Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)

v3.10.0.1
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)
9 Months Ended
Sep. 30, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Mortgage Servicing Rights Acquired
During the nine months ended September 30, 2018, New Residential, through its wholly owned subsidiaries, completed the following MSR acquisitions accounted for as Mortgage Servicing Rights (in millions):
Date of Acquisition
 
Collateral Type
 
UPB
(in billions)
 
Purchase Price
January 16, 2018
 
Agency
 
$
11.5

 
$
101.5

January 16, 2018
 
Agency
 
7.8

 
81.0

February 28, 2018
 
Agency
 
3.3

 
33.5

March 28, 2018
 
 Agency & Ginnie Mae
 
8.1

 
96.6

May 1, 2018
 
 Ginnie Mae
 
4.6

 
46.8

May 25, 2018
 
 Agency
 
2.1

 
26.3

May 31, 2018
 
 Agency & Ginnie Mae
 
6.1

 
79.9

June 1, 2018
 
 Ginnie Mae
 
0.5

 
6.1

June 4, 2018
 
 Agency
 
2.1

 
19.3

June 28, 2018
 
 Ginnie Mae
 
4.7

 
66.5

August 31, 2018
 
 Agency & Ginnie Mae
 
18.5

 
220.5

September 28, 2018
 
 Agency
 
1.1

 
13.6

September 28, 2018
 
 Agency
 
10.1

 
126.4

Various(A)
 
 Agency
 
3.6

 
34.1

Total
 
 
 
$
84.1

 
$
952.1


(A)
Represents Flow MSR acquisitions from Ditech and Shellpoint for the nine months ended September 30, 2018.
Fees Earned in Exchange for Servicing Financial Assets
Interest income from investments in mortgage servicing rights financing receivables was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Servicing fee revenue
$
181,495

 
$
38,510

 
$
575,909

 
$
41,185

Ancillary and other fees
39,257

 
4,327

 
109,852

 
4,402

Less: subservicing expense
(61,454
)
 
(11,139
)
 
(192,275
)
 
(11,433
)
Interest income, investments in mortgage servicing rights financing receivables
$
159,298

 
$
31,698

 
$
493,486

 
$
34,154


Change in fair value of investments in mortgage servicing rights financing receivables was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Amortization of servicing rights
$
(49,016
)
 
$
(18,883
)
 
$
(154,559
)
 
$
(20,010
)
Change in valuation inputs and assumptions(A)
(39,329
)
 
89,115

 
218,187

 
95,838

Change in fair value of investments in mortgage servicing rights financing receivables
$
(88,345
)
 
$
70,232

 
$
63,628

 
$
75,828

Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Servicing fee revenue
$
158,458

 
$
113,741

 
$
408,967

 
$
299,642

Ancillary and other fees
43,638

 
24,641

 
94,699

 
51,811

Servicing fee revenue and fees
202,096

 
138,382

 
503,666

 
351,453

Amortization of servicing rights
(70,933
)
 
(68,850
)
 
(191,499
)
 
(159,451
)
Change in valuation inputs and assumptions(A) (B)
44,192

 
(11,518
)
 
226,617

 
77,465

Servicing revenue, net
$
175,355

 
$
58,014

 
$
538,784

 
$
269,467



(A)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
(B)
Includes $3.9 million of fair value adjustment to Excess spread financing for the three and nine months ended September 30, 2018.

Schedule of Activity Related to the Carrying Value of Investments in Excess MSRs
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
 
32,357

 
14

 

 
32,371

Other income
 
4,601

 

 

 
4,601

Proceeds from repayments
 
(76,888
)
 
(495
)
 

 
(77,383
)
Proceeds from sales
 
(12,380
)
 

 

 
(12,380
)
Change in fair value
 
(15,420
)
 
126

 
(40,417
)
 
(55,711
)
New Ocwen Agreements (Note 5)
 

 

 
(598,150
)
 
(598,150
)
Balance as of September 30, 2018
 
$
464,503

 
$
2,558

 
$

 
$
467,061


(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.

