Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

v3.20.1
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
3 Months Ended
Mar. 31, 2020
Transfers and Servicing [Abstract]  
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
Direct Investments in Excess MSRs

The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:
 
 
Servicer
 
 
Mr. Cooper
 
SLS(A)
 
Total
Balance as of December 31, 2019
 
$
377,692

 
$
2,055

 
$
379,747

Purchases
 

 

 

Interest income
 
13,150

 
76

 
13,226

Other income
 
636

 

 
636

Proceeds from repayments
 
(18,503
)
 
(116
)
 
(18,619
)
Proceeds from sales
 
(34
)
 

 
(34
)
Change in fair value
 
(11,059
)
 
35

 
(11,024
)
Balance as of March 31, 2020
 
$
361,882

 
$
2,050

 
$
363,932


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

Mr. Cooper or SLS, 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 direct Excess MSR investments serviced by Mr. Cooper and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any refinancing by Mr. Cooper 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 direct investments in Excess MSRs 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 on the Excess MSRs.

The following is a summary of New Residential’s direct investments in Excess MSRs:
 
March 31, 2020
 
December 31, 2019
 
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
 
Mr. Cooper
 
 
 
 
 
 
 
 
Agency
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
41,702,867

 
32.5% - 66.7% (53.3%)
 
0.0% - 40.0%
 
20.0% - 35.0%
 
5.7
 
$
174,694

 
$
200,167

 
$
209,633

Non-Agency(E)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Cooper and SLS Serviced:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Original and Recaptured Pools
$
43,306,519

 
33.3% - 100.0% (59.4%)
 
0.0% - 50.0%
 
0.0% - 33.3%
 
6.7
 
$
123,992

 
$
163,765

 
$
170,114

Total
$
85,009,386

 
 
 
 
 
 
 
6.1
 
$
298,686

 
$
363,932

 
$
379,747

 
(A)
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 and recapture agreements, as applicable.
(D)
Amounts in parentheses represent weighted averages.
(E)
New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of March 31, 2020 (Note 6) on $30.0 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is composed of the following:
 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Original and Recaptured Pools
 
$
(11,024
)
 
$
4,627



As of March 31, 2020, 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).

Excess MSR Joint Ventures

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, 2020
 
December 31, 2019
Excess MSR assets
 
$
214,950

 
$
226,843

Other assets
 
24,954

 
25,035

Other liabilities
 
(687
)
 
(687
)
Equity
 
$
239,217

 
$
251,191

New Residential’s investment
 
$
119,609

 
$
125,596

 
 
 
 
 
New Residential’s ownership
 
50.0
%
 
50.0
%

 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Interest income
 
$
7,313

 
$
4,070

Other income (loss)
 
(8,219
)
 
1,170

Expenses
 
(8
)
 
(16
)
Net income (loss)
 
$
(914
)
 
$
5,224


The following table summarizes the activity of New Residential’s investments in equity method investees:
Balance at December 31, 2019
$
125,596

Contributions to equity method investees

Distributions of earnings from equity method investees
(387
)
Distributions of capital from equity method investees
(5,143
)
Change in fair value of investments in equity method investees
(457
)
Balance at March 31, 2020
$
119,609



The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
March 31, 2020
 
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
$
33,251,300

 
66.7
%
 
50.0
%
 
$
165,403

 
$
214,950

 
5.6
 
(A)
The remaining interests are held by Mr. Cooper.
(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 and recapture agreements, as applicable.
(D)
Represents the weighted average expected timing of the receipt of cash flows of each investment.