Annual report pursuant to Section 13 and 15(d)

REAL ESTATE AND OTHER SECURITIES

v3.20.4
REAL ESTATE AND OTHER SECURITIES
12 Months Ended
Dec. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
REAL ESTATE AND OTHER SECURITIES REAL ESTATE AND OTHER SECURITIES
“Agency” residential mortgage backed securities (“RMBS”) are RMBS issued by a government sponsored enterprise, such as Fannie Mae or Freddie Mac. “Non-Agency” RMBS are issued by either public trusts or private label securitization entities.

Activities related to New Residential’s real estate and other securities were as follows (amounts in millions):
Year Ended December 31,
2020 2019
Agency Non-Agency Agency Non-Agency
Purchases
Face $ 21,593.3  $ 5,083.1  $ 33,573.5  $ 14,960.4 
Purchase Price 22,290.3  575.0  34,335.5  2,059.0 
Sales
Face $ 19,321.7  $ 8,450.1  $ 22,746.3  $ 2,936.2 
Amortized Cost 19,666.2  6,242.0  23,337.8  1,852.1 
Sale Price 19,886.8  5,288.5  23,449.2  1,949.3 
Gain (Loss) on Sale 220.5  (953.5) 111.4  97.2 

As of December 31, 2020, there were no unsettled trades. As of December 31, 2019, New Residential had sold and purchased $5.1 billion and $0.9 billion face amount of Agency RMBS for $5.2 billion and $0.9 billion, respectively, which had not yet been settled. These unsettled sales and purchases were recorded on the balance sheet on trade date as Trades Receivable and Trades Payable.

New Residential has exercised its call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. Refer to Notes 9 and 17 for further details on these transactions.

The following is a summary of New Residential’s real estate and other securities:
Gross Unrealized Weighted Average
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses
Carrying Value(A)
Number of Securities
Rating(B)
Coupon(C)
Yield
Life (Years)(D)
Principal Subordination(E)
December 31, 2020
Agency RMBS $ 110,360  $ 111,149  $ 10,612  $ —  $ 121,761  $ AAA 3.5  % 3.5  % 5.9 — 
Agency RMBS at FVO 12,380,792  12,840,459  101,414  —  12,941,873  57  AAA 2.2  % 2.2  % 4.3 — 
Total Agency RMBS(F)(G)
12,491,152  12,951,608  112,026  —  13,063,634  58  AAA 2.2  % 2.2  % 4.3 — 
Non-Agency RMBS(H)(I)
19,378,530  1,153,643  88,098  (60,817) 1,180,924  589  AA 2.8  % 4.1  % 4.8 19.6  %
Total/Weighted Average $ 31,869,682  $ 14,105,251  $ 200,124  $ (60,817) $ 14,244,558  647  AAA 2.3 % 2.4 % 4.3
December 31, 2019
Agency RMBS(F)(G)
$ 11,301,603  $ 11,474,338  $ 57,221  $ (11,616) $ 11,519,943  43  AAA 3.2  % 2.8  % 6.0 N/A
Non-Agency RMBS(H)(I)
24,857,988  7,307,837  689,158  (39,210) 7,957,785  997  B+ 2.9  % 4.7  % 7.0 11.0  %
Total/Weighted Average $ 36,159,591  $ 18,782,175  $ 746,379  $ (50,826) $ 19,477,728  1,040  A+ 3.0  % 3.5  % 6.4
(A)Fair value, which is equal to carrying value for all securities. See Note 13 regarding the estimation of fair value.
(B)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 289 bonds with a carrying value of $432.5 million which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies, and represent the most recent credit ratings available as of the reporting date and may not be current.
(C)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $27.4 million and $2.6 million, respectively, for which no coupon payment is expected.
(D)The weighted average life is based on the timing of expected principal reduction on the assets.
(E)Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value option securities.
(F)Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.
(G)The total outstanding face amount was $12.5 billion and $11.3 billion for fixed rate securities and $0.0 billion and $0.0 billion for floating rate securities as of December 31, 2020 and 2019, respectively.
(H)The total outstanding face amount was $11.9 billion (including $10.9 billion of residual and fair value option notional amount) and $5.4 billion (including $3.2 billion of residual and fair value option notional amount) for fixed rate securities and $7.5 billion (including $7.2 billion of residual and fair value option notional amount) and $19.5 billion (including $12.2 billion of residual and fair value option notional amount) for floating rate securities as of December 31, 2020 and 2019, respectively.
(I)Includes other asset backed securities (“ABS”) consisting primarily of (i) interest-only securities and servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through the income statement, (ii) bonds backed by consumer loans and (iii) corporate debt.
Gross Unrealized Weighted Average
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses Carrying Value Number of Securities Rating Coupon Yield Life (Years) Principal Subordination
December 31, 2020
Corporate debt
$ 500  $ 500  $ 23  $ —  $ 523  B- 8.25  % 8.25  % 4.3 N/A
Consumer loan bonds
13,022  12,360  503  —  12,862  N/A N/A N/A N/A
Fair value option securities
Interest-only securities 9,457,488  248,253  6,600  (43,781) 211,073  124  AA+ 1.22  % 5.09  % 2.1 N/A
Servicing strips 4,979,723  49,989  5,865  (9,476) 46,378  58  N/A 0.42  % 8.38  % 3.9 N/A
December 31, 2019
Corporate debt $ 85,000  $ 85,000  $ —  $ (1,262) $ 83,738  B- 8.25  % 8.25  % 5.3 N/A
Consumer loan bonds 25,029  25,688  521  (6,190) 20,019  N/A N/A N/A 1.6 N/A
MSR bond —  —  —  —  —  —  N/A —  % —  % N/A
Fair value option securities
Interest-only securities 11,201,646  308,714  35,882  (19,459) 325,137  124  AA+ 1.37  % 10.49  % 2.9 N/A
Servicing strips 4,073,792  40,043  2,431  (4,562) 37,912  46  N/A 0.38  % 4.01  % 5.7 N/A

