Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

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INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS
6 Months Ended
Jun. 30, 2015
Receivables [Abstract]  
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

During the six months ended June 30, 2015, New Residential acquired and sold several portfolios of reperforming and non-performing residential mortgage loans as discussed below:

On February 27, 2015, New Residential sold a portfolio of non-performing residential mortgage loans with a UPB of approximately $135.2 million and a carrying value of approximately $102.4 million at a price of $102.8 million and recorded a gain of $0.4 million.
On March 19, 2015, New Residential sold a portfolio of reperforming residential mortgage loans with a UPB of approximately $176.5 million and a carrying value of approximately $142.1 million at a price of $148.6 million and recorded a gain of $6.5 million.
On March 26, 2015, New Residential sold a portfolio of reperforming residential mortgage loans with a UPB of approximately $6.4 million and a carrying value of approximately $5.1 million at a price of $5.3 million and recorded a gain of $0.2 million.
On March 27, 2015, New Residential sold a portfolio of non-performing residential mortgage loans and REO with a UPB of approximately $469.6 million and a carrying value of approximately $362.0 million at a price of $373.0 million and recorded a gain of $11.0 million.
On April 2, 2015, New Residential sold a portfolio of performing residential mortgage loans with a carrying value of approximately $270.4 million at a price of $278.9 million and recorded a gain of $8.5 million.
On April 6, 2015, New Residential acquired a portfolio of non-performing GNMA EBO residential mortgage loans with a UPB of $424.3 million for approximately $418.8 million as a part of the HLSS Acquisition (Note 1).
On April 8, 2015, New Residential sold a portfolio of reperforming residential mortgage loans with a carrying value of approximately $16.8 million at a price of $19.5 million and recorded a gain of $2.7 million.
On June 16, 2015, New Residential sold $99.8 million in UPB of this EBO portfolio with a carrying value of approximately $98.3 million at a price of $98.8 million and recorded a gain of $0.5 million.
On June 25, 2015, New Residential exercised its call rights related to eighteen Non-Agency RMBS trusts and purchased performing and non-performing loans with a UPB of approximately $369.0 million at a price of approximately $388.8 million, contained in such trusts prior to their termination. New Residential securitized approximately $334.5 million in UPB of performing loans, which was recorded as a sale for accounting purposes, recognized a loss on settlement of investments of approximately $2.8 million, and paid approximately $14.9 million to acquire interest only notes representing a beneficial interest in the securitization. New Residential retained non-performing loans with a UPB of approximately $34.5 million at a price of $31.7 million. Additionally, New Residential acquired $1.3 million of real estate owned.

Loans are accounted for based on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. New Residential accounts for loans based on the following categories:

Loans Held-for-Investment:
Reverse Mortgage Loans
Performing Loans
Purchased Credit Impaired (“PCI”) Loans
Loans Held-for-Sale (“HFS”)
Real Estate Owned (“REO”)

The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type, excluding REO:


June 30, 2015
 



Outstanding Face Amount

Carrying
Value

Loan
Count

Weighted Average Yield

Weighted Average Life (Years)(A)

Floating Rate Loans as a % of Face Amount

Loan to Value Ratio (“LTV”)(B)

Weighted Avg. Delinquency(C)

Weighted Average FICO(D)
 
December 31, 2014
Carrying Value
Loan Type


















 

Reverse Mortgage Loans(E)(F)

$
39,475


$
21,601


165


10.0
%

4.1


21.5
%

110.4
%

75.6
%

N/A

 
$
24,965

Performing Loans(G)

22,887


21,140


699


8.9
%

5.7


17.9
%

77.8
%

10.8
%

628

 
22,873

Total Residential Mortgage Loans, held-for-
    investment

$
62,362

 
$
42,741

 
864


9.6
%

4.7


20.1
%

98.4
%

51.9
%

628

 
$
47,838

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performing Loans, held-for-sale(G)
 
$

 
$

 

 
%
 

 
%
 
%
 
%
 

 
$
388,485

Non-performing Loans, held-for-sale(H)(I)
 
599,610

 
523,018

 
3,680

 
5.3
%
 
3.0

 
14.7
%
 
107.8
%
 
93.3
%
 
574

 
737,954

Residential Mortgage Loans, held-for-sale
 
$
599,610

 
$
523,018

 
3,680

 
5.3
%
 
3.0

 
14.7
%
 
107.8
%
 
93.3
%
 
574

 
$
1,126,439

(A)
The weighted average life is based on the expected timing of the receipt of cash flows.
(B)
LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.
(C)
Represents the percentage of the total principal balance that are 60+ days delinquent.
(D)
The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.
(E)
Represents a 70% interest that New Residential holds in reverse mortgage loans. The average loan balance outstanding based on total UPB is $0.3 million. 74% of these loans have reached a termination event. As a result, the borrower can no longer make draws on these loans. Each loan matures upon the occurrence of a termination event.
(F)
FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.
(G)
Includes loans that are current or less than 30 days past due at acquisition where New Residential expects to collect all contractually required principal and interest payments. Presented net of unamortized discounts of $1.6 million.
(H)
Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments. As of June 30, 2015, New Residential has placed all of these loans on nonaccrual status, except as described in (I) below.
(I)
Includes $293.2 million UPB of GNMA EBO non-performing loans on accrual status as contractual cash flows are guaranteed by the FHA.

