Quarterly report pursuant to Section 13 or 15(d)

SERVICER ADVANCE INVESTMENTS

v3.19.3
SERVICER ADVANCE INVESTMENTS
9 Months Ended
Sep. 30, 2019
Investments, All Other Investments [Abstract]  
SERVICER ADVANCE INVESTMENTS
SERVICER ADVANCE INVESTMENTS

All of New Residential’s Servicer Advance Investments are comprised of outstanding servicer advances, the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans, and the basic fee component of the related MSR. New Residential elected to record its Servicer Advance Investments, including the right to the basic fee component of the related MSRs, at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of market factors.

A taxable wholly-owned subsidiary of New Residential is the managing member of the Buyer and owned an approximately 73.2% interest in the Buyer as of September 30, 2019. As of September 30, 2019, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of September 30, 2019, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $325.0 million and $297.6 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.
 
See Note 5 regarding the New Ocwen Agreements. Subsequent to the New Ocwen Agreements, the Servicer Advance Investments serviced by Ocwen are accounted for as Servicer Advances Receivable, as described in Note 5.

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)
September 30, 2019
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
570,570

 
$
600,547

 
5.1
%
 
5.7
%
 
6.3
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 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2019

2018

2019

2018
Change in Fair Value of Servicer Advance Investments
 
$
6,641

 
$
(5,353
)
 
$
15,932

 
$
(86,581
)

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
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
33,406,320

 
$
492,480

 
1.5
%
 
$
449,731

 
87.3
%
 
86.1
%
 
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:


September 30, 2019

December 31, 2018
Principal and interest advances

$
82,999


$
108,317

Escrow advances (taxes and insurance advances)

185,774


238,349

Foreclosure advances

223,707


273,384

Total

$
492,480

 
$
620,050


 
Interest income recognized by New Residential related to its Servicer Advance Investments was comprised of the following:


Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,


2019

2018

2019

2018
Interest income, gross of amounts attributable to servicer compensation

$
14,212


$
21,183


$
43,220


$
63,731

Amounts attributable to base servicer compensation

(1,606
)

(2,347
)

(4,578
)

(6,354
)
Amounts attributable to incentive servicer compensation

(7,273
)

(7,095
)

(20,780
)

(14,255
)
Interest income from Servicer Advance Investments

$
5,333

 
$
11,741

 
$
17,862

 
$
43,122


New Residential has determined that the Buyer is a VIE. The following table presents information on the assets and liabilities related to this consolidated VIE.
 
 
As of
 
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
 
Servicer advance investments, at fair value
 
$
580,829

 
$
713,239

Cash and cash equivalents
 
36,457

 
29,833

All other assets
 
8,662

 
10,223

Total assets(A)
 
$
625,948

 
$
753,295

Liabilities
 
 
 
 
Notes and bonds payable
 
$
435,935

 
$
556,340

All other liabilities
 
2,021

 
2,442

Total liabilities(A)
 
$
437,956

 
$
558,782


(A)
The creditors of the Buyer do not have recourse to the general credit of New Residential and the assets of the Buyer are not directly available to satisfy New Residential’s obligations.

Others’ interests in the equity of the Buyer is computed as follows:
 
 
September 30, 2019
 
December 31, 2018
Total Advance Purchaser LLC equity
 
$
187,992

 
$
194,513

Others’ ownership interest
 
26.8
%
 
26.8
%
Others’ interest in equity of consolidated subsidiary
 
$
50,319

 
$
52,066


Others’ interests in the Buyer’s net income is computed as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Net Advance Purchaser LLC income
 
$
6,288

 
$
(299
)
 
$
16,678

 
$
8,667

Others’ ownership interest as a percent of total
 
26.8
%
 
27.1
%
 
26.8
%
 
27.2
%
Others’ interest in net income of consolidated subsidiaries
 
$
1,684

 
$
(81
)
 
$
4,466

 
$
2,358



See Note 11 regarding the financing of Servicer Advance Investments.