Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENT

v3.20.4
FAIR VALUE MEASUREMENT
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT FAIR VALUE MEASUREMENT
U.S. GAAP requires the categorization of fair value measurement into three broad levels which form a hierarchy based on the transparency of inputs to the valuation.

Level 1 - Quoted prices in active markets for identical instruments.
Level 2 - Valuations based principally on other observable market parameters, including:

Quoted prices in active markets for similar instruments,
Quoted prices in less active or inactive markets for identical or similar instruments,
Other observable inputs (such as interest rates, yield curves, volatilities, prepayment rates, loss severities, credit risks and default rates), and
Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3 - Valuations based significantly on unobservable inputs.

New Residential follows this hierarchy for its fair value measurements. The classifications are based on the lowest level of input that is significant to the fair value measurement.
The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2020 were as follows:
Fair Value
Principal Balance or Notional Amount Carrying Value Level 1 Level 2 Level 3 Total
Assets:
Excess mortgage servicing rights, at fair value(A)
$ 72,688,905  $ 310,938  $ —  $ —  $ 310,938  $ 310,938 
Excess mortgage servicing rights, equity method investees, at fair value(A)
28,453,512  99,917  —  —  99,917  99,917 
Mortgage servicing rights, at fair value(A)
363,269,876  3,489,675  —  —  3,489,675  3,489,675 
Mortgage servicing rights financing receivables, at fair value(A)
72,165,951  1,096,166  —  —  1,096,166  1,096,166 
Servicer advance investments, at fair value
449,150  538,056  —  —  538,056  538,056 
Real estate and other securities 31,869,681  14,244,558  —  13,063,634  1,180,924  14,244,558 
Residential mortgage loans, held-for-sale
637,138  509,887  —  —  509,887  509,887 
Residential mortgage loans, held-for-sale, at fair value 4,675,833  4,705,816  —  3,059,611  1,646,205  4,705,816 
Residential mortgage loans, held-for-investment, at fair value 769,348  674,179  —  —  674,179  674,179 
Residential mortgage loans subject to repurchase
1,452,005  1,452,005  —  1,452,005  —  1,452,005 
Consumer loans, held-for-investment, at fair value 620,983  685,575  —  —  685,575  685,575 
Derivative assets 38,427,601  290,144  —  789  289,355  290,144 
Note Receivable 49,075  49,889  —  —  49,889  49,889 
Cash and cash equivalents
944,854  944,854  944,854  —  —  944,854 
Restricted cash
135,619  135,619  135,619  —  —  135,619 
Other assets(B)
N/A 48,032  11,187  —  36,845  48,032 
$ 29,275,310  $ 1,091,660  $ 17,576,039  $ 10,607,611  $ 29,275,310 
Liabilities:
Secured financing agreements $ 17,552,126  $ 17,547,680  $ —  $ 17,552,126  $ —  $ 17,552,126 
Secured notes and bonds payable(C)
7,667,239  7,644,195  —  —  7,651,325  7,651,325 
Unsecured senior notes, net of issuance costs 541,516  541,516  —  —  541,516  541,516 
Residential mortgage loan repurchase liability 1,452,005  1,452,005  —  1,452,005  —  1,452,005 
Derivative liabilities 6,648,152  119,762  —  119,481  281  119,762 
Excess spread financing 2,190,991 18,420 —  —  18,420 18,420
Contingent consideration N/A 14,247  —  —  14,247  14,247 
$ 27,337,825  $ —  $ 19,123,612  $ 8,225,789  $ 27,349,401 
(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR Financing Receivables, and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.
(B)Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of New Residential’s investment. The investment had a fair value of $31.8 million as of December 31, 2020.
(C)Includes the SAFT 2013-1, MDST Trusts, NPL/RPL Securitization Trusts and SCFT 2020-A mortgage backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $1.7 billion as of December 31, 2020.
The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2019 were as follows:
Fair Value
Principal Balance or Notional Amount Carrying Value Level 1 Level 2 Level 3 Total
Assets:
Excess mortgage servicing rights, at fair value(A)
$ 88,345,237  $ 379,747  $ —  $ —  $ 379,747  $ 379,747 
Excess mortgage servicing rights, equity method investees, at fair value(A)
33,592,554  125,596  —  —  125,596  125,596 
Mortgage servicing rights, at fair value(A)
373,850,061  3,967,960  —  —  3,967,960  3,967,960 
Mortgage servicing rights financing receivables, at fair value(A)
130,984,870  1,718,273  —  —  1,718,273  1,718,273 
Servicer advance investments, at fair value
462,843  581,777  —  —  581,777  581,777 
Real estate and other securities 36,159,591  19,477,728  —  11,519,943  7,957,785  19,477,728 
Residential mortgage loans, held-for-investment
502,352  441,263  —  —  435,234  435,234 
Residential mortgage loans, held-for-sale
1,531,505  1,429,052  —  —  1,438,302  1,438,302 
Residential mortgage loans, held-for-sale, at fair value(B)
4,675,806  4,613,612  —  1,099,230  3,514,382  4,613,612 
Residential mortgage loans, held-for-investment, at fair value(C)
452,771  484,443  —  —  484,443  484,443 
Residential mortgage loans subject to repurchase
172,336  172,336  —  172,336  —  172,336 
Consumer loans, held-for-investment
823,917  827,545  —  —  849,739  849,739 
Derivative assets 8,360,894  41,501  —  155  41,346  41,501 
Cash and cash equivalents
528,737  528,737  528,737  —  —  528,737 
Restricted cash
162,197  162,197  162,197  —  —  162,197 
Other assets(D)
N/A 60,654  7,952  —  52,703  60,655 
$ 35,012,421  $ 698,886  $ 12,791,664  $ 21,547,287  $ 35,037,837 
Liabilities:
Secured financing agreements $ 27,917,709  $ 27,916,225  $ —  $ 27,917,709  $ —  $ 27,917,709 
Secured notes and bonds payable(E)
7,733,135  7,720,148  —  —  7,779,060  7,779,060 
Residential mortgage loan repurchase liability 172,336  172,336  —  172,336  —  172,336 
Derivative liabilities 17,379,407  6,885  —  5,430  1,455  6,885 
Excess spread financing 2,962,629  31,777  —  —  31,777  31,777 
Contingent consideration N/A 55,222  —  —  55,222  55,222 
$ 35,902,593  $ —  $ 28,095,475  $ 7,867,514  $ 35,962,989 
(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR financing receivables, and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.
(B)Includes $267.7 million in fair value of loans that are 90 days or more past due.
(C)Includes $21.6 million in fair value of loans that are 90 days or more past due.
(D)Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of New Residential’s investment. The investment had a fair value of $74.0 million as of December 31, 2019.
(E)Includes the MDST Trusts, SAFT 2013-1 mortgage-backed securities and the 2019-RPL1 asset-backed notes issued for which the fair value option for financial instruments was elected and resulted in a fair value of $659.7 million as of December 31, 2019.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.

