Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN REAL ESTATE SECURITIES (Tables)

v3.7.0.1
INVESTMENTS IN REAL ESTATE SECURITIES (Tables)
6 Months Ended
Jun. 30, 2017
Investments, Debt and Equity Securities [Abstract]  
Summary of Real Estate Securities
Activities related to New Residential’s investments in real estate securities were as follows:
 
Six Months Ended 
 June 30, 2017
 
(in millions)
 
Agency
 
Non-Agency
Purchases
 
 
 
Face
$
4,853.1

 
$
5,529.5

Purchase Price
$
4,982.5

 
$
2,138.3

 
 
 
 
Sales
 
 
 
Face
$
4,409.0

 
$
201.5

Amortized Cost
$
4,519.8

 
$
135.9

Sale Price
$
4,523.5

 
$
154.4

Gain (Loss) on Sale
$
3.7

 
$
18.5

The following is a summary of New Residential’s real estate securities, all of which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired and except for securities which New Residential elected to carry at fair value and record changes to valuation through the income statement.
 
 
June 30, 2017
 
December 31, 2016
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
 
 
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Gains
 
Losses
 
Carrying Value(A)
 
Number of Securities
 
Rating(B)
 
Coupon(C)
 
Yield
 
Life (Years)(D)
 
Principal Subordination(E)
 
Carrying Value
Agency
  RMBS(F) (G)
 
$
1,880,434

 
$
1,941,558

 
$
552

 
$
(5,917
)
 
$
1,936,193

 
88

 
AAA
 
3.50
%
 
2.98
%
 
9.5
 
N/A

 
$
1,530,298

Non-Agency
    RMBS(H) (I)
 
11,907,355

 
5,169,234

 
339,748

 
(21,902
)
 
5,487,080

 
731

 
CCC
 
2.00
%
 
5.83
%
 
8.0
 
9.0
%
 
3,543,560

Total/
   Weighted
    Average
 
$
13,787,789

 
$
7,110,792

 
$
340,300

 
$
(27,819
)
 
$
7,423,273

 
819

 
BB-
 
2.39
%
 
5.05
%
 
8.4
 
 
 
$
5,073,858

 
(A)
Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.
(B)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 207 bonds with a carrying value of $325.3 million which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies, and represent the most recent credit ratings available as of the reporting date and may not be current.
(C)
Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $161.9 million and $0.0 million, respectively, for which no coupon payment is expected.
(D)
The weighted average life is based on the timing of expected principal reduction on the assets.
(E)
Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value option securities and servicer advance bonds.
(F)
Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.
(G)
The total outstanding face amount was $1.8 billion for fixed rate securities and $123.2 million for floating rate securities as of June 30, 2017.
(H)
The total outstanding face amount was $1.3 billion (including $0.7 billion of residual and fair value option notional amount) for fixed rate securities and $10.6 billion (including $4.2 billion of residual and fair value option notional amount) for floating rate securities as of June 30, 2017.
(I)
Includes other asset backed securities (“ABS”) consisting primarily of (i) interest-only securities and servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through the income statement, (ii) bonds backed by Servicer Advances and (iii) bonds backed by Consumer Loans.
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Gains
 
Losses
 
Carrying Value
 
Number of Securities
 
Rating
 
Coupon
 
Yield
 
Life (Years)
 
Principal Subordination
Servicer Advance Bonds
 
$
100,000

 
$
99,758

 
$
242

 
$

 
$
100,000

 
1

 
AAA
 
3.21
%
 
3.09
%
 
0.2
 
N/A
Consumer Loan Bonds
 
137,500

 
16,253

 
109

 

 
16,362

 
1

 
N/A
 
N/A

 
15.22
%
 
1.6
 
N/A
Fair Value Option Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-only Securities
 
4,163,429

 
208,350

 
8,711

 
(10,624
)
 
206,437

 
42

 
AA+
 
1.62
%
 
6.56
%
 
3.4
 
N/A
Servicing Strips
 
441,478

 
5,261

 
1,089

 

 
6,350

 
15

 
N/A
 
0.27
%
 
22.24
%
 
6.5
 
N/A
Summary of Real Estate Securities in an Unrealized Loss Position
The following table summarizes New Residential’s securities in an unrealized loss position as of June 30, 2017.
 
