Annual report pursuant to Section 13 and 15(d)

INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES

v3.19.3.a.u2
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES
12 Months Ended
Dec. 31, 2019
Transfers and Servicing [Abstract]  
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

Direct Investments in Excess MSRs

The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
 
 
Servicer
 
 
Mr. Cooper
 
SLS(A)
 
Ocwen(B)
 
Total
Balance as of December 31, 2017
 
$
532,233

 
$
2,913

 
$
638,567

 
$
1,173,713

Purchases
 

 

 

 

Interest income
 
44,386

 
54

 

 
44,440

Other income
 
6,444

 

 
40,417

 
46,861

Proceeds from repayments
 
(100,215
)
 
(632
)
 
(26,946
)
 
(127,793
)
Proceeds from sales
 
(19,084
)
 

 

 
(19,084
)
Change in fair value
 
(18,436
)
 
197

 
(40,417
)
 
(58,656
)
Ocwen Transaction (Note 6)
 

 

 
(611,621
)
 
(611,621
)
Balance as of December 31, 2018
 
445,328

 
2,532

 

 
447,860

Purchases
 

 

 

 

Interest income
 
32,587

 
60

 

 
32,647

Other income
 
3,851

 

 

 
3,851

Proceeds from repayments
 
(83,612
)
 
(419
)
 

 
(84,031
)
Proceeds from sales
 
(10,075
)
 

 

 
(10,075
)
Change in fair value
 
(10,387
)
 
(118
)
 

 
(10,505
)
Balance as of December 31, 2019
 
$
377,692

 
$
2,055

 
$

 
$
379,747


(A)
Specialized Loan Servicing LLC (“SLS”).
(B)
Ocwen Loan Servicing LLC, a subsidiary of Ocwen Financial Corporation (together with its subsidiaries, including Ocwen Loan Servicing LLC, “Ocwen”), services the loans underlying the Excess MSRs and Servicer Advance Investments.

Mr. Cooper or SLS, as applicable, as servicer performs all of the servicing and advancing functions, and retains the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio.

New Residential has entered into a “recapture agreement” with respect to each of the direct Excess MSR investments serviced by Mr. Cooper and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any refinancing by Mr. Cooper of a loan in the original portfolio. These recapture agreements do not apply to New Residential’s Servicer Advance Investments (Note 7).

New Residential elected to record its direct investments in Excess MSRs at fair value pursuant to the fair value option for financial instruments in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on the Excess MSRs.

The following is a summary of New Residential’s direct investments in Excess MSRs:

December 31, 2019

UPB of Underlying Mortgages

Interest in Excess MSR

Weighted Average Life Years(A)

Amortized Cost Basis(B)

Carrying Value(C)
 
 
 
New Residential(D)
 
Fortress-managed funds
 
Mr. Cooper
 
 
 
 
 
 
Agency



 
 
 
 









Original and Recaptured Pools
$
43,310,917

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.5
 
$
178,603

 
$
209,633


 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Cooper and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
45,034,320

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
6.5
 
$
124,875

 
$
170,114

Total
$
88,345,237

 
 
 
 
 
 
 
5.9
 
$
303,478

 
$
379,747


 
December 31, 2018
 
UPB of Underlying Mortgages
 
Interest in Excess MSR
 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
 
 
New Residential(D)
 
Fortress-managed funds
 
Mr. Cooper
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
52,368,290

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.6
 
$
218,797

 
$
257,387

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Cooper and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
54,058,073

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
5.8
 
$
142,530

 
$
190,473

Total
$
106,426,363

 
 
 
 
 
 
 
6.1
 
$
361,327

 
$
447,860


(A)
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 and recapture agreements, as applicable.
(D)
Amounts in parentheses represent weighted averages.
(E)
New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of December 31, 2019 and 2018 (Note 7) on $31.4 billion and $40.1 billion UPB, respectively, underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Original and Recaptured Pools
$
(10,505
)
 
$
(58,656
)
 
$
4,322



As of December 31, 2019 and 2018, weighted average discount rates of 7.8% and 8.8%, respectively, were used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).

