Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

v3.2.0.727
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
6 Months Ended
Jun. 30, 2015
Fair Value Disclosures [Abstract]  
Schedule of Carrying Values and Fair Values of Financial Assets Recorded at Fair Value on a Recurring Basis
The carrying values and fair values of New Residential’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of June 30, 2015 were as follows:
 
 
 
 
 
Fair Value
 
Principal Balance or Notional Amount
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
Investments in:
 
 
 
 
 
 
 
 
 
 
 
Excess mortgage servicing rights, at fair value(A)
$
335,643,658

 
$
1,504,422

 
$

 
$

 
$
1,504,422

 
$
1,504,422

Excess mortgage servicing rights, equity method investees, at fair value(A)
79,731,703

 
216,112

 

 

 
216,112

 
216,112

Servicer advances
8,278,685

 
8,182,400

 

 

 
8,182,400

 
8,182,400

Real estate securities, available-for-sale
3,328,343

 
1,907,961

 

 
994,030

 
913,931

 
1,907,961

Residential mortgage loans, held-for-investment
62,362

 
42,741

 

 

 
43,870

 
43,870

Residential mortgage loans, held-for-sale
599,610

 
523,018

 

 

 
524,105

 
524,105

Non-hedge derivatives
2,560,000

 
1,701

 

 
1,701

 

 
1,701

Cash and cash equivalents
432,007

 
432,007

 
432,007

 

 

 
432,007

Restricted cash
134,735

 
134,735

 
134,735

 

 

 
134,735

 
 
 
$
12,945,097

 
$
566,742

 
$
995,731

 
$
11,384,840

 
$
12,947,313

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements
$
2,405,851

 
$
2,404,617

 
$

 
$
1,831,989

 
$
573,862

 
$
2,405,851

Notes payable
7,905,595

 
7,883,061

 

 

 
7,908,842

 
7,908,842

Derivative liabilities
3,298,000

 
16,124

 

 
16,124

 

 
16,124

 
 
 
$
10,303,802

 
$

 
$
1,848,113

 
$
8,482,704

 
$
10,330,817

 
(A)
The notional amount represents the total unpaid principal balance of the mortgage loans underlying the Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.

Schedule of Financial Assets Measured at Fair Value on a Recurring Basis using Level 3 Inputs
New Residential’s financial assets measured at fair value on a recurring basis using Level 3 inputs changed as follows:
 
Level 3
 
 
 
Excess MSRs(A)
 
Excess MSRs in Equity Method Investees(A)(B)
 
 
 
 
 
 
 
 
 
Agency
 
Non-Agency
 
Agency
 
Non-Agency
 
Servicer Advances
 
Non-Agency RMBS
 
Linked Transactions
 
Total
Balance at December 31, 2014
$
217,519

 
$
200,214

 
$
232,618

 
$
98,258

 
$
3,270,839

 
$
723,000

 
$
32,402

 
$
4,774,850

Transfers(C)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transfers from Level 3

 

 

 

 

 

 

 

Transfers to Level 3

 

 

 

 

 

 

 

Transfers from investments in excess mortgage servicing rights, equity method investees, to investments in excess mortgage servicing rights

 
98,258

 

 
(98,258
)
 

 

 

 

Gains (losses) included in net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in other-than-temporary impairment (“OTTI”) on securities(D)

 

 

 

 

 
(1,720
)
 

 
(1,720
)
Included in change in fair value of investments in excess mortgage servicing rights(D)
5,425

 
(6,830
)
 

 

 

 

 

 
(1,405
)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(D)

 

 
8,016

 

 

 

 

 
8,016

Included in change in fair value of investments in servicer advances

 

 

 

 
16,893

 

 

 
16,893

Included in gain on settlement of investments, net

 

 

 

 

 
3,808

 

 
3,808

Included in other income(D)
1,577

 

 

 

 

 

 

 
1,577

Gains (losses) included in other comprehensive income, net of tax(E)

 

 

 

 

 
(560
)
 

 
(560
)
Interest income
13,176

 
36,221

 

 

 
150,937

 
23,196

 

 
223,530

Purchases, sales, repayments and transfers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases
129,098

 
919,531

 

 

 
11,404,992

 
490,438

 

 
12,944,059

Proceeds from sales

 

 

 

 

 
(389,719
)
 

 
(389,719
)
Proceeds from repayments
(25,268
)
 
(84,499
)
 
(24,522
)
 

 
(6,661,261
)
 
(51,344
)
 

 
(6,846,894
)
De-linked transactions(F)

 

 

 

 

 
116,832

 
(32,402
)
 
84,430

Balance at June 30, 2015
$
341,527

 
$
1,162,895

 
$
216,112

 
$

 
$
8,182,400

 
$
913,931

 
$

 
$
10,816,865

 
(A)
Includes the Recapture Agreement for each respective pool.
(B)
Amounts represent New Residential’s portion of the Excess MSRs held by the respective joint ventures in which New Residential has a 50% interest.
(C)
Transfers are assumed to occur at the beginning of each respective period.
(D)
The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates.
(E)
These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.
(F)
See Note 10 for a discussion of transactions formerly accounted for as linked transactions.

