Annual report pursuant to Section 13 and 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

v3.19.3.a.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP’’ or “US GAAP”). The consolidated financial statements include the accounts of New Residential and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. New Residential consolidates those entities in which it has control over significant operating, financial and investing decisions of the entity, as well as those entities deemed to be variable interest entities (“VIEs”) in which New Residential is determined to be the primary beneficiary. For entities over which New Residential exercises significant influence, but which do not meet the requirements for consolidation, New Residential uses the equity method of accounting whereby it records its share of the underlying income of such entities. Distributions from equity method investees are classified in the Statements of Cash Flows based on the cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Risks and Uncertainties — In the normal course of business, New Residential encounters primarily two significant types of economic risk: credit and market. Credit risk is the risk of default on New Residential’s investments that results from a borrower’s or counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes in prepayment rates, interest rates, spreads or other market factors, including risks that impact the value of the collateral underlying New Residential’s investments. New Residential believes that the carrying values of its investments are reasonable taking into consideration these risks along with estimated prepayments, financings, collateral values, payment histories, and other information. Furthermore, for each of the periods presented, a significant portion of New Residential’s assets are dependent on its servicers’ and subservicers’ ability to perform their obligations servicing the loans underlying New Residential’s Excess MSRs, MSRs, MSR Financing Receivables, Servicer Advance Investments, Non-Agency RMBS and loans. If a servicer is terminated, New Residential’s right to receive its portion of the cash flows related to interests in servicing related assets may also be terminated.

Additionally, New Residential is subject to significant tax risks. If New Residential were to fail to qualify as a REIT in any taxable year, New Residential would be subject to U.S. federal corporate income tax (including any applicable alternative minimum tax), which could be material. Unless entitled to relief under certain statutory provisions, New Residential would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income — Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. For New Residential’s purposes, comprehensive income represents net income, as presented in the Consolidated Statements of Income, adjusted for unrealized gains or losses on securities available for sale.

INCOME RECOGNITION

Investments in Excess Mortgage Servicing Rights — Excess MSRs are aggregated into pools as applicable; each pool of Excess MSRs is accounted for in the aggregate. Interest income for Excess MSRs is accreted into interest income on an effective yield or “interest” method, based upon the expected excess mortgage servicing amount through the expected life of the underlying mortgages. Changes to expected cash flows result in a cumulative retrospective adjustment, which will be recorded in the period in which the change in expected cash flows occurs. Under the retrospective method, the interest income recognized for a reporting period is measured as the difference between the amortized cost basis at the end of the period and the amortized cost basis at the beginning of the period, plus any cash received during the period. The amortized cost basis is calculated as the present value of estimated future cash flows using an effective yield, which is the yield that equates all past actual and current estimated future cash flows to the initial investment. In addition, New Residential’s policy is to recognize interest income only on its Excess MSRs in existing eligible underlying mortgages. The difference between the fair value of Excess MSRs and their amortized cost basis is recorded as “Change in fair value of investments in excess mortgage servicing rights.” Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the Excess MSRs, and therefore may differ from their effective yields.

Investments in MSRs — MSRs are aggregated into pools as applicable; each pool of MSRs is accounted for in the aggregate. Income from MSRs is recorded in “Servicing revenue, net” and is comprised of three components: (i) income receivable from the MSRs, less (ii) amortization of the basis of the MSRs, plus or minus (iii) the mark-to-market on the MSRs. Amortization of the basis of the MSRs is based on the remaining UPB of the residential mortgage loans underlying the MSRs relative to their UPB at acquisition. Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the MSRs.

Investments in MSR Financing Receivables — In certain cases, New Residential has legally purchased MSRs or the right to the economic interest in MSRs; however, New Residential has determined that the purchase agreement would not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, New Residential records an investment in mortgage servicing rights financing receivables. Income from this investment (net of subservicing fees) is recorded as interest income, and New
Residential has elected to measure the investment at fair value, with changes in fair value flowing through change in fair value of investments in mortgage servicing rights financing receivables in the Consolidated Statements of Income.