Excess MSR Joint Ventures

New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments 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 prepayment risk and other market factors.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
December 31,
 
2019
 
2018
Excess MSR assets
$
226,843

 
$
269,203

Other assets
25,035

 
27,411

Other liabilities
(687
)
 
(687
)
Equity
$
251,191

 
$
295,927

New Residential’s investment
$
125,596

 
$
147,964

 
 
 
 
New Residential’s ownership
50.0
%
 
50.0
%

 
Year Ended December 31,
 
2019
 
2018
 
2017
Interest income
$
23,872

 
$
26,363

 
$
27,450

Other income (loss)
(10,208
)
 
(9,649
)
 
(2,149
)
Expenses
(64
)
 

 
(68
)
Net income
$
13,600

 
$
16,714

 
$
25,233


New Residential’s investments in equity method investees changed during the years ended December 31, 2019 and 2018 as follows:
 
2019
 
2018
Balance at beginning of period
$
147,964

 
$
171,765

Contributions to equity method investees

 

Distributions of earnings from equity method investees
(8,999
)
 
(11,059
)
Distributions of capital from equity method investees
(20,169
)
 
(21,099
)
Change in fair value of investments in equity method investees
6,800

 
8,357

Balance at end of period
$
125,596

 
$
147,964


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
December 31, 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
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
33,592,554

 
66.7%
 
50.0%
 
$
168,807

 
$
226,843

 
5.4

 
December 31, 2018
 
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
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
41,707,963

 
66.7%
 
50.0%
 
$
198,261

 
$
269,203

 
5.5

(A)
The remaining interests are held by Mr. Cooper.
(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 and recapture agreements, as applicable.
(D)
Represents the weighted average expected timing of the receipt of cash flows of each investment.
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES

A subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), engages third party licensed mortgage servicers as subservicers to perform the operational servicing duties in connection with the MSRs it acquires, in exchange for a subservicing fee which is recorded as “Subservicing expense” on New Residential’s Consolidated Statements of Income. As of December 31, 2019, these subservicers include PHH, Mr. Cooper, LoanCare, Ditech and Flagstar, which subservice 23.5%, 19.9%, 17.9%, 9.1%, and 1.0% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 28.6% of the underlying UPB of the related mortgages is subserviced by the servicing division of NewRez.

New Residential has entered into recapture agreements with respect to each of its MSR investments subserviced by PHH, LoanCare, Flagstar, Mr. Cooper, and NewRez. Under the recapture agreements, New Residential is generally entitled to the MSRs on any initial or subsequent refinancing by PHH, LoanCare, Flagstar, Mr. Cooper, or NewRez of a loan in the original portfolios.

In certain cases where New Residential has legally purchased MSRs or the right to the economic interest in MSRs, 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 has recorded an investment in MSR financing receivables (“MSR Financing Receivables”). Income from these investments, net of subservicing fees, are recorded as Interest income with changes in fair value flowing through Change in fair value of investments in MSR financing receivables in the Consolidated Statements of Income.

New Residential records its investments in MSRs and MSR Financing Receivables at fair value at acquisition and has elected to subsequently measure at fair value pursuant to the fair value measurement method.

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, 2017
 
$
1,735,504

 
$
598,728

 
$
2,334,232

Purchases, net(A)
 
1,042,933

 
128,357

 
1,171,290

Transfers(B)
 
124,652

 
(124,652
)
 

New Ocwen Agreements
 

 
1,017,993

 
1,017,993

Shellpoint Acquisition (Note 3)(C)
 
151,312

 

 
151,312

Originations(D)
 
35,311

 

 
35,311

Proceeds from sales
 
(5,776
)
 
(7,472
)
 
(13,248
)
Amortization of servicing rights(F)
 
(258,068
)
 
(197,703
)
 
(455,771
)
Change in valuation inputs and assumptions(G)
 
61,149

 
230,036

 
291,185

(Gain)/loss on sales
 
(2,917
)
 
(783
)
 
(3,700
)
Balance as of December 31, 2018
 
$
2,884,100

 
$
1,644,504

 
$
4,528,604

Purchases, net(A)
 
690,049

 
735,152

 
1,425,201

Transfers(B)
 
367,121

 
(367,121
)
 

Other transfers(H)
 
(410
)
 

 
(410
)
Ditech Acquisition (Note 3)
 
387,170

 

 
387,170

Originations(D)
 
374,450

 

 
374,450

Prepayments(E)
 
(11,625
)
 
(82,250
)
 
(93,875
)
Proceeds from sales
 
(1,539
)
 
(22,989
)
 
(24,528
)
Amortization of servicing rights(F)
 
