SERVICER ADVANCE INVESTMENTS
|12 Months Ended|
Dec. 31, 2020
|Investments, All Other Investments [Abstract]|
|SERVICER ADVANCE INVESTMENTS||SERVICER ADVANCE INVESTMENTS
All of New Residential’s Servicer Advance Investments are composed of outstanding servicer advances, the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans, and the basic fee component of the related MSR. New Residential elected to record its Servicer Advance Investments, including the right to the basic fee component of the related MSRs, 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 market factors.
A taxable wholly owned subsidiary of New Residential is the managing member of Advance Purchaser LLC (the “Buyer”), a joint venture entity, and owned an approximately 73.2% interest in the Buyer as of December 31, 2020. As of December 31, 2020, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. 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, 2020, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $328.4 million and $306.9 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.
The Buyer has purchased servicer advances from Mr. Cooper, is required to purchase all future servicer advances made with respect to this portfolio of loans from Mr. Cooper, and receives cash flows from advance recoveries and the basic fee component of the related MSRs, net of compensation paid back to Mr. Cooper in consideration of Mr. Cooper’s servicing activities. The compensation paid to Mr. Cooper as of December 31, 2020 was approximately 9.2% of the basic fee component of the related MSRs plus a performance fee that represents a portion (up to 100%) of the cash flows in excess of those required for the Buyer to obtain a specified return on its equity.
New Residential has determined that the Buyer is a VIE. See Note 14 for information regarding the assets and liabilities related to this consolidated VIE.
New Residential also acquired a portion of the call rights related to this portfolio of loans.
The following is a summary of New Residential’s Servicer Advance Investments, including the right to the basic fee component of the related MSRs:
(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:
(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:
Interest income recognized by New Residential related to its Servicer Advance Investments was composed of the following:
See Note 12 regarding the financing of Servicer Advance Investments.