Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENT (Tables)

v3.10.0.1
FAIR VALUE MEASUREMENT (Tables)
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Schedule of Carrying Values and Fair Values of Financial Assets Recorded at Fair Value on a Recurring Basis
The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of September 30, 2018 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)
$
112,054,333

 
$
467,061

 
$

 
$

 
$
467,061

 
$
467,061

Excess mortgage servicing rights, equity method investees, at fair value(A)
44,239,405

 
154,939

 

 

 
154,939

 
154,939

Mortgage servicing rights, at fair value(A)
246,949,863

 
2,872,004

 

 

 
2,872,004

 
2,872,004

Mortgage servicing rights financing receivables, at fair value
135,529,647

 
1,681,072

 



 
1,681,072

 
1,681,072

Servicer advance investments, at fair
    value
637,102

 
799,936

 

 

 
799,936

 
799,936

Real estate and other securities, available-for-sale
20,633,278

 
11,650,257

 

 
2,673,863

 
8,976,394

 
11,650,257

Residential mortgage loans, held-for-investment
629,017

 
652,717

 

 

 
652,529

 
652,529

Residential mortgage loans, held-for-sale
2,091,784

 
1,996,303

 

 

 
2,037,078

 
2,037,078

Residential mortgage loans, held-for-sale, at fair value
514,516

 
524,863

 

 
468,824

 
56,038

 
524,862

Residential mortgage loans, held-for-investment, at fair value
124,079

 
123,606

 

 

 
123,606

 
123,606

Residential mortgage loans subject to repurchase
110,181

 
110,181

 

 
110,181

 

 
110,181

Consumer loans, held-for-investment
1,142,058

 
1,140,769

 

 

 
1,128,410

 
1,128,410

Derivative assets
10,437,456

 
27,212

 

 
18,854

 
8,357

 
27,211

Cash and cash equivalents
330,148

 
330,148

 
330,148

 

 

 
330,148

Restricted cash
155,749

 
155,749

 
155,749

 

 

 
155,749

Other assets
 
 
33,642

 
23,876

 

 
9,766

 
33,642

 
 
 
$
22,720,459

 
$
509,773

 
$
3,271,722

 
$
18,967,190

 
$
22,748,685

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements
$
14,388,223

 
$
14,387,020

 
$

 
$
14,388,223

 
$

 
$
14,388,223

Notes and bonds payable(B)
7,275,039

 
7,254,946

 

 

 
7,240,544

 
7,240,544

Residential mortgage loans repurchase liability
110,181

 
110,181

 

 
110,181

 

 
110,181

Derivative liabilities
4,242,000

 
2,294

 

 
2,294

 

 
2,294

Excess spread financing
3,608,770

 
44,374

 

 

 
44,374

 
44,374

Contingent consideration
N/A

 
42,770

 

 

 
42,770

 
42,770

 
 
 
$
21,841,585

 
$

 
$
14,500,698

 
$
7,327,688

 
$
21,828,386

 
(A)
The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR financing receivables and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.
(B)
Includes the SAFT 2013-1 mortgage-backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $117.5 million as of September 30, 2018.

Schedule of Financial Assets Measured at Fair Value on a Recurring Basis using Level 3 Inputs
New Residential’s assets measured at fair value on a recurring basis using Level 3 inputs changed as follows:
 
Level 3
 
 
 
Excess MSRs(A)
 
Excess MSRs in Equity Method Investees(A)(B)
 
MSRs(A)
 
Mortgage Servicing Rights Financing Receivable(A)
 
Servicer Advance Investments
 
Non-Agency RMBS
 
Derivatives
 
Residential Mortgage Loans
 
 
 
Agency
 
Non-Agency
 
 
 
 
 
Total
Balance at December 31, 2017
$
324,636

 
$
849,077

 
$
171,765

 
$
1,735,504

 
$
598,728

 
$
4,027,379

 
$
5,974,789

 
$

 
$

 
$
13,681,878

Transfers(C)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transfers from Level 3

 

 

 

 

 

 

 

 

 

Transfers to Level 3

 

 

 

 

 

 

 

 

 

Shellpoint Acquisition (Note 1)

 

 

 
286,600

 
(135,288
)
 

 

 
10,604

 
156,823

 
318,739

Gains (losses) included in net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in other-than-temporary impairment on securities(D)

 

 

 

 

 

 
(18,113
)
 

 