New Residential’s assets measured at fair value on a recurring basis using Level 3 inputs changed as follows:
Level 3
Excess MSRs(A)
Excess MSRs in Equity Method Investees(A)(B)
Agency Non-Agency
MSRs(A)
Mortgage Servicing Rights Financing Receivables(A)
Servicer Advance Investments Non-Agency RMBS
Derivatives(C)
Residential Mortgage Loans Consumer Loans Total
Balance at December 31, 2018 $ 257,387  $ 190,473  $ 147,964  $ 2,884,100  $ 1,644,504  $ 735,846  $ 8,970,963  $ 10,628  $ 2,330,627  $ —  $ 17,172,492 
Transfers
Transfers from Level 3 —  —  —  —  —  —  —  —  (32,806) —  (32,806)
Transfers to Level 3 —  —  —  —  —  —  —  —  315,577  —  315,577 
Ditech Acquisition —  —  —  387,170  —  —  (178,435) —  381,039  —  589,774 
Transfers from MSR financing receivables to MSRs —  —  —  367,121  (367,121) —  —  —  —  —  — 
Gains (losses) included in net income
Included in provision (reversal) for credit losses on securities(D)
—  —  —  —  —  —  (25,174) —  —  —  (25,174)
Included in change in fair value of excess mortgage servicing rights(D)
(7,559) (2,946) —  —  —  —  —  —  —  —  (10,505)
Included in change in fair value of excess mortgage servicing rights, equity method investees(D)
—  —  6,800  —  —  —  —  —  —  —  6,800 
Included in servicing revenue, net(E)
—  —  —  (721,356) —  —  —  —  —  —  (721,356)
Included in change in fair value of MSR financing receivable(D)
—  —  —  —  (189,023) —  —  —  —  —  (189,023)
Included in change in fair value of servicer advance investments
—  —  —  —  —  10,288  —  —  —  —  10,288 
Included in change in fair value of residential mortgage loans —  —  —  —  —  —  —  —  (63,347) —  (63,347)
Included in gain (loss) on settlement of investments, net
1,479  30  —  —  —  —  97,191  —  —  —  98,700 
Included in other income (loss), net(D)
1,523  819  —  —  —  —  2,101  29,263  —  —  33,706 
Gains (losses) included in other comprehensive income(F)
—  —  —  —  —  —  238,217  —  —  —  238,217 
Interest income 14,895  17,752  —  —  —  27,666  302,705  —  —  —  363,018 
Purchases, sales and repayments
Purchases, net(G)
—  —  —  678,424  652,902  1,622,808  2,058,953  —  11,110,245  —  16,123,332 
Proceeds from sales (10,018) (57) —  (1,539) (22,989) —  (1,949,300) —  (10,638,483) —  (12,622,386)
Proceeds from repayments (48,074) (35,957) (29,168) —  —  (1,814,831) (1,559,436) —  (248,503) —  (3,735,969)
Originations and other —  —  —  374,040  —  —  —  —  844,476  —  1,218,516 
Balance at December 31, 2019 $ 209,633  $ 170,114  $ 125,596  $ 3,967,960  $ 1,718,273  $ 581,777  $ 7,957,785  $ 39,891  $ 3,998,825  $ —  $ 18,769,854 
(continued on next page)
Level 3
Excess MSRs(A)
Excess MSRs in Equity Method Investees(A)(B)
Agency Non-Agency
MSRs(A)
Mortgage Servicing Rights Financing Receivables(A)
Servicer Advance Investments Non-Agency RMBS
Derivatives(C)
Residential Mortgage Loans Consumer Loans Total
(continued from previous page)
Transfers
Transfers from Level 3 —  —  —  —  —  —  —  —  (718,892) —  (718,892)
Transfers to Level 3 for the adoption of ASU 2016-13 (See Note 2) —  —  —  —  —  —  —  —  445,040  827,545  1,272,585 
Transfers from MSR financing receivables to MSRs —  —  —  320,613  (320,613) —  —  —  —  —  — 
Gains (losses) included in net income
Included in provision (reversal) for credit losses on securities(D)
—  —  —  —  —  —  (13,404) —  —  —  (13,404)
Included in change in fair value of excess mortgage servicing rights(D)
(9,510) (6,722) —  —  —  —  —  —  —  —  (16,232)
Included in change in fair value of excess mortgage servicing rights, equity method investees(D)
—  —  (3,489) —  —  —  —  —  —  —  (3,489)
Included in servicing revenue, net(E)
—  —  —  (1,903,905) —  —  —  —  —  —  (1,903,905)
Included in change in fair value of MSR financing receivable(D)
—  —  —  —  (279,168) —  —  —  —  —  (279,168)