Servicer Advance Investments — New Residential accounts for its Servicer Advance Investments similarly to its investments in Excess MSRs. Interest income for Servicer Advance Investments is accreted into interest income on an effective yield or “interest” method, based upon the expected aggregate cash flows of the Servicer Advance Investments, including the basic fee component of the related MSR (but excluding any Excess MSR component) through the expected life of the underlying mortgages, net of a portion of the basic fee component of the MSR that New Residential remits to the servicer as compensation for the servicer’s servicing activities. Changes to expected cash flows result in a cumulative retrospective adjustment, which will be recorded in the period in which the change in expected cash flows occurs. Refer to “—Investments in Excess Mortgage Servicing Rights” for a description of the retrospective method. Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the Servicer Advance Investments, and therefore may differ from their effective yields.

Investments in Real Estate and Other Securities — Discounts or premiums are accreted into interest income on an effective yield or “interest” method, based upon a comparison of actual and expected cash flows, through the expected maturity date of the security. For securities acquired at a discount for credit quality (i.e., where it is probable at acquisition that New Residential will not collect all contractually required interest and principal repayments), the difference between contractual cash flows and expected cash flows at acquisition is not accreted (non-accretable difference). For these securities, the excess of expected cash flows over the carrying value (accretable yield) is recognized as interest income on an effective yield basis.

Depending on the nature of the investment, changes to expected cash flows may result in a prospective change to yield or a retrospective change which would include a catch up adjustment. Deferred fees and costs, if any, are recognized as an adjustment to the interest income over the terms of the securities using the interest method. Upon settlement of securities, the specific identification method is used to determine the excess (or deficiency) of net proceeds over the net carrying value of such security recognized as a realized gain (or loss) in the period of settlement.

Investments in Residential Mortgage Loans, REO and Consumer Loans — New Residential evaluates the credit quality of its loans, as of the acquisition date, for evidence of credit quality deterioration. Loans with evidence of credit deterioration since their origination, and where it is probable that New Residential will not collect all contractually required principal and interest payments, are Purchased Credit Deteriorated (“PCD”) loans. At acquisition, New Residential aggregates PCD loans into pools based on common risk characteristics and the aggregated loans are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows. The excess of the total cash flows (both principal and interest) expected to be collected over the carrying value of the PCD loans is referred to as the accretable yield. This amount is not reported on New Residential’s Consolidated Balance Sheets but is accreted into interest income at a level rate of return over the remaining estimated life of the pool of loans.

Loans where New Residential expects to collect all contractually required principal and interest payments are considered performing loans. Interest income on performing loans is accrued and recognized as interest income at their effective yield, which includes contractual interest and the amortization of purchase price discount or premium and deferred fees or expenses, and considers anticipated prepayment rates.

Loans acquired with the intent to sell and loans not acquired with the intent to sell that New Residential decides to sell are classified as held-for-sale. Loans held-for-sale are measured at the lower of cost or fair value, with valuation changes recorded in impairment. Purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred discounts or premiums are an adjustment to the basis of the loan and are included in the quarterly determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.

Residential mortgage loans, held-for-sale, at fair value are originated or acquired loans for which New Residential has elected to account for at fair value. Accordingly, we estimate the fair value of the residential mortgage loans, held-for-sale, at fair value at each reporting date and reflect the change in the fair value in the Consolidated Statements of Income.

For originated residential mortgage loans measured at fair value, we report the change in the fair value within gain on originated mortgage loans, held-for-sale, net in the consolidated statements of income. Fair value is generally determined using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to
approximate the fair value of a whole mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics.

For acquired residential mortgage loans measured at fair value, we report the change in the fair value within change in fair value of investments in residential mortgage loans in the consolidated statements of income. Fair value is generally determined by discounting the expected future cash flows using inputs such as default rates, prepayment speeds and discount rates.

