Investment Portfolio

Our Differentiated Portfolio

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

Our 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, 20201

Origination

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Origination

Our origination business operates through the lending division of our subsidiary NewRez LLC (formerly New Penn Financial, LLC, “NewRez”). As a lender, NewRez provides refinance opportunities to eligible existing servicing customers, primarily through its direct-to-consumer channel, and also originates or purchases loans from brokers or originators through retail, wholesale and correspondent channels.

We also have several wholly-owned subsidiaries that perform various services in the mortgage and real estate industries. Our subsidiary Avenue 365 Lender Services, LLC (“Avenue 365”) is a title agency providing title and settlement services to mortgage lenders and servicers. Our subsidiary eStreet Appraisal Management LLC (“eStreet”) is an appraisal management company that performs appraisal and valuation services.

$533 M

Net Equity Investment

9%

of Portfolio as of September 30, 2020

Servicing

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Servicing

Our servicing business operates through NewRez’s servicing division, which consists of its performing loans servicing division, NewRez Servicing, and its special servicing division, Shellpoint Mortgage Servicing (“SMS”). NewRez Servicing services current Agency and government-insured loans. SMS services delinquent Agency loans and non-Agency loans on behalf of the owners of the underlying mortgages. Servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, performing loss mitigation activities, negotiating workouts and modifications, conducting or managing foreclosures on behalf of investors or other servicers and otherwise administering our mortgage loan servicing portfolio.

$217 M

Net Equity Investment

4%

of Portfolio as of September 30, 2020

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.

$3,048 M

Net Equity Investment

53%

of Portfolio as of September 30, 2020

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.

$1,122 M

Net Equity Investment

19%

of Portfolio as of September 30, 2020

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.

$798 M

Net Equity Investment

14%

of Portfolio as of September 30, 2020

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, 2020 and per Bloomberg. Financial data is as of September 30, 2020 and per company filings.

1. Percentages are based on $5.3 billion portfolio which includes corporate net equity of ($13) million.

2. Excludes ($305) million net investment in Corporate with $297 million of total assets, net of debt and other liabilities of $602 million.