Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN CONSUMER LOANS (Tables)

v3.10.0.1
INVESTMENTS IN CONSUMER LOANS (Tables)
9 Months Ended
Sep. 30, 2018
Investments In Consumer Loans Equity Method Investees [Abstract]  
Summary of the Investment in Consumer Loan Companies
The following table summarizes the investment in consumer loans, held-for-investment held by New Residential:
 
Unpaid Principal Balance

Interest in Consumer Loans

Carrying Value

Weighted Average Coupon

Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Consumer Loan Companies
 
 
 
 
 
 
 
 
 
 
 
Performing Loans
$
858,817

 
53.5
%
 
$
901,166

 
18.8
%
 
3.7
 
5.2
%
Purchased Credit Deteriorated Loans(C)
236,988

 
53.5
%
 
196,346

 
16.0
%
 
3.4
 
11.3
%
Other - Performing Loans
46,253

 
100.0
%
 
43,257

 
14.1
%
 
0.8
 
5.8
%
Total Consumer Loans, held-for-investment
$
1,142,058

 
 
 
$
1,140,769

 
18.0
%
 
3.5
 
6.5
%
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Consumer Loan Companies
 
 
 
 
 
 
 
 
 
 
 
Performing Loans
$
1,005,570

 
53.5
%
 
$
1,052,561

 
18.7
%
 
3.7
 
6.0
%
Purchased Credit Deteriorated Loans(C)
282,540

 
53.5
%
 
236,449

 
16.2
%
 
3.3
 
12.5
%
Other - Performing Loans
89,682

 
100.0
%
 
85,253

 
14.1
%
 
1.0
 
4.5
%
Total Consumer Loans, held-for-investment
$
1,377,792

 
 
 
$
1,374,263

 
17.9
%
 
3.5
 
7.3
%

(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)
Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments, which are accounted for as PCD loans.

Past Due Financing Receivable
The following table provides past due information regarding New Residential’s Performing Loans, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
September 30, 2018
Days Past Due
 
Delinquency Status(A)
Current
 
83.9
%
30-59
 
7.0
%
60-89
 
2.2
%
90-119(B)
 
1.1
%
120+(C)
 
5.8
%
 
 
100.0
%

(A)
Represents the percentage of the total principal balance that corresponds to loans that are in each delinquency status.
(B)
Includes loans 90-119 days past due and still accruing interest because they are generally placed on nonaccrual status at 120 days or more past due.
(C)
Represents nonaccrual loans.
The following table provides past due information regarding New Residential’s performing consumer loans, held-for-investment, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
September 30, 2018
Days Past Due
 
Delinquency Status(A)
Current
 
94.7
%
30-59
 
2.0
%
60-89
 
1.3
%
90-119(B)
 
0.8
%
120+(B) (C)
 
1.2
%
 
 
100.0
%

(A)
Represents the percentage of the total unpaid principal balance that corresponds to loans that are in each delinquency status.
(B)
Includes loans more than 90 days past due and still accruing interest.
(C)
Interest is accrued up to the date of charge-off at 180 days past due.

Schedule of Carrying Value of Performing Consumer Loans
Activities related to the carrying value of performing consumer loans, held-for-investment were as follows:
 
 
Performing Loans
Balance at December 31, 2017
 
$
1,137,814

Purchases
 

Additional fundings(A)
 
45,017

Proceeds from repayments
 
(196,589
)
Accretion of loan discount and premium amortization, net
 
1,596

Gross charge-offs
 
(45,112
)
Additions to the allowance for loan losses, net
 
1,697

Balance at September 30, 2018
 
$
944,423


(A)
Represents draws on consumer loans with revolving privileges.
Summary of Activities Related to the Valuation Provision on Reverse Mortgage Loans and Allowance for Loan Losses
Activities related to the valuation and loss provision on reverse mortgage loans and allowance for loan losses on performing loans held-for-investment were as follows:
 
Performing Loans
Balance at December 31, 2017
$
196

Provision for loan losses(A)
604

Charge-offs(B)
(800
)
Balance at September 30, 2018
$


(A)
Based on an analysis of collective borrower performance, credit ratings of borrowers, loan-to-value ratios, estimated value of the underlying collateral, key terms of the loans and historical and anticipated trends in defaults and loss severities at a pool level.
(B)
Loans, other than PCD loans, are generally charged off or charged down to the net realizable value of the collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, when available information confirms that loans are uncollectible.

