Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

v2.4.0.8
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
9 Months Ended
Sep. 30, 2013
Fair Value Of Financial Instruments Tables  
Schedule of Fair Value of Assets Measured on a Recurring Basis
The carrying value and fair value of New Residential’s financial assets recorded at fair value on a recurring basis at September 30, 2013 were as follows:

               
Fair Value
 
   
Principal Balance or Notional Amount
   
Carrying Value
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Real estate securities, available-for-sale
  $ 2,054,797     $ 1,861,200     $ 1,279,450     $ 581,750     $ 1,861,200  
Investments in excess mortgage servicing rights, at fair value (A)
    72,315,805       307,568             307,568       307,568  
Investments in excess mortgage servicing rights, equity method investees, at fair value (A)
    169,856,996       358,032             358,032       358,032  
    $ 244,227,598     $ 2,526,800     $ 1,279,450     $ 1,247,350     $ 2,526,800  

(A)
The notional amount represents the total unpaid principal balance of the mortgage loans underlying the Excess MSRs. New Residential does not receive an excess mortgage servicing amount on nonperforming loans in Agency portfolios.
Schedule of Inputs used in Valuing the Excess MSRs owned directly and through equity method investees
The following table summarizes certain information regarding the inputs used in valuing the Excess MSRs owned directly and through equity method investees as of September 30, 2013:

   
Significant Inputs
 
Held Directly (Note 3)
 
Prepayment Speed
(A)
   
Delinquency
(B)
   
Recapture Rate 
(C)
   
Excess Mortgage Servicing Amount (D)
 
Discount Rate
 
MSR Pool 1
    14.4 %     10.0 %     35.0 %  
28 bps
    12.5 %
MSR Pool 1 - Recapture Agreement
    8.0 %     10.0 %     35.0 %  
21 bps
    12.5 %
MSR Pool 2
    14.7 %     10.3 %     35.0 %  
23 bps
    12.5 %
MSR Pool 2 - Recapture Agreement
    8.0 %     5.0 %     35.0 %  
21 bps
    12.5 %
MSR Pool 3
    15.2 %     11.9 %     35.0 %  
24 bps
    12.5 %
MSR Pool 3 - Recapture Agreement
    8.0 %     10.0 %     35.0 %  
21 bps
    12.5 %
MSR Pool 4
    15.4 %     14.9 %     35.0 %  
17 bps
    12.5 %
MSR Pool 4 - Recapture Agreement
    8.0 %     10.0 %     35.0 %  
21 bps
    12.5 %
MSR Pool 5
    12.3 %     N/A (E)     14.0 %  
13 bps
    12.7 %
MSR Pool 5 - Recapture Agreement
    8.0 %     N/A (E)     15.0 %  
21 bps
    12.7 %
MSR Pool 11 - Recapture Agreement
    9.3 %     2.3 %     32.0 %  
19 bps
    12.5 %
MSR Pool 12
    15.3 %     N/A (E)     16.7 %  
26 bps
    16.4 %
MSR Pool 12 - Recapture Agreement
    7.0 %     N/A (E)     35.0 %  
19 bps
    16.4 %
                                     
Held through Equity Method Investees (Note 6)
                                   
MSR Pool 6
    18.2 %     8.9 %     35.0 %  
25 bps
    12.5 %
MSR Pool 6 - Recapture Agreement
    10.0 %     6.0 %     35.0 %  
23 bps
    12.5 %
MSR Pool 7
    13.3 %     8.0 %     35.0 %  
16 bps
    12.5 %
MSR Pool 7 - Recapture Agreement
    10.0 %     5.0 %     35.0 %  
19 bps
    12.5 %
MSR Pool 8
    14.3 %     6.9 %     35.0 %  
19 bps
    12.5 %
MSR Pool 8 - Recapture Agreement
    10.0 %     5.0 %     35.0 %  
19 bps
    12.5 %
MSR Pool 9
    18.0 %     5.0 %     35.0 %  
22 bps
    12.5 %
MSR Pool 9 - Recapture Agreement
    10.0 %     5.0 %     35.0 %  
28 bps
    12.5 %
MSR Pool 10
    11.5 %     N/A (E)     15.0 %  
12 bps
    12.7 %
MSR Pool 10 - Recapture Agreement
    9.0 %     N/A (E)     35.0 %  
19 bps
    12.7 %
MSR Pool 11
    18.7 %     7.8 %     38.9 %  
15 bps
    12.5 %
MSR Pool 11 - Recapture Agreement
    10.0 %     2.0 %     35.0 %  
19 bps
    12.5 %

(A)
Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
   
(B)
Projected percentage of mortgage loans in the pool that will miss their mortgage payments.
   
(C)
Percentage of voluntarily prepaid loans that are expected to be refinanced by Nationstar.
   
(D)
Weighted average total mortgage servicing amount in excess of the basic fee.
   
