Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.19.2
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
6 Months Ended
Jun. 30, 2019
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)
 
Total
Balance as of December 31, 2018
 
$
445,328

 
$
2,532

 
$
447,860

Purchases
 

 

 

Interest income
 
11,892

 
(62
)
 
11,830

Other income
 
1,242

 

 
1,242

Proceeds from repayments
 
(43,259
)
 
(172
)
 
(43,431
)
Proceeds from sales
 
(2,136
)
 

 
(2,136
)
Change in fair value
 
(3,612
)
 
(216
)
 
(3,828
)
Balance as of June 30, 2019
 
$
409,455

 
$
2,082

 
$
411,537


(A)
Specialized Loan Servicing LLC (“SLS”).

The following table presents activity related to the carrying value of New Residential’s investments in mortgage servicing rights financing receivables:
Balance as of December 31, 2018
 
$
1,644,504

Purchases, net(A)
 
397,538

Proceeds from sales
 
(9,113
)
Amortization of servicing rights(B)
 
(83,077
)
Change in valuation inputs and assumptions(C)
 
(7,912
)
(Gain)/loss on sales(D)
 
(801
)
Balance as of June 30, 2019
 
$
1,941,139


(A)
Net of purchase price adjustments.
(B)
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.
(C)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
(D)
Represents the realization of unrealized gain/(loss) as a result of sales.

The following is a summary of New Residential’s investments in mortgage servicing rights financing receivables as of June 30, 2019:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
78,168,877

 
5.2
 
$
736,708

 
$
745,523

Non-Agency
82,630,548

 
7.9
 
872,378

 
1,195,616

Total
$
160,799,425

 
6.6
 
$
1,609,086

 
$
1,941,139


(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, 2019, a weighted average discount rate of 9.5% was used to value New Residential’s investments in mortgage servicing rights financing receivables.

The following table presents activity related to the carrying value of New Residential’s investments in MSRs:
Balance as of December 31, 2018
 
$
2,884,100

Purchases, net(A)
 
400,909

Transfer Out(B)
 
(354
)
Originations(C)
 
94,349

Proceeds from sales
 

Amortization of servicing rights(D)
 
(181,515
)
Change in valuation inputs and assumptions(E)
 
(221,481
)
Balance as of June 30, 2019
 
$
2,976,008


(A)
Net of purchase price adjustments.
(B)
Represents Ginnie Mae MSRs repurchased.
(C)
Represents MSRs retained on the sale of originated mortgage loans.
(D)
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.
(E)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
The following is a summary of New Residential’s investments in MSRs as of June 30, 2019:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency(C)
$
245,510,334

 
5.2
 
$
2,505,292

 
$
2,621,004

Non-Agency
2,186,456

 
3.7
 
14,679

 
17,791

Ginnie Mae
29,012,692

 
4.6
 
360,112

 
337,213

Total
$
276,709,482

 
5.1
 
$
2,880,083

 
$
2,976,008


(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, 2019, a weighted average discount rate of 8.0% was used to value New Residential’s investments in MSRs.
(C)
Represents Fannie Mae and Freddie Mac MSRs.
Summary of Direct Investments in Excess MSRs
The following is a summary of New Residential’s direct investments in Excess MSRs:
 
June 30, 2019
 
December 31, 2018
 
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
$
48,657,313

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.5
 
$
193,893

 
$
231,092

 
$
257,387

Non-Agency(E)
$
49,887,579

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
6.3
 
$
134,698

 
$
180,445

 
$
190,473

Total
$
98,544,892

 
 
 
 
 
 
 
5.8
 
$
328,591

 
$
411,537

 
$
447,860

 
(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)
Serviced by Nationstar and SLS, New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of June 30, 2019 (Note 6) on $35.5 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,
 
 
2019
 
2018
 
2019
 
2018
Original and Recaptured Pools

$
(8,455
)
 
$
(5,276
)
 
$
(3,828
)
 
$
(50,967
)

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, 2019
 
December 31, 2018
Excess MSR assets
 
$
236,263

 
$
269,203

Other assets
 
31,360

 
27,411

Other liabilities
 
(687
)
 
(687
)
Equity
 
$
266,936

 
$
295,927

New Residential’s investment
 
$
133,468

 
$
147,964

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2019
 
2018
 
2019
 
2018
Interest income
 
$
190

 
$
6,864

 
$
4,261

 
$
12,091

Other income (loss)
 
(6,727
)
 
(3,453
)
 
(5,557
)
 
(7,635
)
Expenses
 
(15
)
 

 
(32
)
 

Net income (loss)
 
$
(6,552
)
 
$
3,411

 
$
(1,328
)
 
$
4,456


New Residential’s investments in equity method investees changed during the six months ended June 30, 2019 as follows:
Balance at December 31, 2018
$
147,964

Contributions to equity method investees

Distributions of earnings from equity method investees
(5,635
)
Distributions of capital from equity method investees
(8,197
)
Change in fair value of investments in equity method investees
(664
)
Balance at June 30, 2019
$
133,468



The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
 
June 30, 2019(A)
 
December 31, 2018(A)
Consumer loans, at fair value
 
$
409,379

 
$
231,560

Warrants, at fair value
 
108,963

 
103,067

Other assets
 
39,317

 
25,971

Warehouse financing
 
(336,817
)
 
(182,065
)
Other liabilities
 
(1,789
)
 
(1,142
)
Equity
 
$
219,053

 
$
177,391

Undistributed retained earnings
 
$

 
$

New Residential’s investment
 
$
53,207

 
$
42,875

New Residential’s ownership
 
24.3
%
 
24.2
%


 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2019(B)
 
2018(B)
 
2019(B)
 
2018(B)
Interest income
 
$
11,390

 
$
8,727

 
$
19,367

 
$
21,519

Interest expense
 
(3,665
)
 
(2,350
)
 
(6,487
)
 
(5,718
)
Change in fair value of consumer loans and warrants
 
(15,993
)
 
5,522

 
(1,457
)
 
19,074

Gain on sale of consumer loans
 
(1,222
)
 
1,553

 
(1,668
)
 
1,133

Other expenses
 
(1,462
)
 
(1,390
)
 
(2,918
)
 
(4,597
)
Net income
 
$
(10,952
)
 
$
12,062

 
$
6,837

 
$
31,411

New Residential’s equity in net income
 
$
(2,654
)
 
$
2,982

 
$
1,657

 
$
7,788

New Residential’s ownership
 
24.2
%
 
24.7
%
 
24.2
%
 
24.8
%

(A)
Data as of May 31, 2019 and November 30, 2018, respectively, as a result of the one month reporting lag.
(B)
Data for the periods ended May 31, 2019 and 2018, respectively, as a result of the one month reporting lag.

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, 2019(C)
$
414,530

 
25.0
%
 
$
409,379

 
14.6
%
 
1.3
 
1.4
%

(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, 2019 as a result of the one month reporting lag.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
Balance at December 31, 2018
$
38,294

Contributions to equity method investees
63,875

Distributions of earnings from equity method investees
(1,178
)
Distributions of capital from equity method investees
(77,162
)
Earnings from investments in consumer loans, equity method investees
1,657

Balance at June 30, 2019
$
25,486


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, 2019
 
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
$
38,336,238

 
66.7
%
 
50.0
%
 
$
177,772

 
$
236,263

 
5.4
 
(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.