UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
 
or
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________to________________
 
Commission File Number: 001-35777
New Residential Investment Corp.
(Exact name of registrant as specified in its charter)
Delaware
 
45-3449660
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
 
(212) 798-3150
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x  Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) 
Smaller reporting company ¨     Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨    No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 336,135,391 shares outstanding as of April 27, 2018.




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, our financing needs and the size and attractiveness of market opportunities. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations, cash flows or financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
 
reductions in the value of, or cash flows received from, our investments;
the quality and size of the investment pipeline and our ability to take advantage of investment opportunities at attractive risk-adjusted prices;
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
our ability to deploy capital accretively and the timing of such deployment;
our counterparty concentration and default risks in Nationstar, Ocwen, OneMain, Ditech, PHH and other third parties;
events, conditions or actions that might occur at Nationstar, Ocwen, OneMain, Ditech, PHH and other third parties, as well as the continued effect of prior events;
a lack of liquidity surrounding our investments, which could impede our ability to vary our portfolio in an appropriate manner;
the impact that risks associated with subprime mortgage loans and consumer loans, as well as deficiencies in servicing and foreclosure practices, may have on the value of our MSRs, Excess MSRs, Servicer Advance Investments, RMBS, residential mortgage loans and consumer loan portfolios;
the risks that default and recovery rates on our MSRs, Excess MSRs, Servicer Advance Investments, RMBS, residential mortgage loans and consumer loans deteriorate compared to our underwriting estimates;
changes in prepayment rates on the loans underlying certain of our assets, including, but not limited to, our MSRs or Excess MSRs;
the risk that projected recapture rates on the loan pools underlying our MSRs or Excess MSRs are not achieved;
servicer advances may not be recoverable or may take longer to recover than we expect, which could cause us to fail to achieve our targeted return on our Servicer Advance Investments or MSRs;
impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities or loans are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;
the relative spreads between the yield on the assets in which we invest and the cost of financing;
adverse changes in the financing markets we access affecting our ability to finance our investments on attractive terms, or at all;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or not entering into new financings with us;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
the availability and terms of capital for future investments;
changes in economic conditions generally and the real estate and bond markets specifically;
competition within the finance and real estate industries;




the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, U.S. government programs intended to grow the economy, future changes to tax laws, the federal conservatorship of Fannie Mae and Freddie Mac and legislation that permits modification of the terms of residential mortgage loans;
the risk that GSE or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs;
our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business;
our ability to maintain our exclusion from registration under the Investment Company Act of 1940 (the “1940 Act”) and the fact that maintaining such exclusion imposes limits on our operations;
the risks related to Home Loan Servicing Solutions (“HLSS”) liabilities that we have assumed;
the impact of current or future legal proceedings and regulatory investigations and inquiries;
the impact of any material transactions with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest; and
effects of the recently completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.

We also direct readers to other risks and uncertainties referenced in this report, including those set forth under “Risk Factors.” We caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.
 




SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about New Residential Investment Corp. (the “Company,” “New Residential” or “we,” “our” and “us”) or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements proved to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 




NEW RESIDENTIAL INVESTMENT CORP.
FORM 10-Q
 
INDEX
 
PAGE
Part I. Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
March 31, 2018
 
December 31, 2017
 
(Unaudited)
 
Assets
 
 
 
Investments in:
 
 
 
Excess mortgage servicing rights, at fair value
$
515,676

 
$
1,173,713

Excess mortgage servicing rights, equity method investees, at fair value
164,886

 
171,765

Mortgage servicing rights, at fair value
2,129,665

 
1,735,504

Mortgage servicing rights financing receivables, at fair value
1,886,771

 
598,728

Servicer advance investments, at fair value(A)
955,364

 
4,027,379

Real estate and other securities, available-for-sale
7,585,323

 
8,071,140

Residential mortgage loans, held-for-investment
647,960

 
691,155

Residential mortgage loans, held-for-sale(A)
1,441,955

 
1,725,534

Real estate owned
115,616

 
128,295

Consumer loans, held-for-investment(A)
1,305,793

 
1,374,263

Consumer loans, equity method investees
46,135

 
51,412

Cash and cash equivalents(A)
233,233

 
295,798

Restricted cash
179,688

 
150,252

Servicer advances receivable
3,393,375

 
675,593

Trades receivable
1,083,558

 
1,030,850

Other assets
326,943

 
312,181

 
$
22,011,941

 
$
22,213,562

 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
Liabilities
 
 
 
