Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN REAL ESTATE SECURITIES (Tables)

v3.5.0.2
INVESTMENTS IN REAL ESTATE SECURITIES (Tables)
9 Months Ended
Sep. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Summary of Real Estate Securities
Activities related to New Residential’s investments in real estate securities were as follows:
 
Nine Months Ended 
 September 30, 2016
 
(in millions)
 
Agency
 
Non Agency
Purchases
 
 
 
Face
$
5,070.3

 
$
4,079.9

Purchase Price
$
5,315.9

 
$
2,298.4

 
 
 
 
Sales
 
 
 
Face
$
4,530.6

 
$
129.8

Amortized Cost
$
4,721.8

 
$
121.7

Sale Price
$
4,757.8

 
$
100.8

Gain (Loss) on Sale
$
36.0

 
$
(20.9
)
The following is a summary of New Residential’s real estate securities, all of which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired and except for securities which New Residential elected to carry at fair value and record changes to valuation through the income statement.
 
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
 
 
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Gains
 
Losses
 
Carrying Value(A)
 
Number of Securities
 
Rating(B)
 
Coupon(C)
 
Yield
 
Life (Years)(D)
 
Principal Subordination(E)
 
Carrying Value
Agency
  RMBS(F) (G)
 
$
1,356,580

 
$
1,437,777

 
$
337

 
$
(3,806
)
 
$
1,434,308

 
76

 
AAA
 
3.42
%
 
2.79
%
 
5.6
 
N/A

 
$
917,598

Non-Agency
    RMBS(H) (I)
 
6,671,272

 
3,446,822

 
122,171

 
(12,059
)
 
3,556,934

 
471

 
CCC-
 
1.76
%
 
5.46
%
 
7.0
 
10.8
%
 
1,584,283

Total/
   Weighted
    Average
 
$
8,027,852

 
$
4,884,599

 
$
122,508

 
$
(15,865
)
 
$
4,991,242

 
547

 
CCC+
 
2.21
%
 
4.68
%
 
6.6
 
 
 
$
2,501,881

 
(A)
Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.
(B)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 187 bonds with a carrying value of $566.9 million which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies, and represent the most recent credit ratings available as of the reporting date and may not be current.
(C)
Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $243.5 million and $0.0 million, respectively, for which no coupon payment is expected.
(D)
The weighted average life is based on the timing of expected principal reduction on the assets.
(E)
Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding interest-only bonds and servicer advance bonds.
(F)
Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.
(G)
The total outstanding face amount was $1.2 billion for fixed rate securities and $151.9 million for floating rate securities as of September 30, 2016.
(H)
The total outstanding face amount was $1.1 billion (including $0.3 billion of residual and interest-only notional amount) for fixed rate securities and $5.6 billion (including $2.0 billion of residual and interest-only notional amount) for floating rate securities as of September 30, 2016.
(I)
Includes other ABS consisting primarily of (i) interest-only securities which New Residential elected to carry at fair value and record changes to valuation through the income statement and (ii) bonds backed by servicer advances.
    
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding Face Amount
 
Amortized Cost Basis
 
Gains
 
Losses
 
Carrying Value
 
Number of Securities
 
Rating
 
Coupon
 
Yield
 
Life (Years)
 
Principal Subordination
Other ABS
 
$
1,975,404

 
$
110,267

 
$
6,048

 
$
(4,927
)
 
$
111,388

 
25

 
AA+
 
1.91
%
 
5.57
%
 
2.9
 
N/A
Servicer Advance Bonds
 
$
249,000

 
$
248,696

 
$
2,025

 
$

 
$
250,721

 
3

 
AAA
 
2.81
%
 
2.21
%
 
0.1
 
N/A
Summary of Real Estate Securities in an Unrealized Loss Position
The following table summarizes New Residential’s securities in an unrealized loss position as of September 30, 2016.
 
 
 
 
Amortized Cost Basis
 
 
 
 
 
 
 
Weighted Average
Securities in an Unrealized Loss Position
 
Outstanding Face Amount
 
Before Impairment
 
Other-Than-
Temporary Impairment(A)
 
After Impairment
 
Gross Unrealized Losses
 
Carrying Value
 
Number of Securities
 
Rating(B)
 
Coupon
 
Yield
 
Life
(Years)
Less than 12 Months
 
$
2,905,125

 
$
1,723,246

 
$
(804
)
 
$
1,722,442

 
$
(11,824
)
 
$
1,710,618

 
204

 
B+
 
2.51
%
 
3.99
%
 
6.5
12 or More Months
 
291,088

 
229,368

 
(961
)
 
