Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN CONSUMER LOANS (Tables)

v3.7.0.1
INVESTMENTS IN CONSUMER LOANS (Tables)
6 Months Ended
Jun. 30, 2017
Investments In Consumer Loans Equity Method Investees [Abstract]  
Past Due Financing Receivable
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:
June 30, 2017
Days Past Due
 
Delinquency Status(A)
Current
 
47.4
%
30-59
 
44.2
%
60-89
 
8.4
%
90-119(B)
 
%
120+(C)
 
%
 
 
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.
The following table provides past due information regarding New Residential’s performing consumer loans, held-for-investment, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
June 30, 2017
Days Past Due
 
Delinquency Status(A)
Current
 
94.7
%
30-59
 
2.3
%
60-89
 
1.2
%
90-119(B)
 
0.7
%
120+(B) (C)
 
1.1
%
 
 
100.0
%

(A)
Represents the percentage of the total unpaid principal balance that corresponds to loans that are in each delinquency status.
(B)
Includes loans more than 90 days past due and still accruing interest.
(C)
Interest is accrued up to the date of charge-off at 180 days past due.

Schedule of Carrying Value of Performing Consumer Loans
Activities related to the carrying value of performing consumer loans, held-for-investment were as follows:
 
 
Performing Loans
Balance at December 31, 2016
 
$
1,482,954

Purchases
 

Additional fundings(A)
 
27,240

Proceeds from repayments
 
(174,319
)
Accretion of loan discount and premium amortization, net
 
2,774

Gross charge-offs
 
(40,139
)
Additions to the allowance for loan losses, net
 
(1,806
)
Balance at June 30, 2017
 
$
1,296,704


(A)
Represents draws on consumer loans with revolving privileges.
Summary of Activities Related to the Valuation Provision on Reverse Mortgage Loans and Allowance for Loan Losses
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:
 
Performing Loans
Balance at December 31, 2016
$

Provision for loan losses(A)

Charge-offs(B)

Balance at June 30, 2017
$


(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.

Activities related to the allowance for loan losses on performing consumer loans, held-for-investment were as follows:
 
 
Collectively Evaluated(A)
 
Individually Impaired(B)
 
Total
Balance at December 31, 2016
 
$
2,441

 
$
997

 
$
3,438

Provision (reversal) for loan losses
 
36,845

 
275

 
37,120

Net charge-offs(C)
 
(35,314
)
 

 
(35,314
)
Balance at June 30, 2017
 
$
3,972

 
$
1,272

 
$
5,244


(A)
Represents smaller-balance homogeneous loans that are not individually considered impaired and are evaluated based on an analysis of collective borrower performance, key terms of the loans and historical and anticipated trends in defaults and loss severities, and consideration of the unamortized acquisition discount.
(B)
Represents consumer loan modifications considered to be troubled debt restructurings (“TDRs”) as they provide concessions to borrowers, primarily in the form of interest rate reductions, who are experiencing financial difficulty. As of June 30, 2017, there are $8.1 million in UPB and $8.2 million in carrying value of consumer loans classified as TDRs.
(C)
Consumer loans, other than PCD loans, are charged off when available information confirms that loans are uncollectible, which is generally when they become 180 days past due. Charge-offs are presented net of $4.8 million in recoveries of previously charged-off UPB.

Schedule of Carrying Value of Purchased Credit Deteriorated Loans
Activities related to the carrying value of PCD consumer loans, held-for-investment were as follows:
Balance at December 31, 2016
 
$
316,532

(Allowance) reversal for loan losses(A)
 
1,682

Proceeds from repayments
 
(66,826
)
Accretion of loan discount and other amortization
 
21,296

Balance at June 30, 2017
 
$
272,684


(A)
Represents the present value of cash flows expected at acquisition that are no longer expected to be collected.

Impaired Financing Receivables
The following is the unpaid principal balance and carrying value for consumer 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
June 30, 2017
$
322,685

 
$
272,684

December 31, 2016
371,261

 
316,532

Schedule of Changes in Accretable Yield
The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2016
 
$
167,928

Accretion
 
(21,296
)
Reclassifications to non-accretable difference(A)
 
(7,245
)
Balance at June 30, 2017
 
$
139,387


(A)
Represents a probable and significant decrease in cash flows previously expected to be collectible.
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net
Others’ interests in the equity of the Consumer Loan Companies is computed as follows:
 
