Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENT (Tables)

v3.19.2
FAIR VALUE MEASUREMENT (Tables)
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Schedule of Carrying Values and Fair Values of Financial Assets Recorded at Fair Value on a Recurring Basis

The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of June 30, 2019 were as follows:
 
 
 
 
 
Fair Value
 
Principal Balance or Notional Amount
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
Investments in:
 
 
 
 
 
 
 
 
 
 
 
Excess mortgage servicing rights, at fair value(A)
$
98,544,892

 
$
411,537

 
$

 
$

 
$
411,537

 
$
411,537

Excess mortgage servicing rights, equity method investees, at fair value(A)
38,336,238

 
133,468

 

 

 
133,468

 
133,468

Mortgage servicing rights, at fair value(A)
276,709,482

 
2,976,008

 

 

 
2,976,008

 
2,976,008

Mortgage servicing rights financing receivables, at fair value
160,799,425

 
1,941,139

 



 
1,941,139

 
1,941,139

Servicer advance investments, at fair
    value
528,202

 
637,914

 

 

 
637,914

 
637,914

Real estate and other securities, available-for-sale
24,980,167

 
12,125,826

 


 
3,307,858

 
8,817,968

 
12,125,826

Residential mortgage loans, held-for-investment
600,247

 
524,234

 

 

 
522,514

 
522,514

Residential mortgage loans, held-for-sale
1,261,283

 
1,154,256

 

 

 
1,178,027

 
1,178,027

Residential mortgage loans, held-for-sale, at fair value
5,671,385

 
5,588,540

 

 
783,502

 
4,805,038

 
5,588,540

Residential mortgage loans, held-for-investment, at fair value
116,322

 
117,155

 

 

 
117,155

 
117,155

Residential mortgage loans subject to repurchase
141,581

 
141,581

 

 
141,581

 

 
141,581

Consumer loans, held-for-investment
937,633

 
938,956

 

 

 
955,076

 
955,076

Derivative assets
2,155,714

 
23,129

 

 
241

 
22,888

 
23,129

Cash and cash equivalents
406,038

 
406,038

 
406,038

 

 

 
406,038

Restricted cash
159,151

 
159,151

 
159,151

 

 

 
159,151

Other assets(B)
 
 
28,826

 
12,015

 

 
16,811

 
28,826

 
 
 
$
27,307,758

 
$
577,204

 
$
4,233,182

 
$
22,535,543

 
$
27,345,929

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements
$
21,481,285

 
$
21,480,245

 
$

 
$
21,481,285

 
$

 
$
21,481,285

Notes and bonds payable(C)
7,302,030

 
7,297,765

 

 

 
7,595,165

 
7,595,165

Residential mortgage loans repurchase liability
141,581

 
141,581

 

 
141,581

 

 
141,581

Derivative liabilities
20,774,879

 
18,980

 

 
17,628

 
1,352

 
18,980

Excess spread financing
3,275,632

 
28,078

 

 

 
28,078

 
28,078

Contingent consideration
N/A

 
45,569

 

 

 
45,569

 
45,569

 
 
 
$
29,012,218

 
$

 
$
21,640,494

 
$
7,670,164

 
$
29,310,658

 
(A)
The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR financing receivables and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.
(B)
Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of New Residential’s investment. The investment had a fair value of $90.4 million as of June 30, 2019.
(C)
Includes the SAFT 2013-1 mortgage-backed securities and the 2019-RPL1 asset-backed notes issued for which the fair value option for financial instruments was elected and resulted in a fair value of $484.4 million as of June 30, 2019.

Schedule of Financial Assets Measured at Fair Value on a Recurring Basis using Level 3 Inputs
New Residential’s assets measured at fair value on a recurring basis using Level 3 inputs changed as follows:
 
Level 3
 
 
 
Excess MSRs(A)
 
Excess MSRs in Equity Method Investees(A)(B)
 
MSRs(A)
 
Mortgage Servicing Rights Financing Receivable(A)
 
Servicer Advance Investments
 
Non-Agency RMBS
 
Derivatives(C)
 
Residential Mortgage Loans
 
 
 
Agency
 
Non-Agency
 
 
 
 
 
Total
Balance at December 31, 2018
$
257,387

 
$
190,473

 
$
147,964

 
$
2,884,100

 
$
1,644,504

 
$
735,846

 
$
8,970,963

 
$
10,628

 
$
2,330,627

 
$
17,172,492

Transfers(D)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transfers from Level 3

 

 

 

 

 

 

 

 
(15,579
)
 
(15,579
)
Transfers to Level 3

 

 

 

 

 

 

 