  Repurchase agreements
$
7,635,494

 
$
8,662,139

  Notes and bonds payable(A)
7,031,021

 
7,084,391

  Trades payable
1,116,948

 
1,169,896

  Due to affiliates
20,292

 
88,961

  Dividends payable
168,068

 
153,681

  Deferred tax liability, net
10,162

 
19,218

  Accrued expenses and other liabilities
268,269

 
239,114

 
16,250,254

 
17,417,400

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Equity
 
 
 
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 336,135,391 and 307,361,309 issued and outstanding at March 31, 2018 and December 31, 2017, respectively
3,362

 
3,074

  Additional paid-in capital
4,245,573

 
3,763,188

  Retained earnings
995,661

 
559,476

  Accumulated other comprehensive income (loss)
419,340

 
364,467

  Total New Residential stockholders’ equity
5,663,936

 
4,690,205

  Noncontrolling interests in equity of consolidated subsidiaries
97,751

 
105,957

    Total Equity
5,761,687

 
4,796,162

 
$
22,011,941

 
$
22,213,562


1



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(dollars in thousands)

(A)
New Residential’s Condensed Consolidated Balance Sheets include the assets and liabilities of certain consolidated VIEs, the Buyer (Note 6), the RPL Borrowers (Note 8), and the Consumer Loan SPVs (Note 9), which primarily hold investments in Servicer Advance Investments, residential mortgage loans, and consumer loans, respectively, financed with notes and bonds payable. The balance sheets of the Buyer, the RPL Borrowers and the Consumer Loan SPVs are included in Notes 6, 8 and 9, respectively. The creditors of the Buyer, the RPL Borrowers, and the Consumer Loan SPVs do not have recourse to the general credit of New Residential and the assets of the Buyer, the RPL Borrowers, and the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.

See notes to condensed consolidated financial statements.

2



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
 
 
 
Three Months Ended 
 March 31,
 
 
2018
 
2017
    Interest income
 
$
383,573

 
$
292,538

    Interest expense
 
124,387

 
98,229

Net Interest Income
 
259,186

 
194,309

 
 
 
 
 
Impairment
 
 
 
 
    Other-than-temporary impairment (OTTI) on securities
 
6,670

 
2,112

    Valuation and loss provision (reversal) on loans and real estate owned
 
19,007

 
17,910

 
 
25,677

 
20,022

 
 
 
 
 
  Net interest income after impairment
 
233,509

 
174,287

Servicing revenue, net
 
217,236

 
40,602

Other Income
 
 
 
 
Change in fair value of investments in excess mortgage servicing rights
 
(45,691
)
 
821

Change in fair value of investments in excess mortgage servicing rights, equity method investees
 
523

 
(244
)
Change in fair value of investments in mortgage servicing rights financing receivables
 
271,076

 

Change in fair value of servicer advance investments
 
(79,476
)
 
2,559

Gain (loss) on settlement of investments, net
 
103,302

 
(13,674
)
Earnings from investments in consumer loans, equity method investees
 
4,806

 

Other income (loss), net
 
9,984

 
6,844

 
 
264,524

 
(3,694
)
 
 
 
 
 
Operating Expenses
 
 
 
 
    General and administrative expenses
 
20,007

 
11,827

    Management fee to affiliate
 
15,110

 
13,074

    Incentive compensation to affiliate
 
14,589

 
12,460

    Loan servicing expense
 
11,514

 
13,376

    Subservicing expense
 
46,597

 
17,704

 
 
107,817

 
68,441

 
 
 
 
 
Income Before Income Taxes
 
607,452

 
142,754

Income tax expense (benefit)
 
(6,912
)
 
5,596

Net Income
 
$
614,364

 
$
137,158

Noncontrolling Interests in Income of Consolidated Subsidiaries
 
$
10,111

 
$
15,780

Net Income Attributable to Common Stockholders
 
$
604,253

 
$
121,378

 
 
 
 
 
Net Income Per Share of Common Stock
 
 
 
 
  Basic
 
$
1.83

 
$
0.42

  Diluted
 
$
1.81

 
$
0.42

 
 
 
 
 
Weighted Average Number of Shares of Common Stock Outstanding
 
 
 
 
  Basic
 
330,384,856

 
286,600,324

  Diluted
 
333,380,436

 
288,241,188

 
 
 
 
 
Dividends Declared per Share of Common Stock
 
$
0.50

 
$
0.48

 
See notes to condensed consolidated financial statements.


3



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
 
 
Three Months Ended 
 March 31,
 
 
2018
 
2017
Comprehensive income (loss), net of tax
 
 
 
 
Net income
 
$
614,364

 
$
137,158

Other comprehensive income (loss)
 
 
 
 
Net unrealized gain (loss) on securities
 
18,976

 
31,638

Reclassification of net realized (gain) loss on securities into earnings
 
35,897

 
1,119

 
 
54,873

 
32,757

Total comprehensive income
 
$
669,237

 
$
169,915

Comprehensive income attributable to noncontrolling interests
 
$
10,111

 
$
15,780

Comprehensive income attributable to common stockholders
 
$
659,126

 
$
154,135

 
See notes to condensed consolidated financial statements.


