Annual report pursuant to Section 13 and 15(d)

RESIDENTIAL MORTGAGE LOANS

v3.20.4
RESIDENTIAL MORTGAGE LOANS
12 Months Ended
Dec. 31, 2020
Receivables [Abstract]  
RESIDENTIAL MORTGAGE LOANS RESIDENTIAL MORTGAGE LOANS
New Residential accumulated its residential mortgage loan portfolio through various bulk acquisitions and the execution of call
rights. New Residential, through its wholly-owned subsidiary, NewRez, originates residential mortgage loans for sale and
securitization to third parties and generally retains the servicing rights on the underlying loans.

Loans are accounted for based on New Residential’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. As of December 31, 2020, New Residential accounts for loans based on the following categories:

Loans Held-for-Investment, at fair value
Loans Held-for-Sale, at lower of cost or fair value
Loans Held-for-Sale, at fair value

The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type:
December 31,
2020 2,019
Outstanding Face Amount Carrying
Value
Loan
Count
Weighted Average Yield
Weighted Average Life (Years)(A)
Carrying Value
Total residential mortgage loans, held-for-investment(B)
$ 769,348  $ 674,179  12,353  6.6  % 5.6 925,706
Acquired reverse mortgage loans(C)
$ 12,007  $ 5,884  28  7.8  % 3.8 5,844
Acquired performing loans(D)(F)
138,109  129,345  3,278  6.7  % 4.5 857,821
Acquired non-performing loans(E)(F)
487,022  374,658  3,253  7.5  % 3.3 565,387
Total residential mortgage loans, held-for-sale, at lower of cost or market $ 637,138  $ 509,887  6,559  7.3  % 3.6 1,429,052
Acquired performing loans(D)(F)
$ 1,446,457  $ 1,423,159  7,189  3.8  % 6.6 3,024,288
Acquired non-performing loans 428,079  335,544  2,798  7.5  % 3.3 0
Originated loans 2,801,297  2,947,113  10,797  2.8  % 27.7 1,589,324
Total residential mortgage loans, held-for-sale, at fair value $ 4,675,833  $ 4,705,816  20,784  3.5  % 18.9 4,613,612
Total residential mortgage loans, held-for-sale, at fair value/lower of cost or market $ 5,312,971  $ 5,215,703  6,042,664
(A)The weighted average life is based on the expected timing of the receipt of cash flows.
(B)Residential mortgage loans, held-for-investment, at fair value is grouped and presented as part of Residential loans and variable interest entity consumer loans held-for-investment, at fair value on the Consolidated Balance Sheets.
(C)Represents a 70% participation interest that New Residential holds in a portfolio of reverse mortgage loans. Mr. Cooper holds the other 30% interest and services the loans. The average loan balance outstanding based on total UPB was $0.6 million. Approximately 47.8% of these loans have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.
(D)Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.
(E)As of December 31, 2020, New Residential has placed Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (F) below.
(F)Includes $798.1 million and $20.5 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

New Residential generally considers the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as its credit quality indicators. Delinquency status is a primary credit quality indicator as loans that are more than 60 days past due provide an early warning of borrowers who may be experiencing financial difficulties. Current LTV ratio is an indicator of the potential loss severity in the event of default. Finally, the geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events will affect credit quality.

The table below summarizes the geographic distribution of the underlying residential mortgage loans:
Percentage of Total Outstanding Unpaid Principal Amount
December 31,
State Concentration 2020 2019
California 11.9  % 16.1  %
New York 10.1  % 9.0  %
Texas 7.1  % 7.1  %
Florida 7.1  % 8.4  %
Georgia 5.8  % 4.8  %
New Jersey 4.2  % 4.2  %
Illinois 3.5  % 3.6  %
Pennsylvania 3.5  % 2.9  %
Maryland 3.4  % 3.3  %
Massachusetts 3.1  % 3.3  %
Other U.S. 40.3  % 37.3  %
100.0  % 100.0  %

See Note 12 regarding the financing of residential mortgage loans and related assets.

The following table summarizes the difference between the aggregate unpaid principal balance and the aggregate fair value of loans as of December 31, 2020:
Days Past Due Unpaid Principal Balance Fair Value Fair Value Over (Under) Unpaid Principal Balance
90 to 119 $ 71,567  $ 59,679  $ (11,888)
120+ 950,564  790,788  (159,776)
$ 1,022,131  $ 850,467  $ (171,664)

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 credit 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.

Call Rights

New Residential has executed calls with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO assets 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. For the year ended December 31, 2020, New Residential executed calls on a total of 13 trusts and recognized $48.5 million of interest income on securities held in the collapsed trusts and $16.0 million of gain on securitizations accounted for as sales. For the year
ended December 31, 2019, New Residential executed calls on a total of 140 trusts and recognized $54.4 million of interest income on securities held in the collapsed trusts and $156.2 million of gain on securitizations accounted for as sales. Refer to Note 17 for transactions with affiliates.

The following table summarizes the activity for residential mortgage loans:
Loans Held-for-Investment Loans Held-for-Sale, at Lower Cost or Fair Value Loans Held-for-Sale, at Fair Value Total
Balance at December 31, 2018 $ 735,318  $ 932,480  $ 2,808,529  $ 4,476,327 
Ditech Acquisition 381,039  —  618,297  999,336 
Originations —  —  19,512,072  19,512,072 
Sales —  (495,925) (25,538,105) (26,034,030)
Purchases/additional fundings —  1,133,335  7,499,614  8,632,949 
Proceeds from repayments (119,195) (184,783) (235,937) (539,915)
Transfer of loans to other assets(A)
—  (10,154) (412) (10,566)
Transfer of loans to real estate owned (20,710) (49,459) (4,155) (74,324)
Transfers of loans to held for sale (80,659) —  —  (80,659)
Transfer of loans from held-for-investment —  80,659  —  80,659 
Accretion of loan discount and other amortization 28,702  28,702 
Valuation provision on loans (2,927) 22,899  —  19,972 
Fair value adjustments due to: —  —  —   
Changes in instrument-specific credit risk 4,138  —  (46,291) (42,153)
Other factors —  —  —  — 
Balance at December 31, 2019
$ 925,706  $ 1,429,052  $ 4,613,612  $ 6,968,370 
Fair value adjustment due to fair value option (6,020) —  —  (6,020)
Originations —  —  61,684,462  61,684,462 
Sales —  (791,974) (64,692,996) (65,484,970)
Purchases/additional fundings —  110,741  3,322,369  3,433,110 
Proceeds from repayments (145,767) (99,845) (177,723) (423,335)
Transfer of loans to other assets(A)
—  (3,449) (22,255) (25,704)
Transfer of loans to real estate owned (6,754) (21,681) (7,035) (35,470)
Transfers of loans to held for sale (62,274) —  (62,274)
Transfer of loans from held for investment —  —  62,274  62,274 
Valuation provision on loans —  (112,957) —  (112,957)
Fair value adjustments due to:        
Changes in instrument-specific credit risk 27,036  —  (12,323) 14,713 
Other factors (57,748) —  (64,569) (122,317)
Balance at December 31, 2020
$ 674,179  $ 509,887  $ 4,705,816  $ 5,889,882 
(A)Represents loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are recognized as claims receivable in Other Assets (Note 2).
Performing Loans
Balance at December 31, 2018 $ 591,253 
Ditech Acquisition(C)
381,039 
Purchases/additional fundings — 
Proceeds from repayments (102,340)
Accretion of loan discount (premium) and other amortization(A)
12,661 
Provision for loan losses (595)
Transfer of loans to other assets(B)
— 
Transfer of loans to real estate owned (6,223)
Transfers of loans to held for sale (20,505)
Fair value adjustment 4,138 
Balance at December 31, 2019 $ 859,428 
(A)Includes accelerated accretion of discount on loans paid in full and on loans transferred to other assets.
(B)Represents loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are now recognized as claims receivable in Other Assets (Note 2).
(C)As a result of the Ditech Acquisition, New Residential acquired the servicing on certain residual tranches of Non-Agency RMBS it already owned, and now consolidates the trusts.

