Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN REAL ESTATE AND OTHER SECURITIES (Tables)

v3.19.1
INVESTMENTS IN REAL ESTATE AND OTHER SECURITIES (Tables)
3 Months Ended
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Summary of Real Estate Securities The following is a summary of New Residential’s real estate and other 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.
 
 
March 31, 2019
 
December 31, 2018
 
 
 
 
 
 
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)
 
$
789,841

 
$
799,010

 
$
11,398

 
$
(284
)
 
$
810,124

 
27

 
AAA
 
3.89
%
 
3.62
%
 
6.1
 
N/A

 
$
2,665,618

Non-Agency
  RMBS(H) (I)
 
21,035,775

 
8,381,152

 
606,767

 
(50,593
)
 
8,937,326

 
923

 
B
 
3.31
%
 
5.56
%
 
6.9
 
9.9
%
 
8,970,963

Total/
   Weighted
    Average
 
$
21,825,616

 
$
9,180,162

 
$
618,165

 
$
(50,877
)
 
$
9,747,450

 
950

 
BB-
 
3.36
%
 
5.39
%
 
6.9
 
 
 
$
11,636,581

 
(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 265 bonds with a carrying value of $829.2 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 $308.6 million and $2.3 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 fair value option securities.
(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 $0.8 billion for fixed rate securities and $0.0 billion for floating rate securities as of March 31, 2019.
(H)
The total outstanding face amount was $11.3 billion (including $8.8 billion of residual and fair value option notional amount) for fixed rate securities and $9.8 billion (including $1.7 billion of residual and fair value option notional amount) for floating rate securities as of March 31, 2019.
(I)
Includes other asset backed securities (“ABS”) consisting primarily of (i) interest-only securities and servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through the income statement, (ii) bonds backed by consumer loans, and (iii) corporate debt.
 
 
 
 
 
 
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
Corporate debt
 
$
85,000

 
$
85,000

 
$

 
$
(9,350
)
 
$
75,650

 
1

 
B-
 
8.25
%
 
8.25
%
 
6.0
 
N/A
Consumer loan bonds
 
49,640

 
49,633

 
131

 
(4,502
)
 
45,262

 
6

 
B
 
5.50
%
 
19.84
%
 
1.7
 
N/A
Fair Value Option Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-only securities
 
7,656,578

 
258,768

 
28,891

 
(11,981
)
 
275,678

 
86

 
AA+
 
1.42
%
 
6.54
%
 
2.8
 
N/A
Servicing Strips
 
1,838,897

 
22,086

 
2,155

 
(195
)
 
24,046

 
36

 
N/A
 
0.27
%
 
6.58
%
 
4.7
 
N/A
Activities related to New Residential’s investments in real estate and other securities were as follows:
 
 
Three Months Ended March 31, 2019
 
 
(in millions)
 
 
Agency
 
Non-Agency
Purchases
 
 
 
 
Face
 
$
5,024.3

 
$
2,444.0

Purchase Price
 
5,129.4

 
349.7

 
 
 
 
 
Sales
 
 
 
 
Face
 
$
6,778.8

 
$
228.0

Amortized Cost
 
6,914.3

 
228.0

Sale Price
 
6,979.4

 
228.0

Gain (Loss) on Sale
 
65.1

 

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 March 31, 2019.
 
 
 
 
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
 
$
2,990,696

 
$
1,201,237

 
$
(2,000
)
 
$
1,199,237

 
$
(35,694
)
 
$
1,163,543

 
112

 
B+
 
3.47
%
 
4.83
%
 
6.1
12 or More Months
 
1,208,284

 
285,488

 
(5,516
)
 
279,972

 
(15,183
)
 
264,789

 
77

 
B+
 
2.58
%
 
6.23
%
 
5.1
Total/Weighted Average
 
$
4,198,980

 
$
1,486,725

 
$
(7,516
)
 
$
1,479,209

 
$
(50,877
)
 
$
1,428,332

 
189

 
B+
 
3.31
%
 
5.10
%
 
5.9
 
(A)
This amount represents OTTI recorded on securities that are in an unrealized loss position as of March 31, 2019.
(B)
The weighted average rating of securities in an unrealized loss position for less than 12 months excludes the rating of 30 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 18 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:
 
March 31, 2019
 
 
 
 
 
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
640,137

 
658,765

 
(7,516
)
 
(18,628
)
Non-credit impaired securities
788,195

 
820,444

 

 
(32,249
)
Total debt securities in an unrealized loss position
$
1,428,332

 
$
1,479,209

 
$
(7,516
)
 
$
(50,877
)
  
(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 March 31, 2019.
(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:
 
Three Months Ended March 31, 2019
Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income
$
52,803

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
7,029

Additions for credit losses on securities for which an OTTI was not previously recognized
487

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/paid off during the period
(195
)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income
$
60,124

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:
 
 
March 31, 2019
 
December 31, 2018
Geographic Location(A)
 
Outstanding Face Amount

Percentage of Total Outstanding
 
Outstanding Face Amount

Percentage of Total Outstanding
Western U.S.
 
$
8,109,480


38.8
%
 
$
7,318,616

 
37.7
%
Southeastern U.S.
 
4,961,126


23.7
%
 
4,613,314

 
23.8
%
Northeastern U.S.
 
4,333,893


20.7
%
 
3,829,725

 
19.7
%
Midwestern U.S.
 
2,112,686


10.1
%
 
2,063,263

 
10.6
%
Southwestern U.S.
 
1,361,941


6.6
%
 
1,321,853

 
6.8
%
Other(B)
 
22,009


0.1
%
 
250,833

 
1.4
%
 
 
$
20,901,135


100.0
%
 
$
19,397,604

 
100.0
%
  
(A)
Excludes $49.6 million and $56.8 million face amount of bonds backed by consumer loans and $85.0 million and $85.0 million face amount of bonds backed by corporate debt as of March 31, 2019 and December 31, 2018, respectively.
(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 fair value option securities:
 
Outstanding Face Amount
 
Carrying Value
March 31, 2019
$
6,396,717

 
$
4,305,463

December 31, 2018
6,385,306

 
4,217,242

Summary of Changes in Accretable Yield for Securities The following is a summary of the changes in accretable yield for these securities:
 
Three Months Ended March 31, 2019
Balance at December 31, 2018
$
2,245,983

Additions
64,864

Accretion
(88,566
)
Reclassifications from (to) non-accretable difference
(171,812
)
Disposals

Balance at March 31, 2019
$
2,050,469