Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

v3.19.1
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
3 Months Ended
Mar. 31, 2019
Transfers and Servicing [Abstract]  
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
 
 
Servicer
 
 
Nationstar
 
SLS(A)
 
Total
Balance as of December 31, 2018
 
$
445,328

 
$
2,532

 
$
447,860

Purchases
 

 

 

Interest income
 
5,114

 
1

 
5,115

Other income
 
307

 

 
307

Proceeds from repayments
 
(21,638
)
 
(134
)
 
(21,772
)
Proceeds from sales
 

 

 

Change in fair value
 
4,641

 
(14
)
 
4,627

Balance as of March 31, 2019
 
$
433,752

 
$
2,385

 
$
436,137


(A)
Specialized Loan Servicing LLC (“SLS”).

Nationstar, SLS, or Ocwen, as applicable, as servicer, performs all of the servicing and advancing functions, and retains the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio.

New Residential has entered into a “recapture agreement” with respect to each of the Excess MSR investments serviced by Nationstar and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any initial or subsequent refinancing by Nationstar of a loan in the original portfolio. These recapture agreements do not apply to New Residential’s Servicer Advance Investments (Note 6).

New Residential elected to record its investments in Excess MSRs at fair value pursuant to the fair value option for financial instruments in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on the Excess MSRs.

The following is a summary of New Residential’s direct investments in Excess MSRs:
 
March 31, 2019
 
December 31, 2018
 
UPB of Underlying Mortgages
 
Interest in Excess MSR
 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value(C)
 
 
 
New Residential(D)
 
Fortress-managed funds
 
Nationstar
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
50,945,281

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.5
 
$
193,115

 
$
215,787

 
$
226,452

Recapture Agreements

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
12.2
 
14,520

 
32,651

 
30,935

 
50,945,281

 
 
 
 
 
 
 
6.0
 
207,635

 
248,438

 
257,387

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationstar and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
52,082,671

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
5.7
 
$
133,652

 
$
169,673

 
$
172,712

Recapture Agreements

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
12.7
 
3,690

 
18,026

 
17,761

 
52,082,671

 
 
 
 
 
 
 
5.9
 
137,342

 
187,699

 
190,473

Total
$
103,027,952

 
 
 
 
 
 
 
6.0
 
$
344,977

 
$
436,137

 
$
447,860

 
(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)
Carrying Value represents the fair value of the pools or recapture agreements, as applicable.
(D)
Amounts in parentheses represent weighted averages.
(E)
New Residential also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of March 31, 2019 (Note 6) on $38.1 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2019
 
2018
Original and Recaptured Pools

$
1,518

 
$
(43,122
)
Recapture Agreements

3,109

 
(2,569
)
 
 
$
4,627

 
$
(45,691
)


As of March 31, 2019, a weighted average discount rate of 8.3% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).

New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
 
 
March 31, 2019
 
December 31, 2018
Excess MSR assets
 
$
261,808

 
$
269,203

Other assets
 
25,279

 
27,411

Other liabilities
 
(687
)
 
(687
)
Equity
 
$
286,400

 
$
295,927

New Residential’s investment
 
$
143,200

 
$
147,964

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended  
 March 31,
 
 
2019
 
2018
Interest income
 
$
4,070

 
$
5,227

Other income (loss)
 
1,170

 
(4,181
)
Expenses
 
(16
)
 

Net income (loss)
 
$
5,224

 
$
1,046


New Residential’s investments in equity method investees changed during the three months ended March 31, 2019 as follows:
Balance at December 31, 2018
$
147,964

Contributions to equity method investees

Distributions of earnings from equity method investees
(2,807
)
Distributions of capital from equity method investees
(4,569
)
Change in fair value of investments in equity method investees
2,612

Balance at March 31, 2019
$
143,200



The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
March 31, 2019
 
Unpaid Principal Balance
 
Investee Interest in Excess MSR(A)
 
New Residential Interest in Investees
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Weighted Average Life (Years)(D)
Agency
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
40,610,966

 
66.7
%
 
50.0
%
 
$
170,999

 
$
221,306

 
5.3
Recapture Agreements

 
66.7
%
 
50.0
%
 
19,049

 
40,502

 
12.1
Total
$
40,610,966

 
 
 
 
 
$
190,048

 
$
261,808

 
6.0
 
(A)
The remaining interests are held by Nationstar.
(B)
Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)
Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools or recapture agreements, as applicable.
(D)
The weighted average life represents the weighted average expected timing of the receipt of cash flows of each investment.

See Note 11 regarding the financing of Excess MSRs.