Quarterly report pursuant to Section 13 or 15(d)

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

v3.19.3
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES (Tables)
9 Months Ended
Sep. 30, 2019
Equity Method Investments and Joint Ventures [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.

Fees Earned in Exchange for Servicing Financial Assets
Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2019
 
2018
 
2019
 
2018
Servicing fee revenue
$
222,966

 
$
158,458

 
$
602,241

 
$
408,967

Ancillary and other fees
58,489

 
43,638

 
151,039

 
94,699

Servicing fee revenue and fees
281,455

 
202,096

 
753,280

 
503,666

Amortization of servicing rights
(168,776
)
 
(70,933
)
 
(346,772
)
 
(191,499
)
Change in valuation inputs and assumptions(A) (B)
(61,858
)
 
44,192

 
(275,371
)
 
226,617

(Gain)/loss on sales
2,229

 

 
2,229

 

Servicing revenue, net
$
53,050

 
$
175,355

 
$
133,366


$
538,784



(A)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.
(B)
Includes $3.6 million and $4.4 million of fair value adjustment to Excess spread financing for the three and nine months ended September 30, 2019, respectively.

Interest income from investments in MSR Receivables was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2019
 
2018
 
2019
 
2018
Servicing fee revenue
$
128,936

 
$
181,495

 
$
385,306

 
$
575,909

Ancillary and other fees
21,417

 
39,257

 
82,695

 
109,852

Less: subservicing expense
(40,410
)
 
(61,454
)
 
(145,649
)
 
(192,275
)
Interest income, investments in mortgage servicing rights financing receivables
$
109,943

 
$
159,298

 
$
322,352

 
$
493,486


Change in fair value of investments in MSR Financing Receivables was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2019
 
2018
 
2019
 
2018
Amortization of servicing rights
$
(48,340
)
 
$
(49,016
)
 
$
(131,417
)
 
$
(154,559
)
Change in valuation inputs and assumptions(A)
9,349

 
(39,329
)
 
1,437

 
218,187

(Gain)/loss on sales(B)
(2,419
)
 

 
(3,220
)
 

Change in fair value of investments in mortgage servicing rights financing receivables
$
(41,410
)
 
$
(88,345
)
 
$
(133,200
)
 
$
63,628


(A)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.
(B)
Represents the realization of unrealized gain/(loss) as a result of sales.
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 MSR Financing Receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
September 30, 2019
 
December 31, 2018
California
 
23.0
%
 
21.7
%
Florida
 
6.8
%
 
6.9
%
New York
 
6.8
%
 
7.8
%
Texas
 
5.2
%
 
5.3
%
New Jersey
 
5.0
%
 
5.0
%
Illinois
 
3.6
%
 
3.7
%
Washington
 
3.5
%
 
2.3
%
Massachusetts
 
3.3
%
 
3.5
%
Maryland
 
3.1
%
 
3.4
%
Georgia
 
3.0
%
 
3.0
%
Other U.S.
 
36.7
%
 
37.4
%
 
 
100.0
%
 
100.0
%

Summary of Investments in Servicer Advances
The following types of advances are included in the Servicer Advances Receivable:
 
 
September 30, 2019
 
December 31, 2018
Principal and interest advances
 
$
723,155

 
$
793,790

Escrow advances (taxes and insurance advances)
 
1,945,271

 
2,186,831

Foreclosure advances
 
173,032

 
199,203

Total(A) (B) (C)
 
$
2,841,458

 
$
3,179,824


(A)
Includes $243.0 million and $231.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Includes $62.7 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 $70.3 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)
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