Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)

v3.19.1
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTS FINANCING RECEIVABLES (Tables)
3 Months Ended
Mar. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Mortgage Servicing Rights Acquired During the three months ended March 31, 2019, New Residential, through its wholly owned subsidiaries, completed the following MSR acquisitions (in millions):
Date of Acquisition
 
Collateral Type(A)
 
UPB
(in billions)
 
Purchase Price
February 28, 2019
 
 Agency
 
$
9.5

 
$
116.7

March 29, 2019
 
 Agency
 
10.0

 
126.9

Various(B)
 
 Agency
 
2.4

 
32.6

Total
 
 
 
$
21.9

 
$
276.2


(A)
“Agency” represents Fannie Mae and Freddie Mac MSRs.
(B)
Represents Flow MSR acquisitions from Ditech and various counterparties for the three months ended March 31, 2019.
Fees Earned in Exchange for Servicing Financial Assets Interest income from investments in mortgage servicing rights financing receivables was comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2019
 
2018
Servicing fee revenue
 
$
126,244

 
$
201,952

Ancillary and other fees
 
31,324

 
30,235

Less: subservicing expense
 
(55,662
)
 
(65,706
)
Interest income, investments in mortgage servicing rights financing receivables
 
$
101,906

 
$
166,481


Change in fair value of investments in mortgage servicing rights financing receivables was comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2019
 
2018
Amortization of servicing rights
 
$
(42,876
)
 
$
(48,703
)
Change in valuation inputs and assumptions(A)
 
6,938

 
319,779

(Gain)/loss on sales(B)
 
(441
)
 

Change in fair value of investments in mortgage servicing rights financing receivables
 
$
(36,379
)
 
$
271,076



(A)
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.
(B)
Represents the realization of unrealized gain/(loss) as a result of sales.Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 
 
Three Months Ended  
 March 31,
 
 
2019
 
2018
Servicing fee revenue
 
$
183,026

 
$
119,223

Ancillary and other fees
 
39,737

 
23,347

Servicing fee revenue and fees
 
222,763

 
142,570

Amortization of servicing rights
 
(72,675
)
 
(55,127
)
Change in valuation inputs and assumptions(A) (B)
 
15,765

 
129,793

Servicing revenue, net
 
$
165,853

 
$
217,236



(A)
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.
(B)
Includes $0.4 million of fair value adjustment to Excess spread financing for the three months ended March 31, 2019.

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 the Geographic Distribution of the Underlying Residential Mortgage Loans of the Direct Investment in MSRs The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and mortgage servicing rights financing receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
March 31, 2019
 
December 31, 2018
California
 
21.7
%
 
21.7
%
New York
 
7.5
%
 
7.8
%
Florida
 
6.7
%
 
6.9
%
Texas
 
5.2
%
 
5.3
%
New Jersey
 
4.8
%
 
5.0
%
Illinois
 
3.7
%
 
3.7
%
Washington
 
3.5
%
 
2.3
%
Massachusetts
 
3.5
%
 
3.5
%
Maryland
 
3.3
%
 
3.4
%
Pennsylvania
 
3.0
%
 
3.1
%
Other U.S.
 
37.1
%
 
37.3
%
 
 
100.0
%
 
100.0
%
Summary of Investments in Servicer Advances The following types of advances are included in the Servicer Advances Receivable:
 
 
March 31, 2019
 
December 31, 2018
Principal and interest advances
 
$
763,283

 
$
793,790

Escrow advances (taxes and insurance advances)
 
2,010,890

 
2,186,831

Foreclosure advances
 
186,099

 
199,203

Total(A) (B) (C)
 
$
2,960,272

 
$
3,179,824


(A)
Includes $250.6 million and $231.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Includes $42.1 million and $41.6 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from Ginnie Mae. Reserves for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a nonreimbursable advance loss assumption.
(C)
Net of $76.4 million and $98.0 million, respectively, in accrual for advance recoveries.The following is a summary of New Residential’s Servicer Advance Investments, including the right to the basic fee component of the related MSRs:
 
Amortized Cost Basis

Carrying Value(A)

Weighted Average Discount Rate
 
Weighted Average Yield

Weighted Average Life (Years)(B)
March 31, 2019
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
675,679

 
$
697,628

 
5.6
%
 
5.8
%
 
5.8
As of December 31, 2018
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
721,801

 
$
735,846

 
5.9
%
 
5.8
%
 
5.7
  
(A)
Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.
(B)
Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

 
 
Three Months Ended  
 March 31,
 
 
2019

2018
Change in Fair Value of Servicer Advance Investments
 
$
7,903

 
$
(79,476
)

The following is additional information regarding the Servicer Advance Investments and related financing:
 
 
 
 
 
 
 
 
 
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(C)
 
UPB of Underlying Residential Mortgage Loans
 
Outstanding Servicer Advances
 
Servicer Advances to UPB of Underlying Residential Mortgage Loans
 
Face Amount of Notes and Bonds Payable
 
Gross
 
Net(B)
 
Gross
 
Net
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
38,055,282

 
$
578,876

 
1.5
%
 
$
532,040

 
87.4
%
 
86.3
%
 
3.8
%
 
3.1
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
40,096,998

 
$
620,050

 
1.5
%
 
$
574,117

 
88.3
%
 
87.2
%
 
3.7
%
 
3.1
%
 
(A)
Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)
Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)
Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)
The following types of advances are included in the Servicer Advance Investments:


March 31, 2019

December 31, 2018
Principal and interest advances

$
98,657


$
108,317

Escrow advances (taxes and insurance advances)

225,012


238,349

Foreclosure advances

255,207


273,384

Total

$
578,876

 
$
620,050