 
(18,113
)
Included in change in fair value of investments in excess mortgage servicing rights(D)
(14,738
)
 
(40,973
)
 

 

 

 

 

 

 

 
(55,711
)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(D)

 

 
5,624

 

 

 

 

 

 

 
5,624

Included in servicing revenue, net(E)

 

 

 
31,252

 

 

 

 

 

 
31,252

Included in change in fair value of investments in mortgage servicing rights financing receivables(D)

 

 

 

 
63,628

 

 

 

 

 
63,628

Included in change in fair value of servicer advance investments

 

 

 

 

 
(86,581
)
 

 

 

 
(86,581
)
Included in gain (loss) on settlement of investments, net

 
40,417

 

 

 

 
72,585

 
(994
)
 

 

 
112,008

Included in other income (loss), net(D)
4,401

 
200

 

 

 

 

 
12,001

 
(2,247
)
 
(692
)
 
13,663

Gains (losses) included in other comprehensive income(F)

 

 

 

 

 

 
97,538

 

 

 
97,538

Interest income
16,954

 
15,417

 

 

 

 
43,122

 
239,036

 

 

 
314,529

Purchases, sales and repayments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases

 

 

 
801,366

 
138,993

 
1,817,581

 
3,475,138

 

 
36,520

 
6,269,598

Proceeds from sales
(12,380
)
 

 

 

 
(2,982
)
 


 
(81,325
)
 

 
(19,900
)
 
(116,587
)
Proceeds from repayments
(45,020
)
 
(32,363
)
 
(22,450
)
 

 

 
(1,871,312
)
 
(721,676
)
 

 
(3,236
)
 
(2,696,057
)
Other

 

 

 
17,282

 

 

 

 

 

 
17,282

New Ocwen Agreements (Note 5)

 
(638,567
)
 

 

 
1,017,993

 
(3,202,838
)
 

 

 

 
(2,823,412
)
Balance at September 30, 2018
$
273,853

 
$
193,208

 
$
154,939

 
$
2,872,004

 
$
1,681,072

 
$
799,936

 
$
8,976,394

 
$
8,357

 
$
169,515

 
$
15,129,278

 
Schedule of Financial Liabilities Measured at Fair Value on a Recurring Basis using Level 3 Inputs
New Residential’s liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
 
 
Level 3
 
 
 
 
Excess Spread Financing
 
Mortgage-Backed Securities Issued
 
Contingent Consideration
 
 
 
 
 
Total
Balance at December 31, 2017
 
$

 
$

 
$

 
$

Transfers(A)
 
 
 
 
 
 
 
 
Transfers from Level 3
 

 

 

 

Transfers to Level 3
 

 

 

 

Shellpoint Acquisition (Note 1)
 
48,262

 
120,702

 
42,770

 
211,734

Gains (losses) included in net income
 
 
 
 
 
 
 
 
Included in other-than-temporary impairment on securities(B)
 

 

 

 

Included in change in fair value of investments in excess mortgage servicing rights
 

 

 

 

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

 

 

 

Included in servicing revenue, net(C)
 
(3,888
)
 

 

 
(3,888
)
Included in change in fair value of investments in notes receivable - rights to MSRs
 

 

 

 

Included in change in fair value of servicer advance investments
 

 

 

 

Included in gain (loss) on settlement of investments, net
 

 

 

 

Included in other income(B)
 

 
(900
)
 

 
(900
)
Gains (losses) included in other comprehensive income, net of tax(D)
 

 

 

 

Interest income
 

 

 

 

Purchases, sales and repayments
 
 
 
 
 
 
 
 
Purchases
 

 

 

 

Proceeds from sales
 

 

 

 

Proceeds from repayments
 

 
(2,332
)
 

 
(2,332
)
Other
 

 

 

 

Ocwen Transaction
 

 

 

 

Balance at September 30, 2018
 
$
44,374

 
$
117,470

 
$
42,770

 
$
204,614


(A)
Transfers are assumed to occur at the beginning of the respective period.
(B)
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 and realized gains (losses) recorded during the period.
(C)
The components of Servicing revenue, net are disclosed in Note 5.
(D)
These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.

