Annual report pursuant to Section 13 and 15(d)

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

v3.19.3.a.u2
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES (Tables)
12 Months Ended
Dec. 31, 2019
Transfers and Servicing [Abstract]  
Schedule of Activity Related to the Carrying Value of Investments in 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


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.
Fees Earned in Exchange for Servicing Financial Assets
Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
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.
Summary of the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in MSRs

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and MSR Financing Receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
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
%

Schedule of Investment in Servicer Advances

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
The following is a summary of New Residential’s Servicer Advance Investments, including the right to the basic fee component of the related MSRs:
 
Amortized Cost Basis
 
Carrying Value(A)
 
Weighted Average Discount Rate
 
Weighted Average Yield
 
Weighted Average Life (Years)(B)
 
Change in Fair Value Recorded in Other Income for Year then Ended
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
557,444

 
$
581,777

 
5.3
%
 
5.7
%
 
6.3
 
$
10,288

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
721,801

 
$
735,846

 
5.9
%
 
5.8
%
 
5.7
 
$
(89,332
)

(A)
Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.
(B)
Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

The following is additional information regarding the Servicer Advance Investments and related financing:
 
 
 
 
 
 
 
 
 
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(C)
 
UPB of Underlying Residential Mortgage Loans
 
Outstanding Servicer Advances
 
Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Face Amount of Notes and Bonds Payable
 
Gross
 
Net(B)
 
Gross
 
Net
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
31,442,267

 
$
462,843

 
1.5
%
 
$
443,248

 
88.3
%
 
87.2
%
 
3.4
%
 
2.8
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
40,096,998

 
$
620,050

 
1.5
%
 
$
574,117

 
88.3
%
 
87.2
%
 
3.7
%
 
3.1
%

(A)
Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)
Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)
Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)
The following types of advances are included in the Servicer Advance Investments:
    
 
December 31,
 
2019
 
2018
Principal and interest advances
$
71,574

 
$
108,317

Escrow advances (taxes and insurance advances)
180,047

 
238,349

Foreclosure advances
211,222

 
273,384

  Total
$
462,843

 
$
620,050