Investment Portfolio

Our Differentiated Portfolio

New Residential has a differentiated, hard-to-replicate portfolio with diversified and high-quality investment strategies.

Our approximately $41 billion portfolio is comprised of investment options that have the appropriate characteristics to deliver strong returns and value in various interest rate environments and act as a natural hedge for the overall portfolio. In addition, through Shellpoint Partners, we have an origination and servicing platform as well as a suite of ancillary businesses that provide real estate related services.

New Residential’s diversified mortgage servicing strategy positions the company to capitalize on partnership opportunities that help: improve servicing performance, minimize risk, enrich customer experience and maximize the value of each loan we serve.

Net Equity as of September 30, 20191

MSRs and Servicer Advances

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MSRs and Servicer Advances

In our view, the approximately $10 trillion mortgage servicing market presents a number of compelling investment opportunities. A mortgage servicing right ("MSR") provides a mortgage servicer with the right to service a pool of mortgage loans in exchange for a fee.

Approximately 74% of MSRs are currently owned by banks. We expect this number will continue to decline as banks face pressure to reduce their MSR exposure as a result of heightened capital reserve requirements under Basel III, regulatory scrutiny and a more challenging servicing environment. As banks continue to sell MSRs, there is an opportunity for entities such as New Residential to participate through co-investment in the corresponding Excess MSRs.

An MSR is made up of two components: a basic fee and an Excess MSR. The basic fee is the amount of compensation for the performance of servicing duties, and the Excess MSR is the amount that exceeds the basic fee. As the owner of an Excess MSR, we collect monthly cash flows from the MSR, but do not assume any servicing duties, advance obligations or liabilities associated with the portfolios underlying our investment.

New Residential pioneered investments in Excess MSRs.


Hypothetical Mortgage Loan


For illustrative purposes only. Please see Terms of Use.

Servicer advances are a customary feature of residential mortgage securitization transactions and represent one of the duties for which a servicer is compensated through the basic fee component of the related MSR, since the advances are non-interest bearing. Servicer advances are generally reimbursable cash payments made by a servicer (i) when the borrower fails to make scheduled payments due on a mortgage loan or (ii) to support the value of the collateral property. The purpose of the advances is to provide liquidity, rather than credit enhancement, to the underlying residential mortgage securitization transaction. Servicer advances are usually repaid from amounts received with respect to the related mortgage loan.

Advances are typically “top of the waterfall”; first in line to be repaid and thus are very high credit-quality. Furthermore, we expect advance balances to decline substantially over time as delinquencies continue to improve and foreclosure timelines normalize. We believe advances will provide an opportunity for us to invest in core servicing assets that generate attractive yields.

$3,070 M

Net Equity Investment

42%

of Portfolio as of September 30, 2019

12 - 15%

Targeted Lifetime Net Yield for MSRs

15 – 25%

Targeted Lifetime Net Yield for Servicer Advances

Non-Agency RMBS & Associated Call Rights

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Non-Agency RMBS & Associated Call Rights

We acquire and manage a diversified portfolio of credit sensitive real estate securities, including non-Agency RMBS, which we believe complement our Excess MSR investments.

Residential mortgage-backed securities (“RMBS”) are securities created through the securitization of a pool of residential mortgage loans. 

Since the onset of the financial crisis in 2007, there has been significant volatility in the prices for non-Agency RMBS. This has resulted from a widespread contraction in capital available for this asset class, deteriorating housing fundamentals, and an increase in forced selling by institutional investors (often in response to rating agency downgrades). While the prices of these assets have recovered from their lows, from time to time there may be opportunities to acquire non-Agency RMBS at attractive risk-adjusted yields, with the potential for upside if the U.S. economy and housing market continue to strengthen. Furthermore, we believe that in many non-Agency RMBS vehicles there is a discrepancy between the value of the non-Agency RMBS and the recovery value of the underlying collateral. We intend to pursue opportunities to structure transactions that would enable us to realize this difference, particularly through the exercise of call rights.

We hold call rights on non-Agency residential mortgage securitizations which become exercisable once the current collateral balance reduces below a certain threshold of the original balance. We believe a call right is profitable when aggregate loan value is greater than the sum of par on the loans minus any discount from acquired bonds, plus expenses related to such exercise. Profit with respect to our call rights is generated by selectively retaining loans that meet our return thresholds or re-securitizing or selling performing loans for a gain and, prior to exercise, purchasing certain underlying tranches at a discount to par. Upon exercise, we are able to realize any remaining accretion to par.

$1,988 M

Net Equity Investment

28%

of Portfolio as of September 30, 2019

12 - 15%

Targeted Lifetime Net Yield

Residential Mortgage Loans

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Residential Mortgage Loans

We believe there are pockets of opportunity for us to invest in portfolios of non-performing and other residential mortgage loans, including performing and re-performing mortgage loans.

In certain of these investments, we would expect to acquire the loans at a discount to their face amount, and we (either independently or with a servicing co-investor) would seek to resolve the loans at a substantially higher valuation. We would seek to improve performance by transferring the servicing to a reputable servicer or in house servicing at Shellpoint Mortgage Servicing, which we believe could increase unlevered yields. In addition, we may seek to employ leverage to increase returns, either through traditional financing lines or, if available, securitization options.

