Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES

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INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
6 Months Ended
Jun. 30, 2015
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
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.

During the first quarter of 2015, New Residential and the Fortress-managed funds restructured their investments in two of the Excess MSR joint ventures and now each directly owns its share of the underlying assets of the joint ventures.
 
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, 2015
 
December 31, 2014
Excess MSR assets
 
$
421,673

 
$
653,293

Other assets
 
10,551

 
8,472

Other liabilities
 

 
(13
)
Equity
 
$
432,224

 
$
661,752

New Residential’s investment
 
$
216,112

 
$
330,876

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Interest income
 
$
9,216

 
$
17,292

 
$
20,917

 
$
35,785

Other income (loss)
 
(3,005
)
 
8,194

 
(4,840
)
 
2,489

Expenses
 
(22
)
 
(1
)
 
(46
)
 
(41
)
Net income
 
$
6,189

 
$
25,485

 
$
16,031

 
$
38,233


New Residential’s investments in equity method investees changed during the six months ended June 30, 2015 as follows:
Balance at December 31, 2014
$
330,876

Contributions to equity method investees

Transfers to direct ownership
(98,258
)
Distributions of earnings from equity method investees
(19,920
)
Distributions of capital from equity method investees
(4,602
)
Change in fair value of investments in equity method investees
8,016

Balance at June 30, 2015
$
216,112


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
June 30, 2015
 
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
$
79,731,703

 
66.7
%
 
50.0
%
 
$
279,923

 
$
344,856

 
5.5
Recapture Agreements

 
66.7
%
 
50.0
%
 
55,976

 
76,817

 
11.8
Total
$
79,731,703

 
 
 
 
 
$
335,899

 
$
421,673

 
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 second quarter of 2015, 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
 
June 30, 2015
 
December 31, 2014
California
 
13.0
%
 
23.5
%
Florida
 
7.4
%
 
8.9
%
Texas
 
6.1
%
 
4.8
%
New York
 
5.6
%
 
5.6
%
Georgia
 
5.6
%
 
4.1
%
New Jersey
 
4.2
%
 
3.9
%
Illinois
 
4.0
%
 
3.5
%
Virginia
 
3.2
%
 
3.2
%
Maryland
 
3.2
%
 
3.3
%
Pennsylvania
 
3.0
%
 
2.3
%
Other U.S.
 
44.7
%
 
36.9
%
 
 
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.