Summary of Measurement Inputs and Valuation Techniques
The following table summarizes certain information regarding the inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
CDR
 
Loss Severity
Residential Mortgage Loans Held-for-Investment, at Fair Value
 
$
123,606

 
4.00%
 
10.0%
 
0.2%
 
20.0%
The following table summarizes certain information regarding the inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
CDR
 
Loss Severity
Residential Mortgage Loans Held-for-Sale, at Fair Value
 
$
524,862

 
3.75% to 4.00%
 
10.00% to 15.00%
 
0.00% to 4.0%
 
0.0% to 50.0%
The following table summarizes certain information regards the inputs used in valuing Mortgage-Backed Securities Issued:
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate
 
CDR
 
Loss Severity
Mortgage-Backed Securities Issued
 
$
117,470

 
3.50% to 5.25%
 
9.0% to 12.0%
 
0% to 0.25%
 
10.0%
The following table summarizes certain information regarding the weighted average inputs used as of September 30, 2018:
 
 
Significant Inputs(A)
 
 
Prepayment
Rate(B)
 
Delinquency(C)
 
Recapture
Rate(D)
 
Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)
 
Collateral Weighted Average Maturity (Years)(F)
Excess MSRs Directly Held (Note 4)
 
 
 
 
 
 
 
 
 
 
Agency

 
 
 
 
 
 
 
 
 
Original Pools

9.7
%
 
2.6
%
 
26.1
%
 
21

 
22
Recaptured Pools
 
7.4
%
 
2.2
%
 
23.8
%
 
22

 
24
Recapture Agreement

7.2
%
 
2.2
%
 
24.6
%
 
22

 


8.8
%
 
2.5
%
 
25.4
%
 
21

 
23
Non-Agency(G)

 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
Original Pools

10.6
%
 
N/A

 
15.4
%
 
15

 
24
Recaptured Pools
 
9.1
%
 
N/A

 
20.2
%
 
23

 
24
Recapture Agreement

9.1
%
 
N/A

 
20.1
%
 
20

 


10.3
%
 
N/A

 
16.3
%
 
16

 
24
Total/Weighted Average--Excess MSRs Directly Held

9.4
%
 
2.5
%
 
21.6
%
 
19

 
23


 
 
 
 
 
 
 
 
 
Excess MSRs Held through Equity Method Investees (Note 4)

 
 
 
 
 
 
 
 
 
Agency

 
 
 
 
 
 
 
 
 
Original Pools

10.8
%
 
4.0
%
 
28.8
%
 
19

 
21
Recaptured Pools
 
7.7
%
 
2.6
%
 
29.2
%
 
23

 
23
Recapture Agreement

7.8
%
 
2.7
%
 
30.5
%
 
23

 
Total/Weighted Average--Excess MSRs Held through Investees

9.2
%
 
3.3
%
 
29.2
%
 
21

 
22
 
 
 
 
 
 
 
 
 
 
 
Total/Weighted Average--Excess MSRs All Pools
 
9.3
%
 
2.8
%
 
24.5
%
 
20

 
23
 
 
 
 
 
 
 
 
 
 
 
MSRs
 
 
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
Mortgage Servicing Rights(H) (I)
 
8.9
%
 
1.2
%
 
22.9
%
 
26

 
22
Mortgage Servicing Rights Financing Receivables
 
9.2
%
 
1.1
%
 
14.3
%
 
27

 
20
Non-Agency
 
 
 
 
 
 
 
 
 
 
Mortgage Servicing Rights
 
14.0
%
 
0.9
%
 
10.0
%
 
26

 
26
Mortgage Servicing Rights Financing Receivables
 
8.4
%
 
15.1
%
 
5.0
%
 
45

 
26
Ginnie Mae
 
 
 
 
 
 
 
 
 
 
Mortgage Servicing Rights(I)
 
10.4
%
 
3.6
%
 
23.6
%
 
34

 
27

(A)
Weighted by fair value of the portfolio.
(B)
Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(C)
Projected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.
(D)
Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.
(E)
Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in basis points (bps). A weighted average cost of subservicing of $7.40 per loan per month was used to value the agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $11.52 per loan per month was used to value the non-agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $10.02 per loan per month was used to value the Ginnie Mae MSRs.
(F)
Weighted average maturity of the underlying residential mortgage loans in the pool.
(G)
For certain pools, the Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO). For these pools, no delinquency assumption is used.
(H)
For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.
(I)
Includes valuation of the related Excess spread financing (Note 5).

