Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
3 Months Ended
Mar. 31, 2013
Fair Value Of Financial Instruments Tables  
Schedule of Fair Value of Assets Measured on a Recurring Basis

The carrying value and fair value of New Residential’s financial assets recorded at fair value on a recurring basis at March 31, 2013 were as follows:

 

                Fair Value  
    Principal Balance or Notional Amount     Carrying Value     Level 2     Level 3     Total  
Assets:                                        
Real estate securities, available-for-sale   $ 1,538,755     $ 1,318,023     $ 799,455     $ 518,568     $ 1,318,023  
Investments in Excess MSRs (A)     73,322,892       236,555       —       236,555       236,555  
Investments in equity method investees at fair value (A)     64,875,335       102,588       —       102,588       102,588  
    $ 139,736,982     $ 1,657,166     $ 799,455     $ 857,711     $ 1,657,166  

  

(A) The notional amount represents the total unpaid principal balance of the mortgage loans underlying the Excess MSRs. Generally, New Residential does not receive an excess mortgage servicing amount on nonperforming loans.

 

Schedule of Inputs used in Valuing the Excess MSRs owned directly and through equity method investees

The following table summarizes certain information regarding the inputs used in valuing the Excess MSRs owned directly and through equity method investees as of March 31, 2013:

 

    Significant Inputs  
Held Directly (Note 3)   Prepayment Speed (A)     Delinquency (B)     Recapture Rate (C)     Excess Mortgage Servicing Amount (D)     Discount Rate  
MSR Pool 1     16.1 %     10.0 %     35.0 %     28 bps       18.0 %
MSR Pool 1 - Recapture Agreement     8.0 %     10.0 %     35.0 %     21 bps       18.0 %
MSR Pool 2     16.0 %     11.0 %     35.0 %     23 bps       17.3 %
MSR Pool 2 - Recapture Agreement     8.0 %     10.0 %     35.0 %     21 bps       17.3 %
MSR Pool 3     16.2 %     12.1 %     35.0 %     23 bps       17.6 %
MSR Pool 3 - Recapture Agreement     8.0 %     10.0 %     35.0 %     21 bps       17.6 %
MSR Pool 4     18.3 %     15.8 %     35.0 %     17 bps       17.9 %
MSR Pool 4 - Recapture Agreement     8.0 %     10.0 %     35.0 %     21 bps       17.9 %
MSR Pool 5     15.0 %     N/A (E)       20.0 %     13 bps       17.5 %
MSR Pool 5 - Recapture Agreement     8.0 %     N/A (E)       20.0 %     21 bps       17.5 %
Held through Equity Method Investees (Note 6)                                        
MSR Pool 6     19.6 %     8.8 %     35.0 %     25 bps       17.4 %
MSR Pool 6 - Recapture Agreement     10.0 %     6.0 %     35.0 %     23 bps       17.4 %
MSR Pool 7     13.8 %     8.4 %     35.0 %     16 bps       15.2 %
MSR Pool 7 - Recapture Agreement     10.0 %     5.0 %     35.0 %     19 bps       15.2 %
MSR Pool 8     15.2 %     7.4 %     35.0 %     19 bps       15.0 %
MSR Pool 8 - Recapture Agreement     10.0 %     5.0 %     35.0 %     19 bps      

15.0

 

(A) Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
   
(B) Projected percentage of mortgage loans in the pool that will miss their mortgage payments.
   
(C) Percentage of voluntarily prepaid loans that are expected to be refinanced by Nationstar.
   
(D) Weighted average total mortgage servicing amount in excess of the basic fee.
   
(E) The Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO).

