Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

v3.5.0.2
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS
9 Months Ended
Sep. 30, 2016
Receivables [Abstract]  
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS
INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

Loans are accounted for based on New Residential’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. New Residential accounts for loans based on the following categories:

Loans Held-for-Investment:
Reverse Mortgage Loans
Performing Loans
Purchased Credit Deteriorated (“PCD”) Loans
Loans Held-for-Sale (“HFS”)
Real Estate Owned (“REO”)

The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type, excluding REO:


September 30, 2016
 
December 31, 2015


Outstanding Face Amount

Carrying
Value

Loan
Count

Weighted Average Yield

Weighted Average Life (Years)(A)

Floating Rate Loans as a % of Face Amount

Loan to Value Ratio (“LTV”)(B)

Weighted Avg. Delinquency(C)

Weighted Average FICO(D)
 
Carrying Value
Loan Type


















 

Reverse Mortgage Loans(E)(F)

$


$




%


%

%

%

N/A

 
$
19,560

Performing Loans(G) (H)







%


%

%

%


 
19,964

Purchased Credit Deteriorated Loans
 

 

 

 
%
 
 
%
 
%
 
%
 

 
290,654

Total Residential Mortgage Loans, held-for-investment

$

 
$

 


%


%

%

%


 
$
330,178

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reverse Mortgage Loans(E)(F)
 
$
23,878

 
$
11,836

 
77

 
7.3
%
 
4.5
 
15.7
%
 
134.2
%
 
71.8
%
 
N/A

 
$

Performing Loans(G) (H) (J)
 
103,234

 
107,167

 
1,750

 
4.1
%
 
4.2
 
4.6
%
 
75.2
%
 
10.4
%
 
610

 
277,084

Non-performing Loans(I) (J)
 
800,411

 
586,478

 
4,280

 
7.1
%
 
2.8
 
17.8
%
 
102.8
%
 
79.8
%
 
579

 
499,597

Total Residential Mortgage Loans, held-for-sale
 
$
927,523

 
$
705,481

 
6,107

 
6.7
%
 
3.0
 
16.2
%
 
100.6
%
 
71.9
%
 
583

 
$
776,681


(A)
The weighted average life is based on the expected timing of the receipt of cash flows.
(B)
LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.
(C)
Represents the percentage of the total principal balance that are 60+ days delinquent.
(D)
The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.
(E)
Represents a 70% participation interest that New Residential holds in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB is $0.4 million. Approximately 66% of these loans have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.
(F)
FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.
(G)
Includes loans that are current or less than 30 days past due at acquisition where New Residential expects to collect all contractually required principal and interest payments. Presented net of unamortized premiums of $4.8 million.
(H)
Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.
(I)
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. As of September 30, 2016, New Residential has placed all of these loans on nonaccrual status, except as described in (J) below.
(J)
Includes $56.5 million and $99.2 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status because contractual cash flows are guaranteed by the FHA.

New Residential generally considers the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as its credit quality indicators. Delinquency status is a primary credit quality indicator as loans that are more than 60 days past due provide an early warning of borrowers who may be experiencing financial difficulties. Current LTV ratio is an indicator of the potential loss severity in the event of default. Finally, the geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events will affect credit quality.

The table below summarizes the geographic distribution of the residential mortgage loans:
 
 
Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration
 
September 30, 2016
 
December 31, 2015
New York
 
17.0
%
 
14.5
%
New Jersey
 
10.4
%
 
13.1
%
Florida
 
9.9
%
 
10.7
%
California
 
8.5
%
 
12.3
%
Texas
 
6.7
%
 
3.3
%
Illinois
 
3.9
%
 
4.3
%
Maryland
 
4.1
%
 
3.5
%
Massachusetts
 
3.7
%
 
3.3
%
Pennsylvania
 
3.1
%
 
2.8
%
Washington
 
3.0
%
 
3.2
%
Other U.S.
 
29.7
%
 
29.0
%
 
 
100.0
%
 
100.0
%


New Residential has exercised its call rights with respect to the following Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO assets contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. The following table summarizes these transactions which occurred in 2016 (dollars in millions).
 
 
 
 
Securities Owned Prior
 
Assets Acquired
 
Loans Sold (C)
 
Retained Bonds
 
Retained Assets (C)
Date of Call (A)
 
Number of Trusts Called
 
Face Amount
 
Amortized Cost Basis
 
Loan UPB
 
Loan Price (B)
 
REO & Other Price (B)
 
UPB
 
Gain (Loss)
 
Basis
 
Type
 
Loan UPB
 
Loan Price
 
REO & Other Price
December 23, 2015
 
14

 
$
61.4

 
$
48.0

 
$
309.1

 
$
315.1

 
$
3.1

 
$
261.3

 
$
2.2

 
$
36.6

 
Various
 
$
35.8

 
$
26.6

 
$
2.9

March 25, 2016
 
13

 
58.4

 
41.0

 
167.2

 
173.3

 
3.1

 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)
 
65.0

 
61.8

 
3.4

May 25, 2016
 
12

 
60.0

 
44.0

 
290.6

 
298.7

 
0.6

 
306.9

 
(3.5
)
 
