Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)

v3.20.1
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS (Tables)
3 Months Ended
Mar. 31, 2020
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
 
 
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”).

The following table presents activity related to the carrying value of New Residential’s investments in MSRs and MSR Financing Receivables:
 
 
MSRs
 
MSR Financing Receivables
 
Total
Balance as of December 31, 2019
 
$
3,967,960

 
$
1,718,273

 
$
5,686,233

Purchases, net(A)
 
436,395

 

 
436,395

Originations(B)
 
195,896

 

 
195,896

Prepayments(C)
 
(1,563
)
 
(6,023
)
 
(7,586
)
Proceeds from sales
 
(8,504
)
 
(3,708
)
 
(12,212
)
Amortization of servicing rights(D)
 
(193,243
)
 
(68,752
)
 
(261,995
)
Change in valuation inputs and assumptions(E)
 
(468,260
)
 
(33,610
)
 
(501,870
)
(Gain)/loss on sales
 
5,703

 
(1,749
)
 
3,954

Balance as of March 31, 2020
 
$
3,934,384

 
$
1,604,431

 
$
5,538,815


(A)
Net of purchase price adjustments.
(B)
Represents MSRs retained on the sale of originated mortgage loans.
(C)
Represents purchase price fully reimbursable from sellers as a result of prepayment protection.
(D)
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.
(E)
Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.
The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of March 31, 2020:
 
UPB of Underlying Mortgages
 
Weighted Average Life (Years)(A)
 
Carrying Value(B)
MSRs:
 
 
 
 
 
Agency(C)
$
339,416,358

 
5.3
 
$
3,227,788

Non-Agency
6,630,753

 
5.5
 
16,669

Ginnie Mae(D)
57,658,948

 
4.8
 
689,927

 
403,706,059

 
5.2
 
3,934,384

MSR Financing Receivables:
 
 
 
 
 
Agency
49,533,672

 
5.2
 
491,681

Non-Agency
73,533,090

 
7.8
 
1,112,750

 
123,066,762

 
6.8
 
1,604,431

Total
$
526,772,821

 
5.6
 
$
5,538,815


(A)
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, 2020, weighted average discount rates of 8.2% and 9.4% were used to value New Residential’s investments in MSRs and MSR financing receivables, respectively.
(C)
Represents Fannie Mae and Freddie Mac MSRs.
(D)
NewRez, as an approved issuer of Ginnie Mae MBS, originates, sells and securitizes government-insured residential mortgage loans into Ginnie Mae guaranteed securitizations and NewRez retains the right to service the underlying residential mortgage loans. As the servicer, NewRez holds an option to repurchase delinquent loans from the securitization at its discretion. As of March 31, 2020, New Residential holds approximately $197.7 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Condensed Consolidated Balance Sheets.

Summary of Direct Investments in 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


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, 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 table summarizes the income earned from the Company’s investments in LoanCo and WarrantCo during 2019:
 
 
Three Months Ended  
 March 31,
 
 
2019(A)
Interest income
 
$
7,977

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

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

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

New Residential’s ownership
 
24.2
%


(A)
Data for the period ended February 28, 2019 as a result of the one month reporting lag.
(B)
During the three months ended March 31, 2019, LoanCo sold, through securitizations which were treated as sales for accounting purposes, $406.1 million in UPB of consumer loans. LoanCo retained $83.9 million of residual interest in the securitizations and distributed them to the LoanCo co-investors, including New Residential.

The following is a summary of LoanCo’s consumer loan investments at March 31, 2019:
 
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.

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, 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.