Included in change in fair value of servicer advance investments
—  —  —  —  —  763  —  —  —  —  763 
Included in change in fair value of residential mortgage loans —  —  —  —  —  —  —  —  (107,604) —  (107,604)
Included in gain (loss) on settlement of investments, net
66  —  —  —  —  (953,541) —  —  —  (953,474)
Included in other income (loss), net(D)
(10,817) (1,373) —  —  —  —  (42,506) 249,183  (8,276) (6,385) 179,826 
Gains (losses) included in other comprehensive income(F)
—  —  —  —  —  —  (580,102) —  (6,020) 36,472  (549,650)
Interest income 12,299  16,053  —  —  —  18,182  105,373  —  —  24,120  176,027 
Purchases, sales and repayments
Purchases, net(G)
—  —  —  449,875  (18,267) 1,294,757  575,030  —  2,415,084  33,041  4,749,520 
Proceeds from sales (1,056) (5) —  (11,282) (4,059) —  (5,288,480) —  (3,391,887) —  (8,696,769)
Proceeds from repayments (37,970) (29,775) (22,190) —  —  (1,357,423) (577,543) —  (305,886) (229,218) (2,560,005)
Originations and other —  —  —  666,414  —  —  (1,688) —  —  —  664,726 
Balance at December 31, 2020 $ 162,645  $ 148,293  $ 99,917  $ 3,489,675  $ 1,096,166  $ 538,056  $ 1,180,924  $ 289,074  $ 2,320,384  $ 685,575  $ 10,010,709 
(A)Includes the recapture agreement for each respective pool, as applicable.
(B)Amounts represent New Residential’s portion of the Excess MSRs held by the respective joint ventures in which New Residential has a 50% interest.
(C)For the purpose of this table, the IRLC asset and liability positions are shown net.
(D)The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates and realized gains (losses) recorded during the period.
(E)The components of Servicing revenue, net are disclosed in Note 6.
(F)These gains (losses) were included in net unrealized gain (loss) on securities in the Consolidated Statements of Comprehensive Income.
(G)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.
New Residential’s liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
Level 3
Excess Spread Financing Mortgage-Backed Securities Issued Contingent Consideration
Total
Balance at December 31, 2018 $ 39,304  $ 117,048  $ 40,842  $ 197,194 
Transfers
Transfers from Level 3 —  —  —  — 
Transfers to Level 3 —  —  —  — 
Acquisitions
—  —  13,893  13,893 
Ditech Acquisition(D)
—  209,459  —  209,459 
Gains (losses) included in net income
Included in servicing revenue, net(B)
(8,406) —  —  (8,406)
Included in other income(A)
—  1,236  10,487  11,723 
Interest income —  —  —  — 
Purchases, sales and payments
— 
Purchases
—  378,569  —  378,569 
Proceeds from sales
—  —  —  — 
Payments
—  (46,574) (10,000) (56,574)
Other
879  —  —  879 
Balance at December 31, 2019 $ 31,777  $ 659,738  $ 55,222  $ 746,737 
Transfers
Transfers from Level 3 —  —  —  — 
Transfers to Level 3 —  —  —  — 
Acquisitions
—  —  —  — 
Gains (losses) included in net income
Included in servicing revenue, net(B)
(14,164) —  —  (14,164)
Included in other income(A)
—  966  4,844  5,810 
Interest income —  —  —  — 
Purchases, sales and payments
Purchases
—  1,520,382  —  1,520,382 
Proceeds from sales
—  —  —  — 
Payments
—  (516,769) (45,819) (562,588)
Other
807  (1,465) —  (658)
Balance at December 31, 2020 $ 18,420  $ 1,662,852  $ 14,247  $ 1,695,519 
(A)The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 liabilities still held at the reporting dates and realized gains (losses) recorded during the period.
(B)The components of Servicing revenue, net are disclosed in Note 6.
(C)These gains (losses) were included in net unrealized gain (loss) on securities in the Consolidated Statements of Comprehensive Income.
(D)As a result of the Ditech Acquisition, New Residential acquired MSRs and the servicing on certain residual tranches of Non-Agency RMBS it already owned, and now consolidates the respective securities. See Note 12 for the associated liability.