The following table presents activity related to the carrying value of New Residential’s investments in MSRs:
Balance as of December 31, 2017
 
$
1,735,504

Purchases
 
801,366

Transfer In(A)
 
135,288

Shellpoint Acquisition(B) (C)
 
151,312

Originations(D)
 
17,282

Amortization of servicing rights(E)
 
(191,499
)
Change in valuation inputs and assumptions(F)
 
222,751

Balance as of September 30, 2018
 
$
2,872,004


(A)
Represents Ginnie Mae MSRs previously accounted for as Mortgage Servicing Rights Financing Receivable.
(B)
Represents MSRs acquired through New Residential’s acquisition of Shellpoint Partners LLC.
(C)
Includes $48.3 million of MSRs legally sold by New Penn treated as a secured borrowing as it did not meet the criteria for sale treatment. New Residential elected to record the excess spread financing liability at fair value pursuant to the fair value option.
(D)
Represents MSRs retained on the sale of originated mortgage loans.
(E)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(F)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.

The following is a summary of New Residential’s investments in MSRs as of September 30, 2018:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
214,959,796

 
6.5
 
$
2,068,667

 
$
2,479,734

Non-Agency
2,056,930

 
6.8
 
13,391

 
20,555

Ginnie Mae
29,933,137

 
7.5
 
308,021

 
371,715

Total
$
246,949,863

 
6.6
 
$
2,390,079

 
$
2,872,004


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of September 30, 2018, a weighted average discount rate of 8.7% was used to value New Residential’s investments in MSRs.
The following table presents activity related to the carrying value of New Residential’s investments in mortgage servicing rights financing receivables:
Balance as of December 31, 2017
 
$
598,728

Investments made
 
138,993

Transfer Out(A)
 
(135,288
)
New Ocwen Agreements
 
1,017,993

Proceeds from sales
 
(2,982
)
Amortization of servicing rights(B)
 
(154,559
)
Change in valuation inputs and assumptions(C)
 
218,187

Balance as of September 30, 2018
 
$
1,681,072


(A)
Represents Ginnie Mae MSRs owned by New Penn accounted for as Mortgage Servicing Rights as a result of the Shellpoint Acquisition.
(B)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(C)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.

The following is a summary of New Residential’s investments in mortgage servicing rights financing receivables as of September 30, 2018:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
43,997,628

 
6.0
 
$
380,949

 
$
467,613

Non-Agency
91,532,019

 
7.0
 
970,423

 
1,213,459

Total
$
135,529,647

 
6.7
 
$
1,351,372

 
$
1,681,072


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of September 30, 2018, a weighted average discount rate of 10.3% was used to value New Residential’s investments in mortgage servicing rights financing receivables.

Summary of the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in MSRs
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and mortgage servicing rights financing receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
September 30, 2018
 
December 31, 2017
California
 
20.5
%
 
19.0
%
New York
 
8.1
%
 
6.3
%
Florida
 
7.0
%
 
6.0
%
Texas
 
5.2
%
 
5.7
%
New Jersey
 
5.1
%
 
5.2
%
Illinois
 
3.9
%
 
4.1
%
Massachusetts
 
3.6
%
 
3.8
%
Maryland
 
3.4
%
 
2.8
%
Pennsylvania
 
3.2
%
 
3.3
%
Virginia
 
3.2
%
 
3.1
%
Other U.S.
 
36.8
%
 
40.7
%
 
 
100.0
%
 
100.0
%
Summary of Investments in Servicer Advances
The following types of advances are included in the Servicer Advances Receivable:
 
 
September 30, 2018
 
December 31, 2017
Principal and interest advances
 
$
816,290

 
$
172,467

Escrow advances (taxes and insurance advances)
 
2,095,423

 
482,884

Foreclosure advances
 
212,206

 
16,017

Total(A) (B) (C)
 
$
3,123,919

 
$
671,368


(A)
Includes $189.9 million and $167.9 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Includes $10.0 million and $0.0 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from Ginnie Mae.
(C)
Net of $93.2 million and $4.2 million, respectively, in unamortized discount and accrual for advance recoveries.
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)
September 30, 2018
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
783,141

 
$
799,936

 
5.9
%
 
5.8
%
 
5.9
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 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2018

2017

2018

2017
Change in Fair Value of Servicer Advance Investments
 
$
(5,353
)
 
$
10,941

 
$
(86,581
)
 
$
70,469


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
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
42,323,957

 
$
637,102

 
1.5
%
 
$
630,422

 
89.3
%
 
88.2
%
 
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:


September 30, 2018

December 31, 2017
Principal and interest advances

$
114,351


$
909,133

Escrow advances (taxes and insurance advances)

236,799


1,636,381

Foreclosure advances

285,952


1,036,362

Total

$
637,102

 
$
3,581,876