Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN REAL ESTATE SECURITIES (Tables)

v3.2.0.727
INVESTMENTS IN REAL ESTATE SECURITIES (Tables)
6 Months Ended
Jun. 30, 2015
Investments, Debt and Equity Securities [Abstract]  
Summary of Real Estate Securities
The following is a summary of New Residential’s real estate securities, all of which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired and except for securities which New Residential elected to carry at fair value and record changes to valuation through the income statement.
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
 
December 31, 2014
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Gains
 
Losses
 
Carrying Value(A)
 
Number of Securities
 
Rating(B)
 
Coupon
 
Yield
 
Life (Years)(C)
 
Principal Subordination(D)
 
Carrying Value
Agency
  RMBS(E)(F)
 
$
958,141

 
$
991,514

 
$
5,199

 
$
(2,683
)
 
$
994,030

 
28

 
AAA
 
3.27
%
 
3.00
%
 
7.5
 
N/A

 
$
1,740,163

Non-Agency
    RMBS(G) (H)
 
2,370,202

 
902,005

 
18,668

 
(6,742
)
 
913,931

 
167

 
B-
 
2.57
%
 
4.79
%
 
7.6
 
12.7
%
 
723,000

Total/
   Weighted
    Average
 
$
3,328,343

 
$
1,893,519

 
$
23,867

 
$
(9,425
)
 
$
1,907,961

 
195

 
A-
 
2.88
%
 
3.85
%
 
7.5
 
 
 
$
2,463,163

 
(A)
Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.
(B)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 46 bonds which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies, and represent the most recent credit ratings available as of the reporting date and may not be current.
(C)
The weighted average life is based on the timing of expected principal reduction on the assets.
(D)
Percentage of the outstanding face amount of securities that is subordinate to New Residential’s investments.
(E)
Includes securities issued or guaranteed by U.S. Government agencies such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”).
(F)
The total outstanding face amount was $753.8 million for fixed rate securities and $204.3 million for floating rate securities as of June 30, 2015.
(G)
The total outstanding face amount was $1.4 billion (including $1.4 billion of residual and interest-only notional amount) for fixed rate securities and $954.6 million (including $99.8 million of residual and interest-only notional amount) for floating rate securities as of June 30, 2015.
(H)
Includes Other ABS consisting primarily of interest-only securities which New Residential elected to carry at fair value and record changes to valuation through the income statement and representing 7.4% of the carrying value of the Non-Agency RMBS portfolio.
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Gains
 
Losses
 
Carrying Value
 
Number of Securities
 
Rating
 
Coupon
 
Yield
 
Life (Years)
 
Principal Subordination
Other ABS
 
$
1,222,088

 
$
67,980

 
$
1,472

 
$
(1,840
)
 
$
67,612

 
9

 
AA+
 
1.87
%
 
7.64
%
 
3.6
 
N/A
Summary of Real Estate Securities in an Unrealized Loss Position
The following table summarizes New Residential’s securities in an unrealized loss position as of June 30, 2015.
 
 
 
 
Amortized Cost Basis
 
 
 
 
 
 
 
Weighted Average
Securities in an Unrealized Loss Position
 
Outstanding Face Amount
 
Before Impairment
 
Other-Than-
Temporary Impairment(A)
 
After Impairment
 
Gross Unrealized Losses
 
Carrying Value
 
Number of Securities
 
Rating(B)
 
Coupon
 
Yield
 
Life
(Years)
Less than Twelve
    Months
 
$
1,171,377

 
$
311,767

 
$
(1,120
)
 
$
310,647

 
$
(6,221
)
 
$
304,426

 
43

 
BB
 
1.43
%
 
4.41
%
 
9.3
Twelve or More
    Months
 
176,335

 
176,534

 

 
176,534

 
(3,204
)
 
173,330

 
23

 
AAA
 
2.37
%
 
2.60
%
 
5.4
Total/Weighted
    Average
 
$
1,347,712

 
$
488,301

 
$
(1,120
)
 
$
487,181

 
$
(9,425
)
 
$
477,756

 
66

 
BBB+
 
1.77
%
 
3.75
%
 
7.9
 
(A)
This amount represents other-than-temporary impairment recorded on securities that are in an unrealized loss position as of June 30, 2015.
(B)
The weighted average rating of securities in an unrealized loss position for less than twelve months excludes the rating of 10 bonds which either have never been rated or for which rating information is no longer provided.

