Quarterly report pursuant to Section 13 or 15(d)

SERVICER ADVANCE INVESTMENTS

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SERVICER ADVANCE INVESTMENTS
9 Months Ended
Sep. 30, 2021
Investments, All Other Investments [Abstract]  
SERVICER ADVANCE INVESTMENTS SERVICER ADVANCE INVESTMENTS
New Residential’s Servicer Advance Investments consist of arrangements to fund existing outstanding servicer advances and the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans in exchange for the basic fee component of the related MSR. New Residential elected to record its Servicer Advance Investments, including the right to the basic fee component of the related 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 market factors.

A taxable wholly owned subsidiary of New Residential is the managing member of Advance Purchaser LLC (the “Buyer”), a joint venture entity, and owned an approximately 73.2% interest in the Buyer as of December 31, 2020. In July 2021, New
Residential entered into a purchase and sales agreement with certain third-party co-investors whereby New Residential agreed to purchase from certain third-party co-investments approximately 16.1% of aggregate interest in the Buyer, increasing New Residential’s ownership of the Buyer to approximately 89.3% as of September 30, 2021. The Buyer is a limited liability company which was established in December 2013 for the purpose of investing in residential mortgage related advances. As of September 30, 2021, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $75.0 million and New Residential has funded capital commitments to the Buyer of $627.4 million. 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 September 30, 2021, the noncontrolling third-party co-investors and New Residential had previously funded their commitments; however, the Buyer may recall $69.0 million and $577.1 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.
 
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)
September 30, 2021
Servicer advance investments $ 453,442  $ 472,004  5.2  % 5.6  % 6.0
December 31, 2020
Servicer advance investments $ 512,958  $ 538,056  5.2  % 5.7  % 6.0
(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.

The following is additional information regarding the Servicer Advance Investments and related financing:
UPB of Underlying Residential Mortgage Loans Outstanding Servicer Advances Servicer Advances to UPB of Underlying Residential Mortgage Loans Face Amount of Secured Notes and Bonds Payable
Loan-to-Value (“LTV”)(A)
Cost of Funds(C)
Gross
Net(B)
Gross Net
September 30, 2021
Servicer Advance Investments(D)
$ 21,568,182  $ 408,085  1.9  % $ 381,286  89.4  % 88.7  % 1.3  % 1.2  %
December 31, 2020
Servicer Advance Investments(D)
$ 26,061,499  $ 449,150  1.7  % $ 423,144  88.4  % 88.6  % 1.5  % 1.3  %
(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:
September 30, 2021 December 31, 2020
Principal and interest advances $ 75,564  $ 84,976 
Escrow advances (taxes and insurance advances) 170,817  186,426 
Foreclosure advances 161,704  177,748 
Total $ 408,085  $ 449,150 
 
Interest Income related to Servicer Advance Investments consists of the following:
Three Months Ended
September 30,
Nine Months Ended September 30,
2021 2020 2021 2020
Interest income, gross of amounts attributable to servicer compensation $ (1,426) $ 10,505  $ 16,079  $ 28,160 
Amounts attributable to base servicer compensation 897  (703) (849) (2,325)
Amounts attributable to incentive servicer compensation
892  1,196  (8,144) (12,755)
Interest income (expense) from servicer advance investments $ 363  $ 10,998  $ 7,086  $ 13,080