The following table summarizes certain information regarding the inputs used in valuing IRLCs:
 
 
Fair Value
 
Loan Funding Probability
 
Fair Value of initial servicing rights (bps)
IRLCs
 
$
8,357

 
46.00% to 100%
 
0 to 326
The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate(a)
 
CDR(b)
 
Loss Severity(c)
Non-Agency RMBS
 
$
5,550,819

 
2.66% to 30.00%
 
0.25% to 21.4%
 
0.25% to 9.00%
 
5.0% to 100%

(a)
Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)
Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.
Summary of Certain Information Regarding the Inputs used in Valuing the Servicer Advances
The following table summarizes certain information regarding the inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:
 
Significant Inputs
 
Weighted Average
 
 
 
 
Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Prepayment Rate(A)
 
Delinquency
 
Mortgage Servicing Amount(B)
 
Discount Rate
 
Collateral Weighted Average Maturity (Years)(C)
September 30, 2018
1.5
%
 
11.1
%
 
18.2
%
 
19.6

bps
5.9
%
 
23.2


(A)
Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)
Mortgage servicing amount is net of 9.3 bps which represents the amount New Residential paid its servicers as a monthly servicing fee.
(C)
Weighted average maturity of the underlying residential mortgage loans in the pool.
Schedule of Securities Valuation Methodology and Results
As of September 30, 2018, 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 RMBS
 
$
2,653,034

 
$
2,678,375

 
$
2,673,863

 
$

 
$
2,673,863

 
2

Non-Agency RMBS(C)
 
17,980,244

 
8,491,714

 
8,957,869

 
18,525

 
8,976,394

 
3

Total
 
$
20,633,278

 
$
11,170,089

 
$
11,631,732

 
$
18,525

 
$
11,650,257

 
 
 
(A)
New Residential 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. New Residential evaluates quotes received and determines one as being most representative of fair value, and does 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 it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for non-agency RMBS, there is a wide disparity between the quotes New Residential receives. New Residential 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, it selects one of the quotes which is believed to more accurately reflect fair value. New Residential has not adjusted any of the quotes received in the periods presented. 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. New Residential’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.

The third-party pricing services and brokers engaged by New Residential (collectively, “valuation providers”) use either the income approach or the market approach, or a combination of the two, in arriving at their estimated valuations of RMBS. Valuation providers using the market approach generally look at prices and other relevant information generated by market transactions involving identical or comparable assets. Valuation providers using the income approach create pricing models that generally incorporate such assumptions as discount rates, expected prepayment rates, expected default rates and expected loss severities. New Residential has reviewed the methodologies utilized by its valuation providers and has found them to be consistent with GAAP requirements. In addition to obtaining multiple quotations, when available, and reviewing the valuation methodologies of its valuation providers, New Residential creates its own internal pricing models for Level 3 securities and uses the outputs of these models as part of its process of evaluating the fair value estimates it receives from its valuation providers. These models incorporate the same types of assumptions as the models used by the valuation providers, but the assumptions are developed independently. These assumptions are regularly refined and updated at least quarterly by New Residential, and reviewed by its valuation group, which is separate from its investment acquisition and management group, to reflect market developments and actual performance.

For 61.8% of New Residential’s Non-Agency RMBS, the ranges of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
 
 
Fair Value
 
Discount Rate
 
Prepayment Rate(a)
 
CDR(b)
 
Loss Severity(c)
Non-Agency RMBS
 
$
5,550,819

 
2.66% to 30.00%
 
0.25% to 21.4%
 
0.25% to 9.00%
 
5.0% to 100%

(a)
Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)
Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.
(B)
New Residential was unable to obtain quotations from more than one source on these securities. For approximately $7.3 million, the one source was the party that sold New Residential the security.
(C)
Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.
Schedule of Inputs Used in Valuing Residential Mortgage Loans
The following table summarizes the inputs used in valuing these residential mortgage loans as of September 30, 2018:
 
 
Fair Value and Carrying Value
 
Discount Rate
 
Weighted Average Life (Years)(A)
 
Prepayment Rate
 
CDR(B)
 
Loss Severity(C)
Performing Loans
 
$
186,157

 
4.7
%
 
3.9
 
7.7
%
 
4.3
%
 
32.8
%
Non-Performing Loans
 
40,985

 
5.3
%
 
2.4
 
2.1
%
 
2.8
%
 
30.0
%
Total/Weighted Average
 
$
227,142

 
4.8
%
 
3.6
 
6.7
%
 
4.0
%
 
32.3
%

(A)
The weighted average life is based on the expected timing of the receipt of cash flows.
(B)
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)
Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.