Interest earned on residential mortgage loans measured at fair value are reported in other income.

Real estate owned (“REO”) assets are those individual properties acquired by New Residential or where New Residential receives the property in satisfaction of a debt (e.g., by taking legal title or physical possession). New Residential measures REO assets at the lower of cost or fair value, with valuation changes recorded in other income or impairment, as applicable.

Impairment of Securities — Securities are considered to be impaired when it is probable that New Residential will be unable to collect all principal or interest when due according to the contractual terms of the original agreements, or for securities purchased at a discount for credit quality or that represent retained beneficial interests in securitizations, when New Residential determines that it is probable that it will be unable to collect as anticipated.

The evaluation of a security’s estimated cash flows includes the following, as applicable: (i) review of the credit of the issuer or borrower, (ii) review of the credit rating of the security, (iii) review of the key terms of the security or underlying loans, (iv) review of the performance of the underlying loans, including debt service coverage and loan to value ratios, (v) analysis of the value of the underlying loans, (vi) analysis of the effect of local, industry and broader economic factors, and (vii) analysis of historical and anticipated trends in defaults, loss severities and prepayments for similar securities or underlying loans. New Residential must record a write down if it has the intent to sell a given security in an unrealized loss position, or if it is more likely than not that it will be required to sell such a security. Upon determination of impairment, New Residential records a direct write down for securities based on the estimated fair value of the security or underlying collateral using a discounted cash flow analysis or based on an observable market value. Subsequent to a determination of impairment, and a related write down, income on securities is accrued on an effective yield method from the new carrying value to the related expected cash flows, with cash received treated as a reduction of basis.

Impairment of Loans — To the extent that they are classified as held-for-investment, New Residential must periodically evaluate each of these loans or loan pools for possible impairment. Impairment is indicated when it is deemed probable that New Residential will be unable to collect all amounts due according to the contractual terms of the loan, or for PCD loans, when it is deemed probable that New Residential will be unable to collect as anticipated. Upon determination of impairment, New Residential establishes an allowance for loan losses with a corresponding charge to earnings.

Performing loans are aggregated into pools for the evaluation of impairment based on like characteristics, such as loan type and acquisition date. Pools of loans are evaluated based on criteria such as an analysis of borrower performance, credit ratings of borrowers, loan to value ratios, the estimated value of the underlying collateral, if any, the key terms of the loans and historical and anticipated trends in defaults and loss severities for the type and seasoning of loans being evaluated. This information is used to estimate provisions for estimated unidentified incurred losses on pools of loans. Significant judgment is required in determining impairment and in estimating the resulting loss allowance.

For PCD loans, New Residential estimates the total cash flows expected to be collected over the remaining life of each pool. Probable decreases in expected cash flows trigger the recognition of impairment. Impairments are recognized through the provision for loans and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated lives of the underlying loans.

A loan is determined to be past due when a monthly payment is due and unpaid for 30 days or more. Loans, other than PCD loans, are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan. New Residential’s ability to recognize
interest income on nonaccrual loans as cash interest payments are received rather than as a reduction of the carrying value of the loans is based on the recorded loan balance being deemed fully collectible.

Loans held-for-sale are subject to the nonaccrual policy described above, however, as loans held-for-sale are recognized at the lower of cost or fair value, New Residential’s allowance for loan losses and charge-off policies do not apply to these loans.

Accretion and Other Amortization — As reflected on the consolidated statements of cash flows, this item is comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Accretion of net discount on securities and loans(A)
$
323,652

 
$
452,500

 
$
398,213

Accretion of servicer advances receivable discount and servicer advance investments
28,094

 
214,876

 
542,983

Accretion of excess mortgage servicing rights income
32,647

 
44,440

 
103,053

Amortization of deferred financing costs
(4,019
)
 
(7,795
)
 
(12,076
)
Amortization of discount on notes and bonds payable
(1,245
)
 
(2,054
)
 
(789
)
 
$
379,129

 
$
701,967

 
$
1,031,384



(A)    Includes accretion of the accretable yield on PCD loans.