(537,111
)
 
(203,732
)
 
(740,843
)
Change in valuation inputs and assumptions(G)
 
(187,530
)
 
21,094

 
(166,436
)
(Gain)/loss on sales
 
3,285

 
(6,385
)
 
(3,100
)
Balance as of December 31, 2019
 
$
3,967,960

 
$
1,718,273

 
$
5,686,233


(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)
Includes $48.3 million of MSRs legally sold by NewRez treated as a secured borrowing as it did not meet the criteria for sale treatment. New Residential elected to record the excess spread financing liability at fair value pursuant to the fair value option.
(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 and other changes due to the realization of expected cash flows.
(H)
Represents Ginnie Mae MSRs repurchased.

Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Servicing fee revenue
$
899,623

 
$
589,546

 
$
412,971

Ancillary and other fees
198,486

 
130,294

 
79,050

Servicing fee revenue and fees
1,098,109

 
719,840

 
492,021

Amortization of servicing rights(A)
(530,031
)
 
(256,915
)
 
(223,167
)
Change in valuation inputs and assumptions(B) (C)
(186,204
)
 
68,587

 
155,495

(Gain)/loss on sales(D)
3,285

 
(2,917
)
 

Servicing revenue, net
$
385,159

 
$
528,595

 
$
424,349



(A)
Includes $7.1 million, $1.2 million and $0.0 million of amortization to Excess spread financing for the years ended December 31, 2019, 2018, and 2017, respectively.
(B)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
(C)
Includes $1.3 million, $7.4 million and $0.0 million of fair value adjustment to Excess spread financing for the years ended December 31, 2019, 2018, and 2017, respectively.
(D)
Represents the realization of unrealized gain/(loss) as a result of sales.

Interest income from investments in MSR Financing Receivables was comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Servicing fee revenue
$
513,172

 
$
705,812

 
$
94,945

Ancillary and other fees
119,570

 
146,829

 
17,313

Less: subservicing expense
(196,726
)
 
(251,184
)
 
(33,686
)
Interest income, investments in MSR financing receivables
$
436,016

 
$
601,457

 
$
78,572


Change in fair value of investments in MSR Financing Receivables was comprised of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Amortization of servicing rights
$
(203,732
)
 
$
(197,703
)
 
$
(43,190
)
Change in valuation inputs and assumptions(A)
21,094

 
230,036

 
109,584

(Gain)/loss on sales(B)
(6,385
)
 
(783
)
 

Change in fair value of investments in MSR financing receivables
$
(189,023
)
 
$
31,550

 
$
66,394


(A)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
(B)
Represents the realization of unrealized gain/(loss) as a result of sales.

The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of December 31, 2019 and 2018:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
2019
 
 
 
 
 
 
 
MSRs:
 
 
 
 
 
 
 
Agency(C)
$
315,427,933

 
5.1
 
$
3,179,556

 
$
3,319,035

Non-Agency
6,402,833

 
5.4
 
12,437

 
20,283

Ginnie Mae(D)
52,019,295

 
4.6
 
614,855

 
628,642

MSR Financing Receivables:
 
 
 
 
 
 
 
Agency(C)
54,866,978

 
4.7
 
582,600

 
547,351

Non-Agency
76,117,892

 
7.6
 
808,149

 
1,170,922

Total
$
504,834,931

 
5.4
 
$
5,197,597

 
$
5,686,233

2018
 
 
 
 
 
 
 
MSRs:
 
 
 
 
 
 
 
Agency(C)
$
226,295,778

 
6.4
 
$
2,189,039

 
$
2,506,676

Non-Agency
2,143,212

 
6.6
 
19,982

 
22,438

Ginnie Mae(D)
30,023,713

 
7.4
 
357,673

 
354,986

MSR Financing Receivables:
 
 
 
 
 
 
 
Agency(C)
42,265,547

 
5.9
 
366,946

 
434,110

Non-Agency
88,251,018

 
7.2
 
936,792

 
1,210,394

Total
$
388,979,268

 
6.6
 
$
3,870,432

 
$
4,528,604


(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of December 31, 2019 and 2018, weighted average discount rates of 7.8% and 8.7%, respectively, were used to value New Residential’s investments in MSRs, respectively. As of December 31, 2019 and 2018, weighted average discount rates of 8.9% and 10.3%, respectively, were used to value New Residential’s investments in MSR financing receivables.
(C)
Represents Fannie Mae and Freddie Mac MSRs.
(D)
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 December 31, 2019 and 2018, New Residential holds approximately $172.3 million and $121.6 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Consolidated Balance Sheets.

