Quarterly report pursuant to Section 13 or 15(d)

SERVICER ADVANCE INVESTMENTS

v3.10.0.1
SERVICER ADVANCE INVESTMENTS
6 Months Ended
Jun. 30, 2018
Investments, All Other Investments [Abstract]  
SERVICER ADVANCE INVESTMENTS
SERVICER ADVANCE INVESTMENTS

All of New Residential’s Servicer Advance Investments are comprised of outstanding servicer advances, the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans, and the basic fee component of the related MSR. New Residential elected to record its Servicer Advance Investments, including the right to the basic fee component of the related MSRs, 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 market factors.

A taxable wholly-owned subsidiary of New Residential is the managing member of the Buyer and owned an approximately 72.8% interest in the Buyer as of June 30, 2018. As of June 30, 2018, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of June 30, 2018, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $320.6 million and $285.7 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.
 
See Note 5 regarding the New Ocwen Agreements. Subsequent to the New Ocwen Agreements, the Servicer Advance Investments serviced by Ocwen became reclassified, as described in Note 5.

The following is a summary of New Residential’s Servicer Advance Investments, including the right to the basic fee component of the related MSRs:
 
Amortized Cost Basis

Carrying Value(A)

Weighted Average Discount Rate
 
Weighted Average Yield

Weighted Average Life (Years)(B)
June 30, 2018
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
821,289

 
$
843,438

 
5.8
%
 
5.8
%
 
5.5
As of December 31, 2017
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
3,924,003

 
$
4,027,379

 
6.8
%
 
7.3
%
 
5.1
  
(A)
Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.
(B)
Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2018

2017

2018

2017
Change in Fair Value of Servicer Advance Investments
 
$
(1,752
)
 
$
56,969

 
$
(81,228
)
 
$
59,528


The following is additional information regarding the Servicer Advance Investments and related financing:
 
 
 
 
 
 
 
 
 
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(C)
 
UPB of Underlying Residential Mortgage Loans
 
Outstanding Servicer Advances
 
Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Face Amount of Notes and Bonds Payable
 
Gross
 
Net(B)
 
Gross
 
Net
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
44,895,549

 
$
692,323

 
1.5
%
 
$
662,010

 
89.2
%
 
88.1
%
 
3.7
%
 
3.1
%
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
139,460,371

 
$
3,581,876

 
2.6
%
 
$
3,461,718

 
93.2
%
 
92.0
%
 
3.3
%
 
3.0
%
 
(A)
Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)
Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)
Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)
The following types of advances are included in the Servicer Advance Investments:


June 30, 2018

December 31, 2017
Principal and interest advances

$
112,367


$
909,133

Escrow advances (taxes and insurance advances)

268,741


1,636,381

Foreclosure advances

311,215


1,036,362

Total

$
692,323

 
$
3,581,876


 
Interest income recognized by New Residential related to its Servicer Advance Investments was comprised of the following:


Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,


2018

2017

2018

2017
Interest income, gross of amounts attributable to servicer compensation

$
22,161


$
133,098


$
42,548


$
206,954

Amounts attributable to base servicer compensation

(2,035
)

(102,359
)

(4,007
)

(106,506
)
Amounts attributable to incentive servicer compensation

(7,634
)

209,730


(7,160
)

216,064

Interest income from Servicer Advance Investments

$
12,492

 
$
240,469

 
$
31,381

 
$
316,512


New Residential has determined that the Buyer is a VIE. The following table presents information on the assets and liabilities related to this consolidated VIE.
 
 
As of
 
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
 
Servicer advance investments, at fair value
 
$
810,581

 
$
1,002,102

Cash and cash equivalents
 
30,046

 
40,929

All other assets
 
11,333

 
13,011

Total assets(A)
 
$
851,960

 
$
1,056,042

Liabilities
 
 
 
 
Notes and bonds payable
 
$
634,553

 
$
789,979

All other liabilities
 
3,185

 
3,308

Total liabilities(A)
 
$
637,738

 
$
793,287


(A)
The creditors of the Buyer do not have recourse to the general credit of New Residential and the assets of the Buyer are not directly available to satisfy New Residential’s obligations.

Others’ interests in the equity of the Buyer is computed as follows:
 
 
June 30, 2018
 
December 31, 2017
Total Advance Purchaser LLC equity
 
$
214,221

 
$
262,755

Others’ ownership interest
 
27.2
%
 
27.2
%
Others’ interest in equity of consolidated subsidiary
 
$
58,286

 
$
71,491


Others’ interests in the Buyer’s net income is computed as follows:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended  
 June 30,
 
 
2018
 
2017
 
2018
 
2017
Net Advance Purchaser LLC income
 
$
3,881

 
$
6,140

 
$
8,966

 
$
16,876

Others’ ownership interest as a percent of total
 
27.2
%
 
54.2
%
 
27.2
%
 
54.2
%
Others’ interest in net income of consolidated subsidiaries
 
$
1,056

 
$
3,328

 
$
2,439

 
$
9,148


See Note 11 regarding the financing of Servicer Advance Investments.