Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.7.0.1
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
6 Months Ended
Jun. 30, 2017
Transfers and Servicing [Abstract]  
Schedule of Activity Related to the Carrying Value of Investments in Excess MSRs
The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
 
 
Servicer
 
 
Nationstar
 
SLS(A)
 
Ocwen(B)
 
Total
Balance as of December 31, 2016
 
$
611,293

 
$
3,935

 
$
784,227

 
$
1,399,455

Purchases
 

 

 

 

Interest income
 
21,263

 
(495
)
 
28,778

 
49,546

Other income
 
1,342

 

 

 
1,342

Proceeds from repayments
 
(62,691
)
 
(1,023
)
 
(63,604
)
 
(127,318
)
Change in fair value
 
215

 
339

 
(18,913
)
 
(18,359
)
Balance as of June 30, 2017
 
$
571,422

 
$
2,756

 
$
730,488

 
$
1,304,666


(A)
Specialized Loan Servicing LLC (“SLS”).
(B)
Ocwen Loan Servicing LLC, a subsidiary of Ocwen Financial Corporation (together with its subsidiaries, including Ocwen Loan Servicing LLC, “Ocwen”), services the loans underlying the Excess MSRs and Servicer Advances acquired from HLSS.

The following table presents activity related to the carrying value of New Residential’s investments in mortgage servicing rights financing receivable:
Balance as of December 31, 2016
 
$

Investments made
 
112,887

Amortization of servicing rights(A)
 
(1,127
)
Change in valuation inputs and assumptions
 
6,723

Balance as of June 30, 2017
 
$
118,483


(A)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.

The following is a summary of New Residential’s investments in mortgage servicing rights financing receivable as of June 30, 2017:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
13,070,096

 
6.3
 
$
111,760

 
$
118,483


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of June 30, 2017, a weighted average discount rate of 11.0% was used to value New Residential’s investments in mortgage servicing rights financing receivable.

The following table presents activity related to the carrying value of New Residential’s investments in MSRs:
Balance as of December 31, 2016
 
$
659,483

Purchases
 
1,091,478

Amortization of servicing rights(A)
 
(90,601
)
Change in valuation inputs and assumptions
 
88,983

Balance as of June 30, 2017
 
$
1,749,343


(A)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.

The following is a summary of New Residential’s investments in MSRs as of June 30, 2017:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
180,887,054

 
6.9
 
$
1,556,681

 
$
1,749,343

Non-Agency
67,944

 
7.0
 

 

Total
$
180,954,998

 
6.9
 
$
1,556,681

 
$
1,749,343


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of June 30, 2017, a weighted average discount rate of 10.5% was used to value New Residential’s investments in MSRs.
Summary of Direct Investments in Excess MSRs
The following is a summary of New Residential’s direct investments in Excess MSRs:
 
June 30, 2017
 
December 31, 2016
 
UPB of Underlying Mortgages
 
Interest in Excess MSR
 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value(C)
 
 
 
New Residential(D)
 
Fortress-managed funds
 
Nationstar
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
72,609,125

 
32.5% - 66.7% (53.2%)
 
0.0% - 40.0%

 
20.0% - 35.0%

 
5.9
 
$
277,034

 
$
304,980

 
$
330,323

Recapture Agreements

 
32.5% - 66.7% (53.2%)
 
0.0% - 40.0%

 
20.0% - 35.0%

 
12.6
 
21,630

 
48,995

 
51,434

 
72,609,125

 
 
 
 
 
 
 
6.4
 
298,664

 
353,975

 
381,757

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
70,867,185

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%

 
0.0% - 33.3%

 
5.3
 
$
167,751

 
$
199,753

 
$
219,980

Recapture Agreements

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%

 
0.0% - 33.3%

 
12.5
 
9,157

 
20,450

 
13,491

Ocwen Serviced Pools
111,983,880

 
100.0%
 
%
 
%
 
6.4
 
706,586

 
730,488

 
784,227

 
182,851,065

 
 
 
 
 
 
 
6.3
 
883,494

 
950,691

 
1,017,698

Total
$
255,460,190

 
 
 
 
 
 
 
6.3
 
$
1,182,158

 
$
1,304,666

 
$
1,399,455

 
(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
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)
Carrying Value represents the fair value of the pools or recapture agreements, as applicable.
(D)
Amounts in parentheses represent weighted averages.
(E)
New Residential also invested in related Servicer Advances, including the basic fee component of the related MSR as of June 30, 2017 (Note 6) on $169.6 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Original and Recaptured Pools

$
(21,736
)
 
$
(18,694
)
 
$
(28,984
)
 
$
(12,997
)
Recapture Agreements

2,556

 
3,431

 
10,625

 
5,660

 
 