Summary of Certain Information Regarding the Inputs used in Valuing the Servicer Advances
The following table summarizes certain information regarding the weighted average inputs used in valuing the Excess MSRs owned directly and through equity method investees as of June 30, 2015:
 
 
Significant Inputs(A)
Directly Held (Note 4)
 
Prepayment Speed(B)
 
Delinquency(C)
 
Recapture Rate(D)
 
Excess Mortgage Servicing Amount
(bps)(E)
Agency

 
 
 
 
 
 
 
Original and Recaptured Pools

10.6
%
 
4.2
%
 
32.7
%
 
22

Recapture Agreement

7.7
%
 
4.6
%
 
20.0
%
 
24



10.3
%
 
4.2
%
 
31.4
%
 
22

Non-Agency(F)

 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
Original and Recaptured Pools

12.7
%
 
N/A

 
10.3
%
 
21

Recapture Agreement

7.5
%
 
N/A

 
20.0
%
 
20

Ocwen Serviced Pools
 
9.4
%
 
N/A

 
%
 
14



10.0
%
 
N/A

 
2.3
%
 
17

Total/Weighted Average--Directly Held

10.1
%
 
4.2
%
 
7.9
%
 
18



 
 
 
 
 
 
 
Held through Equity Method Investees (Note 5)

 
 
 
 
 
 
 
Agency

 
 
 
 
 
 
 
Original and Recaptured Pools

12.7
%
 
6.4
%
 
33.4
%
 
19

Recapture Agreement

7.7
%
 
4.5
%
 
20.0
%
 
23

Total/Weighted Average--Held through Investees

11.9
%
 
6.1
%
 
31.2
%
 
19

 
 
 
 
 
 
 
 
 
Total/Weighted Average--All Pools
 
10.4
%
 
4.6
%
 
12.4
%
 
18


(A)
Weighted by amortized cost basis of the mortgage loan portfolio.
(B)
Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(C)
Projected percentage of mortgage loans in the pool that will miss their mortgage payments.
(D)
Percentage of voluntarily prepaid loans that are expected to be refinanced by Nationstar.
(E)
Weighted average total mortgage servicing amount in excess of the basic fee.
(F)
For certain pools, the Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO). For these pools, no delinquency assumption is used.
Summary of Certain Information Regarding the Inputs used in Valuing the Servicer Advances
The following table summarizes certain information regarding the inputs used in valuing the servicer advances:
 
Significant Inputs
 
Weighted Average
 
 
 
 
 
Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Prepayment Speed
 
Delinquency
 
Mortgage Servicing Amount(A)
 
Discount Rate
June 30, 2015
2.4
%
 
10.6
%
 
14.2
%
 
19.5

bps
5.5
%


(A)
Mortgage servicing amount excludes the amounts New Residential pays its servicers as a monthly servicing fee.
Schedule of Securities Valuation Methodology and Results
As of June 30, 2015, New Residential’s securities valuation methodology and results are further detailed as follows:
 
 
 
 
 
 
Fair Value
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Multiple Quotes(A)
 
Single Quote(B)
 
Total
 
Level
Agency RMBS
 
$
958,141

 
$
991,514

 
$
994,030

 
$

 
$
994,030

 
2

Non-Agency RMBS(C)
 
2,370,202

 
902,005

 
901,377

 
12,554

 
913,931

 
3

Total
 
$
3,328,343

 
$
1,893,519

 
$
1,895,407

 
$
12,554

 
$
1,907,961

 
 
 
(A)
Management generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. Management selected one of the quotes received as being most representative of the fair value and did not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because management believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases there is a wide disparity between the quotes New Residential receives. Management believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, management selects one of the quotes which is believed to more accurately reflect fair value. New Residential never adjusts quotes received. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price. New Residential’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.
(B)
Management was unable to obtain quotations from more than one source on these securities. The one source was the party that sold New Residential the security.
(C)
Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.
Schedule of Inputs Used in Valuing Residential Mortgage Loans
The following table summarizes the inputs used in valuing these residential mortgage loans as of June 30, 2015:
June 30, 2015
 
Fair Value
 
Discount Rate
 
Weighted Average Life (Years)(A)
 
Prepayment Rate
 
CDR(B)
 
Loss Severity(C)
Non-performing Loans
 
$
233,881

 
5.6
%
 
3.1
 
2.1
%
 
N/A
 
29.4
%

(A)
The weighted average life is based on the expected timing of the receipt of cash flows.
(B)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)
Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.
The following table summarizes the inputs used in valuing residential mortgage loans as of June 30, 2015:
 
 
Carrying Value
 
Fair Value
 
Valuation Provision/ (Reversal) In Current Year
 
Discount Rate
 
Weighted Average Life (Years)(A)
 
Prepayment Rate
 
CDR(B)
 
Loss Severity(C)
Reverse Mortgage Loans(D)
 
$
21,601

 
$
21,601

 
$
186

 
10.0
%
 
4.1
 
N/A

 
N/A

 
6.9
%
Performing Loans
 
21,140

 
22,269

 
118

 
7.9
%
 
5.7
 
5.6
%
 
2.9
%
 
56.9
%
Non-performing Loans
 
289,137

 
290,224

 
N/A

 
5.0
%
 
3.0
 
%
 
N/A

 
%
Total/Weighted Average
 
$
331,878

 
$
334,094

 
$
304

 
5.5
%
 
3.2
 
 
 
 
 
4.1
%

(A)
The weighted average life is based on the expected timing of the receipt of cash flows.
(B)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)
Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.
(D)
Carrying value and fair value represent a 70% interest New Residential holds in the reverse mortgage loans.