Quarterly report pursuant to Section 13 or 15(d)

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

v3.20.1
INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES (Tables)
3 Months Ended
Mar. 31, 2020
Equity Method Investments and Joint Ventures [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.

Fees Earned in Exchange for Servicing Financial Assets
Servicing revenue, net recognized by New Residential related to its investments in MSRs was composed of the following:
 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Servicing fee revenue
 
$
328,122

 
$
183,026

Ancillary and other fees
 
32,138

 
39,737

Servicing fee revenue and fees
 
360,260

 
222,763

Amortization of servicing rights
 
(191,367
)
 
(72,675
)
Change in valuation inputs and assumptions(A) (B)
 
(463,711
)
 
15,765

(Gain)/loss on sales
 
5,703

 

Servicing revenue, net
 
$
(289,115
)

$
165,853



(A)
Includes changes in inputs or assumptions used in the valuation model.
(B)
Includes $4.5 million and $0.4 million of fair value adjustment to excess spread financing for the three months ended March 31, 2020 and 2019, respectively.

Interest income from investments in MSR Financing Receivables was composed of the following:
 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Servicing fee revenue
 
$
113,582

 
$
126,244

Ancillary and other fees
 
26,000

 
31,324

Less: subservicing expense
 
(41,903
)
 
(55,662
)
Interest income, investments in MSR financing receivables
 
$
97,679

 
$
101,906


Change in fair value of investments in MSR Financing Receivables was composed of the following:
 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Amortization of servicing rights
 
$
(68,752
)
 
$
(42,876
)
Change in valuation inputs and assumptions(A)
 
(33,610
)
 
6,938

(Gain)/loss on sales(B)
 
(1,749
)
 
(441
)
Change in fair value of investments in MSR financing receivables
 
$
(104,111
)
 
$
(36,379
)

(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.
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 MSR Financing Receivables:
 
 
Percentage of Total Outstanding Unpaid Principal Amount
State Concentration
 
March 31, 2020
 
December 31, 2019
California
 
23.4
%
 
21.9
%
Florida
 
6.8
%
 
6.9
%
New York
 
6.2
%
 
6.4
%
Texas
 
5.3
%
 
5.5
%
New Jersey
 
4.7
%
 
4.9
%
Illinois
 
3.5
%
 
3.6
%
Washington
 
3.3
%
 
3.3
%
Massachusetts
 
3.3
%
 
3.4
%
Georgia
 
3.1
%
 
3.1
%
Colorado
 
3.0
%
 
2.8
%
Other U.S.
 
37.4
%
 
38.2
%
 
 
100.0
%
 
100.0
%

Summary of Investments in Servicer Advances
The following types of advances are included in the Servicer Advances Receivable:
 
 
March 31, 2020
 
December 31, 2019
Principal and interest advances
 
$
678,588

 
$
660,807

Escrow advances (taxes and insurance advances)
 
2,284,094

 
2,427,384

Foreclosure advances
 
151,485

 
163,054

Total(A) (B) (C)
 
$
3,114,167

 
$
3,251,245


(A)
Includes $636.9 million and $562.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)
Includes $69.9 million and $166.5 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 $41.3 million and $50.1 million, respectively, in unamortized advance discount and reserves, net of accruals 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, 2020
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
509,989

 
$
515,574

 
5.8
%
 
5.6
%
 
6.7
December 31, 2019
 
 
 
 
 
 
 
 
 
Servicer Advance Investments
$
557,444

 
$
581,777

 
5.3
%
 
5.7
%
 
6.3
  
(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,
 

2020

2019
Change in fair value of Servicer Advance Investments
 
$
(18,749
)
 
$
7,903


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, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
30,043,832

 
$
461,723

 
1.5
%
 
$
423,910

 
88.0
%
 
87.1
%
 
1.7
%
 
1.7
%
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicer Advance Investments(D)
$
31,442,267

 
$
462,843

 
1.5
%
 
$
443,248

 
88.3
%
 
87.2
%
 
3.4
%
 
2.8
%
 
(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, 2020

December 31, 2019
Principal and interest advances

$
87,292


$
71,574

Escrow advances (taxes and insurance advances)

173,617


180,047

Foreclosure advances

200,814


211,222

Total

$
461,723

 
$
462,843