Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES

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INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES
6 Months Ended
Jun. 30, 2013
Investments In Excess Mortgage Servicing Rights Equity Method Investees  
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES
6.      INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS EQUITY METHOD INVESTEES

During the six months ended June 30, 2013, New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments 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 prepayment risk and other market factors.
  
The following tables summarize the investments in equity method investees held by New Residential at June 30, 2013:
 
   
June 30, 2013
 
Excess MSR Assets
  $ 351,863  
Other Assets (A)
    22,394  
Debt
     
Other Liabilities
    (7,951 )
Equity
  $ 366,306  
New Residential’s Investment
  $ 183,153  
         
New Residential’s Ownership
    50.0 %

 
(A)
Includes $20.8 million of deposits related to investments which have not closed at June 30, 2013.

   
Six Months Ended
 June 30, 2013
 
Interest Income
  $ 13,756  
Other Income
    31,374  
Expenses
    (2,938 )
Net Income
  $ 42,192  
 
The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 
   
June 30, 2013
 
   
Unpaid
Principal
Balance
   
Investee
 Interest in
 Excess MSR
   
New Residential Interest
in Investees
   
Amortized
Cost Basis (A)
   
Carrying Value (B)
   
Weighted Average Yield
   
Weighted Average Life (Years) (C)
 
MSR Pool 6
  $ 11,149,355       66.7 %     50.0 %   $ 40,027     $ 44,139       12.5 %     4.8  
MSR Pool 6 - Recapture Agreement
          66.7 %     50.0 %     10,683       13,284       12.5 %     10.7  
MSR Pool 7
    34,480,698       66.7 %     50.0 %     104,057       112,946       12.5 %     5.1  
MSR Pool 7 - Recapture Agreement
          66.7 %     50.0 %     22,962       25,965       12.5 %     12.0  
MSR Pool 8
    15,417,544       66.7 %     50.0 %     56,180       57,960       12.5 %     5.0  
MSR Pool 8 - Recapture Agreement
          66.7 %     50.0 %     12,928       14,103       12.5 %     11.7  
MSR Pool 11
    22,817,213       66.7 %     50.0 %     51,033       55,797       12.5 %     5.3  
MSR Pool 11 - Recapture Agreement
          66.7 %     50.0 %     23,459       27,669       12.5 %     9.9  
    $ 83,864,810                     $ 321,329     $ 351,863       12.5 %     6.4  
 
(A)
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.
(B)
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 or Recapture Agreements, as applicable.
(C)
The weighted average life represents the weighted average expected timing of the receipt of cash flows of each investment.
 
Pool 6. On January 4, 2013, New Residential, through a joint venture, co-invested in Excess MSRs on a portfolio of Government National Mortgage Association (“Ginnie Mae”) residential mortgage loans with a UPB of approximately $13 billion (“Pool 6”) as of November 30, 2012. Nationstar acquired the related servicing rights from Bank of America in November 2012. New Residential contributed approximately $28.9 million for a 50% interest in a joint venture which acquired an approximately 67% interest in the Excess MSRs on this portfolio. The remaining interests in the joint venture are owned by a Fortress-managed fund and the remaining interest of approximately 33% in the Excess MSRs is owned by Nationstar. As the servicer, Nationstar performs all servicing and advancing functions, and it retains the ancillary income, servicing obligations and liabilities associated with this portfolio. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by the joint venture and Nationstar, subject to certain limitations.

Pools 7, 8, 9, 10.  On January 6, 2013 New Residential, through joint ventures, agreed to co-invest in Excess MSRs on a portfolio of four pools of residential mortgage loans with a UPB of approximately $215 billion as of November 30, 2012. Approximately 53% of the loans in this portfolio are in private label securitizations (“Pool 10”), and the remainder are owned, insured or guaranteed by Fannie Mae (“Pool 7”), Freddie Mac (“Pool 8”) or Ginnie Mae (“Pool 9”). Nationstar has agreed to acquire the related servicing rights from Bank of America. New Residential committed to invest approximately $340 million (based on the November 30, 2012 UPB) for a 50% interest in joint ventures which will acquire an approximately 67% interest in the Excess MSRs on this portfolio. As of June 30, 2013, New Residential had contributed approximately $80.7 million to the joint ventures. The remaining interests in the joint ventures are owned by Fortress-managed funds and the remaining interest of approximately 33% in the Excess MSRs are owned by Nationstar. As the servicer, Nationstar performs all servicing and advancing functions, and it retains the ancillary income, servicing obligations and liabilities associated with this portfolio. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are shared on a pro rata basis by the joint ventures and Nationstar, subject to certain limitations. On January 31, 2013, New Residential completed the first closing of this co-investment. The first closing related to Excess MSRs on loans with an aggregate UPB of approximately $58 billion as of December 31, 2012, that are owned, insured, or guaranteed by Fannie Mae or Freddie Mac.

Pool 11. On May 20, 2013, New Residential acquired, through a joint venture, an interest in Excess MSRs from Nationstar on a portfolio of mortgage loans with a UPB of approximately $22.8 billion (“Pool 11”) as of March 31, 2013. New Residential has invested approximately $37.8 million to acquire a one-third interest in the Excess MSRs. Nationstar is the servicer of the loans and has retained a one-third interest in the Excess MSRs; a Fortress managed fund has acquired the remaining one-third interest. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs are included in the portfolio, subject to certain limitations. New Residential, Nationstar and the Fortress fund share equally in these Excess MSRs.
 
See Recent Activities (Note 15) for information on Pools 9 and 10.
 
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments made through equity method investees at June 30, 2013:
 
State Concentration
 
Percentage of Total Outstanding (A)
 
California
    13.6 %
Florida
    8.3 %
Georgia
    5.8 %
Texas
    5.6 %
New York
    5.5 %
Illinois
    4.5 %
Massachusetts
    3.5 %
New Jersey
    3.3 %
Washington
    3.0 %
Virginia
    3.0 %
Other U.S.
    44.0 %
      100.0 %
 
(A)  Based on the information provided by the loan servicer as of June 30, 2013.