4



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) 
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(dollars in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total New Residential Stockholders’ Equity
 
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2017
307,361,309

 
$
3,074

 
$
3,763,188

 
$
559,476

 
$
364,467

 
$
4,690,205

 
$
105,957

 
$
4,796,162

Dividends declared

 

 

 
(168,068
)
 

 
(168,068
)
 

 
(168,068
)
Capital contributions

 

 

 

 

 

 

 

Capital distributions

 

 

 

 

 

 
(18,317
)
 
(18,317
)
Issuance of common stock
28,750,000

 
288

 
481,965

 

 

 
482,253

 

 
482,253

Director share grants
24,082

 

 
420

 

 

 
420

 

 
420

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 
604,253

 

 
604,253

 
10,111

 
614,364

Net unrealized gain (loss) on securities

 

 

 

 
18,976

 
18,976

 

 
18,976

Reclassification of net realized (gain) loss on securities into earnings

 

 

 

 
35,897

 
35,897

 

 
35,897

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
659,126

 
10,111

 
669,237

Equity - March 31, 2018
336,135,391

 
$
3,362

 
$
4,245,573

 
$
995,661

 
$
419,340

 
$
5,663,936

 
$
97,751


$
5,761,687

 
See notes to condensed consolidated financial statements.


5


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
Three Months Ended  
 March 31,
 
2018
 
2017
Cash Flows From Operating Activities
 
 
 
Net income
$
614,364

 
$
137,158

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Change in fair value of investments in excess mortgage servicing rights
45,691

 
(821
)
Change in fair value of investments in excess mortgage servicing rights, equity method investees
(523
)
 
244

Change in fair value of investments in mortgage servicing rights financing receivables
(271,076
)
 

Change in fair value of servicer advance investments
79,476

 
(2,559
)
(Gain) / loss on settlement of investments (net)
(103,302
)
 
13,674

Earnings from investments in consumer loans, equity method investees
(4,806
)
 

Unrealized (gain) / loss on derivative instruments
(2,446
)
 
(4,326
)
Unrealized (gain) / loss on other ABS
313

 
(758
)
(Gain) / loss on transfer of loans to REO
(4,170
)
 
(6,634
)
(Gain) / loss on transfer of loans to other assets
(55
)
 
(212
)
(Gain) / loss on Excess MSRs
(2,905
)
 
(627
)
(Gain) / loss on Ocwen common stock
(5,772
)
 

Accretion and other amortization
(177,371
)
 
(192,424
)
Other-than-temporary impairment
6,670

 
2,112

Valuation and loss provision on loans and real estate owned
19,007

 
17,910

Non-cash portions of servicing revenue, net
(74,666
)
 
27,055

Non-cash directors’ compensation
420

 
243

Deferred tax provision
(9,056
)
 
3,418

Changes in:
 
 
 
Servicer advances receivable
189,207

 
9,233

Other assets
(19,593
)
 
6,906

Due to affiliates
(68,669
)
 
(24,229
)
Accrued expenses and other liabilities
25,590

 
(33,337
)
Other operating cash flows:
 
 
 
Interest received from excess mortgage servicing rights
9,702

 
21,413

Interest received from servicer advance investments
9,130

 
52,124

Interest received from Non-Agency RMBS
45,104

 
40,801

Interest received from residential mortgage loans, held-for-investment
1,728

 
3,762

Interest received from PCD consumer loans, held-for-investment
7,190

 
14,824

Distributions of earnings from excess mortgage servicing rights, equity method investees
4,938

 
5,805

Distributions of earnings from consumer loan equity method investees
1,449

 

Purchases of residential mortgage loans, held-for-sale
(494,207
)
 
(1,223,734
)
Proceeds from sales of purchased residential mortgage loans, held-for-sale
659,559

 
739,640

Principal repayments from purchased residential mortgage loans, held-for-sale
32,738

 
14,497

Net cash provided by (used in) operating activities
513,659

 
(378,842
)

Continued on next page.