Activities related to the allowance for loan losses on performing consumer loans, held-for-investment were as follows:
 
 
Collectively Evaluated(A)
 
Individually Impaired(B)
 
Total
Balance at December 31, 2017
 
$
4,429

 
$
1,676

 
$
6,105

Provision (reversal) for loan losses
 
36,860

 
(264
)
 
36,596

Net charge-offs(C)
 
(38,293
)
 

 
(38,293
)
Balance at September 30, 2018
 
$
2,996

 
$
1,412

 
$
4,408


(A)
Represents smaller-balance homogeneous loans that are not individually considered impaired and are evaluated based on an analysis of collective borrower performance, key terms of the loans and historical and anticipated trends in defaults and loss severities, and consideration of the unamortized acquisition discount.
(B)
Represents consumer loan modifications considered to be troubled debt restructurings (“TDRs”) as they provide concessions to borrowers, primarily in the form of interest rate reductions, who are experiencing financial difficulty. As of September 30, 2018, there are $14.4 million in UPB and $13.4 million in carrying value of consumer loans classified as TDRs.
(C)
Consumer loans, other than PCD loans, are charged off when available information confirms that loans are uncollectible, which is generally when they become 180 days past due. Charge-offs are presented net of $6.8 million in recoveries of previously charged-off UPB.

Schedule of Carrying Value of Purchased Credit Deteriorated Loans
Activities related to the carrying value of PCD consumer loans, held-for-investment were as follows:
Balance at December 31, 2017
 
$
236,449

(Allowance) reversal for loan losses(A)
 

Proceeds from repayments
 
(68,221
)
Accretion of loan discount and other amortization
 
28,118

Balance at September 30, 2018
 
$
196,346


(A)
An allowance represents the present value of cash flows expected at acquisition that are no longer expected to be collected. A reversal results from an increase to expected cash flows that reverses a prior allowance.

Impaired Financing Receivables
The following is the unpaid principal balance and carrying value for consumer loans, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments:
 
Unpaid Principal Balance
 
Carrying Value
September 30, 2018
$
236,988

 
$
196,346

December 31, 2017
282,540

 
236,449

Schedule of Changes in Accretable Yield
The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2017
 
$
132,291

Accretion
 
(28,118
)
Reclassifications from (to) non-accretable difference(A)
 
28,474

Balance at September 30, 2018
 
$
132,647


(A)
Represents a probable and significant increase (decrease) in cash flows previously expected to be uncollectible.
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net
Others’ interests in the equity of the Consumer Loan Companies is computed as follows:
 
 
September 30, 2018
 
December 31, 2017
Total Consumer Loan Companies equity
 
$
67,200

 
$
74,071

Others’ ownership interest
 
46.5
%
 
46.5
%
Others’ interests in equity of consolidated subsidiary
 
$
31,248

 
$
34,466


Others’ interests in the Consumer Loan Companies’ net income (loss) is computed as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
2018
 
2017
 
2018
 
2017
Net Consumer Loan Companies income (loss)
$
21,038

 
$
26,616

 
$
61,359

 
$
74,580

Others’ ownership interest as a percent of total
46.5
%
 
46.5
%
 
46.5
%
 
46.5
%
Others’ interest in net income (loss) of consolidated subsidiaries
$
9,783

 
$
12,376

 
$
28,533

 
$
34,679

Schedule of Assets and Liabilities Related to Consolidated Variable Interest Entities
The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations as of September 30, 2018:
Residential mortgage loan UPB
 
$
6,878,247

Weighted average delinquency(A)
 
1.88
%
Net credit losses for the nine months ended September 30, 2018
 
$
6,486

Face amount of debt held by third parties(B)
 
$
956,125

 
 
 
Carrying value of bonds retained by New Residential(C)
 
$
1,230,214

Cash flows received by New Residential on these bonds for the nine months ended September 30, 2018
 
$
113,325


(A)
Represents the percentage of the UPB that is 60+ days delinquent.
(B)
Excludes bonds retained by New Residential.
(C)
Includes bonds retained pursuant to required risk retention regulations.

The following table presents information on the assets and liabilities of the Shelter JVs.
 
 
September 30, 2018
Assets
 
 
Cash and cash equivalents
 
$
17,421

Property and equipment, net
 
157

Intangible assets, net
 
74

Prepaid expenses and other assets
 
1,309

Total assets
 
$
18,961

 
 
 
Liabilities
 
 
Accounts payable and accrued expenses
 
$
1,514

Reserve for sales recourse
 
921

Total liabilities
 
$
2,435



Noncontrolling Interests
Noncontrolling interests in the equity of the Shelter JVs is computed as follows:
 
 
September 30, 2018
Total consolidated equity of JVs
 
$
16,526

Noncontrolling ownership interest
 
50.6
%
Noncontrolling equity interest in consolidated JVs
 
$
8,362

 
 
 
Total consolidated net income of JVs
 
$
2,306

Noncontrolling ownership interest in net income
 
50.6
%
Noncontrolling interest in net income of consolidated JVs
 
$
1,167

The following table presents information on the combined assets and liabilities related to these consolidated VIEs.
 