Excess MSRs, Excess MSRs Equity Method Investees, MSRs and MSR Financing Receivables Valuation

Fair value estimates of New Residential’s MSRs and Excess MSRs were based on internal pricing models. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included expectations of prepayment rates, delinquency rates, recapture rates, the mortgage servicing amount or excess mortgage servicing amount of the underlying residential mortgage loans, as applicable, and discount rates that market participants would use in determining the fair values of mortgage servicing rights on similar pools of residential mortgage loans. In addition, for MSRs, significant inputs included the market-level estimated cost of servicing.

Significant increases (decreases) in the discount rates, prepayment or delinquency rates, or costs of servicing, in isolation would result in a significantly lower (higher) fair value measurement, whereas significant increases (decreases) in the recapture rates
or mortgage servicing amount or excess mortgage servicing amount, as applicable, in isolation would result in a significantly higher (lower) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the prepayment rate.
The following tables summarize certain information regarding the ranges and weighted averages of significant inputs used:
December 31, 2020
Significant Inputs(A)
Prepayment
Rate(B)
Delinquency(C)
Recapture Rate(D)
Mortgage Servicing Amount
or Excess Mortgage Servicing Amount
(bps)
(E)
Collateral Weighted Average Maturity Years(F)
Excess MSRs Directly Held (Note 5)
Agency
Original Pools
7.1% - 10.9%
(7.8%)
—% - 3.5%
(1.4%)
4.4% - 23.3%
(10.3%)
15 - 31
(21)
13 - 21
(19)
Recaptured Pools
7% - 11.9%
(9.6%)
—% - 4%
(0.9%)
—% - 35.0%
(20.4%)
21 - 29
(24)
19 - 24
(22)
7% - 11.9%
(8.4%)
—% - 4%
(1.2%)
—% - 35.0%
(13.8%)
15 - 31
(22)
13 - 24
(20)
Non-Agency(G)
Mr. Cooper and SLS Serviced:
Original Pools
6.6% - 11.9%
(9%)
2.6% - 13.9%
(10.2)
—% - 13.1%
(10%)
5 - 25
(15)
18 - 29
(23)
Recaptured Pools
5.6% - 7.4%
(6.1%)
0.2% - 0.5
(0.4)
12.1% - 21.4%
(14.2%)
23 - 27
(25)
21 - 23
(23)
5.6% - 11.9%
(8.5%)
0.2% - 13.9
(10.2)
—% - 21.4%
(10.7%)
5 - 27
(17)
18 - 29
(23)
Total/Weighted Average—Excess MSRs Directly Held
5.6% - 11.9%
(8.5%)
—% - 13.9%
(4.8%)
—% - 35.0%
(12.3%)
5 - 31
(19)
13 - 29
(21)
Excess MSRs Held through Equity Method Investees (Note 5)
Agency
Original Pools
7.1% - 10.2%
(8%)
1.2% - 2.5%
(1.6%)
5.2% - 23.3%
(8.9%)
15 - 25
(19)
18 - 19
(18)
Recaptured Pools
8.6% - 10.5%
(9.3%)
0.6% - 1.7%
(1.2%)
11.7% - 28.9%
(15%)
22 - 28
(25)
20 - 23
(22)
Total/Weighted Average—Excess MSRs Held through Investees
7.5% - 10.7%
(9.0%)
0.6% - 2.2%
(1.2%)
5.5% - 29.8%
(12.9%)
15 - 28
(22)
18 - 23
(20)
Total/Weighted Average—Excess MSRs All Pools
5.6% - 11.9%
(8.5%)
—% - 13.9%
(3.6%)
—% - 35.0%
(12.2%)
5 - 31
(20)
13 - 29
(21)
MSRs (Note 6)
Agency(H)
Mortgage Servicing Rights(J)
7.9% - 23.3%
(13.1%)
0.4% - 2.1%
(0.9%)
2.5% - 35.5%
(20.6%)
25 - 31
(28)
— - 30
(22)
MSR Financing Receivables 12.1% 0.7% 15.9%
25
— - 30
(22)
7.9% - 23.3%
(13.1%)
0.4% - 2.1%
(0.9%)
2.5% - 35.5%
(20.5%)
25 - 31
(28)
— - 30
(22)
Non-Agency
Mortgage Servicing Rights
9.5% - 16.4%
(13.1%)
0.9% - 9.4%
(4.9%)
4.3% - 31.6%
(18.6%)
26 - 88
(55)
— - 30
(16)
MSR Financing Receivables 7.6% 13.0% 7.9% 48
— - 30
(25)
7.6% - 16.4%
(7.7%)
0.9% - 13.0%
(12.9%)
4.3% - 31.6%
(8.1%)
26 - 88
(48)
— - 30
(25)
Ginnie Mae
Mortgage Servicing Rights(J)
9.0% - 24.1%
(20.3%)
2.3% - 5.6%
(4.7%)
16.2% - 35.0%
(24.9%)
32 - 50
(45)
— - 30
(27)
7.6% - 24.1%
(12.9%)
0.4% - 13.0%
(4.2%)
2.5% - 35.5%
(20%)
25 - 88
(35)
— - 30
(23)
December 31, 2019
Significant Inputs(A)
Prepayment
Rate(B)
Delinquency(C)
Recapture Rate(D)
Mortgage Servicing Amount
or Excess Mortgage Servicing Amount
(bps)
(E)
Collateral Weighted Average Maturity Years(F)
Excess MSRs Directly Held (Note 5)
Agency
Original Pools 8.6  % 1.1  % 20.3  % 21  20
Recaptured Pools 10.7  % 0.5  % 27.8  % 23  23
9.2  % 0.9  % 22.3  % 22  21
Non-Agency(G)
Mr. Cooper and SLS Serviced:
Original Pools 9.7  % N/A 15.5  % 15  24
Recaptured Pools 7.5  % N/A 17.4  % 24  23
9.4  % N/A 15.8  % 16  24
Total/Weighted Average—Excess MSRs Directly Held 9.3  % 0.9  % 19.4  % 19  22
Excess MSRs Held through Equity Method Investees (Note 5)
Agency
Original Pools 9.3  % 1.4  % 23.7  % 19  19
Recaptured Pools 10.3  % 0.8  % 26.7  % 24  22
Total/Weighted Average—Excess MSRs Held through Investees 9.8  % 1.1  % 25.1  % 21  20
Total/Weighted Average—Excess MSRs All Pools 9.5  % 1.0  % 21.4  % 20  21
MSRs (Note 6)
Agency(H)
Mortgage Servicing Rights(I)
12.5  % 1.0  % 23.3  % 28  22
MSR Financing Receivables(I)
15.4  % 0.4  % 15.8  % 27  25
12.9  % 0.9  % 22.2  % 28 22
Non-Agency
Mortgage Servicing Rights 11.6  % 1.2  % 22.1  % 31  16
MSR Financing Receivables(I)
8.3  % 14.4  % 9.3  % 47  25
8.4  % 14.2  % 9.5  % 47 25
Ginnie Mae
Mortgage Servicing Rights(J)
16.2  % 4.4  % 28.1  % 42  27
12.3  % 4.1  % 20.0  % 33  23
(A)Weighted by fair value of the portfolio.
(B)Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(C)Projected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.
(D)Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.
(E)Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in bps. As of December 31, 2020 and 2019, weighted average costs of subservicing of $6.20-$7.50 ($7.00) and $7.18, respectively, per loan per month was used to value the agency MSRs, including MSR Financing Receivables. Weighted average costs of subservicing of $10.90 and $11.28, respectively, per loan per month was used to value the non-agency MSRs, including MSR Financing Receivables. Weighted average cost of subservicing of $8.90 and $9.20, respectively, per loan per month was used to value the Ginnie Mae MSRs.
(F)Weighted average maturity of the underlying residential mortgage loans in the pool.
(G)For certain pools, the Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO). For these pools, no delinquency assumption is used.
(H)Represents Fannie Mae and Freddie Mac MSRs.
(I)For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.
(J)Includes valuation of the related Excess spread financing (Note 6).