Unrealized losses attributable to credit impairment are recognized in earnings. During the year ended December 31, 2020, 2019 and 2018, New Residential recorded credit impairment of $13.4 million, $25.2 million and $30.0 million, respectively. Any remaining unrealized losses on New Residential’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. New Residential performed analyses in relation to such securities, using its best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. New Residential has no intent to sell, and is not more likely than not to be required to sell, these securities.

The following table summarizes New Residential’s securities in an unrealized loss position as of December 31, 2020.
Amortized Cost Basis Weighted Average
Securities in an Unrealized Loss Position Outstanding Face Amount Before Credit Impairment
Credit Impairment(A)
After Credit Impairment Gross Unrealized Losses Carrying Value Number of Securities Rating Coupon Yield Life
(Years)
Less than 12 Months
$ 7,134,953  $ 217,955  $ (1,776) $ 216,179  $ (28,594) $ 187,585  61  AA+ 2.29  % 4.58  % 5.5
12 or More Months
4,063,623  143,681  (6,896) 136,785  (32,223) 104,562  80  AA+ 1.56  % 1.76  % 4.2
Total/Weighted Average
$ 11,198,576  $ 361,636  $ (8,672) $ 352,964  $ (60,817) $ 292,147  141  AA+ 2.00  % 3.49  % 5.0
(A)Represents credit impairment on securities in an unrealized loss position as of December 31, 2020.
New Residential performed an assessment of all debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of credit impairment, exceeds its fair value) and determined the following:

December 31, 2020 December 31, 2019
Gross Unrealized Losses Gross Unrealized Losses
Fair Value Amortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Fair Value Amortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Securities New Residential intends to sell
—  —  —  —  $ —  $ —  $ —  $ — 
Securities New Residential is more likely than not to be required to sell(C)
—  —  —  —  —  —  —  N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities 21,326  21,326  (8,672) —  228,228  237,626  (3,232) (9,398)
Non-credit impaired securities 270,821  331,638  —  (60,817) 4,726,409  4,767,837  —  (41,428)
Total debt securities in an unrealized loss position $ 292,147  $ 352,964  $ (8,672) $ (60,817) $ 4,954,637  $ 5,005,463  $ (3,232) $ (50,826)
(A)This amount is required to be recorded through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation included a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows included New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses were measured as the decline in the present value of the expected future cash flows discounted at the security’s effective interest rate.
(B)This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.
(C)New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.

