Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

v3.4.0.3
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS
3 Months Ended
Mar. 31, 2016
Receivables [Abstract]  
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

Loans are accounted for based on New Residential’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 Deteriorated (“PCD”) 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:


March 31, 2016
 
December 31, 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)
 
Carrying Value
Loan Type


















 

Reverse Mortgage Loans(E)(F)

$
32,633


$
18,142


122


7.4
%

4.4

19.8
%

133.5
%

65.7
%

N/A

 
$
19,560

Performing Loans(G)

20,884


19,462


663


8.9
%

5.6

17.3
%

77.2
%

7.3
%

626

 
19,964

Purchased Credit Deteriorated Loans(H)
 
439,649

 
287,130

 
2,037

 
5.5
%
 
2.6
 
18.7
%
 
116.4
%
 
93.1
%
 
577

 
290,654

Total Residential Mortgage Loans, held-for-investment

$
493,166

 
$
324,734

 
2,822


5.8
%

2.8

18.7
%

115.9
%

87.7
%

580

 
$
330,178

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performing Loans, held-for-sale(G)
 
$
143,384

 
$
151,001

 
1,671

 
3.8
%
 
4.7
 
9.6
%
 
58.1
%
 
3.7
%
 
665

 
$
277,084

Non-Performing Loans, held-for-sale(H)(I)
 
572,988

 
482,159

 
3,425

 
7.0
%
 
2.7
 
15.3
%
 
104.0
%
 
79.1
%
 
571

 
499,597

Total Residential Mortgage Loans, held-for-sale
 
$
716,372

 
$
633,160

 
5,096

 
6.3
%
 
3.1
 
14.2
%
 
94.8
%
 
64.0
%
 
590

 
$
776,681


(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% participation interest that New Residential holds in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB is $0.4 million. Approximately 60% of these loans have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.
(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 premiums of $8.7 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 March 31, 2016, New Residential has placed all of these loans on nonaccrual status, except as described in (I) below.
(I)
Includes $232.1 million UPB of Ginnie Mae EBO non-performing loans on accrual status because 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. 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 residential mortgage loans:
 
 
Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration
 
March 31, 2016
 
December 31, 2015
New York
 
15.1
%
 
14.5
%
New Jersey
 
13.6
%
 
13.1
%
Florida
 
10.7
%
 
10.7
%
California
 
8.4
%
 
12.3
%
Texas
 
4.5
%
 
3.3
%
Illinois
 
4.3
%
 
4.3
%
Maryland
 
3.8
%
 
3.5
%
Massachusetts
 
3.5
%
 
3.3
%
Pennsylvania
 
3.2
%
 
2.8
%
Washington
 
3.1
%
 
3.2
%
Other U.S.
 
29.8
%
 
29.0
%
 
 
100.0
%
 
100.0
%


New Residential has exercised its call rights with respect to the following Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO assets contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. The following table summarizes these transactions which occurred in 2016 (dollars in millions).
 
 
 
 
Securities Owned Prior
 
Assets Acquired
 
Loans Sold (C)
 
Retained Bonds
 
Retained Assets (C)
Date of Call (A)
 
Number of Trusts Called
 
Face Amount
 
Amortized Cost Basis
 
Loan UPB
 
Loan Price (B)
 
REO & Other Price (B)
 
UPB
 
Gain (Loss)
 
Basis
 
Type
 
Loan UPB
 
Loan Price
 
REO & Other Price
December 23, 2015
 
14

 
$
61.4

 
$
48.0

 
$
309.1

 
$
315.1

 
$
3.1

 
$
261.3

 
$
2.2

 
$
36.6

 
Various
 
$
37.4

 
$
27.4

 
$
2.9

March 25, 2016
 
13

 
58.4

 
41.0

 
167.2

 
173.3

 
3.1

 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)
 
N/A(C)

 
N/A(C)

 
N/A(C)


(A)
Any related securitization may occur on the same or a subsequent date, depending on market conditions and other factors. Except as otherwise noted in (C) below, there was one securitization associated with each call.
(B)
Price includes par amount paid for all underlying mortgage loans of the trusts, plus the basis of the exercised call rights, plus advances and costs incurred (including MSR Fund Payments, as defined in Note 15) in exercising such call rights.
(C)
Loans were sold through a securitization which was treated as a sale for accounting purposes. The securitization that occurred in March 2016 primarily included loans from the December 23, 2015 call, but also included previously acquired loans. The retained assets disclosed for the December 23, 2015 call are net of the related loans sold in the March 2016 securitization. No loans from the March 25, 2016 call were securitized as of March 31, 2016.