With respect to valuing the Ocwen-serviced MSR financing receivables, which include a significant servicer advances receivable component, the cost of financing servicer advances receivable is assumed to be LIBOR plus 2.1%.

As of December 31, 2020 and 2019, weighted average discount rates of 7.8% (range 7.5% -8.0%) and 7.8%, respectively, were used to value New Residential’s Excess MSRs (directly and through equity method investees). As of December 31, 2020 and 2019, weighted average discount rates of 7.7% (range 7.3%-13.0%) and 7.8% were used to value New Residential’s MSRs, respectively. As of December 31, 2020 and 2019, weighted average discount rates of 9.4% (range 7.4%-9.5%) and 8.9%, respectively, were used to value New Residential’s MSR financing receivables.

All of the assumptions listed have some degree of market observability, based on New Residential’s knowledge of the market, relationships with market participants, and use of common market data sources. New Residential uses assumptions that generate its best estimate of future cash flows for each investment in MSRs and Excess MSRs.

When valuing MSRs and Excess MSRs, New Residential uses the following criteria to determine the significant inputs:
 
Prepayment Rate: Prepayment rate projections are in the form of a “vector” that varies over the expected life of the pool. The prepayment vector specifies the percentage of the collateral balance that is expected to prepay voluntarily (i.e., pay off) and involuntarily (i.e., default) at each point in the future. The prepayment vector is based on assumptions that reflect macroeconomic conditions like home price appreciation, current level of interest rates as well as loan level factors such as the borrower’s interest rate, FICO score, loan-to-value ratio, debt-to-income ratio, vintage on a loan level basis. New Residential considers historical prepayment experience associated with the collateral when determining this vector and also reviews industry research on the prepayment experience of similar loan pools. This data is obtained from remittance reports, market data services and other market sources.
Delinquency Rates: For existing mortgage pools, delinquency rates are based on the recent pool-specific experience of loans that missed their latest mortgage payments. Delinquency rate projections are in the form of a “vector” that varies over the expected life of the pool. The delinquency vector specifies the percentage of the unpaid principal balance that is expected to be delinquent each month. The delinquency vector is based on assumptions that reflect macroeconomic conditions, the historical delinquency rates for the pools and the underlying borrower characteristics such as the FICO score and loan-to-value ratio. For the recapture agreements and recaptured loans, delinquency rates are based on the experience of similar loan pools originated by New Residential’s servicers and subservicers, and delinquency experience over the past year. New Residential believes this time period provides a reasonable sample for projecting future delinquency rates while taking into account current market conditions. Additional consideration is given to loans that are expected to become 30 or more days delinquent.
Recapture Rates: Recapture rates are based on actual average recapture rates experienced by New Residential’s servicers and subservicers on similar residential mortgage loan pools. Generally, New Residential looks to three to six months’ worth of actual recapture rates, which it believes provides a reasonable sample for projecting future recapture rates while taking into account current market conditions. Recapture rate projections are in the form of a “vector” that varies over the expected life of the pool. The recapture vector specifies the percentage of the refinanced loans that have been recaptured within the pool by the servicer or subservicer. The recapture vector takes into account the nature and timeline of the relationship between the borrowers in the pool and the servicer or subservicer, the customer retention programs offered by the servicer or subservicer and the historical recapture rates.
Mortgage Servicing Amount or Excess Mortgage Servicing Amount: For existing mortgage pools, mortgage servicing amount and excess mortgage servicing amount projections are based on the actual total mortgage servicing amount, in excess of a basic fee as applicable. For loans expected to be refinanced by the related servicer or subservicer and subject to a recapture agreement, New Residential considers the mortgage servicing amount or excess mortgage servicing amount on loans recently originated by the related servicer over the past three months and other general market considerations. New Residential believes this time period provides a reasonable sample for projecting future mortgage servicing amounts and excess mortgage servicing amounts while taking into account current market conditions.
Discount Rate: The discount rates used by New Residential are derived from market data on pricing of mortgage servicing rights backed by similar collateral.
Cost of subservicing: The costs of subservicing used by New Residential are based on available market data for various loan types and delinquency statuses.