Ocwen MSR Financing Receivable Transactions

On July 23, 2017, Ocwen and New Residential entered into a Master Agreement (the “Ocwen Master Agreement”) and a Transfer Agreement (the “Ocwen Transfer Agreement”) pursuant to which Ocwen and New Residential agreed to undertake certain actions to facilitate the transfer from Ocwen to New Residential of Ocwen’s remaining interests in the mortgage servicing rights relating to loans with an aggregate unpaid principal balance of approximately $110.0 billion that are subject to the Original Ocwen Agreements (the “Ocwen Subject MSRs”) and with respect to which New Residential holds the Rights to MSRs (as defined in the Original Ocwen Agreements). New Residential and Ocwen concurrently entered into a subservicing agreement pursuant to which Ocwen will subservice the mortgage loans related to the Ocwen Subject MSRs that are transferred to New Residential pursuant to the Ocwen Master Agreement and Ocwen Transfer Agreement.

On January 18, 2018, New Residential entered into a new agreement regarding the rights to MSRs (the “New Ocwen RMSR Agreement”) including a servicing addendum thereto (the “Ocwen Servicing Addendum”), Amendment No. 1 to Transfer
Agreement (the “New Ocwen Transfer Agreement”) and a Brokerage Services Agreement (the “Ocwen Brokerage Services Agreement” and, collectively, the “New Ocwen Agreements”) with Ocwen. The New Ocwen Agreements amend and supplement the arrangements among the parties set forth in the Original Ocwen Agreements, the Ocwen Master Agreement, the Ocwen Transfer Agreement, and the Ocwen Subservicing Agreement (together with the Original Ocwen Agreements, the Ocwen Master Agreement, and the Ocwen Transfer Agreement, the “Existing Ocwen Agreements”). NRM made a lump-sum “Fee Restructuring Payment” of $279.6 million to Ocwen on January 18, 2018, the date of the New Ocwen RMSR Agreement, with respect to such Existing Ocwen Subject MSRs.

Under the Existing Ocwen Agreements, Ocwen sold and transferred to New Residential certain “Rights to MSRs” and other assets related to mortgage servicing rights for loans with an unpaid principal balance of approximately $86.8 billion as of the opening balances in January 2018 (the “Existing Ocwen Subject MSRs”). The New Ocwen Agreements and NRM’s Fee Restructuring Payment resulted in a new investment structured as a transfer of the full interests and economics of the Ocwen subject MSRs.

Pursuant to the New Ocwen Agreements, Ocwen will continue to service the mortgage loans related to the Existing Ocwen Subject MSRs until the necessary third party consents are obtained in order to transfer the Existing Ocwen Subject MSRs in accordance with the New Ocwen Agreements.

Pursuant to the Ocwen Brokerage Services Agreement, Ocwen will engage NRZ Brokerage to perform brokerage and marketing services for all REO properties serviced by Ocwen pursuant to the Subject Servicing Agreements as defined in the New Ocwen RMSR Agreement. Such REO properties are subject to the Altisource Brokerage Agreement and Altisource Letter Agreement.

As of December 31, 2019, MSRs representing approximately $66.7 billion UPB of underlying loans have been transferred to NRM and NewRez pursuant to the Ocwen Transaction. Economics related to the remaining MSRs subject to the Ocwen Transaction were transferred pursuant to the New Ocwen Agreements. As a result of the length of the initial term of the related subservicing agreement between NRM, NewRez and Ocwen, although the MSRs transferred pursuant to the Ocwen Transaction were legally sold, solely for accounting purposes, New Residential determined that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to NRM or NewRez, and that the purchase agreement would not be treated as a sale under GAAP.

As a part of the ongoing integration efforts related to the Ocwen and PHH merger completed on October 4, 2018, Ocwen now conducts its mortgage servicing business under the PHH tradename.