228,407

 
(4,041
)
 
224,366

 
36

 
B+
 
2.30
%
 
2.99
%
 
5.2
Total/Weighted Average
 
$
3,196,213

 
$
1,952,614

 
$
(1,765
)
 
$
1,950,849

 
$
(15,865
)
 
$
1,934,984

 
240

 
B+
 
2.48
%
 
3.87
%
 
6.4
 
(A)
This amount represents OTTI recorded on securities that are in an unrealized loss position as of September 30, 2016.
(B)
The weighted average rating of securities in an unrealized loss position for less than 12 months excludes the rating of 84 bonds which either have never been rated or for which rating information is no longer provided. The weighted average rating of securities in an unrealized loss position for 12 or more months excludes the rating of 6 bonds which either have never been rated or for which rating information is no longer provided.

New Residential performed an assessment of all of its debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI, exceeds its fair value) and determined the following:
 
September 30, 2016
 
 
 
 
 
Gross Unrealized Losses
 
Fair Value
 
Amortized Cost Basis After Impairment
 
Credit(A)
 
Non-Credit(B)
Securities New Residential intends to sell(C)
$

 
$

 
$

 
$

Securities New Residential is more likely than not to be required to sell(D)

 

 

 
N/A

Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
 
 
 
 
 
 
 
Credit impaired securities
365,403

 
367,904

 
(1,765
)
 
(2,501
)
Non-credit impaired securities
1,569,581

 
1,582,945

 

 
(13,364
)
Total debt securities in an unrealized loss position
$
1,934,984

 
$
1,950,849

 
$
(1,765
)
 
$
(15,865
)
  
(A)
This amount is required to be recorded as OTTI through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.
(B)
This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.
(C)
A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment and, therefore, do not have unrealized losses reflected in other comprehensive income as of September 30, 2016.
(D)
New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.
Summary of Activity Related to Credit Losses on Debt Securities
The following table summarizes the activity related to credit losses on debt securities:
 
Nine Months Ended September 30, 2016
Beginning balance of credit losses on debt securities for which a portion of an OTTI was
    recognized in other comprehensive income
$
6,240

Increases to credit losses on securities for which an OTTI was previously recognized and a portion
    of an OTTI was recognized in other comprehensive income
2,505

Additions for credit losses on securities for which an OTTI was not previously recognized
5,333

Reductions for securities for which the amount previously recognized in other comprehensive
    income was recognized in earnings because the entity intends to sell the security or more likely
    than not will be required to sell the security before recovery of its amortized cost basis

Reduction for credit losses on securities for which no OTTI was recognized in other
    comprehensive income at the current measurement date

Reduction for securities sold during the period
(997
)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized
    in other comprehensive income
$
13,081

Summary of the Geographic Distribution of the Collateral Securing Non-Agency RMBS
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
 
 
September 30, 2016
 
December 31, 2015
Geographic Location(A)
 
Outstanding Face Amount

Percentage of Total Outstanding
 
Outstanding Face Amount

Percentage of Total Outstanding
Western U.S.
 
$
2,329,116


36.3
%
 
$
1,097,609

 
35.3
%
Southeastern U.S.
 
1,496,049


23.2
%
 
758,167

 
24.4
%
Northeastern U.S.
 
1,318,153


20.5
%
 
583,366

 
18.8
%
Midwestern U.S.
 
716,411


11.2
%
 
335,406

 
10.8
%
Southwestern U.S.
 
500,795


7.8
%
 
309,236

 
10.0
%
Other(B)
 
61,748


1.0
%
 
19,189

 
0.7
%
 
 
$
6,422,272


100.0
%
 
$
3,102,973

 
100.0
%
  
(A)
Excludes $249.0 million face amount of bonds backed by servicer advances.
(B)
Represents collateral for which New Residential was unable to obtain geographic information.
Schedule of the Outstanding Face Amount and Carrying Value for Securities Uncollectible
The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and interest-only securities:
 
Outstanding Face Amount
 
Carrying Value
September 30, 2016
$
2,727,475

 
$
1,754,467

December 31, 2015
873,763

 
504,659

Summary of Changes in Accretable Yield for Securities
The following is a summary of the changes in accretable yield for these securities:
 
Nine Months Ended September 30, 2016
Balance at December 31, 2015
$
316,521

Additions
802,442

Accretion
(87,535
)
Reclassifications from (to) non-accretable difference
44,905

Disposals
(1,129
)
Balance at September 30, 2016
$
1,075,204