Quarterly report pursuant to Section 13 or 15(d)

CONSOLIDATED VARIABLE INTEREST ENTITIES

v3.20.1
CONSOLIDATED VARIABLE INTEREST ENTITIES
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
CONSOLIDATED VARIABLE INTEREST ENTITIES CONSOLIDATED VARIABLE INTEREST ENTITIES

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

To assess whether New Residential has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, New Residential considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. To assess whether New Residential has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, New Residential considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

Servicer Advance Investment

New Residential, through a taxable wholly owned subsidiary, is the managing member of the Buyer and owned approximately 73.2% of the Buyer as of March 31, 2020. In 2013, New Residential created the Buyer to acquire the then outstanding servicing advance receivables related to a portfolio of residential mortgage loans from a third party. The Buyer is required to purchase all future servicer advances made with respect to this portfolio of mortgage loans and is entitled to receive cash flows from advance recoveries and a basic fee component of the related MSRs, net of subservicing compensation paid.

The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of March 31, 2020, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $328.4 million and $306.9 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors
nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.

Shelter Joint Ventures

A wholly owned subsidiary of NewRez, Shelter Mortgage Company LLC (“Shelter”) is a mortgage originator specializing in retail originations. Shelter operates its business through a series of joint ventures and is deemed to be the primary beneficiary of the joint ventures as a result of its ability to direct activities that most significantly impact the economic performance of the entities and its ownership of a significant equity investment.

Residential Mortgage Loans

On October 1, 2019, as a result of New Residential’s acquisition of servicing assets from the bankruptcy estate of Ditech Holding Company and Ditech Financial LLC (“Ditech”) and its pre-existing ownership of the equity, New Residential consolidated the MDST Trusts. New Residential’s determination to consolidate the MDST Trusts is a result of its ownership of the equity in these trusts in conjunction with the ability to direct activities that most significantly impact the economic performance of the entities with the acquisition of the servicing by NewRez.
 
NewRez was deemed to be the primary beneficiary of the SAFT 2013-1 securitization entity as a result of its ability to direct activities that most significantly impact the economic performance of the entity in its role as servicer and its ownership of subordinated retained interests. The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations:
 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Residential mortgage loan UPB
 
$
14,932,876

 
$
9,399,416

Weighted average delinquency(A)
 
2.45
%
 
2.03
%
Net credit losses
 
$
13,898

 
$
3,562

Face amount of debt held by third parties(B)
 
$
12,907,495

 
$
8,306,631

 
 
 
 
 
Carrying value of bonds retained by New Residential(C) (D)
 
$
1,814,333

 
$
1,271,126

Cash flows received by New Residential on these bonds
 
$
79,250

 
$
62,845


(A)
Represents the percentage of the UPB that is 60+ days delinquent.
(B)
Excludes bonds retained by New Residential.
(C)
Includes bonds retained pursuant to required risk retention regulations.
(D)
Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 12 for details on unobservable inputs.

Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of March 31, 2020, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

The Consumer Loan Companies consolidate certain entities that issued securitization debt collateralized by the consumer loans (the “Consumer Loan SPVs”). The Consumer Loan SPVs are VIEs of which the Consumer Loan Companies are the primary beneficiaries.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on New Residential’s consolidated balance sheets:
 
 
The Buyer
 
Shelter Joint Ventures
 
Residential Mortgage Loans
 
Consumer Loan SPVs
 
Total
March 31, 2020
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Servicer advance investments, at fair value
 
$
500,447

 
$

 
$

 
$

 
$
500,447

Residential mortgage loans, held-for-investment, at fair value
 

 

 
429,318

 

 
429,318

Consumer loans, held-for-investment, at fair value
 

 

 

 
774,607

 
774,607

Cash and cash equivalents
 
29,942

 
22,517

 

 

 
52,459

Restricted cash
 
4,808

 

 

 
8,825

 
13,633

Other assets
 
7

 
4,656

 
1,941

 
11,279

 
17,883

Total Assets
 
$
535,204

 
$
27,173

 
$
431,259

 
$
794,711

 
$
1,788,347

Liabilities
 
 
 
 
 
 
 
 
 
 
Notes and bonds payable(A)
 
$
415,036

 
$

 
$
272,293

 
$
771,232

 
$
1,458,561

Accrued expenses and other liabilities
 
1,581

 
4,481

 

 
3,885

 
9,947

Total Liabilities
 
$
416,617

 
$
4,481

 
$
272,293

 
$
775,117

 
$
1,468,508

March 31, 2019
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Servicer advance investments, at fair value
 
$
674,607

 
$

 
$

 
$

 
$
674,607

Residential mortgage loans, held-for-investment, at fair value
 

 

 
429,229

 

 
429,229

Consumer loans, held-for-investment
 

 

 

 
981,931

 
981,931

Cash and cash equivalents
 
29,943

 
16,522

 

 

 
46,465

Restricted cash
 

 

 

 
9,899

 
9,899

Other assets
 
9,608

 
701

 

 
14,438

 
24,747

Total Assets
 
$
714,158

 
$
17,223

 
$
429,229

 
$
1,006,268

 
$
2,166,878

Liabilities
 


 


 


 


 

Notes and bonds payable(A)
 
$
514,246

 
$
2,225

 
$
377,382

 
$
973,158

 
$
1,867,011

Accrued expenses and other liabilities
 
2,343

 

 
2,635

 
4,106

 
9,084

Total Liabilities
 
$
516,589

 
$
2,225

 
$
380,017

 
$
977,264

 
$
1,876,095


(A)
The creditors of the VIEs do not have recourse to the general credit of New Residential, and the assets of the VIEs are not directly available to satisfy New Residential’s obligations.

Noncontrolling Interests

Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than New Residential. These interests are related to noncontrolling interests in consolidated entities that hold New Residential’s Servicer Advance Investments (Note 6), the Shelter JVs, (Note 8), Residential Mortgage Loan trusts (Note 8), and Consumer Loans (Note 9).

Others’ interests in the equity of New Residential’s consolidated subsidiaries is computed as follows:
 
March 31, 2020
 
December 31, 2019
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
Total consolidated equity
$
118,591

 
$
22,692

 
$
49,387

 
$
168,207

 
$
23,171

 
$
46,510

Others’ ownership interest
26.8
%
 
49.9
%
 
46.5
%
 
26.8
%
 
49.0
%
 
46.5
%
Others’ interest in equity of consolidated subsidiary
$
31,743

 
$
11,323

 
$
23,512

 
$
45,025

 
$
11,354

 
$
22,171


Others’ interests in the New Residential’s net income (loss) is computed as follows:
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
 
The Buyer(A)
 
Shelter Joint Ventures
 
Consumer Loan Companies
Net income
$
(42,015
)
 
$
2,571

 
$
(13,330
)
 
$
9,155

 
$
798

 
$
16,042

Others’ ownership interest as a percent of total
26.8
%
 
49.9
%
 
46.5
%
 
26.8
%
 
51.0
%
 
46.5
%
Others’ interest in net income of consolidated subsidiaries
$
(11,247
)
 
$
1,283

 
$
(6,198
)
 
$
2,451

 
$
407

 
$
7,460


(A)
As a result, New Residential owned 73.2% and 73.2% of the Buyer, on average during the three months ended March 31, 2020 and 2019, respectively. See Note 11 regarding the financing of Servicer Advance Investments.