$
(19,180
)
 
$
(15,263
)
 
$
(18,359
)
 
$
(7,337
)
Summary of the Financial Results of Excess MSR Joint Ventures, Accounted for as Equity Method Investees
The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
 
June 30, 2017
 
December 31, 2016
Excess MSR assets
 
$
344,521

 
$
372,391

Other assets
 
18,698

 
17,184

Other liabilities
 

 

Equity
 
$
363,219

 
$
389,575

New Residential’s investment
 
$
181,610

 
$
194,788

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Interest income
 
$
8,931

 
$
4,240

 
$
13,114

 
$
12,321

Other income (loss)
 
(420
)
 
(5,569
)
 
(5,065
)
 
(7,583
)
Expenses
 
(19
)
 
(21
)
 
(45
)
 
(44
)
Net income
 
$
8,492

 
$
(1,350
)
 
$
8,004

 
$
4,694


New Residential’s investments in equity method investees changed during the six months ended June 30, 2017 as follows:
Balance at December 31, 2016
$
194,788

Contributions to equity method investees

Transfers to direct ownership

Distributions of earnings from equity method investees
(7,433
)
Distributions of capital from equity method investees
(9,747
)
Change in fair value of investments in equity method investees
4,002

Balance at June 30, 2017
$
181,610

The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
 
June 30, 2017(A)
Consumer loans, at fair value
 
$
133,951

Warrants
 
13,700

Other assets
 
62,746

Warehouse financing
 
(55,105
)
Other liabilities
 
(10,673
)
Equity
 
$
144,619

New Residential’s investment
 
$
35,959

New Residential’s ownership
 
24.9
%


 
 
Three Months Ended 
 June 30, 2017
(A)
 
Six Months Ended  
 June 30, 2017
(A)
Interest income
 
$
12,829

 
$
12,829

Interest expense
 
(3,133
)
 
(3,133
)
Change in fair value of consumer loans and warrants
 
3,555

 
3,555

Gain on sale of consumer loans(B)
 
11,850

 
11,850

Other expenses
 
(1,580
)
 
(1,580
)
Net income
 
$
23,521

 
$
23,521

New Residential’s equity in net income
 
$
5,880

 
$
5,880

New Residential’s ownership
 
24.9
%
 
24.9
%

(A)
Data as of, and for the periods ended, May 31, 2017, as a result of the one month reporting lag.
(B)
During the six months ended June 30, 2017, LoanCo sold, through a securitization which was treated as a sale for accounting purposes, $550.0 million in UPB of consumer loans.  LoanCo retained $64.2 million of the residual interest of the securitization and distributed it to the LoanCo co-investors, including New Residential.

The following is a summary of LoanCo’s consumer loan investments:
 
Unpaid Principal Balance
 
Interest in Consumer Loans
 
Carrying Value
 
Weighted Average Coupon
 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
June 30, 2017(C)
$
133,951

 
25.0
%
 
$
133,951

 
17.4
%
 
1.4
 
1.3
%

(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)
Data as of May 31, 2017 as a result of the one month reporting lag.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
 
Six Months Ended June 30, 2017
Balance at beginning of period
$

Contributions to equity method investees
192,468

Distributions of earnings from equity method investees
(1,229
)
Distributions of capital from equity method investees
(152,083
)
Earnings from investments in consumer loans, equity method investees
5,880

Balance at end of period
$
45,036

Summary of Excess MSR Investments made through Equity Method Investees
The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
June 30, 2017
 
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
$
56,215,426

 
66.7
%
 
50.0
%
 
$
230,946

 
$
291,907

 
5.8
Recapture Agreements

 
66.7
%
 
50.0
%
 
26,102

 
52,614

 
12.8
Total
$
56,215,426

 
 
 
 
 
$
257,048

 
$
344,521

 
6.5
 
(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.
Summary of the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in Excess MSRs
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments:
 
 
Aggregate Direct and Equity Method Investees
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
June 30, 2017
 
December 31, 2016
California
 
24.0
%
 
24.1
%
Florida
 
8.7
%
 
8.6
%
New York
 
8.1
%
 
7.9
%
Texas
 
4.6
%
 
4.6
%
New Jersey
 
4.2
%
 
4.2
%
Maryland
 
3.8
%
 
3.7
%
Illinois
 
3.5
%
 
3.5
%
Virginia
 
3.1
%
 
3.1
%
Georgia
 
3.1
%
 
3.1
%
Massachusetts
 
2.7
%
 
2.7
%
Arizona
 
2.5
%
 
2.5
%
Washington
 
2.5
%
 
2.6
%
Other U.S.
 
29.2
%
 
29.4
%
 
 
100.0
%
 
100.0
%