 
305,368

 
305,368

Shellpoint Acquisition (Note 1)

 

 

 


 


 

 

 


 

 

Gains (losses) included in net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in other-than-temporary impairment on securities(E)

 

 

 

 

 

 
(16,375
)
 

 

 
(16,375
)
Included in change in fair value of investments in excess mortgage servicing rights(E)
(1,391
)
 
(2,437
)
 

 

 

 

 

 

 

 
(3,828
)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(E)

 

 
(664
)
 

 

 

 

 

 

 
(664
)
Included in servicing revenue, net(F)

 

 

 
(402,996
)
 

 

 

 

 

 
(402,996
)
Included in change in fair value of investments in mortgage servicing rights financing receivables(E)

 

 

 

 
(91,790
)
 

 

 

 

 
(91,790
)
Included in change in fair value of servicer advance investments

 

 

 

 

 
9,291

 

 

 

 
9,291

Included in change in fair value of investments in residential mortgage loans

 

 

 

 

 

 

 

 
85,036

 
85,036

Included in gain (loss) on settlement of investments, net

 

 

 

 

 

 
13,455

 

 

 
13,455

Included in other income (loss), net(E)
861

 
381

 

 

 

 

 
14,064

 
10,908

 

 
26,214

Gains (losses) included in other comprehensive income(G)

 

 

 

 

 

 
234,537

 

 

 
234,537

Interest income
607

 
11,223

 

 

 

 
12,529

 
178,165

 

 

 
202,524

Purchases, sales and repayments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases

 

 

 
400,909

 
397,538

 
865,350

 
917,869

 

 
4,969,177

 
7,550,843

Proceeds from sales
(2,136
)
 

 

 

 
(9,113
)
 


 
(752,030
)
 

 
(3,517,742
)
 
(4,281,021
)
Proceeds from repayments
(24,236
)
 
(19,195
)
 
(13,832
)
 

 

 
(985,102
)
 
(742,680
)
 

 
(82,520
)
 
(1,867,565
)
Other

 

 

 
93,995

 

 

 

 

 
847,826

 
941,821

Balance at June 30, 2019
$
231,092

 
$
180,445

 
$
133,468

 
$
2,976,008

 
$
1,941,139

 
$
637,914

 
$
8,817,968

 
$
21,536

 
$
4,922,193

 
$
19,861,763

 
(A)
Includes the recapture agreement for each respective pool, as applicable.
(B)
Amounts represent New Residential’s portion of the Excess MSRs held by the respective joint ventures in which New Residential has a 50% interest.
(C)
For the purpose of this table, the IRLC asset and liability positions are shown net.
(D)
Transfers are assumed to occur at the beginning of the respective period.
(E)
The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates and realized gains (losses) recorded during the period.
(F)
The components of Servicing revenue, net are disclosed in Note 5.
(G)
These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.
Schedule of Financial Liabilities Measured at Fair Value on a Recurring Basis using Level 3 Inputs
New Residential’s liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
 
 
Level 3
 
 
 
 
Excess Spread Financing
 
Mortgage-Backed Securities Issued
 
Contingent Consideration
 
 
 
 
 
Total
Balance at December 31, 2018
 
$
39,304

 
$
117,048

 
$
40,842

 
$
197,194

Transfers(A)
 
 
 
 
 
 
 
 
Transfers from Level 3
 

 

 

 

Transfers to Level 3
 

 

 

 

Shellpoint Acquisition (Note 1)
 

 

 

 

Gains (losses) included in net income
 
 
 
 
 
 
 
 
Included in other-than-temporary impairment on securities(B)
 

 

 

 

Included in change in fair value of investments in excess mortgage servicing rights
 

 

 

 

Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(B)
 

 

 

 

Included in servicing revenue, net(C)
 
(11,487
)
 

 

 
(11,487
)
Included in change in fair value of investments in notes receivable - rights to MSRs
 

 

 

 

Included in change in fair value of servicer advance investments
 

 

 

 

Included in change in fair value of investments in residential mortgage loans
 

 
846

 

 
846

Included in gain (loss) on settlement of investments, net
 

 

 

 

Included in other income(B)
 

 
2,601

 
4,727

 
7,328

Gains (losses) included in other comprehensive income, net of tax(D)
 

 

 

 

Interest income
 

 

 

 

Purchases, sales and repayments
 
 
 
 
 
 
 
 
Purchases
 

 
378,569

 

 
378,569

Proceeds from sales
 

 

 

 

Proceeds from repayments
 

 
(14,623
)
 

 
(14,623
)
Other
 
261

 

 

 
261

Ocwen Transaction
 

 

 

 

Balance at June 30, 2019
 
$
28,078

 
$
484,441

 
$
45,569

 
$
558,088


(A)
Transfers are assumed to occur at the beginning of the respective period.
(B)
The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates and realized gains (losses) recorded during the period.
(C)
The components of Servicing revenue, net are disclosed in Note 5.
(D)
These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.