New Residential uses different prepayment and delinquency assumptions in valuing the MSRs and Excess MSRs relating to the original loan pools, the recapture agreements and the MSRs and Excess MSRs relating to recaptured loans. The prepayment rate and delinquency rate assumptions differ because of differences in the collateral characteristics, refinance potential and expected borrower behavior for original loans and loans which have been refinanced. The assumptions for recapture and discount rates when valuing MSRs and Excess MSRs and recapture agreements are based on historical recapture experience and market pricing.

Servicer Advance Investments Valuation

New Residential uses internal pricing models to estimate the future cash flows related to the Servicer Advance Investments that incorporate significant unobservable inputs and include assumptions that are inherently subjective and imprecise. New Residential’s estimations of future cash flows include the combined cash flows of all of the components that comprise the Servicer Advance Investments: existing advances, the requirement to purchase future advances, the recovery of advances and the right to the basic fee component of the related MSR. The factors that most significantly impact the fair value include (i) the rate at which the servicer advance balance changes over the term of the investment, (ii) the UPB of the underlying loans with respect to which New Residential has the obligation to make advances and owns the basic fee component of the related MSR which, in turn, is driven by prepayment rates and (iii) the percentage of delinquent loans with respect to which New Residential owns the basic fee component of the related MSR. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included the assumptions used to establish the aforementioned cash flows and discount rates that market participants would use in determining the fair values of Servicer Advance Investments.

Significant increases (decreases) in the advance balance-to-UPB ratio, prepayment rate, delinquency rate, or discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the advance balance-to-UPB ratio.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:
Significant Inputs
Outstanding
Servicer Advances
to UPB of Underlying
Residential Mortgage
Loans
Prepayment Rate(A)
Delinquency
Mortgage Servicing Amount(B)
Discount
Rate
Collateral Weighted Average Maturity (Years)(C)
December 31, 2020
1.1% - 1.7%
(1.7%)
9.3% - 9.3%
(9.3%)
6.9% - 9.1%
(9.0%)
17.1 - 19.8
(19.7) bps
5.2% - 5.7%
(5.2%)
22.3
December 31, 2019 1.4% 10.6% 15.7%
19.6 bps
5.3% 22.9
(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)Mortgage servicing amount is net of 10.0 bps and 10.1 bps which represent the amounts New Residential paid its servicers as a monthly servicing fee as of December 31, 2020 and 2019, respectively.
(C)Weighted average maturity of the underlying residential mortgage loans in the pool.

The valuation of the Servicer Advance Investments also takes into account the performance fee paid to the servicer, which in the case of the Buyer is based on its equity returns and therefore is impacted by relevant financing assumptions such as loan-to-value ratio and interest rate as well as advance-to-UPB ratio. All of the assumptions listed have some degree of market observability, based on New Residential’s knowledge of the market, relationships with market participants, and use of common market data sources. The prepayment rate, the delinquency rate and the advance-to-UPB ratio projections are in the form of “curves” or “vectors” that vary over the expected life of the underlying mortgages and related servicer advances. New Residential uses assumptions that generate its best estimate of future cash flows for each Servicer Advance Investment, including the basic fee component of the related MSR.
When valuing Servicer Advance Investments, New Residential uses the following criteria to determine the significant inputs:
 
Servicer advance balance: Servicer advance balance projections are in the form of a “vector” that varies over the expected life of the residential mortgage loan pool. The servicer advance balance projection is based on assumptions that reflect factors such as the borrower’s expected delinquency status, the rate at which delinquent borrowers re-perform or become current again, servicer modification offer and acceptance rates, liquidation timelines and the servicers’ stop advance and clawback policies.
Prepayment Rate: Prepayment rate projections are in the form of a “vector” that varies over the expected life of the pool. The prepayment vector specifies the percentage of the collateral balance that is expected to prepay voluntarily (i.e., pay off) and involuntarily (i.e., default) at each point in the future. The prepayment vector is based on assumptions that reflect macroeconomic conditions and factors such as the borrower’s FICO score, loan-to-value ratio, debt-to-income ratio, and vintage on a loan level basis. New Residential considers collateral-specific prepayment experience when determining this vector.
Delinquency Rates: For existing mortgage pools, delinquency rates are based on the recent pool-specific experience of loans that missed recent mortgage payment(s) as well as loan- and borrower-specific characteristics such as the borrower’s FICO score, the loan-to-value ratio, debt-to-income ratio, occupancy status, loan documentation, payment history and previous loan modifications. New Residential believes the time period utilized provides a reasonable sample for projecting future delinquency rates while taking into account current market conditions.
Mortgage Servicing Amount: Mortgage servicing amounts are contractually determined on a pool-by-pool basis. New Residential projects the weighted average mortgage servicing amount based on its projections for prepayment rates.
LIBOR: The performance-based incentive fees on Mr. Cooper-serviced Servicer Advance Investments portfolios are driven by LIBOR-based factors. The LIBOR curves used are widely used by market participants as reference rates for many financial instruments.
Discount Rate: The discount rates used by New Residential are derived from market data on pricing of mortgage servicing rights backed by similar collateral and the advances made thereon.