6


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
Three Months Ended  
 March 31,
 
2018
 
2017
Cash Flows From Investing Activities
 
 
 
Purchase of servicer advance investments
(853,672
)
 
(3,302,794
)
Purchase of MSRs, MSR financing receivables and servicer advances receivable
(371,165
)
 
(1,003,650
)
Purchase of Agency RMBS
(1,116,130
)
 
(1,867,168
)
Purchase of Non-Agency RMBS
(461,358
)
 
(850,046
)
Purchase of residential mortgage loans
(194
)
 

Purchase of derivatives

 

Purchase of real estate owned and other assets
(4,160
)
 
(9,730
)
Purchase of investment in consumer loans, equity method investees
(83,227
)
 
(41,314
)
Draws on revolving consumer loans
(8,020
)
 
(12,877
)
Payments for settlement of derivatives
(32,487
)
 
(15,732
)
Return of investments in excess mortgage servicing rights
16,358

 
41,566

Return of investments in excess mortgage servicing rights, equity method investees
2,464

 
2,869

Return of investments in consumer loans, equity method investees
79,248

 

Principal repayments from servicer advance investments
752,663

 
3,998,693

Principal repayments from Agency RMBS
19,757

 
18,779

Principal repayments from Non-Agency RMBS
200,077

 
159,247

Principal repayments from residential mortgage loans
28,337

 
4,481

Proceeds from sale of residential mortgage loans
780

 

Principal repayments from consumer loans
62,805

 
110,200

Proceeds from sale of Agency RMBS
1,876,403

 
1,682,689

Proceeds from sale of Non-Agency RMBS

 
28,339

Proceeds from settlement of derivatives
77,165

 
24,570

Proceeds from sale of real estate owned
30,598

 
17,999

Net cash provided by (used in) investing activities
216,242

 
(1,013,879
)

Continued on next page.

7


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
 
Three Months Ended  
 March 31,
 
2018
 
2017
Cash Flows From Financing Activities
 
 
 
Repayments of repurchase agreements
(16,316,397
)
 
(8,788,534
)
Margin deposits under repurchase agreements and derivatives
(309,178
)
 
(285,881
)
Repayments of notes and bonds payable
(2,556,961
)
 
(2,653,967
)
Payment of deferred financing fees
(7,109
)
 
(4,494
)
Common stock dividends paid
(153,681
)
 
(115,356
)
Borrowings under repurchase agreements
15,286,068

 
9,874,154

Return of margin deposits under repurchase agreements and derivatives
321,626

 
276,805

Borrowings under notes and bonds payable
2,508,665

 
2,220,907

Issuance of common stock
482,696

 
835,465

Costs related to issuance of common stock
(442
)
 
(936
)
Noncontrolling interest in equity of consolidated subsidiaries - contributions

 

Noncontrolling interest in equity of consolidated subsidiaries - distributions
(18,317
)
 
(24,209
)
Purchase of noncontrolling interests in the Buyer

 

   Net cash provided by (used in) financing activities
(763,030
)
 
1,333,954

 
 
 
 
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
(33,129
)
 
(58,767
)
 
 
 
 
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period
446,050

 
453,697

 
 
 
 
Cash, Cash Equivalents, and Restricted Cash, End of Period
$
412,921

 
$
394,930

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
124,748

 
$
94,494

Cash paid during the period for income taxes
335

 
3

 
 
 
 
Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Dividends declared but not paid
$
168,068

 
$
147,520

Purchase of Agency and Non-Agency RMBS, settled after quarter end
1,116,948

 
1,446,276

Sale of investments, primarily Agency RMBS, settled after quarter end
1,083,558

 
1,857,537

Transfer from residential mortgage loans to real estate owned and other assets
18,228

 
43,763

Transfer from residential mortgage loans, held-for-investment to residential mortgage loans, held-for-sale
20,842

 

Non-cash distributions from LoanCo
12,613

 

MSR purchase price holdback
174

 
60,001

Real estate securities retained from loan securitizations
75,950

 
81,888

Ocwen transaction (Note 5) - excess mortgage servicing rights
638,567

 

Ocwen transaction (Note 5) - servicer advance investments
3,175,891

 

Ocwen transaction (Note 5) - mortgage servicing rights financing receivables
1,017,993

 

 
See notes to condensed consolidated financial statements.

8



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 
1.
ORGANIZATION AND BASIS OF PRESENTATION
 
New Residential Investment Corp. (together with its subsidiaries, “New Residential”) is a Delaware corporation that was formed as a limited liability company in September 2011 for the purpose of making real estate related investments and commenced operations on December 8, 2011. On December 20, 2012, New Residential was converted to a corporation. Drive Shack Inc. (“Drive Shack”), formerly Newcastle Investment Corp., was the sole stockholder of New Residential until the spin-off, which was completed on May 15, 2013. Following the spin-off, New Residential is an independent publicly traded real estate investment trust (“REIT”) primarily focused on investing in residential mortgage related assets. New Residential is listed on the New York Stock Exchange (“NYSE”) under the symbol “NRZ.”
 