The following table summarizes the activity related to the allowance for credit losses on debt securities (excluding credit impairment relating to securities New Residential intends to sell or is more likely than not required to sell):
Purchased Credit Deteriorated Non-Purchased Credit Deteriorated Total
Allowance for credit losses on available-for-sale debt securities at December 31, 2019
$ —  $ —  $ — 
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
—  —  — 
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration
—  —  — 
Reductions for securities sold during the period
—  —  — 
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis
—  —  — 
Additional increases (decreases) to the allowance for credit losses on securities that had credit losses or an allowance recorded in a previous period
8,672  —  8,672 
Write-offs charged against the allowance
—  —  — 
Recoveries of amounts previously written off
—  —  — 
Allowance for credit losses on available-for-sale debt securities at December 31, 2020
$ 8,672  $ —  $ 8,672 
 
The following table summarizes the activity related to credit losses on debt securities:
Year Ended December 31,
2019 2018
Beginning balance of credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income $ 52,803  $ 23,821 
Increases to credit losses on securities for which an other-than-temporary impairment was previously recognized and a portion of an other-than-temporary impairment was recognized in other comprehensive income 23,059  16,924 
Additions for credit losses on securities for which an other-than-temporary impairment was not previously recognized 2,115  13,093 
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis
—  — 
Reduction for credit losses on securities for which no other-than-temporary impairment was recognized in other comprehensive income at the current measurement date —  — 
Reduction for securities sold/paid off during the period
(18,914) (1,035)
Ending balance of credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income $ 59,063  $ 52,803 

The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
December 31,
2020 2019
Geographic Location(A)
Outstanding Face Amount Percentage of Total Outstanding Outstanding Face Amount Percentage of Total Outstanding
Western U.S. $ 6,543,524  33.7  % $ 9,048,847  36.6  %
Southeastern U.S. 5,089,592  26.3  % 5,983,966  24.2  %
Northeastern U.S. 4,484,340  23.2  % 5,416,137  21.9  %
Midwestern U.S. 2,207,783  11.4  % 2,562,269  10.4  %
Southwestern U.S. 1,025,637  5.3  % 1,440,467  5.8  %
Other(B)
14,132  0.1  % 296,273  1.1  %
$ 19,365,008  100.0  % $ 24,747,959  100.0  %
(A)Excludes $13.0 million and $25.0 million face amount of bonds backed by consumer loans and $0.5 million and $85.0 million face amount of bonds backed by corporate debt as of December 31, 2020 and 2019, respectively.
(B)Represents collateral for which New Residential was unable to obtain geographic information.

New Residential evaluates the credit quality of its real estate securities, as of the acquisition date, for evidence of credit quality deterioration. As a result, New Residential identified a population of real estate securities for which it was determined that it was probable that New Residential would be unable to collect all contractually required payments.

The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and fair value option securities:
Outstanding Face Amount Carrying Value
December 31, 2020 $ 727,216  $ 280,876 
December 31, 2019 5,701,736  3,830,369 
 
The following is a summary of the changes in accretable yield for these securities:
Year Ended December 31,
2020 2019
Beginning Balance $ 1,882,477  $ 2,245,984 
Additions 76,960  407,864 
Accretion (60,868) (239,682)
Reclassifications from (to) non-accretable difference (167,793) (233,683)
Disposals (1,541,214) (298,006)
Ending Balance $ 189,562  $ 1,882,477 
See Note 12 regarding the financing of real estate securities.