Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES

v3.4.0.3
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
3 Months Ended
Mar. 31, 2016
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.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
 
March 31, 2016
 
December 31, 2015
Excess MSR assets
 
$
404,863

 
$
421,999

Other assets
 
14,939

 
12,442

Other liabilities
 

 

Equity
 
$
419,802

 
$
434,441

New Residential’s investment
 
$
209,901

 
$
217,221

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended March 31,
 
 
2016
 
2015
Interest income
 
$
8,081

 
$
11,701

Other income (loss)
 
(2,014
)
 
(1,835
)
Expenses
 
(23
)
 
(25
)
Net income
 
$
6,044

 
$
9,841


New Residential’s investments in equity method investees changed during the three months ended March 31, 2016 as follows:
Balance at December 31, 2015
$
217,221

Contributions to equity method investees

Distributions of earnings from equity method investees
(9,754
)
Distributions of capital from equity method investees
(588
)
Change in fair value of investments in equity method investees
3,022

Balance at March 31, 2016
$
209,901


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
March 31, 2016
 
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
$
70,087,028

 
66.7
%
 
50.0
%
 
$
264,544

 
$
336,113

 
5.7
Recapture Agreements

 
66.7
%
 
50.0
%
 
41,563

 
68,750

 
11.8
Total
$
70,087,028

 
 
 
 
 
$
306,107

 
$
404,863

 
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 first quarter of 2016, 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
 
March 31, 2016
 
December 31, 2015
California
 
12.8
%
 
12.9
%
Florida
 
7.3
%
 
7.4
%
Texas
 
6.1
%
 
6.1
%
New York
 
5.9
%
 
5.8
%
Georgia
 
5.7
%
 
5.7
%
New Jersey
 
4.3
%
 
4.3
%
Illinois
 
4.0
%
 
4.0
%
Maryland
 
3.2
%
 
3.2
%
Virginia
 
3.2
%
 
3.2
%
Pennsylvania
 
3.1
%
 
3.1
%
Other U.S.
 
44.4
%
 
44.3
%
 
 
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.