New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 17 regarding New Residential’s taxable REIT subsidiaries.
 
New Residential has entered into a management agreement (the “Management Agreement”) with FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), pursuant to which the Manager provides a management team and other professionals who are responsible for implementing New Residential’s business strategy, subject to the supervision of New Residential’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement. The Manager also managed Drive Shack and manages investment funds that indirectly own approximately 40.5% of the outstanding interests in Nationstar Mortgage LLC (“Nationstar”), a leading residential mortgage servicer, and investment funds that own a majority of the outstanding common stock of OneMain Holdings, Inc. (formerly Springleaf Holdings, Inc.) (together with its subsidiaries, “OneMain”), former managing member of the Consumer Loan Companies (Note 9).
 
As of March 31, 2018, New Residential conducted its business through the following segments: (i) investments in excess mortgage servicing rights (“Excess MSRs”), (ii) investments in mortgage servicing rights (“MSRs”), (iii) Servicer Advance Investments (including the basic fee component of the related MSRs), (iv) investments in real estate securities, (v) investments in residential mortgage loans, (vi) investments in consumer loans and (vii) corporate.
 
Approximately 0.5 million shares of New Residential’s common stock were held by Fortress, through its affiliates, as of March 31, 2018. In addition, Fortress, through its affiliates, held options relating to approximately 18.1 million shares of New Residential’s common stock as of March 31, 2018.
 
Interim Financial Statements

The accompanying condensed consolidated financial statements and related notes of New Residential have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of New Residential’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with New Residential’s consolidated financial statements for the year ended December 31, 2017 and notes thereto included in New Residential’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). Capitalized terms used herein, and not otherwise defined, are defined in New Residential’s consolidated financial statements for the year ended December 31, 2017.
 
Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company

9

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 

expects to be entitled in exchange for those goods or services. In effect, companies are required to exercise further judgment and make more estimates prospectively. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2014-09 was effective for New Residential in the first quarter of 2018. New Residential has evaluated the new guidance and determined that interest income, gains and losses on financial instruments and income from servicing residential mortgage loans are outside the scope of ASC No. 606. For income from servicing residential mortgage loans, New Residential considered that the FASB Transition Resource Group members generally agreed that an entity should look to ASC No. 860, Transfers and Servicing, to determine the appropriate accounting for these fees and ASC No. 606 contains a scope exception for contracts that fall under ASC No. 860. As a result, the adoption of ASU No. 2014-09 did not have a material impact on the condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-01 did not have a material impact on the condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset measured at amortized cost basis be presented at the net amount expected to be collected, net of an allowance for all expected (rather than incurred) credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. ASU No. 2016-13 is effective for New Residential in the first quarter of 2020. Early adoption is permitted beginning in 2019. An entity should apply ASU No. 2016-13 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. New Residential is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. The standard requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-16 did not have a material impact on the condensed consolidated financial statements.


10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 

2.
OTHER INCOME, ASSETS AND LIABILITIES
 
Gain (loss) on settlement of investments, net is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2018
 
2017
Gain (loss) on sale of real estate securities, net
 
$
(29,227
)
 
$
993

Gain (loss) on sale of residential mortgage loans, net
 
(14,651
)
 
2,565

Gain (loss) on settlement of derivatives
 
37,363

 
(11,836
)
Gain (loss) on liquidated residential mortgage loans
 
(385
)
 
(2,216
)
Gain (loss) on sale of REO
 
(2,800
)
 
(2,610
)
Gains reclassified from change in fair value of investments in excess MSRs and servicer advance investments
 
113,002

 

Other gains (losses)
 

 
(570
)
 
 
$
103,302

 
$
(13,674
)

Other income (loss), net, is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2018
 
2017
Unrealized gain (loss) on derivative instruments
 
$
2,446

 
$
4,326

Unrealized gain (loss) on other ABS
 
(313
)
 
758

Gain (loss) on transfer of loans to REO
 
4,170

 
6,634

Gain (loss) on transfer of loans to other assets
 
55

 
212

Gain (loss) on Excess MSRs
 
2,905

 
627

Gain (loss) on Ocwen common stock
 
5,772

 

Other income (loss)
 
(5,051
)
 
(5,713
)
 
 
$
9,984

 
$
6,844



11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 

Other assets and liabilities are comprised of the following:
 
Other Assets
 
 
 
Accrued Expenses
and Other Liabilities
 
March 31, 2018
 
December 31, 2017
 
 
 
