Annual report pursuant to Section 13 and 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.19.3.a.u2
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
12 Months Ended
Dec. 31, 2019
Transfers and Servicing [Abstract]  
Schedule of Servicing Assets at Fair Value
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


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.
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.

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.
Servicing Asset at Amortized Cost
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.

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:
 
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


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:
 
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.