$1,375 M

Net Equity Investment

19%

of Portfolio as September 30, 2019

13%+

Targeted Lifetime Net Yield

Consumer Loan Portfolio

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Consumer Loan Portfolio

SpringCastle - On April 1, 2013 we acquired from HSBC Finance Corporation (“HSBC”) a 30% equity interest in a consumer loan portfolio with an unpaid principal balance (“UPB”) of $4.2 billion as of December 31, 2012. We invested alongside Springleaf Finance, Inc. (“Springleaf”), a Fortress affiliate who will also be responsible for servicing the loans, and another third party (collectively the “co-investors”).

Since then, we have realized significant returns on our investment by increasing our equity investment in, and securing multiple refinancings of, the SpringCastle portfolio.

  • October 2014 – Completed $2.6 billion refinancing
  • March 2016 – Increased New Residential’s interest in SpringCastle JV, from 30% to ~54% October 2016 – Completed a $1.7 billion refinancing of the SpringCastle securitization, providing ~$23 million of liquidity
  • July 2019 – Completed $939 million refinancings, lowering servicing fees and cost of funds by ~150bps over the life of the transaction

Prosper – In February 2017, we became part of a 4-member Consortium which agreed to purchase up to $5 billion of unsecured consumer loans from Prosper on a forward flow basis. Under the agreement, members of the Consortium earned warrants to purchase shares of Prosper equity as loans were purchased. As of July 30, 2019, 100% of expected warrants had been earned by the Consortium and through those warrants, we own ~8% of Prosper. The investment in Prosper has generated a life-to-date IRR of over 20%.

$56 M

Net Equity Investment

1%

of Portfolio as of September 30, 2019

13%+

Targeted Lifetime Net Yield

Subsidiaries and Partners

New Residential has made strategic acquisitions and investments that enhance our ability to provide a suite of services to the consumer and drive earnings for our shareholders.

Note: Market data is as of September 30, 2019 and per Bloomberg. Financial data is as of September 30, 2019 and per company filings.

1. MSRs and Servicer Advances: Excess MSRs - Net Investment of $276 million includes (A) $530 million investment in 9/30/19 Legacy NRZ Excess MSRs, and (B) $17 million of restricted cash and other assets, net of debt and other liabilities of $271 million (debt issued on the NRZ Agency Excess MSR portfolio).  At 9/30/19 Net Investment excludes Excess MSR Cash (included in Cash as of 9/30/19). MSRs - Net Investment of $2,692 million includes $8,773 million of total assets, net of debt and other liabilities of $6,070 million and non-controlling interests in the portfolio of $11 million; includes Originations. At 9/30/19 Net Investment excludes MSR cash (included in cash as of 9/30/19). Servicer Advances: Net Investment of $102 million includes (A) $95 million net investment in AP LLC Advances, with $583 million of total assets, net of debt and other liabilities of $438 million and non-controlling interests in the portfolio of $50 million and (B) $7 million net investment in SLS Advances, with $21 million of total assets, net of debt and other liabilities of $14 million.  At 9/30/19 Net Investment excludes Servicer Advance Cash (included in Cash as of 9/30/19). Targeted Lifetime Net Yield is targeted IRR for pools that have settled.  
Residential Securities & Call Rights: Net Investment of $1,988 million includes (A) $1,572 million net investment in Non-Agency RMBS, with $8,229 million of assets, net of debt and other liabilities of $6,657 million, (B) $416 million in Agency RMBS, with $13,564 million of assets (including $4,427 million of Open Trades Receivable), net of debt and other liabilities of $13,148 million (including $2,535 million of Open Trades Payable) and (C) $0.3 million net investment in Call Rights. At 9/30/19, Net Investment excludes Residential Securities Cash (included in Cash as of 9/30/19). Targeted Lifetime Net Yield represents the targeted future IRR over a weighted average life of 6.3 years for Non-Agency RMBS, assuming actual and targeted leverage, and represents the IRR over a weighted average life of 4.6 years for Agency RMBS.
Note that the economic returns from our call right strategy could be adversely affected by a rise in interest rates and are contingent on the level of delinquencies and outstanding advances in each transaction, fair market value of the related collateral and other economic factors and market conditions. We may become subject to claims and legal proceedings, including purported class-actions, in the ordinary course of our business, challenging our right to exercise these call rights. Call rights are usually exercisable when current loan balances in a related portfolio are equal to, or lower than, 10% of their original balance. See “Disclaimers” for more information on forward-looking statements.  Residential Loans: Net Investment of $1,375 million includes (A) $1,356 million net investment in Residential Loans & REO, with $7,635 million of total assets, net of debt and other liabilities of $6,279 million, (B) $18 million net investment in EBOs, with $48 million of total assets, net of debt and other liabilities of $30 million and (C) $1 million net investment in Reverse Loans, with $9 million of total assets, net of debt and other liabilities of $8 million. At 9/30/19 Net Investment excludes Residential Loan Cash (included in Cash as of 9/30/19). Targeted Lifetime Net Yield represents the IRR over a weighted average life of 10.0 years.  
Consumer Loans: Net Investment of $56 million includes $972 million of total assets, net of debt and other liabilities of $893 million and non-controlling interests in the portfolio of $23 million. At 9/30/19 Net Investment excludes Consumer Loan Cash (included in Cash as of 9/30/19). Targeted Lifetime Net Yield represents the IRR over a weighted average life of 3.9 years.
Cash: As of September 30, 2019, cash and cash equivalents totaled $738 million.