(E)
The Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO).
Schedule of Excess MSRs valued on a recurring basis using Level 3 inputs
Excess MSRs, owned directly, measured at fair value on a recurring basis using Level 3 inputs changed during the nine months ended September 30, 2013 as follows:
 
   
Level 3 (A)
 
   
MSR Pool 1
   
MSR Pool 2
   
MSR Pool 3
   
MSR Pool 4
   
MSR Pool 5
   
MSR Pool 11
   
MSR Pool 12
   
Total
 
Balance at December 31, 2012
  $ 40,910     $ 39,322     $ 35,434     $ 15,036     $ 114,334     $     $     $ 245,036  
Transfers (B)
                                                             
Transfers from Level 3 (B)
                                               
Transfers to Level 3 (B)
                                               
Gains (losses) included in net income (C)
    6,807       7,509       7,657       3,644       18,208             74       43,899  
Interest income
    5,097       3,739       4,892       2,034       14,728             51       30,541  
Purchases, sales and repayments
                                                             
Purchases
                            26,637       2,391       17,393       46,421  
Purchase adjustments
                                               
Proceeds from sales
                                               
Proceeds from repayments
    (10,278 )     (9,096 )     (8,689 )     (3,525 )     (26,741 )                 (58,329 )
Balance at September 30, 2013
  $ 42,536     $ 41,474     $ 39,294     $ 17,189     $ 147,166     $ 2,391     $ 17,518     $ 307,568  

(A)
Includes the Recapture Agreement for each respective pool.
   
(B)
Transfers are assumed to occur at the beginning of the respective period.
   
(C)
The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates. These gains (losses) represent the change in fair value of the Excess MSRs and are recorded in “Change in fair value of investments in excess mortgage servicing rights” in the consolidated statements of income.
Schedule of investments in equity method investees valued on a recurring basis using Level 3 inputs
New Residential’s investments in equity method investees measured at fair value on a recurring basis using Level 3 inputs changed during the nine months ended September 30, 2013 as follows:
 
       
       
   
Nine Months Ended
 September 30, 2013
 
Balance at December 31, 2012
  $  
Contributions to equity method investees
    351,937  
Distributions of earnings from equity method investees
    (18,626 )
Distributions of capital from equity method investees
    (17,020 )
Change in fair value of investments in equity method investees
    41,741  
Balance at September 30, 2013
  $ 358,032  
Schedule of real estate securities valuation methodology and results
As of September 30, 2013, New Residential’s securities valuation methodology and results are further detailed as follows:
 
               
Fair Value
 
Asset Type
 
Outstanding Face Amount
   
Amortized Cost Basis
   
Multiple Quotes (A)
   
Total
   
Level
 
                               
Agency ARM RMBS
  $ 1,203,293     $ 1,285,532     $ 1,279,450     $ 1,279,450       2  
Non-Agency RMBS
    851,504       559,980       581,750       581,750       3  
                                         
Total
  $ 2,054,797     $ 1,845,512     $ 1,861,200     $ 1,861,200          
 
(A)
Management generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. Management selected one of the quotes received as being most representative of the fair value and did not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because management believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases there is a wide disparity between the quotes New Residential receives. Management believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, management selects one of the quotes which is believed to more accurately reflect fair value. New Residential never adjusts quotes received. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price.
 
Schedule of non-agency RMBS valued on a recurring basis using Level 3 inputs
Fair value estimates of New Residential’s Non-Agency RMBS were based on third party indications as of September 30, 2013 and classified as Level 3. Securities measured at fair value on a recurring basis using Level 3 inputs changed during the nine months ended September 30, 2013 as follows:
 
   
Level 3
 
   
Non-Agency
 
   
RMBS
 
       
Balance at December 31, 2012
  $ 289,756  
Transfer (A)
       
Transfers from Level 3
     
Transfers into Level 3
     
         
Total gains (losses)
       
Included in net income as impairment
    (729 )
Gain on settlement of securities
    11,271  
Included in comprehensive income (B)
    6,501  
         
Amortization included in interest income
    16,286  
Purchases, sales and repayments
       
Purchases
    450,144  
Sales
    (123,130 )
Proceeds from repayments
    (68,349 )
         
Balance at September 30, 2013
  $ 581,750  
 
(A)
Transfers are assumed to occur at the beginning of the respective period.
   
(B)
These gains (losses) were included in net unrealized gain (loss) on securities in the consolidated statements of comprehensive income.
Schedule of Inputs used in valuing reverse mortgage loans
The following table summarizes the inputs used in valuing reverse mortgage loans as of September 30, 2013:

Reverse Mortgage Loans for Which Fair Value is Only Disclosed
 
                           
Significant Inputs
 
Loan Type
 
Outstanding Face Amount (A)
   
Carrying Value (A)
   
Fair Value
   
Valuation Allowance/ (Reversal) In Current Year
   
Discount Rate
   
Weighted Average Life (Years) (B)
 
                                     
Reverse Mortgage Loans
  $ 56,738     $ 33,060     $ 33,162     $       10.3 %     3.8  
 
(A) Represents a 70% interest New Residential holds in the reverse mortgage loans. 
   
(B)
The weighted average life is based on the expected timing of the receipt of cash flows.