 
 
 
Amortized Cost Basis
 
 
 
 
 
 
 
Weighted Average
Securities in an Unrealized Loss Position
 
Outstanding Face Amount
 
Before Impairment
 
Other-Than-
Temporary Impairment(A)
 
After Impairment
 
Gross Unrealized Losses
 
Carrying Value
 
Number of Securities
 
Rating(B)
 
Coupon
 
Yield
 
Life
(Years)
Less than 12 Months
 
$
4,849,502

 
$
2,470,372

 
$
(2,768
)
 
$
2,467,604

 
$
(15,659
)
 
$
2,451,945

 
186

 
CCC+
 
2.90
%
 
3.94
%
 
9.3
12 or More Months
 
807,047

 
237,654

 
(2,347
)
 
235,307

 
(12,160
)
 
223,147

 
48

 
BBB
 
2.50
%
 
3.43
%
 
5.3
Total/Weighted Average
 
$
5,656,549

 
$
2,708,026

 
$
(5,115
)
 
$
2,702,911

 
$
(27,819
)
 
$
2,675,092

 
234

 
B
 
2.86
%
 
3.89
%
 
9.0
 
(A)
This amount represents OTTI recorded on securities that are in an unrealized loss position as of June 30, 2017.
(B)
The weighted average rating of securities in an unrealized loss position for less than 12 months excludes the rating of 59 bonds which either have never been rated or for which rating information is no longer provided. The weighted average rating of securities in an unrealized loss position for 12 or more months excludes the rating of 7 bonds which either have never been rated or for which rating information is no longer provided.

New Residential performed an assessment of all of its debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI, exceeds its fair value) and determined the following:
 
June 30, 2017
 
 
 
 
 
Gross Unrealized Losses
 
Fair Value
 
Amortized Cost Basis After Impairment
 
Credit(A)
 
Non-Credit(B)
Securities New Residential intends to sell(C)
$

 
$

 
$

 
$

Securities New Residential is more likely than not to be required to sell(D)

 

 

 
N/A

Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
 
 
 
 
 
 
 
Credit impaired securities
326,150

 
329,730

 
(5,115
)
 
(3,580
)
Non-credit impaired securities
2,348,942

 
2,373,181

 

 
(24,239
)
Total debt securities in an unrealized loss position
$
2,675,092

 
$
2,702,911

 
$
(5,115
)
 
$
(27,819
)
  
(A)
This amount is required to be recorded as OTTI through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.
(B)
This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.
(C)
A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment, and, therefore do not have unrealized losses reflected in other comprehensive income as of June 30, 2017.
(D)
New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.
Summary of Activity Related to Credit Losses on Debt Securities
The following table summarizes the activity related to credit losses on debt securities:
 
Six Months Ended June 30, 2017
Beginning balance of credit losses on debt securities for which a portion of an OTTI was
    recognized in other comprehensive income
$
15,495

Increases to credit losses on securities for which an OTTI was previously recognized and a portion
    of an OTTI was recognized in other comprehensive income
3,178

Additions for credit losses on securities for which an OTTI was not previously recognized
4,049

Reductions for securities for which the amount previously recognized in other comprehensive
    income was recognized in earnings because the entity intends to sell the security or more likely
    than not will be required to sell the security before recovery of its amortized cost basis

Reduction for credit losses on securities for which no OTTI was recognized in other
    comprehensive income at the current measurement date

Reduction for securities sold during the period
(857
)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized
    in other comprehensive income
$
21,865

Summary of the Geographic Distribution of the Collateral Securing Non-Agency RMBS
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
 
 
June 30, 2017
 
December 31, 2016
Geographic Location(A)
 
Outstanding Face Amount

Percentage of Total Outstanding
 
Outstanding Face Amount

Percentage of Total Outstanding
Western U.S.
 
$
4,496,161


38.5
%
 
$
2,757,424

 
38.3
%
Southeastern U.S.
 
2,760,624


23.7
%
 
1,635,596

 
22.7
%
Northeastern U.S.
 
2,295,432


19.7
%
 
1,426,519

 
19.8
%
Midwestern U.S.
 
1,247,366


10.7
%
 
778,372

 
10.8
%
Southwestern U.S.
 
845,200


7.2
%
 
557,033

 
7.7
%
Other(B)
 
25,072


0.2
%
 
47,274

 
0.7
%
 
 
$
11,669,855


100.0
%
 
$
7,202,218

 
100.0
%
  
(A)
Excludes $100.0 million and $137.5 million face amount of bonds backed by Servicer Advances and Consumer Loans, respectively, as of June 30, 2017 and $100.0 million face amount of bonds backed by Servicer Advance Bonds as of December 31, 2016.
(B)
Represents collateral for which New Residential was unable to obtain geographic information.
Schedule of the Outstanding Face Amount and Carrying Value for Securities Uncollectible
The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and fair value option securities:
 
Outstanding Face Amount
 
Carrying Value
June 30, 2017
$
4,697,717

 
$
3,024,966

December 31, 2016
2,951,498

 
1,871,466

Summary of Changes in Accretable Yield for Securities
The following is a summary of the changes in accretable yield for these securities:
 
Six Months Ended June 30, 2017
Balance at December 31, 2016
$
1,200,125

Additions
666,284

Accretion
(83,109
)
Reclassifications from (to) non-accretable difference
303,927

Disposals
(63,635
)
Balance at June 30, 2017
$
2,023,592