Annual report pursuant to Section 13 and 15(d)

MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES (Tables)

v3.20.4
MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES (Tables)
12 Months Ended
Dec. 31, 2020
Transfers and Servicing [Abstract]  
Schedule of Activity Related to the Carrying Value of Investments in Excess MSRs The table below summarizes the components of excess mortgage servicing rights assets as presented on the consolidated balance sheets:
Year Ended December 31,
2020 2019
Direct investments in Excess MSRs $ 310,938  $ 379,747 
Excess MSR Joint Ventures 99,917  125,596 
Excess mortgage servicing rights assets, at fair value $ 410,855  $ 505,343 
The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
Servicer
Mr. Cooper
SLS(A)
Total
Balance as of December 31, 2018 $ 445,328  $ 2,532  $ 447,860 
Interest income 32,587  60  32,647 
Other income 3,851  —  3,851 
Proceeds from repayments (83,612) (419) (84,031)
Proceeds from sales (10,075) —  (10,075)
Change in fair value (10,387) (118) (10,505)
Balance as of December 31, 2019 377,692  2,055  379,747 
Interest income 28,217  135  28,352 
Other income (12,123) —  (12,123)
Proceeds from repayments (67,340) (405) (67,745)
Proceeds from sales (1,061) —  (1,061)
Change in fair value (16,376) 144  (16,232)
Balance as of December 31, 2020 $ 309,009  $ 1,929  $ 310,938 
(A)Specialized Loan Servicing LLC (“SLS”).
Changes in fair value recorded in other income is composed of the following:
Year Ended December 31,
2020 2019 2018
Original and Recaptured Pools $ (16,232) $ (10,505) $ (58,656)
The following table presents activity related to the carrying value of New Residential’s MSRs and MSR Financing Receivables:
MSRs MSR Financing Receivables Total
Balance as of December 31, 2018 $ 2,884,100  $ 1,644,504  $ 4,528,604 
Purchases, net(A)
678,424  652,902  1,331,326 
Transfers(B)
367,121  (367,121) — 
Other transfers(C)
(410) —  (410)
Ditech Acquisition (Note 3) 387,170  —  387,170 
Originations(D)
374,450  —  374,450 
Proceeds from sales (1,539) (22,989) (24,528)
Change in fair value due to:
Realization of cash flows(E)
(537,111) (203,732) (740,843)
Change in valuation inputs and assumptions(F)
(187,530) 21,094  (166,436)
  (Gain) loss realized 3,285  (6,385) (3,100)
Balance as of December 31, 2019 $ 3,967,960  $ 1,718,273  $ 5,686,233 
Purchases, net(A)
449,875  (18,267) 431,608 
Transfers (G)
320,613  (320,613) — 
Originations(D)
666,414  —  666,414 
Proceeds from sales (11,282) (4,059) (15,341)
Change in fair value due to:
Realization of cash flows(E)
(1,369,607) (222,674) (1,592,281)
Change in valuation inputs and assumptions(F)
(536,694) (54,745) (591,439)
  (Gain) loss realized 2,396  (1,749) 647 
Balance as of December 31, 2020 $ 3,489,675  $ 1,096,166  $ 4,585,841 
(A)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.
(B)Represents MSRs previously accounted for as MSR Financing Receivables. As a result of the length of the initial term of the related subservicing agreement between NRM and PHH, although the MSRs were legally sold, solely for accounting purposes, the purchase agreement was not treated as a sale under GAAP through June 30, 2019.
(C)Represents Ginnie Mae MSRs repurchased.
(D)Represents MSRs retained on the sale of originated mortgage loans.
(E)Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(F)Includes changes in inputs or assumptions used in the valuation model.
(G)Represents MSRs previously accounted for as MSR Financing Receivables. As a result of the length of prepayment protection between NRM and MSR sellers, although the MSRs were legally sold, solely for accounting purposes, the purchase agreement was not treated as a sale under GAAP through June 30, 2020.
The following is a summary of New Residential’s MSRs and MSR Financing Receivables as of December 31, 2020 and 2019:
UPB of Underlying Mortgages
Weighted Average Life (Years)(A)
Carrying Value(B)
2020
MSRs:
Agency(C)
$ 300,200,826  5.1 $ 2,799,728 
Non-Agency 5,962,225  4.2 17,512 
Ginnie Mae 57,106,825  4.1 672,435 
MSR Financing Receivables:
Agency(C)
5,517,730  5.2 49,275 
Non-Agency 66,648,221  8.0 1,046,891 
Total $ 435,435,827  5.4 $ 4,585,841 
2019
MSRs:
Agency(C)
$ 315,427,933  5.1 $ 3,319,035 
Non-Agency 6,402,833  5.4 20,283 
Ginnie Mae 52,019,295  4.6 628,642 
MSR Financing Receivables:
Agency(C)
54,866,978  4.7 547,351 
Non-Agency 76,117,892  7.6 1,170,922 
Total $ 504,834,931  5.4 $ 5,686,233 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying Value represents fair value. As of December 31, 2020 and 2019, weighted average discount rates of 7.7% (range of 7.3%-13.0%) and 7.8%, respectively, were used to value New Residential’s MSRs, respectively. As of December 31, 2020 and 2019, weighted average discount rates of 9.4% (range of 7.4%-9.5%) and 8.9%, respectively, were used to value New Residential’s MSR Financing Receivables.
(C)Represents Fannie Mae and Freddie Mac MSRs.
Fees Earned in Exchange for Servicing Financial Assets
Servicing revenue, net recognized by New Residential related to its MSRs comprises the following:
Year Ended December 31,
2020 2019 2018
Servicing fee revenue $ 1,224,060  $ 899,623  $ 589,546 
Ancillary and other fees 110,640  198,486  130,294 
Servicing fee revenue and fees 1,334,700  1,098,109  719,840 
Change in fair value due to:
Realization of cash flows(A)
(1,360,954) (530,031) (256,915)
Change in valuation inputs and assumptions(B) (C)
(531,183) (186,204) 68,587 
(Gain) loss realized 2,396  3,285  (2,917)
Servicing revenue, net $ (555,041) $ 385,159  $ 528,595 
(A)Includes $8.7 million, $7.1 million and $1.2 million of fair value adjustment due to realization of cash flows to Excess spread financing for the years ended December 31, 2020, 2019, and 2018, respectively.
(B)Includes changes in inputs or assumptions used in the valuation model.
(C)Includes $5.5 million, $1.3 million and $7.4 million of fair value adjustment due to changes in valuation inputs and assumptions to Excess spread financing for the years ended December 31, 2020, 2019, and 2018, respectively.
Interest income from MSR Financing Receivables was composed of the following:
Year Ended December 31,
2020 2019 2018
Servicing fee revenue $ 384,260  $ 513,172  $ 705,812 
Ancillary and other fees 74,421  119,570  146,829 
Less: subservicing expense (151,109) (196,726) (251,184)
Interest income, MSR financing receivables $ 307,572  $ 436,016  $ 601,457 

