Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.19.1
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
3 Months Ended
Mar. 31, 2019
Transfers and Servicing [Abstract]  
Schedule of Activity Related to the Carrying Value of Investments in Excess MSRs 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”).

The following table presents activity related to the carrying value of New Residential’s investments in mortgage servicing rights financing receivables:
Balance as of December 31, 2018
 
$
1,644,504

Purchases
 
116,660

Proceeds from sales
 
(6,913
)
Amortization of servicing rights(A)
 
(42,876
)
Change in valuation inputs and assumptions(B)
 
6,938

(Gain)/loss on sales(C)
 
(441
)
Balance as of March 31, 2019
 
$
1,717,872


(A)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(B)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
(C)
Represents the realization of unrealized gain/(loss) as a result of sales.

The following is a summary of New Residential’s investments in mortgage servicing rights financing receivables as of March 31, 2019:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency
$
50,209,316

 
5.8
 
$
469,479

 
$
509,497

Non-Agency
85,103,729

 
6.8
 
901,130

 
1,208,375

Total
$
135,313,045

 
6.4
 
$
1,370,609

 
$
1,717,872


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of March 31, 2019, a weighted average discount rate of 9.7% was used to value New Residential’s investments in mortgage servicing rights financing receivables.

The following table presents activity related to the carrying value of New Residential’s investments in MSRs:
Balance as of December 31, 2018
 
$
2,884,100

Purchases
 
155,747

Transfer Out(A)
 
(258
)
Originations(B)
 
36,429

Proceeds from sales
 

Amortization of servicing rights(C)
 
(73,946
)
Change in valuation inputs and assumptions(D)
 
15,381

Balance as of March 31, 2019
 
$
3,017,453


(A)
Represents Ginnie Mae MSRs repurchased.
(B)
Represents MSRs retained on the sale of originated mortgage loans.
(C)
Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(D)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
The following is a summary of New Residential’s investments in MSRs as of March 31, 2019:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Amortized Cost Basis
 
Carrying Value(B)
Agency(C)
$
232,585,093

 
6.4
 
$
2,306,585

 
$
2,661,626

Non-Agency
2,312,087

 
6.3
 
17,523

 
22,254

Ginnie Mae
29,307,649

 
6.9
 
360,558

 
333,573

Total
$
264,204,829

 
6.5
 
$
2,684,666

 
$
3,017,453


(A)
Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Carrying Value represents fair value. As of March 31, 2019, a weighted average discount rate of 8.1% was used to value New Residential’s investments in MSRs.
(C)
Represents Fannie Mae and Freddie Mac MSRs.
Summary of Direct Investments in 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
)
Summary of the Financial Results of Excess MSR Joint Ventures, Accounted for as Equity Method Investees 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 tables summarize the investment in LoanCo and WarrantCo held by New Residential:
 
 
March 31, 2019(A)
 
December 31, 2018(A)
Consumer loans, at fair value
 
$
259,618

 
$
231,560

Warrants, at fair value
 
118,127

 
103,067

Other assets
 
28,525

 
25,971

Warehouse financing
 
(205,552
)
 
(182,065
)
Other liabilities
 
(1,056
)
 
(1,142
)
Equity
 
$
199,662

 
$
177,391

Undistributed retained earnings
 
$

 
$

New Residential’s investment
 
$
48,228

 
$
42,875

New Residential’s ownership
 
24.2
%
 
24.2
%


 
 
Three Months Ended  
 March 31,
 
 
2019(B)
 
2018(B)
Interest income
 
$
7,977

 
$
12,792

Interest expense
 
(2,822
)
 
(3,368
)
Change in fair value of consumer loans and warrants
 
14,536

 
13,552

Gain on sale of consumer loans
 
(446
)
 
(420
)
Other expenses
 
(1,456
)
 
(3,207
)
Net income
 
$
17,789

 
$
19,349

New Residential’s equity in net income
 
$
4,311

 
$
4,806

New Residential’s ownership
 
24.2
%
 
24.8
%

(A)
Data as of February 28, 2019 and November 30, 2018, respectively, as a result of the one month reporting lag.
(B)
Data for the periods ended February 28, 2019 and 2018, respectively, as a result of the one month reporting lag.

The following is a summary of LoanCo’s consumer loan investments:
 
Unpaid Principal Balance
 
Interest in Consumer Loans
 
Carrying Value
 
Weighted Average Coupon
 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
March 31, 2019(C)
$
259,618

 
25.0
%
 
$
259,618

 
14.0
%
 
1.3
 
1.4
%

(A)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)
Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)
Data as of February 28, 2019 as a result of the one month reporting lag.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
Balance at December 31, 2018
$
38,294

Contributions to equity method investees
23,442

Distributions of earnings from equity method investees
(552
)
Distributions of capital from equity method investees
(13,967
)
Earnings from investments in consumer loans, equity method investees
4,311

Balance at March 31, 2019
$
51,528

Summary of Excess MSR Investments made through Equity Method Investees 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.