New Residential generally considers the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as its credit quality indicators. Delinquency status is a primary credit quality indicator as loans that are more than 60 days past due provide an early warning of borrowers who may be experiencing financial difficulties. For residential mortgage loans, the current LTV ratio is an indicator of the potential loss severity in the event of default. Finally, the geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events will affect credit quality.

The table below summarizes the geographic distribution of the underlying residential mortgage loans:
 
 
Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration
 
June 30, 2015
 
December 31, 2014
New Jersey
 
17.8
%
 
7.0
%
New York
 
16.5
%
 
12.2
%
Florida
 
8.4
%
 
6.3
%
California
 
6.4
%
 
15.0
%
Maryland
 
4.1
%
 
3.4
%
Illinois
 
3.7
%
 
4.4
%
Pennsylvania
 
3.4
%
 
3.9
%
Massachusetts
 
3.3
%
 
2.4
%
Washington
 
2.9
%
 
3.0
%
Oregon
 
2.7
%
 
1.5
%
Other U.S.
 
30.8
%
 
40.9
%
 
 
100.0
%
 
100.0
%


Reverse Mortgage Loans
 
In February 2013, New Residential, through a subsidiary, entered into an agreement to co-invest in a portfolio of reverse mortgage loans. New Residential acquired a 70% interest in the reverse mortgage loans. Nationstar has co-invested on a pari passu basis with New Residential in 30% of the reverse mortgage loans and is the servicer of the loans performing all servicing and advancing functions and retaining the ancillary income, servicing obligations and liabilities as the servicer.

Performing Loans

The following table provides past due information for New Residential’s Performing Loans, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
June 30, 2015
Days Past Due
 
Delinquency Status(A)
Current
 
29.3
%
30-59
 
59.9
%
60-89
 
9.2
%
90-119(B)
 
0.7
%
120+(C)
 
0.9
%
 
 
100.0
%

(A)
Represents the percentage of the total principal balance that corresponds to loans that are in each delinquency status.
(B)
Includes loans 90-119 days past due and still accruing interest because they are generally placed on nonaccrual status at 120 days or more past due.
(C)
Represents nonaccrual loans.

Activities related to the carrying value of residential mortgage loans held-for-investment were as follows:
 
For the Six Months Ended June 30, 2015
 
Reverse Mortgage Loans
 
Performing Loans
Balance at December 31, 2014
$
24,965

 
$
22,873

Purchases/additional fundings

 

Proceeds from repayments
(99
)
 
(1,514
)
Accretion of loan discount (premium) and other amortization
2,720

 
(101
)
Provision for loan losses
(186
)
 
(118
)
Transfer of loans to other assets
(5,762
)
 

Transfer of loans to real estate owned
(37
)
 

Balance at June 30, 2015
$
21,601

 
$
21,140



Activities related to the valuation provision on reverse mortgage loans and allowance for loan losses on performing loans held-for-investment were as follows:
 
For the Six Months Ended June 30, 2015
 
Reverse Mortgage Loans
 
Performing Loans
Balance at December 31, 2014
$
1,518

 
$
1,447

Allowance for loan losses(A)
186

 
118

Charge-offs(B)

 
(1,371
)
Balance at June 30, 2015
$
1,704

 
$
194


(A)
Based on an analysis of collective borrower performance, credit ratings of borrowers, loan-to-value ratios, estimated value of the underlying collateral, key terms of the loans and historical and anticipated trends in defaults and loss severities at a pool level.
(B)
Loans, other than PCI loans, are generally charged off or charged down to the net realizable value of the collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, when available information confirms that loans are uncollectible.

Purchased Credit Impaired Loans

All of New Residential’s PCI loans were classified as held-for-sale at December 31, 2014 and throughout the six months ended June 30, 2015, and therefore, are not subject to the accounting in ASC No. 310-30.

Loans Held-for-Sale

Activities related to the carrying value of loans held-for-sale were as follows:
 
 
For the Six Months Ended June 30, 2015
 
 
Loans Held-for-Sale
Balance at December 31, 2014
 
$
1,126,439

Purchases(A)
 
807,579

Sales
 
(1,352,158
)
Transfer of loans to real estate owned
 
(20,034
)
Adoption of ASU No. 2014-11(B)
 
1,831

Proceeds from repayments
 
(37,903
)
Valuation provision on loans
 
(2,736
)
Balance at June 30, 2015
 
$
523,018


(A)
Represents loans acquired with the intent to sell, including loans acquired in the HLSS Acquisition (Note 1).
(B)
Represents loans financed with the selling counterparty that were previously accounted for as linked transactions.

Real estate owned (REO)

During the six months ended June 30, 2015, New Residential received properties in satisfaction of non-performing residential mortgage loans. As a result, New Residential has recognized REO assets totaling approximately $20.6 million during the six months ended June 30, 2015. In addition, New Residential has recognized $66.4 million in claims receivable from FHA on GNMA EBO loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim (Note 2). As of June 30, 2015, New Residential had non-performing residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $376.6 million.

Linked Transactions
 
See Note 10 for a discussion of transactions formerly accounted for as linked transactions.