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):
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:
(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.
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.
(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:
(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):
The following table summarizes the activity related to credit losses on debt securities:
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
(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:
The following is a summary of the changes in accretable yield for these securities:
See Note 12 regarding the financing of real estate securities.
The entire disclosure for investments in certain debt and equity securities.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef