Quarterly report pursuant to Section 13 or 15(d)

REAL ESTATE AND OTHER SECURITIES

v3.21.2
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:
September 30, 2021 December 31, 2020
Gross Unrealized Weighted Average
Outstanding Face Amount Gains Losses
Carrying Value(A)
Number of Securities
Rating(B)
Coupon(C)
Yield
Life (Years)(D)
Principal Subordination(E)
Carrying
Value
RMBS Designated as available for sale (AFS):
Agency(F)(G)
$ 96,435  $ 6,596  $ —  $ 102,807  AAA 3.50  % 3.50  % 4.5 N/A $ 121,761 
Non-Agency(H)(I)
3,084,732  82,716  (123) 552,159  339  AA 3.25  % 3.08  % 3.4 24.3  % 752,003 
RMBS Measured at fair value through net income (FVO):
Agency(F)(G)
8,782,782  203  (185,517) 8,879,880  40  AAA 2.13  % 2.13  % 6.6 N/A 12,941,873 
Non-Agency(H)(I)
13,530,488  32,454  (45,813) 438,949  257  AA+ 2.16  % 4.38  % 3.3 21.8  % 428,921 
Total/
   Weighted
    Average
$ 25,494,437  $ 121,969  $ (231,453) $ 9,973,795  637  AAA 2.28  % 3.44  % 4.5 $ 14,244,558 
(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.
Gross Unrealized Weighted Average
Asset Type Outstanding Face Amount Gains Losses Carrying Value Number of Securities Rating Coupon Yield Life (Years) Principal Subordination
Corporate debt
$ 414  $ $ —  $ 422  B- 8.3  % 8.3  % 3.5 N/A
Consumer loan bonds
4,394  1,117  —  4,439  N/A N/A N/A 0 N/A
Fair value option securities:
Interest-only securities
7,555,236  8,612  (39,437) 169,369  124  AA+ 1.2  % 1.1  % 2.0 N/A
Servicing strips
4,771,880  6,629  (6,270) 65,633  59  N/A 1.5  % 16.6  % 2.8 N/A

Activities related to Real Estate and Other Securities were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in millions) Agency Non-Agency Agency Non-Agency Agency Non-Agency Agency Non-Agency
Purchases
Face $ —  $ 844.3  $ 6,300.0  $ —  $ 5,907.2  $ 2,502.0  $ 17,162.6  $ 5,083.1 
Purchase price —  55.1  6,538.0  —  6,098.8  145.9  17,687.4  575.0 
Sales
Face $ 4,343.0  $ —  $ 1,195.5  $ 716.6  $ 7,830.8  $ 1,686.3  $ 18,590.6  $ 8,204.4 
Amortized cost 4,499.1  7.7  1,231.8  526.3  8,135.6  192.9  18,911.0  6,083.5 
Sale price 4,443.0  —  1,251.5  514.6  8,074.3  164.6  19,120.5  5,139.2 
Gain (loss) on sale (56.1) (7.7) 19.7  (11.6) (61.3) (28.2) 209.5  (944.3)

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:
Securities in an Unrealized Loss Position Outstanding Face Amount Amortized Cost Basis Gross Unrealized Losses Carrying Value Number of Securities Weighted Average
Before Credit Impairment
Credit Impairment(A)
After Credit Impairment Rating Coupon Yield Life
(Years)
Less than 12 Months
$ 6,179  $ 4,438  $ (175) $ 4,263  $ (18) $ 4,245  AAA 1.5  % 1.2  % 2.2
12 or More Months
21,274  12,152  (3,477) 8,675  (105) 8,570  14  AA+ —  % 0.5  % 0.3
Total/Weighted Average
$ 27,453  $ 16,590  $ (3,652) $ 12,938  $ (123) $ 12,815  18  AAA 0.4  % 0.7  % 0.8
(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:
September 30, 2021 December 31, 2020
Gross Unrealized Losses Gross Unrealized Losses
RMBS Designated as AFS Fair Value Amortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Fair Value Amortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Securities New Residential intends to sell
$ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Securities New Residential is more likely than not to be required to sell(C)
—  —  —  —  —  —  —  N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities 8,501  8,501  (3,652) —  21,326  21,326  (8,672) — 
Non-credit impaired securities 4,314  4,437  —  (123) 270,821  331,638  —  (60,817)
Total debt securities in an unrealized loss position $ 12,815  $ 12,938  $ (3,652) $ (123) $ 292,147  $ 352,964  $ (8,672) $ (60,817)
(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):
RMBS Designated as AFS Purchased Credit Deteriorated Non-Purchased Credit Deteriorated Total
Allowance for credit losses on available-for-sale debt securities at December 31, 2020
$ 8,672  $ —  $ 8,672 
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
—  —  — 
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration
—  —  — 
Reductions for securities sold during the period
(2,182) —  (2,182)
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis
—  —  — 
Additional increases (decreases) to the allowance for credit losses on securities that had credit losses or an allowance recorded in a previous period
(2,838) —  (2,838)
Write-offs charged against the allowance
—  —  — 
Recoveries of amounts previously written off
—  —  — 
Allowance for credit losses on available-for-sale debt securities at September 30, 2021
$ 3,652  $ —  $ 3,652 
 
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:
Outstanding Face Amount Carrying Value
September 30, 2021 $ 521,234  $ 181,176 
December 31, 2020 727,216  280,876 

The following is a summary of the changes in accretable yield for these securities:
Balance at December 31, 2020 $ 189,562 
Additions 7,948 
Accretion (3,951)
Reclassifications from (to) non-accretable difference (8,177)
Disposals (149,058)
Balance at September 30, 2021 $ 36,324 
See Note 11 regarding the financing of Real Estate and Other Securities.