Real Estate and Other Securities Valuation

New Residential’s securities valuation methodology and results are further detailed as follows:
Fair Value
Asset Type Outstanding Face Amount Amortized Cost Basis
Multiple Quotes(A)
Single Quote(B)
Total Level
December 31, 2020
Agency RMBS $ 12,491,152  $ 12,951,608  $ 13,063,634  $ —  $ 13,063,634 
Non-Agency RMBS(C)
19,378,530  1,153,643  1,171,209  9,715  1,180,924 
Total $ 31,869,682  $ 14,105,251  $ 14,234,843  $ 9,715  $ 14,244,558 
December 31, 2019
Agency RMBS $ 11,301,603  $ 11,474,338  $ 11,519,943  $ —  $ 11,519,943 
Non-Agency RMBS(C)
24,857,988  7,307,837  7,953,573  4,212  7,957,785 
Total $ 36,159,591  $ 18,782,175  $ 19,473,516  $ 4,212  $ 19,477,728 
(A)New Residential generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. New Residential evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for non-agency RMBS, there is a wide disparity between the quotes New Residential receives. New Residential believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, it selects one of the quotes which is believed to more accurately reflect fair value. New Residential has not adjusted any of the quotes received in the periods presented. New Residential’s Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.
The third-party pricing services and brokers engaged by New Residential (collectively, “valuation providers”) use either the income approach or the market approach, or a combination of the two, in arriving at their estimated valuations of RMBS. Valuation providers using the market approach generally look at prices and other relevant information generated by market transactions involving identical or comparable assets. Valuation providers using the income approach create pricing models that generally incorporate such assumptions as discount rates, expected prepayment rates, expected default rates and expected loss severities. New Residential has reviewed the methodologies utilized by its valuation providers and has found them to be consistent with GAAP requirements. In addition to obtaining multiple quotations, when available, and reviewing the valuation methodologies of its valuation providers, New Residential creates its own internal pricing models for Level 3 securities and uses the outputs of these models as part of its process of evaluating the fair value estimates it receives from its valuation providers. These models incorporate the same types of assumptions as the models used by the valuation providers, but the assumptions are developed independently.

For 99.0% of New Residential’s Non-Agency RMBS, the ranges and weighted averages of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
Fair Value Discount Rate
Prepayment Rate(a)
CDR(b)
Loss Severity(c)
Non-Agency RMBS $ 1,168,765 
3.5% - 15.0%
(4.3%)
7.0% - 25.0%
(14.3%)
0.5% - 12.0%
(1.4%)
20.0% - 88.0%
(30.0%)
(a)Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.

(B)New Residential was unable to obtain quotations from more than one source on these securities. For approximately $0.0 million in 2020 and $0.7 million in 2019, the one source was the party that sold New Residential the security.
(C)Includes New Residential’s interest-only notes for which the fair value option for financial instruments was elected.

Residential Mortgage Loans Valuation

New Residential, through its wholly owned subsidiary, NewRez, originates mortgage loans that it intends to sell into Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securitizations. Residential mortgage loans held-for-sale, at fair value are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. Residential mortgage loans held-for-sale, at fair value are valued using a market approach by utilizing either (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, New Residential classifies these valuations as Level 2 in the fair value hierarchy.

Residential mortgage loans held-for-sale, at fair value also includes certain nonconforming mortgage loans originated for sale to private investors which are valued using internal pricing models to forecast loan level cash flows using inputs such as default rates, prepayments speeds and discount rates. As the internal pricing model is based on certain unobservable inputs, New Residential classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:
Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Acquired Loans
$ 1,633,628 
3.3% - 8.5%
(4.6%)
0.2% - 5.5%
(2.6%)
2.0% - 25.0%
(5.0%)
3.0% - 50.0%
(27.1%)
Originated Loans
12,577  4.8% 5.5% 4.5% 50.0%
Residential Mortgage Loans Held-for-Sale, at Fair Value
$ 1,646,205 
Residential mortgage loans held-for-investment, at fair value includes mortgage loans underlying the SAFT 2013-1 securitization, which are valued using internal pricing models using inputs such as default rates, prepayment speeds and discount rates. As the internal pricing model is based on certain unobservable inputs, New Residential classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:
Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Residential Mortgage Loans Held-for-Investment, at Fair Value
$ 674,179 
6.5% - 9.0%
(6.8%)
2.3% - 2.9%
(2.4%)
2.0% - 6.6%
(6.2%)
30.0% - 65.8%
(62.5%)

Consumer Loans Valuation

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing consumer loans held-for-investment, at fair value classified as Level 3:
Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Consumer Loans Held-for-Investment, at Fair Value 685,575
7.5% - 9.7%
(7.5%)
19.2% - 35.1%
(19.3%)
5.2% - 20.7%
(5.2%)
77.8% - 90.2%
(77.9%)

Derivative Valuation

New Residential enters into economic hedges including interest rate swaps, caps and TBAs, which are categorized as Level 2 in the valuation hierarchy. New Residential generally values such derivatives using quotations, similarly to the method of valuation used for New Residential’s other assets that are classified as Level 2 in the fair value hierarchy.