Other Income (Loss), Net — This item is comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Unrealized gain (loss) on other ABS
$
2,101

 
$
10,283

 
$
2,883

Unrealized gain (loss) on notes and bonds payable
(1,236
)
 
(684
)
 

Unrealized gain (loss) on contingent consideration
(10,487
)
 
(1,581
)
 

Gain (loss) on transfer of loans to REO
11,842

 
19,519

 
22,938

Gain (loss) on transfer of loans to other assets
(1,144
)
 
(1,977
)
 
488

Gain (loss) on Excess MSR recapture agreements
2,294

 
979

 
2,384

Gain (loss) on Ocwen common stock
174

 
(10,860
)
 
5,346

Bargain Purchase Gain(A)
49,539

 

 

Rental and Ancillary Revenue
21,181

 

 

Other income (loss)
(30,115
)
 
(26,457
)
 
(27,741
)
 
$
44,149

 
$
(10,778
)
 
$
6,298



(A)    Partly driven by certain transition, integration, relocation and training costs incurred by the Ditech Acquisition (Note 3).

Gain (Loss) on Settlement of Investments, Net — This item is comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Gain (loss) on sale of real estate securities, net
$
205,989

 
$
(29,936
)
 
$
20,642

Gain (loss) on sale of acquired residential mortgage loans, net
153,174

 
(7,677
)
 
39,731

Gain (loss) on settlement of derivatives
(129,923
)
 
54,867

 
(39,214
)
Gain (loss) on liquidated residential mortgage loans
(4,872
)
 
(3,734
)
 
(10,201
)
Gain (loss) on sale of REO
(11,521
)
 
(12,424
)
 
(9,215
)
Gains on settlement of investments in excess MSRs and servicer advance investments

 
113,002

 
11,320

Other gains (losses)
12,840

 
(19,013
)
 
(2,753
)
 
$
225,687

 
$
95,085

 
$
10,310



EXPENSE RECOGNITION

Interest Expense — New Residential finances certain investments using floating rate repurchase agreements and loans. Interest is expensed as incurred.

General and Administrative Expenses, Loan Servicing Expense and Subservicing Expense — General and administrative expense primarily include employee compensation, legal fees, audit fees, insurance premiums, and other costs, as well as loan servicing and subservicing expenses, and are expensed as incurred. General and Administrative Expenses is comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Compensation and benefits expense, servicing
$
121,004

 
$
47,084

 
$
184

Compensation and benefits expense, origination
164,485

 
62,786

 

Legal and professional expense
89,489

 
45,234

 
40,182

Loan origination expense
59,418

 
16,050

 

Occupancy expense
19,388

 
8,868

 

Other(A)
84,251

 
51,557

 
26,793

 
$
538,035

 
$
231,579

 
$
67,159


(A)    Represents miscellaneous general and administrative expenses.

Management Fee and Incentive Compensation to Affiliate — These represent amounts due to the Manager pursuant to the Management Agreement. For further information on the Management Agreement, see Note 17.

BALANCE SHEET MEASUREMENT

Investments in Servicing Related Assets — Servicing related assets consist of New Residential’s Excess MSRs, MSRs, MSR Financing Receivables, and Servicer Advance Investments. Upon acquisition, New Residential has elected to record each of such investments at fair value. New Residential elected to record its investments at fair value in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on servicing related assets. Under this election, New Residential records a valuation adjustment on its investments in servicing related assets on a quarterly basis to recognize the changes in fair value in net income as described in “Income Recognition — Investments in Excess Mortgage Servicing Rights,” “Income Recognition — Investments in MSRs” and “Income Recognition — Servicer Advance Investments.”

