New Residential Investment Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES

9 Months Ended

Sep. 30, 2013

Investments In Excess Mortgage Servicing Rights Equity Method Investees

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES

6. INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES

During the nine months ended September 30, 2013, New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors.

The following tables summarize the investments in equity method investees held by New Residential at September 30, 2013:


	September 30, 2013
Excess MSR Assets	$	719,780
Other Assets		1,991
Debt		—
Other Liabilities		(5,707	)
Equity	$	716,064
New Residential’s Investment	$	358,032
New Residential’s Ownership		50.0	%

	Nine Months Ended September 30, 2013
Interest Income	$	30,501
Other Income		56,483
Expenses		(3,502	)
Net Income	$	83,482

The following is a summary of New Residential’s Excess MSR investments made through equity method investees:

	September 30, 2013
		Unpaid Principal Balance		Investee Interest in Excess MSR			New Residential Interest in Investees			Amortized Cost Basis (A)		Carrying Value (B)		Weighted Average Yield			Weighted Average Life (Years) (C)
MSR Pool 6		$	10,585,764		66.7	%		50.0	%	$	37,957	$	43,908		12.5	%		4.6
MSR Pool 6 - Recapture Agreement			—		66.7	%		50.0	%		9,653		12,295		12.5	%		10.9
MSR Pool 7			33,239,259		66.7	%		50.0	%		101,125		111,962		12.5	%		5.0
MSR Pool 7 - Recapture Agreement			—		66.7	%		50.0	%		20,031		23,785		12.5	%		12.0
MSR Pool 8			14,798,521		66.7	%		50.0	%		56,457		58,936		12.5	%		4.8
MSR Pool 8 - Recapture Agreement			—		66.7	%		50.0	%		10,069		12,926		12.5	%		11.9
MSR Pool 9			32,068,608		66.7	%		50.0	%		106,141		120,603		12.5	%		4.8
MSR Pool 9 - Recapture Agreement			—		66.7	%		50.0	%		36,107		45,811		12.5	%		11.0
MSR Pool 10			59,784,115		77.0	%		50.0	%		202,417		201,571		12.7	%		5.6
MSR Pool 10 - Recapture Agreement			—		77.0	%		50.0	%		12,793		11,343		12.7	%		12.9
MSR Pool 11			19,380,729		66.7	%		50.0	%		47,108		53,981		12.5	%		5.3
MSR Pool 11 - Recapture Agreement			—		66.7	%		50.0	%		23,442		22,659		12.5	%		10.2
		$	169,856,996							$	663,300	$	719,780		12.6	%		6.2

(A)	Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. The amortized cost basis of the Recapture Agreements is determined based on the relative fair values of the Recapture Agreements and related Excess MSRs at the time they were acquired.

(B)	Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools or Recapture Agreements, as applicable.

(C)	The weighted average life represents the weighted average expected timing of the receipt of cash flows of each investment.

Pool 6. On January 4, 2013, New Residential, through a joint venture, co-invested in Excess MSRs on a portfolio of Government National Mortgage Association (“Ginnie Mae”) residential mortgage loans (“Pool 6”). Nationstar acquired the related servicing rights from Bank of America in November 2012. New Residential contributed approximately $28.9 million for a 50% interest in a joint venture which acquired an approximately 67% interest in the Excess MSRs on this portfolio. The remaining interests in the joint venture are owned by a Fortress-managed fund and the remaining interest of approximately 33% in the Excess MSRs is owned by Nationstar. Nationstar performs all servicing and advancing functions, and it retains the ancillary income, servicing obligations and liabilities associated with this portfolio as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by the joint venture and Nationstar, subject to certain limitations.

Pools 7, 8, 9, 10. On January 6, 2013, New Residential, through joint ventures, agreed to co-invest in Excess MSRs on a portfolio of four pools of residential mortgage loans Nationstar acquired from Bank of America. At the time of acquisition, approximately 53% of the loans in this portfolio were in private label securitizations (“Pool 10”), and the remainder were owned, insured or guaranteed by Fannie Mae (“Pool 7”), Freddie Mac (“Pool 8”) or Ginnie Mae (“Pool 9”). New Residential committed to invest approximately $340 million for a 50% interest in joint ventures which were expected to acquire an approximately 67% interest in the Excess MSRs on these portfolios. The remaining interests in the joint ventures are owned by Fortress-managed funds and the remaining interest of approximately 33% in the Excess MSRs is owned by Nationstar. In September 2013, New Residential and a Fortress-managed fund each invested an additional $13.9 million into the joint venture invested in Pool 10 to acquire an additional 10% in the Excess MSRs held by the joint venture. Nationstar performs all servicing and advancing functions, and it retains the ancillary income, servicing obligations and liabilities associated with this portfolio as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by the joint ventures and Nationstar, subject to certain limitations.

During the three months ended March 31, 2013, New Residential contributed $45.5 million towards commitments to fund Pools 7, 9 and 10 and contributed $35.2 million to fulfill commitments to fund Pool 8. During the three months ended June 30, 2013, New Residential contributed $31.5 million towards commitments to fund Pool 7. During the three months ended September 30, 2013, New Residential contributed $65.4 million to fulfill commitments to fund Pool 9 and contributed $107.6 million towards commitments to fund Pools 7 and 10. As of September 30, 2013, New Residential had contributed approximately $285.2 million to the joint ventures and had unfunded commitments remaining of $1.0 million, related to Pool 7 and $4.1 million related to Pool 10 that will increase the outstanding principal balance of Pool 10 by an estimated $10.9 billion. See Note 15 for recent events related to Pool 10.

Pool 11. On May 20, 2013, New Residential acquired, through a joint venture, an interest in Excess MSRs from Nationstar on a portfolio of Freddie Mac residential mortgage loans (“Pool 11”). New Residential has invested approximately $37.8 million for a 50% interest in a joint venture which acquired an approximately 67% interest in the Excess MSRs on this portfolio. The remaining interests in the joint venture are owned by a Fortress-managed fund and the remaining interest of approximately 33% in the Excess MSR is owned by Nationstar. Nationstar performs all servicing and advancing functions, and it retains the ancillary income, servicing obligations and liabilities associated with this portfolio as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are included in the portfolio, subject to certain limitations. See Note 3 for information on our other agreements with respect to Pool 11.

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments made through equity method investees at September 30, 2013:


State Concentration	Percentage of Total Outstanding
California		22.1	%
Florida		8.8	%
New York		5.3	%
Texas		5.2	%
Georgia		4.2	%
New Jersey		3.8	%
Illinois		3.5	%
Virginia		3.1	%
Maryland		3.1	%
Washington		2.9	%
Other U.S.		38.0	%
		100.0	%

- Definition

The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

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