Annual report pursuant to Section 13 and 15(d)

CONSOLIDATED VARIABLE INTEREST ENTITIES

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CONSOLIDATED VARIABLE INTEREST ENTITIES
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
CONSOLIDATED VARIABLE INTEREST ENTITIES Consolidated Variable Interest Entities

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

To assess whether New Residential has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, New Residential considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. To assess whether New Residential has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, New Residential considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

Servicer Advance Investment

New Residential, through a taxable wholly owned subsidiary, is the managing member of the Buyer and owned approximately 73.2% of the Buyer as of December 31, 2019. In 2013, New Residential created the Buyer to acquire the then outstanding servicing advance receivables related to a portfolio of residential mortgage loans from a third party. The Buyer is required to purchase all future servicer advances made with respect to this portfolio of mortgage loans and is entitled to receive cash flows from advance recoveries and a basic fee component of the related MSRs, net of subservicing compensation paid.

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 December 31, 2019, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $327.8 million and $305.2 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.

Shelter Joint Ventures

A wholly owned subsidiary of NewRez, Shelter Mortgage Company LLC (“Shelter”) is a mortgage originator specializing in retail originations. Shelter operates its business through a series of joint ventures and is deemed to be the primary beneficiary of the joint ventures as a result of its ability to direct activities that most significantly impact the economic performance of the entities and its ownership of a significant equity investment.

Residential Mortgage Loans

During the first quarter of 2019, New Residential formed entities (the “RPL Borrowers”) that issued securitized debt collateralized by reperforming residential mortgage loans. New Residential determined that the RPL Borrowers should be evaluated for consolidation under the VIE model rather than the voting interest entity model as the equity holders as a group lack the characteristics of a controlling financial interest. Under the VIE model, New Residential’s consolidated subsidiaries had both 1) the power to direct the most significant activities of the RPL Borrowers and 2) significant variable interests in each of the RPL Borrowers, through their control of the related optional redemption feature and their ownership of certain notes issued by the RPL Borrowers and, therefore, met the primary beneficiary criterion and consolidated the RPL Borrowers.

On October 1, 2019, as a result of New Residential’s acquisition of servicing assets from Ditech and its pre existing ownership of the equity, New Residential consolidated the MDST Trusts. New Residential’s determination to consolidate the MDST Trusts is a result of its ownership of the equity in these trusts in conjunction with the ability to direct activities that most significantly impact the economic performance of the entities with the acquisition of the servicing by NewRez.
 
NewRez was deemed to be the primary beneficiary of the SAFT 2013-1 securitization entity as a result of its ability to direct activities that most significantly impact the economic performance of the entity in its role as servicer and its ownership of subordinated retained interests. The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations as of December 31, 2019:
 
 
December 31,
 
 
2019
 
2018
Residential mortgage loan UPB
 
$
19,590,978

 
$
7,818,221

Weighted average delinquency(A)
 
1.25
%
 
1.97
%
Net credit losses
 
$
9,354

 
$
9,101

Face amount of debt held by third parties(B)
 
$
17,946,939

 
$
6,783,187

 
 
 
 
 
Carrying value of bonds retained by New Residential(C) (D)
 
$
1,656,712

 
$
1,206,402

Cash flows received by New Residential on these bonds
 
$
270,739

 
$
178,301


(A)
Represents the percentage of the UPB that is 60+ days delinquent.
(B)
Excludes bonds retained by New Residential.
(C)
Includes bonds retained pursuant to required risk retention regulations.
(D)
Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 13 for details on unobservable inputs.

Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of December 31, 2019, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

The Consumer Loan Companies consolidate certain entities that issued securitization debt collateralized by the consumer loans (the “Consumer Loan SPVs”). The Consumer Loan SPVs are VIEs of which the Consumer Loan Companies are the primary beneficiaries.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on New Residential’s consolidated balance sheets:
 
 
The Buyer
 
Shelter Joint Ventures
 
Residential Mortgage Loans
 
Consumer Loan SPVs
 
Total
December 31, 2019
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Servicer advance investments, at fair value
 
$
565,271

 
$

 
$

 
$

 
$
565,271

Residential mortgage loans, held-for-investment, at fair value
 

 

 
913,030

 

 
913,030

Consumer loans, held-for-investment
 

 

 

 
818,943

 
818,943

Cash and cash equivalents
 
30,065

 
23,802

 

 

 
53,867

Restricted cash
 
5,350

 

 

 
9,073

 
14,423

Other assets
 
2,414

 
3,556

 
4,534

 
12,409

 
22,913

Total Assets
 
$
603,100

 
$
27,358

 
$
917,564

 
$
840,425

 
$
2,388,447

Liabilities
 
 
 
 
 
 
 
 
 
 
Notes and bonds payable(A)
 
$
433,300

 
$

 
$
659,738

 
$
820,658

 
$
1,913,696

Accrued expenses and other liabilities
 
1,593

 
4,187

 
10,132

 
4,126

 
20,038

Total Liabilities
 
$
434,893

 
$
4,187

 
$
669,870

 
$
824,784

 
$
1,933,734

December 31, 2018
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Servicer advance investments, at fair value
 
$
713,239

 
$

 
$

 
$

 
$
713,239

Residential mortgage loans, held-for-investment
 

 

 
121,319

 

 
121,319

Consumer loans, held-for-investments
 

 

 

 
1,039,480

 
1,039,480

Cash and cash equivalents
 
29,833

 
17,346

 

 

 
47,179

Restricted cash
 
7,809

 

 

 
10,186

 
17,995

Servicer advances receivable
 

 

 

 

 

Other assets
 
2,414

 
618

 

 
15,627

 
18,659

Total Assets
 
$
753,295

 
$
17,964

 
$
121,319

 
$
1,065,293

 
$
1,957,871

Liabilities
 
 
 
 
 
 
 
 
 
 
Notes and bonds payable(A)
 
$
556,340

 
$

 
$
117,048

 
$
1,030,096

 
$
1,703,484

Accrued expenses and other liabilities
 
2,442

 
2,282

 

 
3,814

 
8,538

Total Liabilities
 
$
558,782

 
$
2,282

 
$
117,048

 
$
1,033,910

 
$
1,712,022


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

Noncontrolling Interests

Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than New Residential. These interests are related to noncontrolling interests in consolidated entities that hold New Residential’s Servicer Advance Investments (Note 7), the Shelter JVs, (Note 9), Residential Mortgage Loan trusts (Note 9), and Consumer Loans (Note 10).

Others’ interests in the equity of New Residential’s consolidated subsidiaries is computed as follows:
 
December 31, 2019
 
December 31, 2018
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
Total consolidated equity
$
168,207

 
$
23,171

 
$
46,510

 
$
194,513

 
$
15,682

 
$
66,105

Others’ ownership interest
26.8
%
 
49.0
%
 
46.5
%
 
26.8
%
 
51.0
%
 
46.5
%
Others’ interest in equity of consolidated subsidiary
$
45,025

 
$
11,354

 
$
22,171

 
$
52,066

 
$
7,998

 
$
30,561


Others’ interests in the New Residential’s net income (loss) is computed as follows:
 
Year Ended December 31, 2019
 
Year Ended December 31, 2018
 
Year Ended December 31, 2017
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
Net income
$
15,892

 
$
12,717

 
$
69,143

 
$
7,209

 
$
3,135

 
$
79,539

 
$
23,604

 
$

 
$
98,692

Others’ ownership interest as a percent of total
26.8
%
 
49.0
%
 
46.5
%
 
27.4
%
 
51.0
%
 
46.5
%
 
47.6
%
 
%
 
46.5
%
Others’ interest in net income of consolidated subsidiaries
$
4,255

 
$
6,231

 
$
32,151

 
$
1,978

 
$
1,599

 
$
36,987

 
$
11,227

 
$

 
$
45,892


(A)
As a result, New Residential owned 73.2%, 72.6% and 52.4% of the Buyer, on average during the years ended December 31, 2019, 2018 and 2017, respectively. See Note 12 regarding the financing of Servicer Advance Investments.