As a part of the mortgage loan origination business, New Residential enters into forward loan sale and securities delivery commitments, which are valued based on observed market pricing for similar instruments and therefore, are classified as Level 2. In addition, New Residential enters into IRLCs, which are valued using internal pricing models (i) incorporating market pricing for instruments with similar characteristics, (ii) estimating the fair value of the servicing rights expected to be recorded at sale of the loan and (iii) adjusting for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and therefore, IRLCs are classified as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing IRLCs:
Fair Value Loan Funding Probability Fair Value of initial servicing rights (bps)
IRLCs (net)
$ 289,074 
—% - 100%
(80.5%)
0.70 - 270.58
(106.09)
Mortgage-Backed Securities Issued

New Residential and NewRez, a wholly owned subsidiary of New Residential, were deemed to be the primary beneficiaries of the MDST Trusts, RPL Borrowers and SAFT 2013-1 securitization entity and therefore, New Residential’s Consolidated Balance Sheets include the mortgage-backed securities issued by the MDST Trusts, RPL Borrowers and SAFT 2013-1, respectively. New Residential elected the fair value option for these financial instruments and the mortgage-backed securities issued were valued consistently with New Residential’s Non-Agency RMBS described above.

The following table summarizes certain information regarding the ranges and weighted averages of significant inputs used in valuing Mortgage-Backed Securities Issued:
Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Mortgage-Backed Securities Issued
$ 1,662,852 
1.8% - 4.5%
(3.1%)
3.1% - 30%
(10.2%)
0.5% - 10.5%
(7.4%)
20.0% - 90.0%
(55.2%)

Contingent Consideration Valuation

As additional consideration for the Guardian Acquisition, New Residential may make up to four cash earnout payments, calculated as the amount of cumulative Guardian earnings on specified contracts in excess of certain thresholds up to an aggregate maximum amount of $17.5 million (the “Guardian Earnout Payments”), which will be calculated following the end of each calendar year with the final payment being calculated as of the fourth anniversary date of the Guardian closing. On April 10, 2020, New Residential made its first Guardian Earnout Payment of $1.9 million. As described above, in accordance with ASC 805, New Residential measures its contingent consideration at fair value on a recurring basis using a scenario-based method to weigh the probability of multiple outcomes to arrive at an expected payment cash flow and then discounts the expected cash flow. The inputs utilized in valuing the contingent consideration include a discount rate of 9% and the application of probability weighting of income scenarios, which are significant unobservable inputs and therefore, contingent consideration is classified as Level 3 in the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances such as when there is evidence of impairment. For residential mortgage loans held-for-sale and foreclosed real estate accounted for as REO, New Residential applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.

As of December 31, 2020 and 2019, assets measured at fair value on a nonrecurring basis were $532.1 million and $1,242.2 million, respectively. The $532.1 million of assets at December 31, 2020 include approximately $504.0 million of residential mortgage loans held-for-sale and $28.1 million of REO. The $1,242.2 million of assets at December 31, 2019 include approximately $1,189.5 million of residential mortgage loans held-for-sale and $52.7 million of REO. The fair value of New Residential’s residential mortgage loans, held-for-sale is estimated based on a discounted cash flow model analysis using
internal pricing models and is categorized within Level 3 of the fair value hierarchy. The following table summarizes the ranges and weighted averages of significant inputs used in valuing these residential mortgage loans:
Fair Value and Carrying Value Discount Rate
Weighted Average Life (Years)(A)
Prepayment Rate
CDR(B)
Loss Severity(C)
December 31, 2020
Performing Loans $ 129,345 
4.8% - 8.5%
(6.7%)
3.1 - 9.1
4.5
5.1% - 9.9%
(8.8%)
0.2% - 7.8%
(2.0%)
28.7% - 100.0%
(46.2%)
Non-Performing Loans 380,542 
7.5% - 9.0%
(7.5%)
2.9 - 3.8
3.3
2.0% - 2.0%
(2.0%)
2.9% - 2.9%
(2.9%)
8.5% - 30.0%
(29.5%)
Total/Weighted Average $ 509,887  7.3% 3.6 3.7% 2.6% 33.7%
December 31, 2019
Performing Loans $ 707,106  4.2% 4.1 11.7% 2.6% 27.3%
Non-Performing Loans 482,401  5.5% 3.1 3.0% 2.9% 30.0%
Total/Weighted Average $ 1,189,507  4.7% 3.7 8.2% 2.7% 28.4%
(A)The weighted average life is based on the expected timing of the receipt of cash flows.
(B)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.

The fair value of REO is estimated using a broker’s price opinion discounted based upon New Residential’s experience with actual liquidation values and, therefore, is categorized within Level 3 of the fair value hierarchy. These discounts to the broker price opinion generally range from 10% to 25%, depending on the information available to the broker.

The total change in the recorded value of assets for which a fair value adjustment has been included in the Consolidated Statements of Income for the year ended December 31, 2020 consisted of an additional valuation allowance of $113.0 million for residential mortgage loans offset by a reversal of prior valuation allowance of $2.7 million for REO.

The total change in the recorded value of assets for which a fair value adjustment has been included in the Consolidated Statements of Income for the year ended December 31, 2019 consisted of a reversal of prior valuation allowance of $20.0 million for residential mortgage loans and a reversal of prior valuation allowance of $0.6 million for REO.