Mr. Cooper MSR Financing Receivable Transaction

On February 28, 2019, NRM entered into an agreement with Mr. Cooper to purchase the MSRs, and related servicer advance receivables, with respect to $9.5 billion in total UPB of seasoned Agency residential mortgage loans. The residential mortgage loans underlying the MSRs acquired by NRM are subserviced by Mr. Cooper pursuant to an existing subservicing agreement with NRM. As a result of the length of the initial term of the related subservicing agreement between NRM and Mr. Cooper, although the MSRs were legally sold, solely for accounting purposes, New Residential determined that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to NRM, and that the purchase agreement would not be treated as a sale under GAAP.

United Shore MSR Financing Receivable Transactions

On April 2, 2019 and May 21, 2019, NRM entered into agreements with United Shore to purchase the MSRs, and related servicer advance receivables, with respect to $8.2 billion and $23.7 billion in total UPB of seasoned Agency residential mortgage loans, respectively. The residential mortgage loans underlying the MSRs acquired by NRM will be subserviced by NewRez, Mr. Cooper and LoanCare pursuant to existing subservicing agreements with NRM. As a result of the length of term of prepayment protection provided to NRM, although the MSRs were legally sold, solely for accounting purposes, New Residential determined that the transferor retained more than minor protection provisions, and that the purchase agreement would not be treated as a sale under GAAP.

Quicken MSR Financing Receivable Transaction

On August 6, 2019, NRM entered into an agreement with Quicken to purchase the MSRs, and related servicer advance receivables, with respect to $29.1 billion in total UPB of seasoned Agency residential mortgage loans. The residential mortgage loans underlying the MSRs acquired by NRM are subserviced by LoanCare pursuant to an existing subservicing agreement with NRM. As a result of the length of term of prepayment protection provided to NRM, although the MSRs were legally sold, solely for accounting purposes, New Residential determined that the transferor retained more than minor protection provisions, and that the purchase agreement would not be treated as a sale under GAAP.

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
 
December 31, 2019
 
December 31, 2018
California
 
21.9
%
 
21.7
%
Florida
 
6.9
%
 
6.9
%
New York
 
6.4
%
 
7.8
%
Texas
 
5.5
%
 
5.3
%
New Jersey
 
4.9
%
 
5.0
%
Illinois
 
3.6
%
 
3.7
%
Massachusetts
 
3.4
%
 
3.5
%
Washington
 
3.3
%
 
2.3
%
Georgia
 
3.1
%
 
3.0
%
Maryland
 
3.0
%
 
3.4
%
Other U.S.
 
38.0
%
 
37.4
%
 
 
100.0
%
 
100.0
%


Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the MSRs.

Mortgage Subservicing

NewRez performs servicing of residential mortgage loans for third parties under subservicing agreements. Mortgage subservicing does not meet the criteria to be recognized as a servicing right asset and, therefore, is not recognized on New Residential’s consolidated balance sheets. The UPB of residential mortgage loans subserviced for others as of December 31, 2019 was $71.2 billion and subservicing revenue of $137.4 million is included within Servicing revenue, net in the Consolidated Statements of Income.

Servicer Advances Receivable

In connection with its investments in MSRs and MSR financing receivables, New Residential generally acquires any related outstanding servicer advances (not included in the purchase prices described above), which it records at fair value within servicer advances receivable upon acquisition.

In addition to receiving cash flows from the MSRs, NRM and NewRez, as servicers, have the obligation to fund future servicer advances on the underlying pool of mortgages (Note 16). These servicer advances are recorded when advanced and are included in Servicer Advances Receivable on the Consolidated Balance Sheets.

The following types of advances are included in the Servicer Advances Receivable:
 
 
December 31,
 
 
2019
 
2018
Principal and interest advances
 
$
660,807

 
$
793,790

Escrow advances (taxes and insurance advances)
 
2,427,384

 
2,186,831

Foreclosure advances
 
163,054

 
199,203

Total(A) (B) (C)
 
$
3,251,245

 
$
3,179,824


(A)
Includes $562.2 million and $231.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Includes $166.5 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 $50.1 million and $98.0 million, respectively, in accruals for advance recoveries.

New Residential’s Servicer Advances Receivable related to Non-Agency MSRs generally have the highest reimbursement priority (i.e., “top of the waterfall”) and New Residential is generally entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by New Residential as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, New Residential has a contractual right to be reimbursed by the subservicer. New Residential assesses the recoverability of Servicer Advance Receivables periodically and as of December 31, 2019 and December 31, 2018, expected full recovery of the Servicer Advance Receivables.

See Note 12 regarding the financing of MSRs.