Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN SERVICER ADVANCES (Tables)

v3.7.0.1
INVESTMENTS IN SERVICER ADVANCES (Tables)
6 Months Ended
Jun. 30, 2017
Investments, All Other Investments [Abstract]  
Summary of Investments in Servicer Advances
The following is a summary of the investments made by New Residential in Servicer Advances, including the right to the basic fee component of the related MSRs:
 
Amortized Cost Basis

Carrying Value(A)

Weighted Average Discount Rate
 
Weighted Average Yield

Weighted Average Life (Years)(B)
June 30, 2017
 
 
 
 
 
 
 
 
 
Servicer Advances(C)
$
4,758,268

 
$
4,836,754

 
6.5
%
 
6.8
%
 
5.1
As of December 31, 2016
 
 
 
 
 
 
 
 
 
Servicer Advances(C)
$
5,687,635

 
$
5,706,593

 
5.6
%
 
5.5
%
 
4.6
  
(A)
Carrying value represents the fair value of the investments in Servicer Advances, including the basic fee component of the related MSRs.
(B)
Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.
(C)
Excludes asset-backed securities collateralized by Servicer Advances, which have aggregate face amounts of $100.0 million and $100.0 million and aggregate carrying values of $100.0 million and $100.1 million as of June 30, 2017 and December 31, 2016, respectively. See Note 7 for details related to these securities.

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2017

2016

2017

2016
Changes in Fair Value Recorded in Other Income
 
$
56,969

 
$
13,946

 
$
59,528

 
$
(17,278
)

The following is additional information regarding the Servicer Advances and related financing:
 
 
 
 
 
 
 
 
 
 
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(C)
 
 
UPB of Underlying Residential Mortgage Loans
 
Outstanding Servicer Advances
 
Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Face Amount of Notes and Bonds Payable
 
Gross
 
Net(B)
 
Gross
 
Net
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advances(D)
 
$
169,570,376

 
$
4,470,640

 
2.6
%
 
$
4,443,368

 
93.5
%
 
92.3
%
 
3.3
%
 
2.9
%
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advances(D)
 
$
186,362,657

 
$
5,617,759

 
3.0
%
 
$
5,560,412

 
94.5
%
 
93.4
%
 
3.2
%
 
2.8
%
 
(A)
Based on outstanding Servicer Advances, excluding purchased but unsettled Servicer Advances and certain deferred servicing fees (“DSF”) on which New Residential receives financing. If New Residential were to include these DSF in the Servicer Advance balance, gross and net LTV as of June 30, 2017 would be 88.3% and 87.2%, respectively. Also excludes retained Non-Agency bonds with a current face amount of $93.5 million from the outstanding Servicer Advances debt. If New Residential were to sell these bonds, gross and net LTV as of June 30, 2017 would be 95.5% and 94.3%, respectively.
(B)
Ratio of face amount of borrowings to par amount of Servicer Advance collateral, net of any general reserve.
(C)
Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)
The following types of advances comprise the investments in Servicer Advances:
    


June 30, 2017

December 31, 2016
Principal and interest advances

$
1,157,755


$
1,489,929

Escrow advances (taxes and insurance advances)

2,016,672


2,613,050

Foreclosure advances

1,296,213


1,514,780

Total

$
4,470,640

 
$
5,617,759

Schedule of Interest Income Related to Investments in Servicer Advances
Interest income recognized by New Residential related to its investments in Servicer Advances was comprised of the following:


Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,


2017

2016

2017

2016
Interest income, gross of amounts attributable to servicer compensation

$
133,098


$
192,342


$
206,954


$
419,630

Amounts attributable to base servicer compensation(A)

(102,359
)

(23,399
)

(106,506
)

(52,908
)
Amounts attributable to incentive servicer compensation(A)

209,730


(90,831
)

216,064


(209,973
)
Interest income from investments in Servicer Advances(A)

$
240,469

 
$
78,112

 
$
316,512

 
$
156,749


(A)
Total interest income of $240.5 million for the three months ended June 30, 2017 includes a retrospective adjustment of $157.6 million which was mainly due to a change in the cost of subservicing assumption to 13 bps relating to the HLSS portfolio.

New Residential has determined that the Buyer is a VIE. The following table presents information on the assets and liabilities related to this consolidated VIE.
 
 
As of
 
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
 
Servicer Advance investments, at fair value
 
$
1,350,327

 
$
1,731,633

Cash and cash equivalents
 
35,063

 
37,854

All other assets
 
16,237

 
19,799

Total assets(A)
 
$
1,401,627

 
$
1,789,286

Liabilities
 
 
 
 
Notes and bonds payable
 
$
1,103,521

 
$
1,464,851

All other liabilities
 
4,482

 
5,187

Total liabilities(A)
 
$
1,108,003

 
$
1,470,038


(A)
The creditors of the Buyer do not have recourse to the general credit of New Residential and the assets of the Buyer are not directly available to satisfy New Residential’s obligations.

Others’ interests in the equity of the Buyer is computed as follows:
 
 
June 30, 2017
 
December 31, 2016
Total Advance Purchaser LLC equity
 
$
293,624

 
$
319,248

Others’ ownership interest
 
54.2
%
 
54.2
%
Others’ interest in equity of consolidated subsidiary
 
$
159,167

 
$
173,057


Others’ interests in the Buyer’s net income is computed as follows:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Net Advance Purchaser LLC income
 
$
6,140

 
$
18,647

 
$
16,876

 
$
26,222

Others’ ownership interest as a percent of total(A)
 
54.2
%
 
55.5
%
 
54.2
%
 
55.5
%
Others’ interest in net income of consolidated subsidiaries
 
$
3,328

 
$
10,345

 
$
9,148

 
$
14,547


(A)
As a result, New Residential owned 45.8% and 44.5% of the Buyer, on average during the three months ended June 30, 2017 and 2016, respectively and 45.8% and 44.5% of the Buyer, on average during the six months ended June 30, 2017 and 2016, respectively.