March 31, 2018
 
December 31, 2017
Margin receivable, net
$
40,702

 
$
53,150

 
Interest payable
 
$
26,124

 
$
28,821

Other receivables
62,109

 
10,635

 
Accounts payable
 
47,877

 
73,017

Principal and interest receivable
45,548

 
48,373

 
Derivative liabilities (Note 10)
 
4,091

 
697

Receivable from government agency
30,863

 
41,429

 
Current taxes payable
 

 

Call rights
327

 
327

 
Due to servicers
 
72,705

 
24,571

Derivative assets (Note 10)
588

 
2,423

 
MSR purchase price holdback
 
101,464

 
101,290

Servicing fee receivables
63,199

 
60,520

 
Other liabilities
 
16,008

 
10,718

Ginnie Mae EBO servicer advances receivable, net
3,554

 
8,916

 
 
 
$
268,269

 
$
239,114

Due from servicers
26,595

 
38,601

 
 
 
 
 
 
Ocwen common stock, at fair value
25,031

 
19,259

 
 
 
 
 
 
Prepaid expenses
6,449

 
7,308

 
 
 
 
 
 
Other assets
21,978

 
21,240

 
 
 
 
 
 
 
$
326,943

 
$
312,181

 
 
 
 
 
 

As reflected on the Condensed Consolidated Statements of Cash Flows, accretion and other amortization is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2018
 
2017
Accretion of servicer advance investment and receivable interest income
 
$
77,640

 
$
76,043

Accretion of excess mortgage servicing rights income
 
9,359

 
31,418

Accretion of net discount on securities and loans(A)
 
92,708

 
88,984

Amortization of deferred financing costs
 
(1,874
)
 
(3,574
)
Amortization of discount on notes and bonds payable
 
(462
)
 
(447
)
 
 
$
177,371

 
$
192,424


(A)
Includes accretion of the accretable yield on PCD loans.

3.
SEGMENT REPORTING
 
New Residential conducts its business through the following segments: (i) investments in Excess MSRs, (ii) investments in MSRs, (iii) Servicer Advance Investments, (iv) investments in real estate securities, (v) investments in residential mortgage loans, (vi) investments in consumer loans, and (vii) corporate. The corporate segment consists primarily of (i) general and administrative expenses, (ii) the management fees and incentive compensation related to the Management Agreement and (iii) corporate cash and related interest income. Securities owned by New Residential (Note 7) that are collateralized by servicer advances and consumer loans are included in the Servicer Advances and Consumer Loans segments, respectively. Secured corporate loans effectively collateralized by Excess MSRs are included in the Excess MSRs segment.


12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 

Summary financial data on New Residential’s segments is given below, together with a reconciliation to the same data for New Residential as a whole:
 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
MSRs
 
Servicer Advances
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
9,359

 
$
166,518

 
$
18,891

 
$
101,133

 
$
34,392

 
$
52,648

 
$
632

 
$
383,573

Interest expense
4,489

 
44,111

 
6,430

 
41,530

 
16,311

 
11,516

 

 
124,387

Net interest income (expense)
4,870

 
122,407

 
12,461

 
59,603

 
18,081

 
41,132

 
632

 
259,186

Impairment

 

 

 
6,670

 
5,183

 
13,824

 

 
25,677

Servicing revenue, net

 
217,236

 

 

 

 

 

 
217,236

Other income (loss)
(1,889
)
 
271,777

 
(6,577
)
 
10,569

 
(20,217
)
 
5,090

 
5,771

 
264,524

Operating expenses
61

 
52,278

 
144

 
297

 
8,947

 
9,437

 
36,653

 
107,817

Income (Loss) Before Income Taxes
2,920

 
559,142

 
5,740

 
63,205

 
(16,266
)
 
22,961

 
(30,250
)
 
607,452

Income tax expense (benefit)

 
(6,729
)
 
(427
)
 

 

 
244

 

 
(6,912
)
Net Income (Loss)
$
2,920

 
$
565,871

 
$
6,167

 
$
63,205

 
$
(16,266
)
 
$
22,717

 
$
(30,250
)
 
$
614,364

Noncontrolling interests in income (loss) of consolidated subsidiaries
$

 
$

 
$
1,383

 
$

 
$

 
$
8,728

 
$

 
$
10,111

Net income (loss) attributable to common stockholders
$
2,920

 
$
565,871

 
$
4,784

 
$
63,205

 
$
(16,266
)
 
$
13,989

 
$
(30,250
)
 
$
604,253


 
Servicing Related Assets
 
Residential Securities and Loans
 
 
 
 
 
 
 