Change in fair value of MSR Financing Receivables was composed of the following:
Year Ended December 31,
2020 2019 2018
Realization of cash flows $ (222,674) $ (203,732) $ (197,703)
Change in valuation inputs and assumptions(A)
(54,745) 21,094  230,036 
(Gain) loss realized (1,749) (6,385) (783)
Change in fair value of MSR financing receivables $ (279,168) $ (189,023) $ 31,550 
(A)Includes changes in inputs or assumptions used in the valuation model.
Summary of the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in MSRs
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the MSRs and MSR Financing Receivables:
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration December 31, 2020 December 31, 2019
California 21.2  % 21.9  %
Florida 7.4  % 6.9  %
New York 7.0  % 6.4  %
Texas 5.6  % 5.5  %
New Jersey 4.8  % 4.9  %
Illinois 3.6  % 3.6  %
Massachusetts 3.4  % 3.4  %
Georgia 3.3  % 3.1  %
Pennsylvania 3.1  % 3.0  %
Maryland 3.1  % 3.0  %
Other U.S. 37.5  % 38.3  %
100.0  % 100.0  %
Schedule of Investment in Servicer Advances
The following types of advances are included in the Servicer Advances Receivable:
December 31,
2020 2019
Principal and interest advances $ 665,538  $ 823,860 
Escrow advances (taxes and insurance advances) 1,547,796  1,666,792 
Foreclosure advances 816,400  760,593 
Total(A)(B)(C)
$ 3,029,734  $ 3,251,245 
(A)Includes $583.9 million and $562.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.
(B)Includes $181.2 million and $166.5 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from either the borrower or Ginnie Mae. Expected losses for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a non reimbursable advance loss assumption.
(C)Net of $27.5 million and $50.1 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries. These reserves relate to inactive loans in the foreclosure or liquidation process.
The following is a summary of New Residential’s Servicer Advance Investments, including the right to the basic fee component of the related MSRs:
Amortized Cost Basis
Carrying Value(A)
Weighted Average Discount Rate Weighted Average Yield
Weighted Average Life (Years)(B)
December 31, 2020
Servicer Advance Investments $ 512,958  $ 538,056  5.2  % 5.7  % 6.0
December 31, 2019
Servicer Advance Investments $ 557,444  $ 581,777  5.3  % 5.7  % 6.3
(A)Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.
(B)Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

The following is additional information regarding the Servicer Advance Investments and related financing:
Loan-to-Value (“LTV”)(A)
Cost of Funds(C)
UPB of Underlying Residential Mortgage Loans Outstanding Servicer Advances Servicer Advances to UPB of Underlying Residential Mortgage Loans Face Amount of Secured Notes and Bonds Payable Gross
Net(B)
Gross Net
December 31, 2020
Servicer Advance Investments(D)
$ 26,061,499  $ 449,150  1.7  % $ 423,144  88.4  % 88.6  % 1.5  % 1.3  %
December 31, 2019
Servicer Advance Investments(D)
$ 31,442,267  $ 462,843  1.5  % $ 443,248  88.3  % 87.2  % 3.4  % 2.8  %
(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)The following types of advances are included in the Servicer Advance Investments:
December 31,
2020 2019
Principal and interest advances $ 84,976  $ 71,574 
Escrow advances (taxes and insurance advances) 186,426  180,047 
Foreclosure advances 177,748  211,222 
  Total $ 449,150  $ 462,843