 
June 30, 2017
 
December 31, 2016
Total Consumer Loan Companies equity
 
$
75,132

 
$
75,311

Others’ ownership interest
 
46.5
%
 
46.5
%
Others’ interests in equity of consolidated subsidiary
 
$
34,987

 
$
35,020


Others’ interests in the Consumer Loan Companies’ net income (loss) is computed as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2017
 
2016
 
2017
 
2016
Net Consumer Loan Companies income (loss)
$
26,545

 
$
31,464

 
$
47,965

 
$
31,464

Others’ ownership interest as a percent of total
46.5
%
 
46.5
%
 
46.5
%
 
46.5
%
Others’ interest in net income (loss) of consolidated subsidiaries
$
12,343

 
$
14,630

 
$
22,303

 
$
14,630

Schedule of Assets and Liabilities Related to Consolidated Variable Interest Entities
The following table presents information on the combined assets and liabilities related to these consolidated VIEs.
 
 
As of
 
 
June 30, 2017
Assets
 
 
Residential mortgage loans
 
$
194,840

Other assets
 

Total assets(A)
 
$
194,840

Liabilities
 
 
Notes and bonds payable(B)
 
$
192,524

Accounts payable and accrued expenses
 
16

Total liabilities(A)
 
$
192,540


(A)
The creditors of the RPL Borrowers do not have recourse to the general credit of New Residential, and the assets of the RPL Borrowers are not directly available to satisfy New Residential’s obligations.
(B)
Includes $78.0 million of bonds retained by New Residential issued by these VIEs.

As described in “Call Rights” above, New Residential has issued securitizations which were treated as sales under GAAP. New Residential has no obligation to repurchase any loans from these securitizations and its exposure to loss is limited to the carrying amount of its retained interests in the securitization entities. These securitizations are conducted through variable interest entities, of which New Residential is not the primary beneficiary. The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations as of June 30, 2017:
Residential mortgage loan UPB
 
$
4,631,527

Weighted average delinquency(A)
 
1.27
%
Net credit losses for the six months ended June 30, 2017
 
$
3,371

Face amount of debt held by third parties(B)
 
$
4,373,109

 
 
 
Carrying value of bonds retained by New Residential
 
$
409,391

Cash flows received by New Residential on these bonds for the six months ended June 30, 2017
 
$
34,510


(A)
Represents the percentage of the UPB that is 60+ days delinquent.
(B)
Excludes bonds retained by New Residential.

The following table presents information on the combined assets and liabilities related to these consolidated VIEs.
 
 
As of
 
 
June 30, 2017
Assets
 
 
Consumer loans, held-for-investment
 
$
1,447,008

Restricted cash
 
12,400

Accrued interest receivable
 
21,229

Total assets(A)
 
$
1,480,637

Liabilities
 
 
Notes and bonds payable(B)
 
$
1,450,605

Accounts payable and accrued expenses
 
850

Total liabilities(A)
 
$
1,451,455


(A)
The creditors of the Consumer Loan SPVs do not have recourse to the general credit of New Residential, and the assets of the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.
(B)
Includes $121.0 million of bonds retained by New Residential issued by these VIEs.

Summary of the Investment in Consumer Loan Companies
The following table summarizes the investment in consumer loans, held-for-investment held by New Residential:
 
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
 
 
 
 
 
 
 
 
 
 
 
Consumer Loan Companies
 
 
 
 
 
 
 
 
 
 
 
Performing Loans
$
1,127,296

 
53.5
%
 
$
1,174,324

 
18.7
%
 
3.9
 
5.4
%
Purchased Credit Deteriorated Loans(C)
322,685

 
53.5
%
 
272,684

 
16.4
%
 
3.4
 
12.2
%
Other - Performing Loans
126,353

 
100.0
%
 
122,380

 
14.2
%
 
1.2
 
2.4
%
Total Consumer Loans, held-for-investment
$
1,576,334

 
 
 
$
1,569,388

 
17.9
%
 
3.6
 
6.6
%
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Consumer Loan Companies
 
 
 
 
 
 
 
 
 
 
 
Performing Loans
$
1,275,121

 
53.5
%
 
$
1,321,825

 
18.7
%
 
4.2
 
6.3
%
Purchased Credit Deteriorated Loans(C)
371,261

 
53.5
%
 
316,532

 
16.6
%
 
3.6
 
14.0
%
Other - Performing Loans
163,570

 
100.0
%
 
161,129

 
14.2
%
 
1.5
 
0.3
%
Total Consumer Loans, held-for-investment
$
1,809,952

 
 
 
$
1,799,486

 
17.9
%
 
3.8
 
7.3
%

(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)
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, which are accounted for as PCD loans.

Equity Method Investments
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