40.0

 
Various
 
85.9

 
78.2

 
1.1

August 25, 2016
 
11

 
6.2

 
1.4

 
312.3

 
319.2

 
1.7

 
308.0

 
8.1

 
45.7

 
Various
 
45.6

 
41.1

 
2.3


(A)
Any related securitization may occur on the same or a subsequent date, depending on market conditions and other factors. Except as otherwise noted in (C) below, there was one securitization associated with each call.
(B)
Price includes par amount paid for all underlying mortgage loans of the trusts, plus the basis of the exercised call rights, plus advances and costs incurred (including MSR Fund Payments, as defined in Note 15) in exercising such call rights.
(C)
Loans were sold through a securitization which was treated as a sale for accounting purposes. Retained assets are reflected as of the date of the relevant securitization. The securitization that occurred in March 2016 primarily included loans from the December 23, 2015 call, but also included previously acquired loans. The retained assets disclosed for the December 23, 2015 call are net of the related loans sold in the March 2016 securitization. The securitization that occurred in May 2016 primarily included loans from the March 25, 2016 and May 25, 2016 calls. The retained assets disclosed for the March 25, 2016 call are net of the related loans sold in the May 2016 securitization. The securitization that occurred in September 2016 primarily included loans from the August 25, 2016 call, but also included $42.2 million of previously acquired loans.

Loans Held-for-Investment (Non-PCD)

Activities related to the carrying value of residential mortgage loans held-for-investment were as follows:
 
Reverse Mortgage Loans
 
Performing Loans
Balance at December 31, 2015
$
19,560

 
$
19,964

Purchases/additional fundings
319

 

Proceeds from repayments
(1,352
)
 
(811
)
Accretion of loan discount (premium) and other amortization(A)
2,002

 
123

Provision for loan losses
(73
)
 
(4
)
Transfer of loans to other assets(B)
(4,203
)
 

Sales
(1,795
)
 

Transfer of loans to held-for-sale(C)
(14,458
)
 
(19,272
)
Balance at September 30, 2016
$

 
$



(A)
Includes accelerated accretion of discount on loans paid in full and on loans transferred to other assets.
(B)
Represents loans for which foreclosure has been completed during the nine months ended September 30, 2016 and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are now recognized as claims receivable in Other Assets (Note 2).
(C)
Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.

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:
 
Reverse Mortgage Loans
 
Performing Loans
Balance at December 31, 2015
$
1,553

 
$
119

Provision for loan losses(A)
73

 
4

Charge-offs(B)

 

Sales
(171
)
 

Transfer of loans to held-for-sale(C)
(1,455
)
 
(123
)
Balance at September 30, 2016
$

 
$


(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.
(C)
Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.

Purchased Credit Deteriorated Loans

New Residential determined at acquisition that the PCD loans acquired would be aggregated into pools based on common risk characteristics (FICO score, delinquency status, collateral type, loan-to-value ratio). Loans aggregated into pools are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows, including consideration of involuntary prepayments.

Activities related to the carrying value of PCD loans held-for-investment were as follows:
Balance at December 31, 2015
$
290,654

Purchases/additional fundings

Sales

Proceeds from repayments
(8,897
)
Accretion of loan discount and other amortization
8,295

Transfer of loans to real estate owned
(7,583
)
Transfer of loans to held-for-sale
(282,469
)
Balance at September 30, 2016
$



New Residential did not acquire any PCD loans during the nine months ended September 30, 2016.

The following is the unpaid principal balance and carrying value for 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, 2016
$

 
$

December 31, 2015
$
450,229

 
$
290,654



The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2015
$
71,063

Additions

Accretion
(8,876
)
Reclassifications from non-accretable difference(A)
29,569

Disposals(B)
(2,680
)
Transfer of loans to held-for-sale(C)
(89,076
)
Balance at September 30, 2016
$


(A)
Represents a probable and significant increase in cash flows previously expected to be uncollectible.
(B)
Includes sales of loans or foreclosures, which result in removal of the loan from the PCD loan pool at its carrying amount.
(C)
Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.

Loans Held-for-Sale

Activities related to the carrying value of loans held-for-sale were as follows:
 
 
For the  
 Nine Months Ended 
 September 30, 2016
 
 
Loans Held-for-Sale
Balance at December 31, 2015
 
$
776,681

Purchases(A)
 
788,824

Transfer of loans from held-for-investment(B)
 
316,199

Sales
 
(915,361
)
Transfer of loans to other assets(C)
 
(148,243
)
Transfer of loans to real estate owned
 
(39,558
)
Proceeds from repayments
 
(75,329
)
Valuation (provision) reversal on loans(D)
 
2,268

Balance at September 30, 2016
 
$
705,481


(A)
Represents loans acquired with the intent to sell.
(B)
Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.
(C)
Represents loans for which foreclosure has been completed during the nine months ended September 30, 2016 and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are now recognized as claims receivable in Other Assets (Note 2).
(D)
Represents the fair value adjustments to loans upon transfer to held-for-sale and provision recorded on certain purchased held-for-sale loans, including $2.6 million and $3.6 million of provision related to the call transactions executed on March 25, 2016 and May 25, 2016, respectively.

Real estate owned (REO)

New Residential recognizes REO assets at the completion of the foreclosure process or upon execution of a deed in lieu of foreclosure with the borrower. REO assets are managed for prompt sale and disposition at the best possible economic value.
 
 
Real Estate Owned
Balance at December 31, 2015
 
$
50,574

Purchases
 
8,123

Transfer of loans to real estate owned
 
62,057

Sales
 
(46,748
)
Valuation provision on REO
 
(13,547
)
Balance at September 30, 2016
 
$
60,459



As of September 30, 2016, New Residential had non-performing residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $368.2 million.

In addition, New Residential has recognized $63.2 million in unpaid claims receivable from FHA on Ginnie Mae early buy-out (“EBO”) loans and reverse mortgage loans for which foreclosure has been completed during the nine months ended September 30, 2016 and for which New Residential has made, or intends to make, a claim.