Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)

v3.10.0.1
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)
6 Months Ended
Jun. 30, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Fees Earned in Exchange for Servicing Financial Assets
Interest income from investments in mortgage servicing rights financing receivables was comprised of the following:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2018
 
2017
 
2018
 
2017
Servicing fee revenue
$
192,462

 
$
2,675

 
$
394,414

 
$
2,675

Ancillary and other fees
40,360

 
75

 
70,595

 
75

Less: subservicing expense
(65,115
)
 
(294
)
 
(130,821
)
 
(294
)
Interest income, investments in mortgage servicing rights financing receivables
$
167,707

 
$
2,456

 
$
334,188

 
$
2,456


Change in fair value of investments in mortgage servicing rights financing receivables was comprised of the following:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2018
 
2017
 
2018
 
2017
Amortization of servicing rights
$
(56,840
)
 
$
(1,127
)
 
$
(105,543
)
 
$
(1,127
)
Change in valuation inputs and assumptions
(62,263
)
 
6,723

 
257,516

 
6,723

Change in fair value of investments in mortgage servicing rights financing receivables
$
(119,103
)
 
$
5,596

 
$
151,973

 
$
5,596

Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2018
 
2017
 
2018
 
2017
Servicing fee revenue
$
131,286

 
$
120,432

 
$
250,509

 
$
185,901

Ancillary and other fees
27,714

 
24,982

 
51,061

 
27,170

Servicing fee revenue and fees
159,000

 
145,414

 
301,570

 
213,071

Amortization of servicing rights
(65,439
)
 
(64,305
)
 
(120,566
)
 
(90,601
)
Change in valuation inputs and assumptions
52,632

 
89,742

 
182,425

 
88,983

Servicing revenue, net
$
146,193

 
$
170,851

 
$
363,429

 
$
211,453

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 the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in MSRs
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and mortgage servicing rights financing receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
June 30, 2018
 
December 31, 2017
California
 
20.0
%
 
19.0
%
New York
 
7.9
%
 
6.3
%
Florida
 
6.9
%
 
6.0
%
Texas
 
5.3
%
 
5.7
%
New Jersey
 
4.9
%
 
5.2
%
Illinois
 
4.0
%
 
4.1
%
Massachusetts
 
3.8
%
 
3.8
%
Maryland
 
3.4
%
 
2.8
%
Pennsylvania
 
3.2
%
 
3.3
%
Virginia
 
3.2
%
 
3.1
%
Other U.S.
 
37.4
%
 
40.7
%
 
 
100.0
%
 
100.0
%
Summary of Investments in Servicer Advances
The following types of advances are included in the Servicer Advances Receivable:
 
 
June 30, 2018
 
December 31, 2017
Principal and interest advances
 
$
832,272

 
$
172,467

Escrow advances (taxes and insurance advances)
 
2,143,021

 
482,884

Foreclosure advances
 
226,916

 
16,017

Total(A) (B)
 
$
3,202,209

 
$
671,368


(A)
Includes $172.3 million and $167.9 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Net of $13.2 million and $4.2 million, respectively, in unamortized discount and accrual for advance recoveries.
The following is a summary of New Residential’s Servicer Advance Investments, 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)
June 30, 2018
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
821,289

 
$
843,438

 
5.8
%
 
5.8
%
 
5.5
As of December 31, 2017
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
3,924,003

 
$
4,027,379

 
6.8
%
 
7.3
%
 
5.1
  
(A)
Carrying value represents the fair value of the Servicer Advance Investments, 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.

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2018

2017

2018

2017
Change in Fair Value of Servicer Advance Investments
 
$
(1,752
)
 
$
56,969

 
$
(81,228
)
 
$
59,528


The following is additional information regarding the Servicer Advance Investments and related financing:
 
 
 
 
 
 
 
 
 
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(C)
 
UPB of Underlying Residential Mortgage Loans
 
Outstanding Servicer Advances
 
Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Face Amount of Notes and Bonds Payable
 
Gross
 
Net(B)
 
Gross
 
Net
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
44,895,549

 
$
692,323

 
1.5
%
 
$
662,010

 
89.2
%
 
88.1
%
 
3.7
%
 
3.1
%
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
139,460,371

 
$
3,581,876

 
2.6
%
 
$
3,461,718

 
93.2
%
 
92.0
%
 
3.3
%
 
3.0
%
 
(A)
Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)
Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)
Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)
The following types of advances are included in the Servicer Advance Investments:


June 30, 2018

December 31, 2017
Principal and interest advances

$
112,367


$
909,133

Escrow advances (taxes and insurance advances)

268,741


1,636,381

Foreclosure advances

311,215


1,036,362

Total

$
692,323

 
$
3,581,876