The Company recognizes MSRs created through the sale of loans it originates. Under the accounting guidance for transfers and servicing, the Company initially measures a mortgage servicing asset that qualifies for separate recognition at fair value on the date of transfer.

Investments in Real Estate and Other Securities — New Residential has classified its investments in real estate and other securities as available for sale. Securities available for sale are carried at market value with the net unrealized gains or losses reported as a separate component of accumulated other comprehensive income, to the extent impairment losses are considered temporary. At disposition, the net realized gain or loss is determined on the basis of the amortized cost of the specific investments and is included in earnings. Unrealized losses on securities are charged to earnings if they reflect a decline in value that is other-than-temporary.

Investments in Residential Mortgage Loans and Consumer Loans — Loans for which New Residential has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified as held-for-investment. Performing loans held-for-investment are presented at the aggregate unpaid principal balance adjusted for any unamortized premium or discount, deferred fees or expenses, an allowance for loan losses, charge-offs and write-down for impaired loans. PCD loans held-for-investment are initially recorded at their purchase price at acquisition and are subsequently measured net of any allowance for loan losses. To the extent that the loans are classified as held-for-investment, New Residential periodically evaluates such loans for possible impairment as described in “—Impairment of Loans.”

Loans which New Residential does not have the intent or the ability to hold into the foreseeable future are considered held-for-sale and are either carried at (i) the lower of their amortized cost basis or fair value or (ii) fair value where elected. New Residential discontinues the accretion of discounts or amortization of premiums on loans if they are reclassified from held-for-investment to held-for-sale.

Mortgage Loan Repurchases — 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 (the “Ginnie Mae Buy-Back Option”). In accordance with the accounting guidance in ASC 860, NewRez recognizes any delinquent loans subject to the Ginnie Mae Buy-Back Option and an offsetting repurchase liability on its balance sheet regardless of whether NewRez executes its option to repurchase.

Cash and Cash Equivalents and Restricted Cash — New Residential considers all highly liquid short-term investments with maturities of 90 days or less when purchased to be cash equivalents. Substantially all amounts on deposit with major financial institutions exceed insured limits. As of December 31, 2019 and 2018, New Residential held: (i) $64.0 million and $60.0 million, respectively, of restricted cash related to the financing of servicer advances that has been pledged to the note holders for interest and fees payable, (ii) $0.0 million and $1.9 million, respectively, of restricted cash related to financing requirements of the corporate notes secured by Excess MSRs (Note 12), (iii) $4.7 million and $4.1 million, respectively, of restricted cash related to Ginnie Mae Excess MSRs, (iv) $32.4 million and $37.6 million, respectively, of restricted cash related to the financing of consumer loans, and (v) $61.1 million and $60.4 million, respectively, of restricted cash related to MSRs.

Servicer Advances Receivable — Represents servicer advances due to New Residential’s servicer subsidiary, NRM (Note 6). The servicer advances receivable purchased in conjunction with MSRs are recorded with purchase discounts. Subsequent advances are recorded at cost, subject to impairment. Any related purchase discounts are accreted into servicing revenue, net (MSRs) or interest income (MSR financing receivables) on a straight-line basis over the estimated weighted average life of the advances.

Income Taxes — New Residential operates so as to qualify as a REIT under the requirements of the Internal Revenue Code of 1986, as amended. Requirements for qualification as a REIT include various restrictions on ownership of New Residential’s stock, requirements concerning distribution of taxable income and certain restrictions on the nature of assets and sources of income. A REIT must distribute at least 90% of its taxable income to its stockholders (subject to certain adjustments). Distributions may extend until timely filing of New Residential’s tax return in the subsequent taxable year. Qualifying distributions of taxable income are deductible by a REIT in computing taxable income.

Certain activities of New Residential are conducted through taxable REIT subsidiaries (“TRSs”) and therefore are subject to federal and state income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases upon the change in tax status. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

New Residential recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the consolidated statements of operations.

