Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES

v2.4.0.8
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
9 Months Ended
Sep. 30, 2014
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS, EQUITY METHOD INVESTEES
 
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:
 
 
September 30, 2014
 
December 31, 2013
Excess MSR assets
 
$
679,146

 
$
703,681

Other assets
 
10,075

 
5,534

Debt
 

 

Other liabilities
 
(4,146
)
 
(3,683
)
Equity
 
$
685,075

 
$
705,532

New Residential's investment
 
$
342,538

 
$
352,766

 
 
 
 
 
New Residential's ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Interest income
 
$
18,341

 
$
16,745

 
$
54,126

 
$
30,501

Other income
 
45,354

 
25,109

 
47,843

 
56,483

Expenses
 
(29
)
 
(564
)
 
(70
)
 
(3,502
)
Net income
 
$
63,666

 
$
41,290

 
$
101,899

 
$
83,482



New Residential’s investments in equity method investees changed during the nine months ended September 30, 2014 as follows:
Balance at December 31, 2013
$
352,766

Contributions to equity method investees

Distributions of earnings from equity method investees
(34,680
)
Distributions of capital from equity method investees
(26,498
)
Change in fair value of investments in equity method investees
50,950

Balance at September 30, 2014
$
342,538



 
The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
September 30, 2014
 
Unpaid Principal Balance
 
Investee Interest in  Excess MSR
 
New Residential Interest in Investees
 
Amortized Cost Basis(A)
 
Carrying Value(B)
 
Weighted Average Life (Years)(C)
Agency


 


 


 


 


 
 
Original and Recaptured Pools
$
91,366,989

 
66.7
%
 
50.0
%
 
$
309,094

 
$
378,367

 
5.1
Recapture Agreements

 
66.7
%
 
50.0
%
 
72,681

 
92,033

 
12.5
 
91,366,989

 


 


 
381,775

 
470,400

 
6.5
Non-Agency(D)


 


 


 


 


 

Original and Recaptured Pools
61,069,238

 
66.7%-77.0%

 
50.0
%
 
182,665

 
196,485

 
5.1
Recapture Agreements

 
66.7%-77.0%

 
50.0
%
 
12,898

 
12,261

 
12.4
 
61,069,238

 


 


 
195,563

 
208,746

 
5.6
Total
$
152,436,227

 


 


 
$
577,338

 
$
679,146

 
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.
(D)
Excess MSR investments in which New Residential also invested in related servicer advances, including the basic fee component of the related MSR as of September 30, 2014 (Note 6).

In the third quarter of 2014, a weighted average discount rate of 10.0% was used to value New Residential's investments in Excess MSRs (directly and through equity method investees).

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments made through equity method investees:
 
 
Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration
 
September 30, 2014
 
December 31, 2013
California
 
23.5
%
 
23.5
%
Florida
 
9.0
%
 
9.2
%
New York
 
5.5
%
 
5.3
%
Texas
 
4.8
%
 
4.9
%
Georgia
 
4.1
%
 
4.0
%
New Jersey
 
3.8
%
 
3.7
%
Illinois
 
3.5
%
 
3.5
%
Maryland
 
3.2
%
 
3.1
%
Virginia
 
3.2
%
 
3.1
%
Washington
 
2.8
%
 
2.8
%
Other U.S.
 
36.6
%
 
36.9
%
 
 
100.0
%
 
100.0
%


Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the Excess MSRs.