Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.19.3
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
9 Months Ended
Sep. 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
 
18,159

 
44

 
18,203

Other income
 
2,092

 

 
2,092

Proceeds from repayments
 
(63,794
)
 
(295
)
 
(64,089
)
Proceeds from sales
 
(4,581
)
 

 
(4,581
)
Change in fair value
 
(1,258
)
 
(163
)
 
(1,421
)
Balance as of September 30, 2019
 
$
395,946

 
$
2,118

 
$
398,064


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

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

 
$
1,644,504

 
$
4,528,604

Purchases, net(A)
 
632,144

 
735,152

 
1,367,296

Transfers(B)
 
367,121

 
(367,121
)
 

Other transfers(C)
 
(410
)
 

 
(410
)
Originations(D)
 
190,666

 

 
190,666

Prepayments(E)
 
(11,210
)
 
(52,499
)
 
(63,709
)
Proceeds from sales
 
(1,047
)
 
(15,575
)
 
(16,622
)
Amortization of servicing rights(F)
 
(351,867
)
 
(131,417
)
 
(483,284
)
Change in valuation inputs and assumptions(G)
 
(279,758
)
 
1,437

 
(278,321
)
(Gain)/loss on sales
 
2,229

 
(3,220
)
 
(991
)
Balance as of September 30, 2019
 
$
3,431,968

 
$
1,811,261

 
$
5,243,229


(A)
Net of purchase price adjustments.
(B)
Represents MSRs previously accounted for as MSR Financing Receivables. As a result of the length of the initial term of the related subservicing agreement between NRM and PHH, although the MSRs were legally sold, solely for accounting purposes, the purchase agreement was not treated as a sale under GAAP through June 30, 2019.
(C)
Represents Ginnie Mae MSRs repurchased.
(D)
Represents MSRs retained on the sale of originated mortgage loans.
(E)
Represents purchase price fully reimbursable from sellers as a result of prepayment protection.
(F)
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.
(G)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.
The following is a summary of New Residential’s investments in MSRs as of September 30, 2019:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
MSRs:
 
 
 
 
 
 
 
Agency
$
288,673,487

 
4.9
 
$
2,968,392

 
$
3,038,721

Non-Agency
2,350,471

 
5.6
 
12,294

 
20,321

Ginnie Mae(C)
28,903,327

 
4.0
 
383,454

 
372,926

MSR Financing Receivables:
 
 
 
 
 
 
 
Agency
61,162,569

 
4.3
 
659,950

 
597,990

Non-Agency
79,360,666

 
7.7
 
840,279

 
1,213,271

Total
$
460,450,520

 
5.2
 
$
4,864,369

 
$
5,243,229


(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 September 30, 2019, a weighted average discount rate of 7.5% and 8.8% was used to value New Residential’s investments in MSRs and MSR Financing Receivables, respectively.
(C)
NewRez, as an approved issuer of Ginnie Mae MBS, originates, sells and securitizes government-insured residential mortgage loans into Ginnie Mae guaranteed securitizations and NewRez retains the right to service the underlying residential mortgage loans. As the servicer, NewRez holds an option to repurchase delinquent loans from the securitization at its discretion. As of September 30, 2019, New Residential holds approximately $168.5 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its condensed consolidated balance sheets.

Summary of Direct Investments in Excess MSRs
The following is a summary of New Residential’s direct investments in Excess MSRs:
 
September 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
$
45,900,654

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.4
 
$
183,064

 
$
221,560

 
$
257,387

Non-Agency(E)
$
47,124,536

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
6.5
 
$
129,647

 
$
176,504

 
$
190,473

Total
$
93,025,190

 
 
 
 
 
 
 
5.9
 
$
312,711

 
$
398,064

 
$
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 September 30, 2019 (Note 6) on $33.4 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Original and Recaptured Pools

$
2,407

 
$
(4,744
)
 
$
(1,421
)
 
$
(55,711
)

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:
 
 
September 30, 2019
 
December 31, 2018
Excess MSR assets
 
$
236,786

 
$
269,203

Other assets
 
28,418

 
27,411

Other liabilities
 
(687
)
 
(687
)
Equity
 
$
264,517

 
$
295,927

New Residential’s investment
 
$
132,259

 
$
147,964

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Interest income
 
$
7,990

 
$
8,935

 
$
12,251

 
$
21,026

Other income (loss)
 
1,528

 
(2,143
)
 
(4,029
)
 
(9,778
)
Expenses
 
(16
)
 

 
(48
)
 

Net income (loss)
 
$
9,502

 
$
6,792

 
$
8,174

 
$
11,248


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

Contributions to equity method investees

Distributions of earnings from equity method investees
(7,762
)
Distributions of capital from equity method investees
(12,030
)
Change in fair value of investments in equity method investees
4,087

Balance at September 30, 2019
$
132,259



The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
 
September 30, 2019(A)
 
December 31, 2018(A)
Consumer loans, at fair value
 
$
1,632

 
$
231,560

Warrants, at fair value
 
106,378

 
103,067

Other assets
 
1,685

 
25,971

Warehouse financing
 

 
(182,065
)
Other liabilities
 
(118
)
 
(1,142
)
Equity
 
$
109,577

 
$
177,391

Undistributed retained earnings
 
$

 
$

New Residential’s investment
 
$
25,875

 
$
42,875

New Residential’s ownership
 
23.6
%
 
24.2
%


 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2019(B)
 
2018(B)
 
2019(B)
 
2018(B)
Interest income
 
$
636

 
$
16,513

 
$
20,003

 
$
38,032

Interest expense
 

 
(4,364
)
 
(6,487
)
 
(10,082
)
Change in fair value of consumer loans and warrants
 
(2,933
)
 
5,676

 
(4,390
)
 
24,750

Gain on sale of consumer loans(C)
 
(7,525
)
 
2,379

 
(9,193
)
 
3,512

Other expenses
 
(576
)
 
(1,604
)
 
(3,494
)
 
(6,201
)
Net income
 
$
(10,398
)
 
$
18,600

 
$
(3,561
)
 
$
50,011

New Residential’s equity in net income
 
$
(2,547
)
 
$
4,555

 
$
(890
)
 
$
12,343

New Residential’s ownership
 
24.5
%
 
24.5
%
 
25.0
%
 
24.7
%

(A)
Data as of August 31, 2019 and November 30, 2018, respectively, as a result of the one month reporting lag.
(B)
Data for the periods ended August 31, 2019 and 2018, respectively, as a result of the one month reporting lag.
(C)
During the nine months ended September 30, 2019, LoanCo sold, through securitizations which were treated as sales for accounting purposes, $406.1 million in UPB of consumer loans. LoanCo retained $83.9 million of residual interest in the securitizations and distributed them 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)
September 30, 2019(C)
$
1,226

 
25.0
%
 
$
1,632

 
18.7
%
 
1.0
 
%

(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 August 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
63,969

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
(890
)
Balance at September 30, 2019
$
23,033


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:
 
September 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
$
35,632,429

 
66.7
%
 
50.0
%
 
$
171,553

 
$
236,786

 
5.3
 
(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.