Other Assets and Other Liabilities — Other assets and liabilities are comprised of the following:
 
Other Assets
 
 
Accrued Expenses and Other Liabilities
 
December 31,
 
 
December 31,
 
2019
 
2018
 
 
2019
 
2018
Margin receivable, net(A)
$
280,176

 
$
145,857

 
MSRs purchase price holdback
75,348

 
100,593

Servicing fee receivables
159,607

 
105,563

 
Interest payable
68,668

 
49,352

Due from servicers
163,961

 
95,261

 
Accounts payable
119,771

 
75,591

Principal and interest receivable
85,191

 
76,015

 
Derivative liabilities (Note 11)
6,885

 
29,389

Equity investment(B)
114,763

 
74,323

 
Due to servicers
127,846

 
95,419

Other receivables
117,045

 
23,723

 
Residential mortgage loan repurchase liability
172,336

 
121,602

Real Estate Owned
93,672

 
113,410

 
Contingent Consideration
55,222

 
40,842

Single-family rental properties
24,133

 

 
Accrued Compensation and Benefits
41,228

 
17,656

Residential mortgage loans subject to repurchase
172,336

 
121,602

 
Excess spread financing, at fair value
31,777

 
39,304

Consumer loans, equity method investees (Note 10)

 
38,294

 
Operating lease liability
38,520

 

Goodwill
29,737

 
24,645

 
Reserve for sales recourse
12,549

 
5,880

Notes Receivable(D)
37,001

 

 
Other liabilities
22,976

 
36,484

Warrants
28,042

 

 
 
$
773,126

 
$
612,112

Recovery asset(E)
23,100

 

 
 
 
 
 
Property and equipment
18,018

 
11,263

 
 
 
 
 
Receivable from government agency(C)
19,670

 
20,795

 
 
 
 
 
Intangible assets
40,963

 
18,708

 
 
 
 
 
Prepaid expenses
19,249

 
29,165

 
 
 
 
 
Operating lease right-of-use asset
32,120

 

 
 
 
 
 
Derivative assets (Note 11)
41,501

 
10,893

 
 
 
 
 
Ocwen common stock, at fair value
7,952

 
7,778

 
 
 
 
 
Other assets
51,230

 
44,419

 
 
 
 
 
 
$
1,559,467

 
$
961,714

 
 
 
 
 
 
(A)
Represents collateral posted primarily as a result of changes in fair value of our 1) real estate securities securing our repurchase agreements and 2) derivative instruments.
(B)
Represents equity investments in funds that invest in 1) a commercial redevelopment project and 2) operating companies in the single family housing industry. The indirect investments are accounted for at fair value based on the net asset value (“NAV”) of New Residential’s investment and as an equity method investment, respectively.
(C)
Represents claims receivable from the FHA on EBO and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.
(D)
Represents a four-year subordinated debt facility to Covius (Note 3).
(E)
Represents post loan charge off deficiency balances acquired through the Ditech Acquisition (Note 3).

Goodwill — As a result of the Shellpoint and Guardian acquisitions, New Residential recorded goodwill for the consideration transferred in excess of the fair value of the net identifiable assets acquired. New Residential performs an annual assessment of
goodwill on October 1 and in interim periods in case of events or circumstances that make it more likely than not that an impairment may have occurred. New Residential did not recognize any impairment this year.

Intangible Assets — As a result of the Shellpoint, Guardian and Ditech acquisitions, New Residential identified intangible assets in the form of licenses, customer relationships, business relationships, and tradename. New Residential recorded the intangible assets at fair value at the acquisition date and will amortize the value of finite lived intangibles into expense over the expected useful life. The licenses acquired as part of the Shellpoint acquisition and the tradename acquired as part of the Guardian acquisition were deemed to have an indefinite useful life and will be evaluated for impairment on a quarterly basis and the fair value will be assessed annually and in interim periods if indicators of impairment exist. New Residential performs an annual assessment of impairment on October 1 and in interim periods in case of events or circumstances that make it more likely than not that an impairment may have occurred. New Residential did not recognize any impairment this year.