Summary of Measurement Inputs and Valuation Techniques
The following table summarizes certain information regarding the inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
CDR
 
Loss Severity
Acquired Loans
 
$
4,175,678

 
4.20%
 
6.8%
 
1.7%
 
30.6%
Originated Loans
 
629,360

 
3.25% - 4.50%
 
15.0% - 8.0%
 
0.0% - 6.0%
 
0.0% - 50.0%
Residential Mortgage Loans Held-for-Sale, at Fair Value
 
$
4,805,038

 

 

 

 


The following table summarizes certain information regarding the inputs used in valuing IRLCs:
 
 
Fair Value
 
Loan Funding Probability
 
Fair Value of initial servicing rights (bps)
IRLCs
 
$
21,536

 
54% to 100%
 
0 to 324

The following table summarizes certain information regards the inputs used in valuing Mortgage-Backed Securities Issued:
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
CDR
 
Loss Severity
Mortgage-Backed Securities Issued
 
$
484,441

 
2.93% to 5.35%
 
4.0% to 6.0%
 
0% to 4.0%
 
10.0% to 25.0%


The following table summarizes certain information regarding the inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
CDR
 
Loss Severity
Residential Mortgage Loans Held-for-Investment, at Fair Value
 
$
117,155

 
3.75%
 
8.0%
 
0.1%
 
20.0%

The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate(a)
 
CDR(b)
 
Loss Severity(c)
Non-Agency RMBS
 
$
6,156,136

 
1.98% to 28.00%
 
0.25% to 21.80%
 
0.25% to 9.00%
 
5.0% to 100%

(a)
Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)
Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.
The following table summarizes certain information regarding the weighted average inputs used as of June 30, 2019:
 
 
Significant Inputs(A)
 
 
Prepayment
Rate(B)
 
Delinquency(C)
 
Recapture
Rate(D)
 
Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)
 
Collateral Weighted Average Maturity (Years)(F)
Excess MSRs Directly Held (Note 4)
 
 
 
 
 
 
 
 
 
 
Agency

 
 
 
 
 
 
 
 
 
Original Pools

9.4
%
 
2.1
%
 
22.4
%
 
21

 
21
Recaptured Pools
 
13.0
%
 
0.9
%
 
35.9
%
 
22

 
23


10.2
%
 
1.8
%
 
25.4
%
 
21

 
21
Non-Agency(G)

 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
Original Pools

10.3
%
 
N/A

 
17.7
%
 
15

 
24
Recaptured Pools
 
8.2
%
 
N/A

 
18.4
%
 
23

 
24


10.0
%
 
N/A

 
17.8
%
 
16

 
24
Total/Weighted Average--Excess MSRs Directly Held

10.1
%
 
1.8
%
 
22.1
%
 
19

 
22


 
 
 
 
 
 
 
 
 
Excess MSRs Held through Equity Method Investees (Note 4)

 
 
 
 
 
 
 
 
 
Agency

 
 
 
 
 
 
 
 
 
Original Pools

10.1
%
 
2.7
%
 
25.3
%
 
19

 
20
Recaptured Pools
 
12.6
%
 
1.6
%
 
35.1
%
 
24

 
23
Total/Weighted Average--Excess MSRs Held through Investees

11.1
%
 
2.2
%
 
29.3
%
 
21

 
21
 
 
 
 
 
 
 
 
 
 
 
Total/Weighted Average--Excess MSRs All Pools
 
10.4
%
 
1.9
%
 
24.5
%
 
20

 
22
 
 
 
 
 
 
 
 
 
 
 
MSRs
 
 
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
Mortgage Servicing Rights(H) (I)
 
13.6
%
 
0.7
%
 
26.5
%
 
27

 
22
Mortgage Servicing Rights Financing Receivables
 
14.5
%
 
0.8
%
 
20.6
%
 
26

 
23
Non-Agency
 
 
 
 
 
 
 
 
 
 
Mortgage Servicing Rights
 
20.8
%
 
0.3
%
 
35.5
%
 
26

 
25
Mortgage Servicing Rights Financing Receivables
 
8.1
%
 
15.3
%
 
8.8
%
 
48

 
26
Ginnie Mae
 
 
 
 
 
 
 
 
 
 
Mortgage Servicing Rights(I)
 
16.2
%
 
5.0
%
 
32.4
%
 
34

 
27

(A)
Weighted by fair value of the portfolio.
(B)
Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(C)
Projected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.
(D)
Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.
(E)
Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in basis points (bps). A weighted average cost of subservicing of $6.55 per loan per month was used to value the agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $11.38 per loan per month was used to value the non-agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $9.59 per loan per month was used to value the Ginnie Mae MSRs.
(F)
Weighted average maturity of the underlying residential mortgage loans in the pool.
(G)
For certain pools, the Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO). For these pools, no delinquency assumption is used.
(H)
For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.
(I)
Includes valuation of the related Excess spread financing (Note 5).

