Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)

v3.19.2
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)
6 Months Ended
Jun. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Mortgage Servicing Rights Acquired
During the six months ended June 30, 2019, New Residential, through its wholly owned subsidiaries, completed the following MSR acquisitions (in millions):
Date of Acquisition
 
Collateral Type(A)
 
UPB
(in billions)
 
Purchase Price
February 28, 2019
 
 Agency
 
$
9.5

 
$
116.7

March 29, 2019
 
 Agency
 
10.0

 
126.9

April 2, 2019
 
 Agency
 
8.2

 
84.4

April 19, 2019
 
 Agency
 
18.5

 
230.5

May 21, 2019
 
 Agency
 
23.7

 
218.0

Various(B)
 
 Agency
 
4.6

 
65.1

Total
 
 
 
$
74.5

 
$
841.6


(A)
“Agency” represents Fannie Mae and Freddie Mac MSRs.
(B)
Represents Flow MSR acquisitions from Ditech and various counterparties for the six months ended June 30, 2019.
Fees Earned in Exchange for Servicing Financial Assets
Interest income from investments in mortgage servicing rights financing receivables was comprised of the following:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2019
 
2018
 
2019
 
2018
Servicing fee revenue
$
130,126

 
$
192,462

 
$
256,370

 
$
394,414

Ancillary and other fees
29,954

 
40,360

 
61,278

 
70,595

Less: subservicing expense
(49,577
)
 
(65,115
)
 
(105,239
)
 
(130,821
)
Interest income, investments in mortgage servicing rights financing receivables
$
110,503

 
$
167,707

 
$
212,409

 
$
334,188


Change in fair value of investments in mortgage servicing rights financing receivables was comprised of the following:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2019
 
2018
 
2019
 
2018
Amortization of servicing rights
$
(40,201
)
 
$
(56,840
)
 
$
(83,077
)
 
$
(105,543
)
Change in valuation inputs and assumptions(A)
(14,850
)
 
(62,263
)
 
(7,912
)
 
257,516

(Gain)/loss on sales(B)
(360
)
 

 
(801
)
 

Change in fair value of investments in mortgage servicing rights financing receivables
$
(55,411
)
 
$
(119,103
)
 
$
(91,790
)
 
$
151,973



(A)
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.
(B)
Represents the realization of unrealized gain/(loss) as a result of sales.
Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
2019
 
2018
 
2019
 
2018
Servicing fee revenue
$
196,249

 
$
131,286

 
$
379,275

 
$
250,509

Ancillary and other fees
52,813

 
27,714

 
92,550

 
51,061

Servicing fee revenue and fees
249,062

 
159,000

 
471,825

 
301,570

Amortization of servicing rights
(105,321
)
 
(65,439
)
 
(177,996
)
 
(120,566
)
Change in valuation inputs and assumptions(A) (B)
(229,278
)
 
52,632

 
(213,513
)
 
182,425

Servicing revenue, net
$
(85,537
)
 
$
146,193

 
$
80,316

 
$
363,429



(A)
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.
(B)
Includes $8.0 million of fair value adjustment to Excess spread financing for the six months ended June 30, 2019.

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 the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in MSRs
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and mortgage servicing rights financing receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
June 30, 2019
 
December 31, 2018
California
 
22.5
%
 
21.7
%
New York
 
6.9
%
 
7.8
%
Florida
 
6.9
%
 
6.9
%
Texas
 
5.2
%
 
5.3
%
New Jersey
 
4.7
%
 
5.0
%
Illinois
 
3.7
%
 
3.7
%
Washington
 
3.4
%
 
2.3
%
Massachusetts
 
3.4
%
 
3.5
%
Maryland
 
3.1
%
 
3.4
%
Georgia
 
3.0
%
 
3.0
%
Other U.S.
 
37.2
%
 
37.4
%
 
 
100.0
%
 
100.0
%

Summary of Investments in Servicer Advances
The following types of advances are included in the Servicer Advances Receivable:
 
 
June 30, 2019
 
December 31, 2018
Principal and interest advances
 
$
844,704

 
$
793,790

Escrow advances (taxes and insurance advances)
 
1,940,290

 
2,186,831

Foreclosure advances
 
181,871

 
199,203

Total(A) (B) (C)
 
$
2,966,865

 
$
3,179,824


(A)
Includes $266.0 million and $231.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Includes $58.4 million and $41.6 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from Ginnie Mae. Reserves for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a nonreimbursable advance loss assumption.
(C)
Net of $80.3 million and $98.0 million, respectively, in accrual for advance recoveries.
The following is a summary of New Residential’s Servicer Advance Investments, 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, 2019
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
614,578

 
$
637,914

 
5.5
%
 
5.8
%
 
6.2
As of December 31, 2018
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
721,801

 
$
735,846

 
5.9
%
 
5.8
%
 
5.7
  
(A)
Carrying value represents the fair value of the Servicer Advance Investments, 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.

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2019

2018

2019

2018
Change in Fair Value of Servicer Advance Investments
 
$
1,388

 
$
(1,752
)
 
$
9,291

 
$
(81,228
)

The following is additional information regarding the Servicer Advance Investments 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, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
35,458,272

 
$
528,202

 
1.5
%
 
$
484,219

 
87.5
%
 
86.3
%
 
3.8
%
 
3.1
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
40,096,998

 
$
620,050

 
1.5
%
 
$
574,117

 
88.3
%
 
87.2
%
 
3.7
%
 
3.1
%
 
(A)
Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(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 are included in the Servicer Advance Investments:


June 30, 2019

December 31, 2018
Principal and interest advances

$
92,164


$
108,317

Escrow advances (taxes and insurance advances)

197,703


238,349

Foreclosure advances

238,335


273,384

Total

$
528,202

 
$
620,050