New Residential performed an assessment of all of its debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI, exceeds its fair value) and determined the following:
 
June 30, 2015
 
 
 
 
 
Unrealized Losses
 
Fair Value
 
Amortized Cost Basis After Impairment
 
Credit(A)
 
Non-Credit(B)
Securities New Residential intends to sell(C)
$

 
$

 
$

 
$

Securities New Residential is more likely than not to be
    required to sell(D)

 

 

 
N/A

Securities New Residential has no intent to sell and is not
    more likely than not to be required to sell:
 
 
 
 
 
 
 
Credit impaired securities
89,596

 
90,961

 
(1,120
)
 
(1,365
)
Non-credit impaired securities
388,160

 
396,220

 

 
(8,060
)
Total debt securities in an unrealized loss position
$
477,756

 
$
487,181

 
$
(1,120
)
 
$
(9,425
)
  
(A)
This amount is required to be recorded as other-than-temporary impairment through earnings. In measuring the portion of credit losses, New Residential’s management estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include management’s expectations of prepayment speeds, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.
(B)
This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.
(C)
A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment and, therefore, do not have unrealized losses reflected in other comprehensive income as of June 30, 2015.
(D)
New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.
Summary of Activity Related to Credit Losses on Debt Securities
The following table summarizes the activity related to credit losses on debt securities:
 
Six Months Ended June 30, 2015
Beginning balance of credit losses on debt securities for which a portion of an OTTI was
    recognized in other comprehensive income
$
1,127

Increases to credit losses on securities for which an OTTI was previously recognized and a portion
    of an OTTI was recognized in other comprehensive income
6

Additions for credit losses on securities for which an OTTI was not previously recognized
1,714

Reductions for securities for which the amount previously recognized in other comprehensive
    income was recognized in earnings because the entity intends to sell the security or more likely
    than not will be required to sell the security before recovery of its amortized cost basis

Reduction for credit losses on securities for which no OTTI was recognized in other
    comprehensive income at the current measurement date

Reduction for securities sold during the period
(349
)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized
    in other comprehensive income
$
2,498

Summary of the Geographic Distribution of the Collateral Securing Non-Agency RMBS
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
 
 
June 30, 2015
 
December 31, 2014
Geographic Location
 
Outstanding Face Amount

Percentage of Total Outstanding
 
Outstanding Face Amount

Percentage of Total Outstanding
Western U.S.
 
$
823,659


34.7
%
 
$
779,930

 
41.1
%
Southeastern U.S.
 
604,140


25.5
%
 
409,755

 
21.6
%
Northeastern U.S.
 
445,557


18.8
%
 
344,716

 
18.2
%
Midwestern U.S.
 
232,262


9.8
%
 
190,480

 
10.0
%
Southwestern U.S.
 
261,190


11.0
%
 
170,829

 
9.0
%
Other(A)
 
3,394


0.2
%
 
440

 
0.1
%
 
 
$
2,370,202


100.0
%
 
$
1,896,150

 
100.0
%
  
(A)
Represents collateral for which New Residential was unable to obtain geographic information.
Schedule of the Outstanding Face Amount and Carrying Value for Securities Uncollectible
The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and interest-only securities:
 
Outstanding Face Amount
 
Carrying Value
June 30, 2015
$
580,296

 
$
366,155

December 31, 2014
536,342

 
414,298

Summary of Changes in Accretable Yield for Securities
The following is a summary of the changes in accretable yield for these securities:
 
Six Months Ended June 30, 2015
Balance at December 31, 2014
$
181,671

Adoption of ASU No. 2014-11
146,741

Additions
84,044

Accretion
(13,372
)
Reclassifications from (to) non-accretable difference
(27,602
)
Disposals
(97,991
)
Balance at June 30, 2015
$
273,491