Annual report pursuant to Section 13 and 15(d)

INVESTMENTS IN CONSUMER LOANS (Tables)

v3.19.3.a.u2
INVESTMENTS IN CONSUMER LOANS (Tables)
12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Schedule of Investments in Consumer Loan Equity Method Investees
The following table summarizes the investment in consumer loans, held-for-investment held by New Residential:
 
Unpaid Principal Balance
 
Interest in Consumer Loans
 
Carrying Value
 
Weighted Average Coupon
 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Consumer Loan Companies
 
 
 
 
 
 
 
 
 
 
 
Performing Loans
$
644,676

 
53.5
%
 
$
682,310

 
18.8
%
 
4.0
 
4.7
%
Purchased Credit Deteriorated Loans(C)
170,083

 
53.5
%
 
136,633

 
15.5
%
 
3.7
 
10.1
%
Other - Performing Loans
9,158

 
100.0
%
 
8,602

 
15.1
%
 
0.7
 
6.1
%
Total Consumer Loans, held-for-investment
$
823,917

 
 
 
$
827,545

 
18.0
%
 
3.9
 
5.9
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Consumer Loan Companies
 
 
 
 
 
 
 
 
 
 
 
Performing Loans
$
815,341

 
53.5
%
 
$
856,563

 
18.8
%
 
3.6
 
5.4
%
Purchased Credit Deteriorated Loans(C)
221,910

 
53.5
%
 
182,917

 
16.0
%
 
3.4
 
11.6
%
Other - Performing Loans
35,326

 
100.0
%
 
32,722

 
14.2
%
 
0.8
 
5.6
%
Total Consumer Loans, held-for-investment
$
1,072,577

 
 
 
$
1,072,202

 
18.1
%
 
3.5
 
6.7
%

(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)
Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments, which are accounted for as PCD loans.

Past Due Financing Receivables
The following table provides past due information regarding New Residential’s Performing Loans, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
December 31, 2019
Days Past Due
 
Delinquency Status(A)
Current
 
86.5
%
30-59
 
7.0
%
60-89
 
2.7
%
90-119(B)
 
0.7
%
120+(C)
 
3.1
%
 
 
100.0
%

(A)
Represents the percentage of the total principal balance that corresponds to loans that are in each delinquency status.
(B)
Includes loans 90-119 days past due and still accruing interest because they are generally placed on nonaccrual status at 120 days or more past due.
(C)
Represents nonaccrual loans.
The following table provides past due information regarding New Residential’s performing consumer loans, held-for-investment, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
December 31, 2019
Days Past Due
 
Delinquency Status(A)
Current
 
95.3
%
30-59
 
1.8
%
60-89
 
1.2
%
90-119(B)
 
0.7
%
120+(B) (C)
 
1.0
%
 
 
100.0
%

(A)
Represents the percentage of the total unpaid principal balance that corresponds to loans that are in each delinquency status.
(B)
Includes loans more than 90 days past due and still accruing interest.
(C)
Interest is accrued up to the date of charge-off at 180 days past due.
Schedule of Carrying Value of Performing Consumer Loans
Activities related to the carrying value of performing consumer loans, held-for-investment were as follows:
 
 
Performing Loans
Balance at December 31, 2017
 
$
1,137,814

Purchases
 

Additional fundings(A)
 
63,971

Proceeds from repayments
 
(257,182
)
Accretion of loan discount and premium amortization, net
 
1,940

Gross charge-offs
 
(56,870
)
Additions to the allowance for loan losses, net
 
(388
)
Balance at December 31, 2018
 
$
889,285

Purchases
 

Additional fundings(A)
 
54,375

Proceeds from repayments
 
(213,525
)
Accretion of loan discount and premium amortization, net
 
186

Gross charge-offs
 
(38,563
)
Additions to the allowance for loan losses, net
 
(846
)
Balance at December 31, 2019
 
$
690,912


(A)
Represents draws on consumer loans with revolving privileges.
Allowance for Credit Losses on Financing Receivables
Activities related to the valuation and loss provision on reverse mortgage loans and allowance for loan losses on performing loans held-for-investment were as follows:
 
 
Performing Loans
Balance at December 31, 2017
 
$
196

Provision for loan losses(A)
 
1,028

Charge-offs(B)
 
(1,224
)
Balance at December 31, 2018
 
$

Provision for loan losses(A)
 
595

Charge-offs(B)
 
(595
)
Balance at December 31, 2019
 
$


(A)
Based on an analysis of collective borrower performance, credit ratings of borrowers, loan-to-value ratios, estimated value of the underlying collateral, key terms of the loans and historical and anticipated trends in defaults and loss severities at a pool level.
(B)
Loans, other than PCD loans, are generally charged off or charged down to the net realizable value of the collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, when available information confirms that loans are uncollectible.