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, 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.

Purchased Credit Deteriorated (“PCD”) Loans

New Residential determined at acquisition that the PCD loans acquired would be aggregated into pools based on common risk characteristics (FICO score, delinquency status, collateral type, loan-to-value ratio). Loans aggregated into pools are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows, including consideration of involuntary prepayments.
Activities related to the carrying value of PCD loans held-for-investment were as follows:
Balance at December 31, 2018 $ 144,065 
Purchases/additional fundings — 
Sales — 
Proceeds from repayments (16,855)
Accretion of loan discount and other amortization 16,041 
(Allowance) reversal for loan losses (2,332)
Transfer of loans to real estate owned (14,487)
Transfer of loans to held-for-sale (60,154)
Balance at December 31, 2019 $ 66,278 
(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.

The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2018 $ 68,632 
Additions — 
Accretion (16,041)
Reclassifications from (to) non-accretable difference(A)
9,361 
Disposals(B)
(11,515)
Transfer of loans to held-for-sale(C)
(13,415)
Balance at December 31, 2019 $ 37,022 
(A)Represents a probable and significant increase (decrease) in cash flows previously expected to be uncollectible.
(B)Includes sales of loans or foreclosures, which result in removal of the loan from the PCD loan pool at its carrying amount.
(C)Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.

Net Interest Income
December 31,
2020 2019 2018
Interest Income:
Loans held-for-investment, at fair value $ 53,264  $ 60,301  $ 76,129 
Loans held-for-sale, at lower of cost or fair value 50,130  65,926  45,653 
Loans held-for-sale, at fair value 135,729  175,926  51,562 
Total interest income 239,123  302,153  173,344 
Interest Expense:
Loans held-for-investment, at fair value 21,029  19,381  23,618 
Loans held-for-sale, at lower of cost or fair value 22,541  40,067  35,796 
Loans held-for-sale, at fair value 90,064  109,723  24,186 
Total interest expense 133,634  169,171  83,600 
Net interest income $ 105,489  $ 132,982  $ 89,744 
Gain on originated mortgage loans, held-for-sale, net

NewRez, a wholly owned subsidiary of New Residential, originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government-insured mortgage securitizations and mortgage investors issue nonconforming private label mortgage securitizations while NewRez generally retains the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, New Residential reports gain on originated mortgage loans, held-for-sale, net in its Consolidated Statements of Income.

Gain on originated mortgage loans, held-for-sale, net is summarized below:
Year Ended December 31,
2020 2019 2018
Gain on loans originated and sold, net(A)
$ 811,288  $ 53,554  $ 47,172 
Gain (loss) on settlement of mortgage loan origination derivative instruments(B)
(361,755) (53,374) 1,234
MSRs retained on transfer of loans(C)
666,414  374,450  35,311
Other(D)
49,270  27,564  3,977
Realized gain on sale of originated mortgage loans, net $ 1,165,217  $ 402,194  87,694
Change in fair value of loans 99,908  28,761  3,695
Change in fair value of interest rate lock commitments (Note 11) 249,183  26,151  23
Change in fair value of derivative instruments (Note 11) (115,216) 3,001  (5,347)
Gain on originated mortgage loans, held-for-sale, net $ 1,399,092  $ 460,107  $ 86,065 
(A)Includes loan origination fees of $1,658.6 million and $421.3 million in the years ended December 31, 2020 and 2019, respectively.
(B)Represents settlement of forward securities delivery commitments utilized as an economic hedge for mortgage loans not included within forward loan sale commitments.
(C)Represents the initial fair value of the capitalized mortgage servicing rights upon loan sales with servicing retained.
(D)Includes fees for services associated with the loan origination process.