Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.10.0.1
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
6 Months Ended
Jun. 30, 2018
Transfers and Servicing [Abstract]  
Schedule of Activity Related to the Carrying Value of Investments in Excess MSRs
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, 2017
 
$
532,233

 
$
2,913

 
$
638,567

 
$
1,173,713

Purchases
 

 

 

 

Interest income
 
21,037

 
(294
)
 

 
20,743

Other income
 
3,460

 

 

 
3,460

Proceeds from repayments
 
(53,161
)
 
(339
)
 

 
(53,500
)
Proceeds from sales
 

 

 

 

Change in fair value
 
(10,681
)
 
131

 
(40,417
)
 
(50,967
)
New Ocwen Agreements (Note 5)
 

 

 
(598,150
)
 
(598,150
)
Balance as of June 30, 2018
 
$
492,888

 
$
2,411

 
$

 
$
495,299


(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 Advance Investments acquired from HLSS.

The following table presents activity related to the carrying value of New Residential’s investments in mortgage servicing rights financing receivables:
Balance as of December 31, 2017
 
$
598,728

Investments made
 
138,993

New Ocwen Agreements
 
1,017,993

Proceeds from sales
 
(2,768
)
Amortization of servicing rights(A)
 
(105,543
)
Change in valuation inputs and assumptions
 
257,516

Balance as of June 30, 2018
 
$
1,904,919


(A)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.

The following is a summary of New Residential’s investments in mortgage servicing rights financing receivables as of June 30, 2018:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
45,771,115

 
5.9
 
$
396,305

 
$
478,133

Non-Agency
94,727,185

 
6.8
 
1,004,298

 
1,291,498

Ginnie Mae
11,160,791

 
8.0
 
137,216

 
135,288

Total
$
151,659,091

 
6.6
 
$
1,537,819

 
$
1,904,919


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of June 30, 2018, a weighted average discount rate of 10.2% was used to value New Residential’s investments in mortgage servicing rights financing receivables.

The following table presents activity related to the carrying value of New Residential’s investments in MSRs:
Balance as of December 31, 2017
 
$
1,735,504

Purchases
 
434,763

Amortization of servicing rights(A)
 
(120,566
)
Change in valuation inputs and assumptions
 
182,425

Balance as of June 30, 2018
 
$
2,232,126


(A)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.

The following is a summary of New Residential’s investments in MSRs as of June 30, 2018:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
199,993,032

 
6.4
 
$
1,790,527

 
$
2,232,126

Non-Agency
56,984

 
6.8
 

 

Total
$
200,050,016

 
6.4
 
$
1,790,527

 
$
2,232,126


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of June 30, 2018, a weighted average discount rate of 8.6% was used to value New Residential’s investments in MSRs.
Summary of Direct Investments in Excess MSRs
The following is a summary of New Residential’s direct investments in Excess MSRs:
 
June 30, 2018
 
December 31, 2017
 
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
$
60,151,459

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.8
 
$
233,707

 
$
261,558

 
$
280,033

Recapture Agreements

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
13.0
 
16,792

 
38,013

 
44,603

 
60,151,459

 
 
 
 
 
 
 
6.3
 
250,499

 
299,571

 
324,636

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
59,189,735

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
5.6
 
$
144,681

 
$
178,345

 
$
190,696

Recapture Agreements

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
12.8
 
5,897

 
17,383

 
19,814

Ocwen Serviced Pools

 
—%
 
—%
 
—%
 
 

 

 
638,567

 
59,189,735

 
 
 
 
 
 
 
5.9
 
150,578

 
195,728

 
849,077

Total
$
119,341,194

 
 
 
 
 
 
 
6.1
 
$
401,077

 
$
495,299

 
$
1,173,713

 
(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 Advance Investments, including the basic fee component of the related MSR as of June 30, 2018 (Note 6) on $44.9 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2018
 
2017
 
2018
 
2017
Original and Recaptured Pools

$
(2,567
)
 
$
(21,736
)
 
$
(45,689
)
 
$
(28,984
)
Recapture Agreements

(2,709
)
 
2,556

 
(5,278
)
 
10,625

 
 
$
(5,276
)
 
$
(19,180
)
 
$
(50,967
)
 
$
(18,359
)
Summary of the Financial Results of Excess MSR Joint Ventures, Accounted for as Equity Method Investees
The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
 
June 30, 2018
 
December 31, 2017
Excess MSR assets
 
$
297,022

 
$
321,197

Other assets
 
21,732

 
22,333

Other liabilities
 
(687
)
 

Equity
 
$
318,067

 
$
343,530

New Residential’s investment
 
$
159,034

 
$
171,765

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income
 
$
6,864

 
$
8,931

 
$
12,091

 
$
13,114

Other income (loss)
 
(3,453
)
 
(420
)
 
(7,635
)
 
(5,065
)
Expenses
 

 
(19
)
 

 
(45
)
Net income (loss)
 
$
3,411

 
$
8,492

 
$
4,456

 
$
8,004


New Residential’s investments in equity method investees changed during the six months ended June 30, 2018 as follows:
Balance at December 31, 2017
$
171,765

Contributions to equity method investees

Distributions of earnings from equity method investees
(6,530
)
Distributions of capital from equity method investees
(8,429
)
Change in fair value of investments in equity method investees
2,228

Balance at June 30, 2018
$
159,034

The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
 
June 30, 2018(A)
 
December 31, 2017
Consumer loans, at fair value
 
$
242,082

 
$
178,422

Warrants, at fair value
 
94,874

 
80,746

Other assets
 
53,242

 
46,342

Warehouse financing
 
(177,930
)
 
(117,944
)
Other liabilities
 
(5,885
)
 
(13,059
)
Equity
 
$
206,383

 
$
174,507

Undistributed retained earnings
 
$

 
$

New Residential’s investment
 
$
50,241

 
$
42,473

New Residential’s ownership
 
24.3
%
 
24.3
%


 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2018(B)
 
2017(B)
 
2018(B)
 
2017(B)
Interest income
 
$
8,727

 
$
12,829

 
$
21,519

 
$
12,829

Interest expense
 
(2,350
)
 
(3,133
)
 
(5,718
)
 
(3,133
)
Change in fair value of consumer loans and warrants
 
5,522

 
3,555

 
19,074

 
3,555

Gain on sale of consumer loans
 
1,553

 
11,850

 
1,133

 
11,850

Other expenses
 
(1,390
)
 
(1,580
)
 
(4,597
)
 
(1,580
)
Net income
 
$
12,062

 
$
23,521

 
$
31,411

 
$
23,521

New Residential’s equity in net income
 
$
2,982

 
$
5,880

 
$
7,788

 
$
5,880

New Residential’s ownership
 
24.7
%
 
24.9
%
 
24.8
%
 
24.9
%

(A)
Data as of May 31, 2018 as a result of the one month reporting lag.
(B)
Data for the periods ended May 31, 2018 and 2017, respectively, as a result of the one month reporting lag.

The following is a summary of LoanCo’s consumer loan investments:
 
Unpaid Principal Balance
 
Interest in Consumer Loans
 
Carrying Value
 
Weighted Average Coupon
 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
June 30, 2018(C)
$
242,082

 
25.0
%
 
$
242,082

 
14.6
%
 
1.4
 
0.6
%

(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)
Data as of May 31, 2018 as a result of the one month reporting lag.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
Balance at December 31, 2017
$
51,412

Contributions to equity method investees
205,641

Distributions of earnings from equity method investees
(3,263
)
Distributions of capital from equity method investees
(203,758
)
Earnings from investments in consumer loans, equity method investees
7,788

Balance at June 30, 2018
$
57,820

Summary of Excess MSR Investments made through Equity Method Investees
The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
June 30, 2018
 
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
$
47,430,395

 
66.7
%
 
50.0
%
 
$
197,193

 
$
253,967

 
5.6
Recapture Agreements

 
66.7
%
 
50.0
%
 
21,515

 
43,055

 
12.7
Total
$
47,430,395

 
 
 
 
 
$
218,708

 
$
297,022

 
6.3
 
(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.
Summary of the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in Excess MSRs
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
 
June 30, 2018
 
December 31, 2017
California
 
24.8
%
 
24.0
%
Florida
 
8.0
%
 
8.7
%
New York
 
6.5
%
 
8.5
%
Texas
 
4.5
%
 
4.6
%
New Jersey
 
3.9
%
 
4.1
%
Maryland
 
3.8
%
 
3.7
%
Illinois
 
3.6
%
 
3.5
%
Georgia
 
3.5
%
 
3.1
%
Virginia
 
3.3
%
 
3.0
%
Arizona
 
2.7
%
 
2.5
%
Washington
 
2.6
%
 
2.4
%
Pennsylvania
 
2.5
%
 
2.6
%
Other U.S.
 
30.3
%
 
29.3
%
 
 
100.0
%
 
100.0
%