Activities related to the allowance for loan losses on performing consumer loans, held-for-investment were as follows:
 
 
Collectively Evaluated(A)
 
Individually Impaired(B)
 
Total
Balance at December 31, 2017
 
$
4,429

 
$
1,676

 
$
6,105

Provision (reversal) for loan losses
 
47,839

 
388

 
48,227

Net charge-offs(C)
 
(49,664
)
 

 
(49,664
)
Balance at December 31, 2018
 
$
2,604

 
$
2,064

 
$
4,668

Provision (reversal) for loan losses
 
30,008

 
846

 
30,854

Net charge-offs(C)
 
(32,057
)
 

 
(32,057
)
Balance at December 31, 2019
 
$
555

 
$
2,910

 
$
3,465


(A)
Represents smaller-balance homogeneous loans that are not individually considered impaired and are evaluated based on an analysis of collective borrower performance, key terms of the loans and historical and anticipated trends in defaults and loss severities, and consideration of the unamortized acquisition discount.
(B)
Represents consumer loan modifications considered to be troubled debt restructurings (“TDRs”) as they provide concessions to borrowers, primarily in the form of interest rate reductions, who are experiencing financial difficulty. As of December 31, 2019, there are $18.0 million in UPB and $15.9 million in carrying value of consumer loans classified as TDRs.
(C)
Consumer loans, other than PCD loans, are charged off when available information confirms that loans are uncollectible, which is generally when they become 180 days past due. Charge-offs are presented net of $8.6 million and $9.0 million in recoveries of previously charged-off UPB in 2019 and 2018, respectively.

Schedule of Carrying Value of Purchased Credit Deteriorated Loans
A portion of the consumer loans are considered PCD loans. Activities related to the carrying value of PCD consumer loans, held-for-investment were as follows:
Balance at December 31, 2017
 
$
236,449

(Allowance) reversal for loan losses(A)
 
(31
)
Proceeds from repayments
 
(90,700
)
Accretion of loan discount and other amortization
 
37,199

Balance at December 31, 2018
 
$
182,917

(Allowance) reversal for loan losses(A)
 
31

Proceeds from repayments
 
(78,519
)
Accretion of loan discount and other amortization
 
32,204

Balance at December 31, 2019
 
$
136,633


(A)
An allowance represents the present value of cash flows expected at acquisition that are no longer expected to be collected. A reversal results from an increase to expected cash flows that reverses a prior allowance.

Impaired Financing Receivables
The following is the unpaid principal balance and carrying value for consumer loans, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments:
 
Unpaid Principal Balance
 
Carrying Value
December 31, 2019
$
170,083

 
$
136,633

December 31, 2018
221,910

 
182,917


Schedule of Changes in Accretable Yield
The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2017
 
$
132,291

Accretion
 
(37,199
)
Reclassifications from (to) non-accretable difference(A)
 
31,426

Balance at December 31, 2018
 
$
126,518

Accretion
 
(32,204
)
Reclassifications from (to) non-accretable difference(A)
 
10,949

Balance at December 31, 2019
 
$
105,263


(A)
Represents a probable and significant increase (decrease) in cash flows previously expected to be uncollectible.
Summary of the Investment in the Consumer Loan Companies
The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
December 31, 2019
 
December 31, 2018(A)
Consumer loans, at fair value
$

 
$
231,560

Warrants, at fair value

 
103,067

Other assets

 
25,971

Warehouse financing

 
(182,065
)
Other liabilities

 
(1,142
)
Equity
$

 
$
177,391

Undistributed retained earnings
$

 
$

New Residential’s investment
$

 
$
42,875

New Residential’s ownership
24.3
%
 
24.2
%


 
Year Ended December 31,
 
2019
 
2018(A)
Interest income
$
19,912

 
$
42,920

Interest expense
(6,487
)
 
(12,258
)
Change in fair value of consumer loans and warrants
(4,596
)
 
17,491

Gain on sale of consumer loans(B)
(10,711
)
 
2,697

Other expenses
(3,871
)
 
(7,257
)
Net income
$
(5,753
)
 
$
43,593

New Residential’s equity in net income
$
(1,438
)
 
$
10,803

New Residential’s ownership
25.0
%
 
24.8
%


(A)
Data as of, and for the periods ended, November 30, 2018, as a result of the one month reporting lag.
(B)
During the year ended December 31, 2019, LoanCo sold, through securitizations which were treated as sales for accounting purposes, $406.1 million in UPB of consumer loans. LoanCo retained $83.9 million of residual interest in the securitizations and distributed them to the LoanCo co-investors, including New Residential.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
Balance at December 31, 2018
$
38,294

Contributions to equity method investees
64,499

Distributions of earnings from equity method investees
(8,607
)
Distributions of capital from equity method investees
(92,748
)
Earnings from investments in consumer loans, equity method investees
(1,438
)
Balance at December 31, 2019
$