Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS - Schedule of Securities Valuation Methodology and Results (Details)

v3.5.0.2
FAIR VALUE OF FINANCIAL INSTRUMENTS - Schedule of Securities Valuation Methodology and Results (Details)
$ in Thousands
9 Months Ended
Sep. 30, 2016
USD ($)
source
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Outstanding Face Amount $ 8,027,852
Amortized Cost Basis 4,884,599
Total Fair Value $ 4,991,242
Number of broker quotation sources | source 2
Percent of securities 67.58197%
Multiple Quotes [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value $ 4,496,719 [1]
Single Quote [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value 494,523 [2]
Single Quote [Member] | Seller [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value 462,700
Agency RMBS [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Outstanding Face Amount 1,356,580 [3],[4]
Amortized Cost Basis 1,437,777 [3],[4]
Agency RMBS [Member] | Level 2 [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value 1,434,308
Agency RMBS [Member] | Level 2 [Member] | Multiple Quotes [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value 1,434,308 [1]
Agency RMBS [Member] | Level 2 [Member] | Single Quote [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value 0 [2]
Non-Agency RMBS [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Outstanding Face Amount 6,671,272 [5],[6],[7]
Amortized Cost Basis 3,446,822 [5],[6],[7]
Fair Value $ 2,403,846
Non-Agency RMBS [Member] | Minimum [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Discount Rate 1.57%
Prepayment Rate 0.00% [8]
Delinquency 0.01% [9]
Loss Severity 5.00% [10]
Non-Agency RMBS [Member] | Maximum [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Discount Rate 32.75%
Prepayment Rate 20.00% [8]
Delinquency 12.00% [9]
Loss Severity 100.00% [10]
Non-Agency RMBS [Member] | Level 3 [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value $ 3,556,934 [5]
Non-Agency RMBS [Member] | Level 3 [Member] | Multiple Quotes [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value 3,062,411 [1],[5]
Non-Agency RMBS [Member] | Level 3 [Member] | Single Quote [Member]  
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]  
Total Fair Value $ 494,523 [2],[5]
[1] New Residential generally obtains pricing service quotations or broker quotations from two sources, one of which is 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 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 67.6% of our 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 $2,403,846 1.57% to 32.75% 0% to 20% 0.1% to 12.0% 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.
[2] New Residential was unable to obtain quotations from more than one source on these securities. For approximately $462.7 million, the one source was the party that sold New Residential the security.
[3] Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.
[4] 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.
[5] Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.
[6] 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 AverageAsset Type Outstanding Face Amount Amortized Cost Basis Gains Losses Carrying Value Number of Securities Rating Coupon Yield Life (Years) Principal SubordinationOther ABS $1,975,404 $110,267 $6,048 $(4,927) $111,388 25 AA+ 1.91% 5.57% 2.9 N/AServicer Advance Bonds $249,000 $248,696 $2,025 $— $250,721 3 AAA 2.81% 2.21% 0.1 N/A
[7] 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.
[8] Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
[9] Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
[10] 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.