|
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
|
9 Months Ended |
|
Sep. 30, 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 September 30, 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
|
|
$ |
2,054,797 |
|
|
$ |
1,861,200 |
|
|
$ |
1,279,450 |
|
|
$ |
581,750 |
|
|
$ |
1,861,200 |
|
|
Investments in excess mortgage servicing rights, at fair value (A)
|
|
|
72,315,805 |
|
|
|
307,568 |
|
|
|
— |
|
|
|
307,568 |
|
|
|
307,568 |
|
|
Investments in excess mortgage servicing rights, equity method investees, at fair value (A)
|
|
|
169,856,996 |
|
|
|
358,032 |
|
|
|
— |
|
|
|
358,032 |
|
|
|
358,032 |
|
| |
|
$ |
244,227,598 |
|
|
$ |
2,526,800 |
|
|
$ |
1,279,450 |
|
|
$ |
1,247,350 |
|
|
$ |
2,526,800 |
|
|
(A)
|
The notional amount represents the total unpaid principal balance of the mortgage loans underlying the Excess MSRs. New Residential does not receive an excess mortgage servicing amount on nonperforming loans in Agency portfolios.
|
|
| 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 September 30, 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
|
|
|
14.4 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
28 bps
|
|
|
12.5 |
% |
|
MSR Pool 1 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
12.5 |
% |
|
MSR Pool 2
|
|
|
14.7 |
% |
|
|
10.3 |
% |
|
|
35.0 |
% |
|
23 bps
|
|
|
12.5 |
% |
|
MSR Pool 2 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
5.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
12.5 |
% |
|
MSR Pool 3
|
|
|
15.2 |
% |
|
|
11.9 |
% |
|
|
35.0 |
% |
|
24 bps
|
|
|
12.5 |
% |
|
MSR Pool 3 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
12.5 |
% |
|
MSR Pool 4
|
|
|
15.4 |
% |
|
|
14.9 |
% |
|
|
35.0 |
% |
|
17 bps
|
|
|
12.5 |
% |
|
MSR Pool 4 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
12.5 |
% |
|
MSR Pool 5
|
|
|
12.3 |
% |
|
|
N/A |
(E) |
|
|
14.0 |
% |
|
13 bps
|
|
|
12.7 |
% |
|
MSR Pool 5 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
N/A |
(E) |
|
|
15.0 |
% |
|
21 bps
|
|
|
12.7 |
% |
|
MSR Pool 11 - Recapture Agreement
|
|
|
9.3 |
% |
|
|
2.3 |
% |
|
|
32.0 |
% |
|
19 bps
|
|
|
12.5 |
% |
|
MSR Pool 12
|
|
|
15.3 |
% |
|
|
N/A |
(E) |
|
|
16.7 |
% |
|
26 bps
|
|
|
16.4 |
% |
|
MSR Pool 12 - Recapture Agreement
|
|
|
7.0 |
% |
|
|
N/A |
(E) |
|
|
35.0 |
% |
|
19 bps
|
|
|
16.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Held through Equity Method Investees (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSR Pool 6
|
|
|
18.2 |
% |
|
|
8.9 |
% |
|
|
35.0 |
% |
|
25 bps
|
|
|
12.5 |
% |
|
MSR Pool 6 - Recapture Agreement
|
|
|
10.0 |
% |
|
|
6.0 |
% |
|
|
35.0 |
% |
|
23 bps
|
|
|
12.5 |
% |
|
MSR Pool 7
|
|
|
13.3 |
% |
|
|
8.0 |
% |
|
|
35.0 |
% |
|
16 bps
|
|
|
12.5 |
% |
|
MSR Pool 7 - Recapture Agreement
|
|
|
10.0 |
% |
|
|
5.0 |
% |
|
|
35.0 |
% |
|
19 bps
|
|
|
12.5 |
% |
|
MSR Pool 8
|
|
|
14.3 |
% |
|
|
6.9 |
% |
|
|
35.0 |
% |
|
19 bps
|
|
|
12.5 |
% |
|
MSR Pool 8 - Recapture Agreement
|
|
|
10.0 |
% |
|
|
5.0 |
% |
|
|
35.0 |
% |
|
19 bps
|
|
|
12.5 |
% |
|
MSR Pool 9
|
|
|
18.0 |
% |
|
|
5.0 |
% |
|
|
35.0 |
% |
|
22 bps
|
|
|
12.5 |
% |
|
MSR Pool 9 - Recapture Agreement
|
|
|
10.0 |
% |
|
|
5.0 |
% |
|
|
35.0 |
% |
|
28 bps
|
|
|
12.5 |
% |
|
MSR Pool 10
|
|
|
11.5 |
% |
|
|
N/A |
(E) |
|
|
15.0 |
% |
|
12 bps
|
|
|
12.7 |
% |
|
MSR Pool 10 - Recapture Agreement
|
|
|
9.0 |
% |
|
|
N/A |
(E) |
|
|
35.0 |
% |
|
19 bps
|
|
|
12.7 |
% |
|
MSR Pool 11
|
|
|
18.7 |
% |
|
|
7.8 |
% |
|
|
38.9 |
% |
|
15 bps
|
|
|
12.5 |
% |
|
MSR Pool 11 - Recapture Agreement
|
|
|
10.0 |
% |
|
|
2.0 |
% |
|
|
35.0 |
% |
|
19 bps
|
|
|
12.5 |
% |
|
(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 nine months ended September 30, 2013 as follows:
| |
|
Level 3 (A)
|
|
| |
|
MSR Pool 1
|
|
|
MSR Pool 2
|
|
|
MSR Pool 3
|
|
|
MSR Pool 4
|
|
|
MSR Pool 5
|
|
|
MSR Pool 11
|
|
|
MSR Pool 12
|
|
|
