REAL ESTATE AND OTHER SECURITIES
|9 Months Ended|
Sep. 30, 2021
|Investments, Debt and Equity Securities [Abstract]|
|REAL ESTATE AND OTHER SECURITIES||REAL ESTATE AND OTHER SECURITIES
The following is a summary of Real Estate and Other Securities:
(A)Fair value is equal to the carrying value for all securities. See Note 12 regarding the fair value measurements.
(B)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 301 bonds with a carrying value of $370.9 million which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third-party rating agencies and represent the most recent credit ratings available as of the reporting date and may not be current.
(C)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $24.8 million and $2.8 million, respectively, for which no coupon payment is expected.
(D)The weighted average life is based on the timing of expected principal reduction on the assets.
(E)Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value option securities.
(F)Includes securities issued or guaranteed by U.S. Government agencies such as Ginnie Mae.
(G)The total outstanding face amount was $8.9 billion for fixed rate securities as of September 30, 2021.
(H)The total outstanding face amount was $10.0 billion (including $9.1 billion of residual and fair value option notional amount) for fixed rate securities and $6.6 billion (including $6.5 billion of residual and fair value option notional amount) for floating rate securities as of September 30, 2021.
(I)Includes other asset-backed securities (“ABS”) consisting primarily of (i) interest-only securities and servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through earnings, (ii) bonds backed by consumer loans, and (iii) corporate debt.
Activities related to Real Estate and Other Securities were as follows:
As of September 30, 2021 and December 31, 2020, there were no unsettled trades. Unsettled sales and purchases are recorded on the Consolidated Balance Sheets on trade date as Receivable for Investments Sold and Payable for Investments Purchased.
New Residential has exercised its call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. Refer to Notes 8 and 16 for further details on these transactions.
Unrealized Gains (Losses) — Other than credit impairment losses which are recognized in net income, changes in the fair value of RMBS designated as available for sale (“AFS”) are reported in other comprehensive income as an unrealized gain or loss until the security is sold or matures. Effective January 1, 2021, New Residential elected the fair value option for RMBS purchased on or after that date with changes in fair value reported in net income as an unrealized gain or loss until the security is sold or matures.
Realized Gains (Losses) — Upon the sale of an RMBS designated as AFS, any unrealized gain or loss is reclassified out of accumulated other comprehensive income into net income as a realized gain or loss within Gain (Loss) on Settlement of Investments, Net. Upon the sale of a security for which New Residential has elected the fair value option, any unrealized gain or loss recorded in Change in Fair value of Investments is reversed and the realized gain or loss is recorded within Gain (Loss) on Settlement of Investments, Net.
The following table summarizes certain information for RMBS designated as AFS in an unrealized loss position as of September 30, 2021:
(A)Represents credit impairment on securities in an unrealized loss position as of September 30, 2021.
New Residential performed an assessment of all RMBS designated as AFS that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of credit impairment, exceeds its fair value) and determined the following:
(A)This amount is required to be recorded through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation included a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows included New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses were measured as the decline in the present value of the expected future cash flows discounted at the security’s effective interest rate.
(B)This amount represents unrealized losses on securities that are due to non-credit factors.
(C)New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.
The following table summarizes the activity related to the allowance for credit losses on RMBS designated as AFS (excluding credit impairment relating to securities New Residential intends to sell or is more likely than not required to sell):
New Residential evaluates the credit quality of its real estate securities, as of the acquisition date, for evidence of credit quality deterioration. As a result, New Residential identified a population of real estate securities for which it was determined that it was probable that New Residential would be unable to collect all contractually required payments.
The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and fair value option securities:
The following is a summary of the changes in accretable yield for these securities:
See Note 11 regarding the financing of Real Estate and Other Securities.
The entire disclosure for investments in certain debt and equity securities.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef