Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

v2.4.0.8
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
6 Months Ended
Jun. 30, 2014
Fair Value Disclosures [Abstract]  
Schedule of fair value of assets measured on a recurring basis
The carrying values and fair values of New Residential’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of June 30, 2014 were as follows:
 
 
 
 
 
Fair Value
 
Principal Balance or Notional Amount
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
Investments in:
 
 
 
 
 
 
 
 
 
 
 
     Excess mortgage servicing rights, at fair
value
(A)
$
95,166,259

 
$
372,416

 
$

 
$

 
$
372,416

 
$
372,416

     Excess mortgage servicing rights, equity
method investees, at fair value
(A)
159,821,724

 
330,220

 

 

 
330,220

 
330,220

     Servicer advances
3,551,464

 
3,679,105

 

 

 
3,679,105

 
3,679,105

     Real estate securities, available-for-sale
1,507,595

 
1,463,903

 

 
1,247,012

 
216,891

 
1,463,903

     Residential mortgage loans,
held for investment
(B)
701,918

 
517,424

 

 

 
519,990

 
519,990

     Non-hedge derivatives(C)
196,362

 
30,992

 

 
256

 
30,736

 
30,992

     Cash and cash equivalents
311,126

 
311,126

 
311,126

 

 

 
311,126

     Restricted cash
37,327

 
37,327

 
37,327

 

 

 
37,327

 
$
261,293,775

 
$
6,742,513

 
$
348,453

 
$
1,247,268

 
$
5,149,358

 
$
6,745,079

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
     Repurchase agreements
$
1,815,182

 
$
1,815,182

 
$

 
$
1,331,354

 
$
483,828

 
$
1,815,182

     Notes payable
3,289,445

 
3,289,445

 

 
1,285,348

 
2,006,525

 
3,291,873

 
$
5,104,627

 
$
5,104,627

 
$

 
$
2,616,702

 
$
2,490,353

 
$
5,107,055

 
(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 non-performing loans in Agency portfolios.
(B)
The notional amount represents the total unpaid principal balance of the mortgage loans for residential mortgage loans, held for investment.
(C)
The notional amount for linked transactions consists of the aggregate UPB amount of the loans that comprise the asset portion of the linked transaction.


Schedule of fair value of assets valued on a recurring basis using Level 3 inputs
New Residential’s financial assets measured at fair value on a recurring basis using Level 3 inputs changed during the six months ended June 30, 2014 as follows:
 
Level 3
 
 
 
Excess MSRs(A)
 
Excess MSRs in Equity Method Investees(A)(B)
 
 
 
 
 
 
 
 
 
Agency
 
Non-Agency
 
Agency
 
Non-Agency
 
Servicer Advances
 
Non-Agency RMBS
 
Linked Transactions
 
Total
Balance at December 31, 2013
$
144,660

 
$
179,491

 
$
245,399

 
$
107,367

 
$
2,665,551

 
$
570,425

 
$
35,926

 
$
3,948,819

Transfers(C)


 


 


 


 


 


 


 


Transfers from Level 3

 

 

 

 

 

 

 

Transfers to Level 3

 

 

 

 

 

 

 

Gains (losses) included in net income

 

 

 

 

 

 

 

Included in other-than-temporary
    impairment (“OTTI”) on securities(D)

 

 

 

 

 
(479
)
 

 
(479
)
Included in change in fair value of
    investments in excess mortgage
    servicing rights(D)
3,673

 
8,431

 

 

 

 

 

 
12,104

Included in change in fair value of
    investments in excess mortgage
    servicing rights, equity method
    investees(D)

 

 
(100
)
 
1,324

 

 

 

 
1,224

Included in gain on settlement of
    investments

 

 

 

 

 
60,330

 

 
60,330

Included in other income(D)

 

 

 

 
82,877

 

 
(271
)
 
82,606

Gains (losses) included in other
    comprehensive income, net of tax(E)

 

 

 

 

 
3,174

 

 
3,174

Interest income
9,491

 
15,298

 
12,622

 
5,271

 
102,823

 
13,812

 

 
159,317

Purchases, sales and repayments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases
36,157

 
19,132

 

 

 
3,955,602

 
882,033

 
9,758

 
4,902,682

Purchase adjustments
(59
)
 
1,073

 

 

 

 

 

 
1,014

Proceeds from sales

 

 

 

 

 
(1,273,224
)
 
(1,495
)
 
(1,274,719
)
Proceeds from repayments
(18,470
)
 
(26,461
)
 
(28,084
)
 
(13,579
)
 
(3,127,748
)
 
(39,180
)
 
(3,508
)
 
(3,257,030
)
Transfers to REO(F)

 

 

 

 

 

 
(9,674
)
 
(9,674
)
Balance at June 30, 2014
$
175,452

 
$
196,964

 
$
229,837

 
$
100,383

 
$
3,679,105

 
$
216,891

 
$
30,736

 
$
4,629,368

 
(A)
Includes the Recapture Agreement for each respective pool.
(B)
Amounts represent New Residential’s portion of the Excess MSRs held by the respective joint ventures in which New Residential has a 50% interest.
(C)
Transfers are assumed to occur at the beginning of the respective period.
(D)
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.
(E)
These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.
Schedule of inputs used in valuing 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 June 30, 2014:
 
 
Significant Inputs
Held Directly (Note 4)
 
Prepayment Speed(A)
 
Delinquency(B)
 
Recapture Rate(C)
 
Excess Mortgage Servicing Amount
(bps)(D)
MSR Pool 1
 
12.3
%
 
8.6
%
 
36.1
%
 
26

MSR Pool 1 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
21

MSR Pool 2
 
12.7
%
 
9.9
%
 
36.2
%
 
22

MSR Pool 2 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
21

MSR Pool 3
 
12.8
%
 
11.2
%
 
35.9
%
 
22

MSR Pool 3 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
21

MSR Pool 4
 
15.3
%
 
13.5
%
 
36.0
%
 
17

MSR Pool 4 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
21

MSR Pool 5
 
11.4
%
 
N/A(E)

 
9.7
%
 
13

MSR Pool 5 - Recapture Agreement
 
8.0
%
 
N/A(E)

 
35.0
%
 
21

MSR Pool 11 - Recapture Agreement
 
7.9
%
 
5.0
%
 
35.0
%
 
19

MSR Pool 12
 
14.0
%
 
N/A(E)

 
9.6
%
 
26

MSR Pool 12 - Recapture Agreement
 
8.0
%
 
N/A(E)

 
35.0
%
 
19

MSR Pool 14
 
7.8
%
 
3.5
%
 
27.5
%
 
19

MSR Pool 14 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
19

MSR Pool 16
 
16.4
%
 
4.9
%
 
35.0
%
 
17

MSR Pool 16 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
19

MSR Pool 17
 
11.2
%
 
N/A(E)

 
11.0
%
 
19

MSR Pool 17 - Recapture Agreement
 
8.0
%
 
N/A(E)

 
35.0
%
 
19

MSR Pool 18
 
14.9
%
 
N/A(E)

 
9.6
%
 
15

MSR Pool 18 - Recapture Agreement
 
8.0
%
 
N/A(E)

 
35.0
%
 
19

MSR Pool 19
 
8.0
%
 
2.8
%
 
20.0
%
 
19

MSR Pool 19 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
19

MSR Pool 20
 
12.7
%
 
4.0
%
 
33.9
%
 
32

MSR Pool 20 - Recapture Agreement
 
8.0
%
 
5.0
%
 
34.9
%
 
19

 
 
 
 
 
 
 
 
 
Held through Equity Method Investees (Note 5)
 
 
 
 
 
 
 
 
MSR Pool 6
 
14.8
%
 
7.3
%
 
30.7
%
 
25

MSR Pool 6 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
23

MSR Pool 7
 
12.9
%
 
7.7
%
 
35.1
%
 
15

MSR Pool 7 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
19

MSR Pool 8
 
14.2
%
 
7.5
%
 
35.9
%
 
19

MSR Pool 8 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
19

MSR Pool 9
 
15.3
%
 
5.0
%
 
30.2
%
 
22

MSR Pool 9 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
26

MSR Pool 10
 
11.9
%
 
N/A(E)

 
9.7
%
 
11

MSR Pool 10 - Recapture Agreement
 
8.0
%
 
N/A(E)

 
35.0
%
 
19

MSR Pool 11
 
12.8
%
 
9.9
%
 
32.2
%
 
15

MSR Pool 11 - Recapture Agreement
 
8.0
%
 
5.0
%
 
35.0
%
 
19


(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 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 six months ended June 30, 2014 as follows:
Balance at December 31, 2013
$
352,766

Contributions to equity method investees

Distributions of earnings from equity method investees
(20,500
)
Distributions of capital from equity method investees
(21,163
)
Change in fair value of investments in equity method investees
19,117

Balance at June 30, 2014
$
330,220

Schedule of inputs in valuing servicer advances
The following table summarizes certain information regarding the inputs used in valuing the servicer advances:
 
Significant Inputs
 
Weighted Average
 
 
 
 
 
Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Prepayment Speed
 
Delinquency
 
Mortgage Servicing Amount
 
Discount Rate
June 30, 2014
2.2
%
 
14.6
%
 
16.3
%
 
19.6

bps
5.6
%
December 31, 2013
2.7
%
 
13.3
%
 
20.0
%
 
21.2

bps
5.6
%
Schedule of real estate securities valuation methodology and results
As of June 30, 2014, 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)
 
Single Quote(B)
 
Total
 
Level
Agency ARM RMBS
 
$
1,159,363

 
$
1,244,864

 
$
1,247,012

 
$

 
$
1,247,012

 
2

Non-Agency RMBS
 
348,232

 
210,051

 
203,373

 
13,518

 
216,891

 
3

Total
 
$
1,507,595

 
$
1,454,915

 
$
1,450,385

 
$
13,518

 
$
1,463,903

 
 

 
(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 inputs used in valuing reverse mortgage loans
The following table summarizes the inputs used in valuing reverse mortgage loans as of June 30, 2014:
 
 
 
 
 
 
 
 
Significant Inputs
Loan Type
 
Carrying Value(A)
 
Fair Value(A)
 
Valuation Provision/ (Reversal) In Current Year
 
Discount Rate
 
Weighted Average Life (Years)(B)
Reverse Mortgage Loans
 
$
30,794

 
$
30,794

 
427

 
10.3
%
 
3.7
 
(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.

For performing loans, the significant inputs to these models include discount rates and market-based assumptions for prepayment speed and default.
Loan Type
 
Carrying Value(A)
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
Default Rate
Performing Loans
 
$
61,008

 
$
60,904

 
6.4
%
 
7.7
%
 
1.9
%

(A)    Includes accrued interest receivable.
For non-performing loans, the significant inputs to these models include discount rates, loss severities, and market-based assumptions regarding the timing and amount of expected cash flows primarily based upon the performance of the loan pool and liquidation attributes.
Loan Type
 
Carrying Value
 
Fair Value
 
Discount Rate
 
Default Rate
 
Loss Severity
Non-Performing Loans
 
$
425,622

 
$
428,292

 
7.4
%
 
97.5
%
 
22.2
%