Excess MSRs
 
MSRs
 
Servicer Advances
 
Real Estate Securities
 
Residential Mortgage Loans
 
Consumer Loans
 
Corporate
 
Total
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
$
680,562

 
$
4,016,436

 
$
955,364

 
$
7,585,323

 
$
2,205,531

 
$
1,351,928

 
$

 
$
16,795,144

Cash and cash equivalents
187

 
147,305

 
35,829

 
1,673

 
2,532

 
25,382

 
20,325

 
233,233

Restricted cash
3,624

 
114,152

 
10,664

 

 

 
51,248

 

 
179,688

Other assets
4,343

 
3,465,768

 
3,614

 
1,136,075

 
92,496

 
26,177

 
75,403

 
4,803,876

Total assets
$
688,716

 
$
7,743,661

 
$
1,005,471

 
$
8,723,071

 
$
2,300,559

 
$
1,454,735

 
$
95,728

 
$
22,011,941

Debt
$
197,563

 
$
4,864,332

 
$
729,539

 
$
6,053,287

 
$
1,549,489

 
$
1,272,305

 
$

 
$
14,666,515

Other liabilities
1,555

 
225,321

 
(14,129
)
 
1,137,019

 
23,577

 
13,852

 
196,544

 
1,583,739

Total liabilities
199,118

 
5,089,653

 
715,410

 
7,190,306

 
1,573,066

 
1,286,157

 
196,544

 
16,250,254

Total equity
489,598

 
2,654,008

 
290,061

 
1,532,765

 
727,493

 
168,578

 
(100,816
)
 
5,761,687

Noncontrolling interests in equity of consolidated subsidiaries

 

 
65,392

 

 

 
32,359

 

 
97,751

Total New Residential stockholders’ equity
$
489,598

 
$
2,654,008

 
$
224,669

 
$
1,532,765

 
$
727,493

 
$
136,219

 
$
(100,816
)
 
$
5,663,936

Investments in equity method investees
$
164,886

 
$

 
$

 
$

 
$

 
$
46,135

 
$

 
$
211,021

 

13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 


Servicing Related Assets

Residential Securities and Loans







Excess MSRs

MSRs
 
Servicer Advances

Real Estate Securities

Residential Mortgage Loans

Consumer Loans

Corporate

Total
Three Months Ended March 31, 2017


 
 











Interest income
$
31,418


$
25

 
$
76,704


$
93,808


$
17,993


$
72,406


$
184


$
292,538

Interest expense
10,072


987

 
43,876


20,881


7,540


14,873




98,229

Net interest income (expense)
21,346


(962
)
 
32,828


72,927


10,453


57,533


184


194,309

Impairment



 


2,112


(2,018
)

19,928




20,022

Servicing revenue, net

 
40,602

 

 

 

 

 

 
40,602

Other income (loss)
1,204


213

 
1,801


(5,596
)

(1,336
)

20




(3,694
)
Operating expenses
86


19,723

 
824


331


5,853


11,438


30,186


68,441

Income (Loss) Before Income Taxes
22,464

 
20,130

 
33,805

 
64,888

 
5,282

 
26,187

 
(30,002
)

142,754

Income tax expense (benefit)

 
(1,279
)
 
9,192

 

 
(2,317
)
 

 


5,596

Net Income (Loss)
$
22,464

 
$
21,409

 
$
24,613

 
$
64,888

 
$
7,599

 
$
26,187

 
$
(30,002
)

$
137,158

Noncontrolling interests in income (loss) of consolidated subsidiaries
$

 
$

 
$
5,820

 
$

 
$

 
$
9,960

 
$


$
15,780

Net income (loss) attributable to common stockholders
$
22,464

 
$
21,409

 
$
18,793

 
$
64,888

 
$
7,599

 
$
16,227

 
$
(30,002
)

$
121,378



4.
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
 
 
Servicer
 
 
Nationstar
 
SLS(A)
 
Ocwen(B)
 
Total
Balance as of December 31, 2017
 
$
532,233

 
$
2,913

 
$
638,567

 
$
1,173,713

Purchases
 

 

 

 

Interest income
 
9,354

 
5

 

 
9,359

Other income
 
2,905

 

 

 
2,905

Proceeds from repayments
 
(26,290
)
 
(170
)
 

 
(26,460
)
Proceeds from sales
 

 

 

 

Change in fair value
 
(5,326
)
 
52

 
(40,417
)
 
(45,691
)
New Ocwen Agreements (Note 5)
 

 

 
(598,150
)
 
(598,150
)
Balance as of March 31, 2018
 
$
512,876

 
$
2,800

 
$

 
$
515,676


(A)
Specialized Loan Servicing LLC (“SLS”).
(B)
Ocwen Loan Servicing LLC, a subsidiary of Ocwen Financial Corporation (together with its subsidiaries, including Ocwen Loan Servicing LLC, “Ocwen”), services the loans underlying the Excess MSRs and Servicer Advance Investments acquired from HLSS.