Summary of Certain Information Regarding the Inputs used in Valuing the Servicer Advances
The following table summarizes certain information regarding the inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:
 
Significant Inputs
 
Weighted Average
 
 
 
 
Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Prepayment Rate(A)
 
Delinquency
 
Mortgage Servicing Amount(B)
 
Discount Rate
 
Collateral Weighted Average Maturity (Years)(C)
June 30, 2019
1.4
%
 
10.8
%
 
15.7
%
 
19.6

bps
5.5
%
 
23.5


(A)
Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)
Mortgage servicing amount is net of 9.9 bps which represents the amount New Residential paid its servicers as a monthly servicing fee.
(C)
Weighted average maturity of the underlying residential mortgage loans in the pool.
Schedule of Securities Valuation Methodology and Results
As of June 30, 2019, New Residential’s securities valuation methodology and results are further detailed as follows:
 
 
 
 
 
 
Fair Value
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Multiple Quotes(A)
 
Single Quote(B)
 
Total
 
Level
Agency RMBS
 
$
3,237,064

 
$
3,263,710

 
$
3,307,858

 
$

 
$
3,307,858

 
2

Non-Agency RMBS(C)
 
21,743,103

 
8,152,915

 
8,817,542

 
426

 
8,817,968

 
3

Total
 
$
24,980,167

 
$
11,416,625

 
$
12,125,400

 
$
426

 
$
12,125,826

 
 
 
(A)
New Residential generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. New Residential evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for non-agency RMBS, there is a wide disparity between the quotes New Residential receives. New Residential believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, it selects one of the quotes which is believed to more accurately reflect fair value. New Residential has not adjusted any of the quotes received in the periods presented. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase
the security at the quoted price. New Residential’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.

The third-party pricing services and brokers engaged by New Residential (collectively, “valuation providers”) use either the income approach or the market approach, or a combination of the two, in arriving at their estimated valuations of RMBS. Valuation providers using the market approach generally look at prices and other relevant information generated by market transactions involving identical or comparable assets. Valuation providers using the income approach create pricing models that generally incorporate such assumptions as discount rates, expected prepayment rates, expected default rates and expected loss severities. New Residential has reviewed the methodologies utilized by its valuation providers and has found them to be consistent with GAAP requirements. In addition to obtaining multiple quotations, when available, and reviewing the valuation methodologies of its valuation providers, New Residential creates its own internal pricing models for Level 3 securities and uses the outputs of these models as part of its process of evaluating the fair value estimates it receives from its valuation providers. These models incorporate the same types of assumptions as the models used by the valuation providers, but the assumptions are developed independently. These assumptions are regularly refined and updated at least quarterly by New Residential, and reviewed by its valuation group, which is separate from its investment acquisition and management group, to reflect market developments and actual performance.

For 69.8% of New Residential’s Non-Agency RMBS, the ranges of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate(a)
 
CDR(b)
 
Loss Severity(c)
Non-Agency RMBS
 
$
6,156,136

 
1.98% to 28.00%
 
0.25% to 21.80%
 
0.25% to 9.00%
 
5.0% to 100%

(a)
Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)
Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.
(B)
New Residential was unable to obtain quotations from more than one source on these securities.
(C)
Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.
Schedule of Inputs Used in Valuing Residential Mortgage Loans
The following table summarizes the inputs used in valuing these residential mortgage loans as of June 30, 2019:
 
 
Fair Value and Carrying Value
 
Discount Rate
 
Weighted Average Life (Years)(A)
 
Prepayment Rate
 
CDR(B)
 
Loss Severity(C)
Performing Loans
 
$
538,136

 
3.8
%
 
4.2
 
12.9
%
 
1.4
%
 
25.6
%
Non-Performing Loans
 
417,181

 
5.5
%
 
3.2
 
2.9
%
 
2.8
%
 
30.0
%
Total/Weighted Average
 
$
955,317

 
4.5
%
 
3.8
 
8.5
%
 
2.0
%
 
27.5
%

(A)
The weighted average life is based on the expected timing of the receipt of cash flows.
(B)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)
Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.