Reverse Mortgage Loans
 
In February 2013, New Residential, through a subsidiary, entered into an agreement to co-invest in reverse mortgage loans. New Residential acquired a 70% participation interest in a portfolio of 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 regarding New Residential’s Performing Loans, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
March 31, 2016
Days Past Due
 
Delinquency Status(A)
Current
 
87.2
%
30-59
 
8.7
%
60-89
 
1.9
%
90-119(B)
 
0.1
%
120+(C)
 
2.1
%
 
 
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:
 
Reverse Mortgage Loans
 
Performing Loans
Balance at December 31, 2015
$
19,560

 
$
19,964

Purchases/additional fundings
319

 

Proceeds from repayments
(809
)
 
(598
)
Accretion of loan discount (premium) and other amortization(A)
1,090

 
100

Provision for loan losses
(12
)
 
(4
)
Transfer of loans to other assets
(2,006
)
 

Transfer of loans to real estate owned

 

Balance at March 31, 2016
$
18,142

 
$
19,462



(A)
Includes accelerated accretion of discount on loans paid in full and on loans transferred to other assets.

Activities related to the valuation and loss provision on reverse mortgage loans and allowance for loan losses on performing loans held-for-investment were as follows:
 
Reverse Mortgage Loans
 
Performing Loans
Balance at December 31, 2015
$
1,553

 
$
119

Provision for loan losses(A)
12

 
4

Charge-offs(B)

 

Balance at March 31, 2016
$
1,565

 
$
123


(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 PCD 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 Deteriorated Loans

New Residential determined at acquisition that the PCD loans acquired would be aggregated into pools based on common risk characteristics (FICO score, delinquency status, collateral type, loan-to-value ratio). Loans aggregated into pools are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows.

Activities related to the carrying value of PCD loans held-for-investment were as follows:
Balance at December 31, 2015
$
290,654

Purchases/additional fundings

Sales

Proceeds from repayments
(7,233
)
Accretion of loan discount and other amortization
6,315

Transfer of loans to real estate owned
(2,606
)
Balance at March 31, 2016
$
287,130



New Residential did not acquire any PCD loans during the three months ended March 31, 2016.

The following is the unpaid principal balance and carrying value for loans, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments:
 
Unpaid Principal Balance
 
Carrying Value
March 31, 2016
$
439,649

 
$
287,130

December 31, 2015
$
450,229

 
$
290,654



The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2015
$
71,063

Additions

Accretion
(6,315
)
Reclassifications from non-accretable difference(A)
11,443

Disposals(B)
(933
)
Balance at March 31, 2016
$
75,258


(A)
Represents a probable and significant increase in cash flows previously expected to be uncollectible.
(B)
Includes sales of loans or foreclosures, which result in removal of the loan from the PCD loan pool at its carrying amount.

Loans Held-for-Sale

Activities related to the carrying value of loans held-for-sale were as follows:
 
 
For the  
 Three Months Ended 
 March 31, 2016
 
 
Loans Held-for-Sale
Balance at December 31, 2015
 
$
776,681

Purchases(A)
 
173,270

Sales
 
(266,124
)
Transfer of loans to other assets
 
(25,429
)
Transfer of loans to real estate owned
 
(3,676
)
Proceeds from repayments
 
(18,495
)
Valuation provision on loans(B)
 
(3,067
)
Balance at March 31, 2016
 
$
633,160


(A)
Represents loans acquired with the intent to sell.
(B)
Represents the fair value adjustments to loans upon transfer to held-for-sale and provision recorded on certain purchased held-for-sale loans, including $2.6 million of provision related to the call transaction executed on March 25, 2016.

Real estate owned (REO)

New Residential recognizes REO assets at the completion of the foreclosure process or upon execution of a deed in lieu of foreclosure with the borrower. REO assets are managed for prompt sale and disposition at the best possible economic value.
 
 
Real Estate Owned
Balance at December 31, 2015
 
$
50,574

Purchases
 
9,196

Transfer of loans to real estate owned
 
8,285

Sales
 
(7,991
)
Valuation provision on REO
 
(3,662
)
Balance at March 31, 2016
 
$
56,402



As of March 31, 2016, New Residential had non-performing residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $479.7 million.

In addition, New Residential has recognized $30.1 million in claims receivable from FHA on Ginnie Mae early buy-out (“EBO”) loans and reverse mortgage loans for which foreclosure has been completed during the three months ended March 31, 2016 and for which New Residential has made, or intends to make, a claim.