In January 2018, New Residential entered into the New Ocwen Agreements as described in Note 5. Subsequent to the New Ocwen Agreements, the Excess MSRs serviced by Ocwen became reclassified, as described in Note 5.

Nationstar, SLS, or Ocwen, as applicable, as servicer, performs all of the servicing and advancing functions, and retains the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio.

New Residential has entered into a “recapture agreement” with respect to each of the Excess MSR investments serviced by Nationstar and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any initial or subsequent refinancing by Nationstar of a loan in the original portfolio. These recapture agreements do not apply to New Residential’s Servicer Advance Investments (Note 6).

14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 


New Residential elected to record its investments in Excess MSRs at fair value pursuant to the fair value option for financial instruments in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on the Excess MSRs.

The following is a summary of New Residential’s direct investments in Excess MSRs:
 
March 31, 2018
 
December 31, 2017
 
UPB of Underlying Mortgages
 
Interest in Excess MSR
 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value(C)
 
 
 
New Residential(D)
 
Fortress-managed funds
 
Nationstar
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
62,526,609

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.8
 
$
242,028

 
$
271,623

 
$
280,033

Recapture Agreements

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
12.5
 
17,836

 
41,762

 
44,603

 
62,526,609

 
 
 
 
 
 
 
6.3
 
259,864

 
313,385

 
324,636

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
62,374,141

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
5.3
 
$
149,606

 
$
184,094

 
$
190,696

Recapture Agreements

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
12.4
 
6,708

 
18,197

 
19,814

Ocwen Serviced Pools

 
100.0%
 
—%
 
—%
 
 

 

 
638,567

 
62,374,141

 
 
 
 
 
 
 
5.6
 
156,314

 
202,291

 
849,077

Total
$
124,900,750

 
 
 
 
 
 
 
6.0
 
$
416,178

 
$
515,676

 
$
1,173,713

 
(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
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.
(C)
Carrying Value represents the fair value of the pools or recapture agreements, as applicable.
(D)
Amounts in parentheses represent weighted averages.
(E)
New Residential also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of March 31, 2018 (Note 6) on $47.8 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2018
 
2017
Original and Recaptured Pools

$
(43,122
)
 
$
(7,248
)
Recapture Agreements

(2,569
)
 
8,069

 
 
$
(45,691
)
 
$
821


As of March 31, 2018, a weighted average discount rate of 8.8% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).


15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 

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 financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
 
March 31, 2018
 
December 31, 2017
Excess MSR assets
 
$
309,322

 
$
321,197

Other assets
 
21,137

 
22,333

Other liabilities
 
(687
)
 

Equity
 
$
329,772

 
$
343,530

New Residential’s investment
 
$
164,886

 
$
171,765

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended  
 March 31,
 
 
2018
 
2017
Interest income
 
$
5,227

 
$
4,182

Other income (loss)
 
(4,181
)
 
(4,646
)
Expenses
 

 
(25
)
Net income (loss)
 
$
1,046

 
$
(489
)

New Residential’s investments in equity method investees changed during the three months ended March 31, 2018 as follows:
Balance at December 31, 2017
$
171,765

Contributions to equity method investees

Distributions of earnings from equity method investees
(4,938
)
Distributions of capital from equity method investees
(2,464
)
Change in fair value of investments in equity method investees
523

Balance at March 31, 2018
$
164,886


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
March 31, 2018
 
Unpaid Principal Balance
 
Investee Interest in Excess MSR(A)
 
New Residential Interest in Investees
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Weighted Average Life (Years)(D)
Agency
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
49,435,804

 
66.7
%
 
50.0
%
 
$
203,978

 
$
262,014

 
5.4
Recapture Agreements

 
66.7
%
 
50.0
%
 
22,503

 
47,308

 
12.3
Total
$
49,435,804

 
 
 
 
 
$
226,481

 
$
309,322

 
6.1
 
(A)
The remaining interests are held by Nationstar.
(B)
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.

16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2018
(dollars in tables in thousands, except share data) 
 

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

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments:
 
 
Aggregate Direct and Equity Method Investees
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
March 31, 2018
 
December 31, 2017
California
 
24.6
%
 
24.0
%
Florida
 
8.0
%
 
8.7
%
New York
 
6.4
%
 
8.5
%
Texas
 
4.5
%
 
4.6
%
New Jersey
 
3.9
%
 
4.1
%
Maryland
 
3.7
%
 
3.7
%
Illinois
 
3.5
%
 
3.5
%
Georgia
 
3.5
%
 
3.1
%