 
As of
 
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
 
Consumer loans, held-for-investment
 
$
1,097,512

 
$
1,289,010

Restricted cash
 
10,479

 
11,563

Accrued interest receivable
 
16,351

 
19,360

Total assets(A)
 
$
1,124,342

 
$
1,319,933

Liabilities
 
 
 
 
Notes and bonds payable(B)
 
$
1,088,954

 
$
1,284,436

Accounts payable and accrued expenses
 
4,144

 
4,007

Total liabilities(A)
 
$
1,093,098

 
$
1,288,443


(A)
The creditors of the Consumer Loan SPVs do not have recourse to the general credit of New Residential, and the assets of the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.
(B)
Includes $121.0 million face amount of bonds retained by New Residential issued by these VIEs.

Equity Method Investments
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, 2018
 
December 31, 2017
Excess MSR assets
 
$
284,957

 
$
321,197

Other assets
 
25,607

 
22,333

Other liabilities
 
(687
)
 

Equity
 
$
309,877

 
$
343,530

New Residential’s investment
 
$
154,939

 
$
171,765

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income
 
$
8,935

 
$
6,969

 
$
21,026

 
$
20,083

Other income (loss)
 
(2,143
)
 
(2,843
)
 
(9,778
)
 
(7,908
)
Expenses
 

 
(18
)
 

 
(63
)
Net income (loss)
 
$
6,792

 
$
4,108

 
$
11,248

 
$
12,112


New Residential’s investments in equity method investees changed during the nine months ended September 30, 2018 as follows:
Balance at December 31, 2017
$
171,765

Contributions to equity method investees

Distributions of earnings from equity method investees
(7,976
)
Distributions of capital from equity method investees
(14,474
)
Change in fair value of investments in equity method investees
5,624

Balance at September 30, 2018
$
154,939

The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
 
September 30, 2018(A)
 
December 31, 2017
Consumer loans, at fair value
 
$
85,424

 
$
178,422

Warrants, at fair value
 
110,311

 
80,746

Other assets
 
56,296

 
46,342

Warehouse financing
 
(49,668
)
 
(117,944
)
Other liabilities
 
(8,909
)
 
(13,059
)
Equity
 
$
193,454

 
$
174,507

Undistributed retained earnings
 
$

 
$

New Residential’s investment
 
$
46,888

 
$
42,473

New Residential’s ownership
 
24.2
%
 
24.3
%


 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2018(B)
 
2017(B)
 
2018(B)
 
2017(B)
Interest income
 
$
16,513

 
$
12,276

 
$
38,032

 
$
25,105

Interest expense
 
(4,364
)
 
(2,635
)
 
(10,082
)
 
(5,768
)
Change in fair value of consumer loans and warrants
 
5,676

 
12,475

 
24,750

 
16,030

Gain on sale of consumer loans
 
2,379

 
6,928

 
3,512

 
18,778

Other expenses
 
(1,604
)
 
(1,459
)
 
(6,201
)
 
(3,039
)
Net income
 
$
18,600

 
$
27,585

 
$
50,011

 
$
51,106

New Residential’s equity in net income
 
$
4,555

 
$
6,769

 
$
12,343

 
$
12,649

New Residential’s ownership
 
24.5
%
 
24.5
%
 
24.7
%
 
24.8
%

(A)
Data as of August 31, 2018 as a result of the one month reporting lag.
(B)
Data for the periods ended August 31, 2018 and 2017, respectively, as a result of the one month reporting lag.

The following is a summary of LoanCo’s consumer loan investments:
 
Unpaid Principal Balance
 
Interest in Consumer Loans
 
Carrying Value
 
Weighted Average Coupon
 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
September 30, 2018(C)
$
85,424

 
25.0
%
 
$
85,424

 
14.4
%
 
1.2
 
2.3
%

(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)
Data as of August 31, 2018 as a result of the one month reporting lag.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
Balance at December 31, 2017
$
51,412

Contributions to equity method investees
292,616

Distributions of earnings from equity method investees
(6,176
)
Distributions of capital from equity method investees
(305,408
)
Earnings from investments in consumer loans, equity method investees
12,343

Balance at September 30, 2018
$
44,787