows:
Balance at December 31, 2016
$
194,788

Contributions to equity method investees

Transfers to direct ownership

Distributions of earnings from equity method investees
(5,805
)
Distributions of capital from equity method investees
(2,869
)
Change in fair value of investments in equity method investees
(244
)
Balance at March 31, 2017
$
185,870


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
March 31, 2017
 
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
$
58,610,831

 
66.7
%
 
50.0
%
 
$
236,888

 
$
298,235

 
5.8
Recapture Agreements

 
66.7
%
 
50.0
%
 
27,525

 
55,511

 
12.5
Total
$
58,610,831

 
 
 
 
 
$
264,413

 
$
353,746

 
6.5
 
(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.

15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, except share data) 
 


The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments:
 
 
Aggregate Direct and Equity Method Investees
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
March 31, 2017
 
December 31, 2016
California
 
24.0
%
 
24.1
%
Florida
 
8.6
%
 
8.6
%
New York
 
8.0
%
 
7.9
%
Texas
 
4.6
%
 
4.6
%
New Jersey
 
4.2
%
 
4.2
%
Maryland
 
3.7
%
 
3.7
%
Illinois
 
3.5
%
 
3.5
%
Virginia
 
3.1
%
 
3.1
%
Georgia
 
3.1
%
 
3.1
%
Massachusetts
 
2.7
%
 
2.7
%
Washington
 
2.6
%
 
2.6
%
Arizona
 
2.5
%
 
2.5
%
Other U.S.
 
29.4
%
 
29.4
%
 
 
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.

See Note 11 regarding the financing of Excess MSRs.

5. INVESTMENTS IN MORTGAGE SERVICING RIGHTS

In 2016, a subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), became a licensed mortgage servicer. NRM is presently licensed or otherwise eligible to hold MSRs in all states within the United States and the District of Columbia. Additionally, NRM has received approval from the Federal Housing Administration (“FHA”) to hold MSRs associated with FHA-insured mortgage loans, from the Federal National Mortgage Association (“Fannie Mae”) to hold MSRs associated with loans owned by Fannie Mae, and from the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to hold MSRs associated with loans owned by Freddie Mac. Fannie Mae and Freddie Mac are collectively referred to as the Government Sponsored Enterprises (“GSEs”). As an approved Fannie Mae Servicer, Freddie Mac Servicer and FHA-approved mortgagee, NRM is required to conduct aspects of its operations in accordance with applicable policies and guidelines published by FHA, Fannie Mae and Freddie Mac in order to maintain those approvals. As of March 31, 2017, NRM is in compliance with such policies and guidelines, as well as with other ongoing requirements applicable to mortgage loan servicers under applicable state and federal laws. NRM engages third party licensed mortgage servicers as subservicers to perform the operational servicing duties in connection with the MSRs it acquires, in exchange for a subservicing fee which is recorded as “Subservicing expense” on New Residential’s Consolidated Statements of Income. As of March 31, 2017, these subservicers include Ditech, Nationstar, Citi, and FirstKey, which subservice 38.6%, 10.2%, 49.5%, and 1.6% of the underlying UPB of the related mortgages, respectively.

New Residential has entered into a “recapture agreement” with respect to each of its MSR investments subserviced by Ditech (defined below). Under the recapture agreement, New Residential is generally entitled to the MSRs on any initial or subsequent refinancing by Ditech of a loan in the original portfolio.


16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2017
(dollars in tables in thousands, e