Annual report pursuant to Section 13 and 15(d)

CONSUMER LOANS

v3.20.4
CONSUMER LOANS
12 Months Ended
Dec. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
CONSUMER LOANS CONSUMER LOANS
New Residential, through limited liability companies (together, the “Consumer Loan Companies”), has a co-investment in a portfolio of consumer loans. The portfolio includes personal unsecured loans and personal homeowner loans. OneMain is the servicer of the loans and provides all servicing and advancing functions for the portfolio. As of December 31, 2020, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

On September 25, 2020, the Consumer Loan Companies refinanced the outstanding asset-backed notes with an asset-backed securitization for approximately $663.0 million. The proceeds in excess of the refinanced debt of $4.8 million were distributed to the respective co-investors of which New Residential received approximately $2.6 million.

New Residential also purchased certain newly originated consumer loans from a third party (“Consumer Loan Seller”). These loans are not held in the Consumer Loan Companies and have been designated as performing consumer loans, held-for-investment. In addition, see “Equity Method Investees” below.
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, 2020
Consumer Loan Companies
Performing Loans $ 490,222  53.5  % $ 553,419  18.3  % 3.6 3.7  %
Purchased Credit Deteriorated Loans(C)
127,899  53.5  % 129,513  14.1  % 3.5 7.4  %
Other - Performing Loans
2,862  100.0  % 2,643  15.3  % 0.4 4.3  %
Total Consumer Loans, held-for-investment
$ 620,983  $ 685,575  17.4  % 3.6 4.4  %
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  %
(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.

See Note 12 regarding the financing of consumer loans.

The following table summarizes the past due status and difference between the aggregate unpaid principal balance and the aggregate fair value of consumer loans as of December 31, 2020:
Days Past Due Unpaid Principal Balance Fair Value Fair Value Over (Under) Unpaid Principal Balance
Under 90 Days $ 611,978  $ 675,691  $ 63,713 
90 days or more past due 9,005  9,884  879 
Total $ 620,983  $ 685,575  $ 64,592 

Performing 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.

Activities related to the carrying value of consumer loans, held-for-investment, at fair value were as follows:
Balance at December 31, 2019 827,545
Fair value adjustment due to fair value option 36,472
Additional fundings(A)
33,041
Proceeds from repayments (229,218)
Accretion of loan discount and premium amortization, net 24,120
Fair value adjustments due to:
Changes in instrument-specific credit risk 5,195
Other factors (11,580)
Balance at December 31, 2020 $ 685,575 
(A)Represents draws on consumer loans with revolving privileges.

Activities related to the carrying value of performing consumer loans, held-for-investment were as follows:
Performing Loans
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.

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, 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 was $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 in recoveries of previously charged-off UPB in 2020.
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, 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.

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 

The following is a summary of the changes in accretable yield for these loans:
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.

Equity Method Investees

In February 2017, New Residential completed a co-investment, through a newly formed entity, PF LoanCo Funding LLC (“LoanCo”), to purchase up to $5.0 billion worth of newly originated consumer loans from Consumer Loan Seller over a two- year term. New Residential, along with three co-investors, each acquired 25% membership interests in LoanCo. New Residential accounts for its investment in LoanCo pursuant to the equity method of accounting because it can exercise significant influence over LoanCo but the requirements for consolidation are not met. As of December 31, 2019, LoanCo had distributed all net assets to New Residential.

Additionally, New Residential and the LoanCo co-investors agreed to purchase warrants to purchase up to 177.7 million shares of Series F convertible preferred stock in the Consumer Loan Seller’s parent company (“ParentCo”). The holder of the warrants has the option to purchase an equivalent number of shares of Series F convertible preferred stock in ParentCo at a price of $0.01 per share. The Series F convertible preferred stock holders have the right to convert such preferred stock to common stock at any time, are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted, and will have liquidation rights in the event of liquidation. As of December 31, 2020 and 2019, the warrants are held on New Residential’s Consolidated Balance Sheet in Other Assets and carried at $23.2 million and $28.0 million, respectively.
The following table summarizes the income earned from the Company’s investments in LoanCo and WarrantCo:
Year Ended December 31, 2019
Interest income $ 19,912 
Interest expense (6,487)
Change in fair value of consumer loans and warrants (4,596)
Gain on sale of consumer loans(B)
(10,711)
Other expenses (3,871)
Net income $ (5,753)
New Residential’s equity in net income $ (1,438)
New Residential’s percentage ownership 25.0  %
(A)Data as of, and for the periods ended, November 30, 2019, 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 $ —