 

Schedule of Excess MSRs valued on a recurring basis using Level 3 inputs

Excess MSRs, owned directly, measured at fair value on a recurring basis using Level 3 inputs changed during the three months ended March 31, 2013 as follows:

 

   

Level 3 (A)

 
     

MSR Pool 1

     

MSR Pool 2

     

MSR Pool 3

     

MSR Pool 4

     

MSR Pool 5

     

Total

 
Balance at December 31, 2012   $ 40,910     $ 39,322     $ 35,434     $ 15,036     $ 114,334     $ 245,036  
Transfers (B)                                                
Transfers from Level 3(B)     —       —       —       —       —       —  
Transfers into Level 3(B)     —       —       —       —       —       —  
Gains (losses) included in net income (C)     440       897       798       98       (375 )     1,858  
Interest income     1,970       1,485       1,628       601       4,340       10,024  
Purchases, sales and repayments                                                
Purchases     —       —       —       —       —       —  
Purchase adjustments     —       —       —       —       —       —  
Proceeds from sales     —       —       —       —       —       —  
Proceeds from repayments     (3,632 )     (3,129 )     (3,182 )     (1,061 )     (9,359 )     (20,363 )
Balance at March 31, 2013   $ 39,688     $ 38,575     $ 34,678     $ 14,674     $ 108,940     $ 236,555  

 

(A) Includes the recapture agreement for each respective pool.
   
(B) Transfers are assumed to occur at the beginning of the respective period.
   
(C) 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. These gains (losses) represent the change in fair value of the Excess MSRs and are recorded in “Change in fair value of investments in excess mortgage servicing rights” in the consolidated statements of income.

 

Schedule of investments in equity method investees valued on a recurring basis using Level 3 inputs

New Residential’s investments in equity method investees measured at fair value on a recurring basis using Level 3 inputs changed during the three months ended March 31, 2013 as follows:

 

    Three Months Ended
March 31, 2013
 
Balance at December 31, 2012   $ —  
Contributions to equity method investees     109,588  
Distributions of earnings from equity method investees     (1,344 )
Distributions of capital from equity method investees     (6,625 )
Change in fair value of investments in equity method investees     969  
Balance at March 31, 2013   $ 102,588  

 

Schedule of real estate securities valuation methodology and results

As of March 31, 2013 New Residential’s securities valuation methodology and results are further detailed as follows:

 

Asset Type   Outstanding Face Amount     Amortized Cost Basis     Multiple Quotes (A)     Single Quotes (B)     Total  
                                         
Agency RMBS (C)   $ 754,496     $ 797,547     $ 709,173     $ 90,282     $ 799,455  
Non-Agency RMBS     784,259       488,767       505,241       13,327       518,568  
    $ 1,538,755     $ 1,286,314     $ 1,214,414     $ 103,609     $ 1,318,023  

  

(A) Management 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). Management selected one of the quotes received as being most representative of the fair value and did 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 management believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases there is a wide disparity between the quotes New Residential receives. Management 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 using internal models, management selects one of the quotes which is believed to more accurately reflect fair value. New Residential never adjusts quotes received. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price.
   
(B) Management was unable to obtain quotations from more than one source on these securities. The one source was generally the seller (the party that sold New Residential the security) or a pricing service.
   
(C) Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.

 

Schedule of non-agency RMBS valued on a recurring basis using Level 3 inputs

Fair value estimates of New Residential’s Non-Agency RMBS were based on third party indications as of March 31, 2013 and classified as Level 3. Securities measured at fair value on a recurring basis using Level 3 inputs changed during the three months ended March 31, 2013 as follows:

 

    Level 3  
    Non-Agency  
    RMBS  
         
Balance at December 31, 2012   $ 289,756  
Transfer (A)        
Transfers from Level 3     —  
Transfers into Level 3     —  
         
Total Gains (Losses)        
Included in net income     —  
Included in comprehensive income (B)     14,267  
         
Amortization included in interest income     4,724  
Purchases, sales and repayments        
Purchases     227,293  
Proceeds from repayments     (17,472 )
         
Balance at March 31, 2013   $ 518,568  

 

(A) Transfers are assumed to occur at the beginning of the respective period.
   
(B) These gains (losses) were included in net unrealized gain (loss) on securities in the consolidated statements of comprehensive income.

 

Schedule of Inputs used in Valuing the reversel mortgage loans

The following table summarizes the inputs used in valuing reverse mortgage loans as of March 31, 2013:

 

                            Significant Input
Loan Type   Outstanding Face Amount     Carrying Value     Fair Value     Valuation Allowance/ (Reversal) In Current Year     Discount Rate
                                     
Reverse Mortgage Loans   $ 58,586     $ 35,484     $ 37,180     $ —     10.6%