Repurchase Agreements and Notes and Bonds Payable — New Residential’s repurchase agreements are generally short-term debt that expire within one year. Such agreements and notes and bonds payable are carried at their contractual amounts, as specified by each repurchase or financing agreement, and generally treated as collateralized financing transactions.

Mortgage Origination Reserves — NewRez originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. In connection with the transfer of loans to the GSEs or mortgage investors, NewRez provides representations and warranties regarding certain attributes of the loans and, subsequent to the sale, if it is determined that a sold loan is in breach of these representations and warranties, NewRez generally has an obligation to cure the breach. If NewRez is unable to cure the breach, the purchaser may require NewRez to repurchase the loan. New Residential records a reserve for sales recourse at the time of sale to cover all potential recourse obligations based on the outstanding balance of mortgage loans subject to recourse as well as historical and estimated future loss rates. New Residential evaluates the ongoing adequacy of the reserve based on actual experience and changing circumstances, making adjustments to the reserve as deemed necessary.

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-01 resulted in the fair valuation of an equity investment on its consolidated balance sheet where New Residential did not have significant influence on its consolidated balance sheet and did not have a material impact on its consolidated statement of income.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that lessees recognize a right-of-use asset and corresponding lease liability on the balance sheet for most leases. The guidance applied by a lessor under ASU No. 2016-02 is substantially similar to existing GAAP. ASU No. 2016-02 is effective for New Residential in the first quarter of 2019. Early adoption is permitted upon issuance. An entity should apply ASU No. 2016-02 by means of a modified retrospective transition method for all leases existing at, or entered into after, the date of initial application. The adoption of ASU No. 2016-02 did not have a material impact on the consolidated financial statements, and the amount of New Residential future lease commitments has been deemed as immaterial (see Note 16 for details).

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset measured at amortized cost basis be presented at the net amount expected to be collected, net of an allowance for all expected (rather than incurred) credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. ASU No. 2016-13 is effective for New Residential in the first quarter of 2020, and early adoption was permitted beginning in 2019. An entity should apply ASU No. 2016-13 by means of a cumulative-effect adjustment to the balance sheet as
of the beginning of the fiscal year of adoption. New Residential is still evaluating and expects to recognize a cumulative-effect adjustment to the balance sheet upon adoption. The standard provides an option to elect fair value option for certain investments as an alternative to adopting ASU No. 2016-13. New Residential expects to elect fair value option on its residential mortgage and consumer loans portfolios, and expects to record a positive adjustments of $5.9 million to retained earnings, comprised of a decrease of $6.0 million due to the change in fair value of residential mortgage loans, and an increase of $11.9 million due to the change in fair value of consumer loans, net of noncontrolling interests.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. The standard requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-16 did not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (Topic 805). The standard simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment test. Under the new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. ASU No. 2017-04 is effective for New Residential in the first quarter of 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. New Residential is early adopting the standard for 2019. The adoption of ASU No. 2017-04 did not have a material impact on the financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The standard: (i) adds incremental requirements for entities to disclose (a) the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy, (b) the range and weighted average used to develop significant unobservable inputs and (c) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy and (ii) eliminates disclosure requirements for (a) transfers between Level 1 and Level 2 and (b) valuation processes for Level 3 fair value measurements. ASU No. 2018-13 is effective for New Residential in the first quarter of 2020 and early adoption is permitted for interim or annual periods beginning with the third quarter of 2018. The adoption of ASU No. 2018-13 is not expected to have a material impact on its consolidated financial statements.

On December 18, 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its overall simplification initiative. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several areas including accounting for franchise taxes and step-up in tax basis goodwill. While not required to be adopted until 2021, New Residential is early adopting this guidance in 2019. The adoption of ASU No. 2019-12 did not have a material impact on the consolidated financial statements.