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 to Level 3 (B)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Gains (losses) included in net income (C)
|
|
|
6,807 |
|
|
|
7,509 |
|
|
|
7,657 |
|
|
|
3,644 |
|
|
|
18,208 |
|
|
|
— |
|
|
|
74 |
|
|
|
43,899 |
|
|
Interest income
|
|
|
5,097 |
|
|
|
3,739 |
|
|
|
4,892 |
|
|
|
2,034 |
|
|
|
14,728 |
|
|
|
— |
|
|
|
51 |
|
|
|
30,541 |
|
|
Purchases, sales and repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Purchases
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26,637 |
|
|
|
2,391 |
|
|
|
17,393 |
|
|
|
46,421 |
|
|
Purchase adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Proceeds from sales
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Proceeds from repayments
|
|
|
(10,278 |
) |
|
|
(9,096 |
) |
|
|
(8,689 |
) |
|
|
(3,525 |
) |
|
|
(26,741 |
) |
|
|
— |
|
|
|
— |
|
|
|
(58,329 |
) |
|
Balance at September 30, 2013
|
|
$ |
42,536 |
|
|
$ |
41,474 |
|
|
$ |
39,294 |
|
|
$ |
17,189 |
|
|
$ |
147,166 |
|
|
$ |
2,391 |
|
|
$ |
17,518 |
|
|
$ |
307,568 |
|
|
(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 nine months ended September 30, 2013 as follows:
| |
|
|
|
| |
|
|
|
| |
|
Nine Months Ended
September 30, 2013
|
|
|
Balance at December 31, 2012
|
|
$ |
— |
|
|
Contributions to equity method investees
|
|
|
351,937 |
|
|
Distributions of earnings from equity method investees
|
|
|
(18,626 |
) |
|
Distributions of capital from equity method investees
|
|
|
(17,020 |
) |
|
Change in fair value of investments in equity method investees
|
|
|
41,741 |
|
|
Balance at September 30, 2013
|
|
$ |
358,032 |
|
|
| Schedule of real estate securities valuation methodology and results |
As of September 30, 2013, 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)
|
|
|
Total
|
|
|
Level
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency ARM RMBS
|
|
$ |
1,203,293 |
|
|
$ |
1,285,532 |
|
|
$ |
1,279,450 |
|
|
$ |
1,279,450 |
|
|
|
2 |
|
|
Non-Agency RMBS
|
|
|
851,504 |
|
|
|
559,980 |
|
|
|
581,750 |
|
|
|
581,750 |
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,054,797 |
|
|
$ |
1,845,512 |
|
|
$ |
1,861,200 |
|
|
$ |
1,861,200 |
|
|
|
|
|
|
(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) for Non-Agency RMBS. 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, 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.
|
|
| 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 September 30, 2013 and classified as Level 3. Securities measured at fair value on a recurring basis using Level 3 inputs changed during the nine months ended September 30, 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 as impairment
|
|
|
(729 |
) |
|
Gain on settlement of securities
|
|
|
11,271 |
|
|
Included in comprehensive income (B)
|
|
|
6,501 |
|
| |
|
|
|
|
|
Amortization included in interest income
|
|
|
16,286 |
|
|
Purchases, sales and repayments
|
|
|
|
|
|
Purchases
|
|
|
450,144 |
|
|
Sales
|
|
|
(123,130 |
) |
|
Proceeds from repayments
|
|
|
(68,349 |
) |
| |
|
|
|
|
|
Balance at September 30, 2013
|
|
$ |
581,750 |
|
|
(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 reverse mortgage loans |
The following table summarizes the inputs used in valuing reverse mortgage loans as of September 30, 2013:
Reverse Mortgage Loans for Which Fair Value is Only Disclosed
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Inputs
|
|
|
Loan Type
|
|
Outstanding Face Amount (A)
|
|
|
Carrying Value (A)
|
|
|
Fair Value
|
|
|
Valuation Allowance/ (Reversal) In Current Year
|
|
|
Discount Rate
|
|
|
Weighted Average Life (Years) (B)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Mortgage Loans
|
|
$ |
56,738 |
|
|
$ |
33,060 |
|
|
$ |
33,162 |
|
|
$ |
— |
|
|
|
10.3 |
% |
|
|
3.8 |
|
| (A) |
Represents a 70% interest New Residential holds in the reverse mortgage loans. |
| |
|
|
(B)
|
The weighted average life is based on the expected timing of the receipt of cash flows.
|
|