INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

12 Months Ended

Dec. 31, 2014

Transfers and Servicing [Abstract]

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

The following table presents activity related to the carrying value of New Residential's investments in Excess MSRs:

	Servicer
	Nationstar			SLS(A)		Total
Balance as of December 31, 2012	$	245,036		$	—	$	245,036
Purchases	63,434			—		63,434
Purchase adjustments	—			—		—
Interest income	40,921			—		40,921
Proceeds from repayments	(78,572		)	—		(78,572		)
Change in fair value	53,332			—		53,332
Balance as of December 31, 2013	324,151			—		324,151
Purchases	85,735			8,378		94,113
Interest income	49,143			37		49,180
Other income	1,157			—		1,157
Proceeds from repayments	(92,483		)	—		(92,483		)
Change in fair value	41,373			242		41,615
Balance as of December 31, 2014	$	409,076		$	8,657	$	417,733

(A)    Specialized Loan Servicing LLC ("SLS"). See Note 6 for a description of the SLS Transaction.

Nationstar or SLS, as applicable, as servicer, perform all servicing and advancing functions, and retain the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio.

New Residential has entered into a “Recapture Agreement” in each of the Excess MSR investments to date, including those Excess MSR investments made through investments in joint ventures (Note 5). Under the Recapture Agreements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any initial or subsequent refinancing by Nationstar of a loan in the original portfolio. These Recapture Agreements do not apply to New Residential’s investments in servicer advances (Note 6).

New Residential elected to record its investments in Excess MSRs at fair value pursuant to the fair value option for financial instruments in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on the Excess MSRs.

The following is a summary of New Residential’s direct investments in Excess MSRs:

	December 31, 2014
	Unpaid Principal Balance ("UPB") of Underlying Mortgages		Interest in Excess MSR			Weighted Average Life Years(A)	Amortized Cost Basis(B)		Carrying Value(C)
			New Residential	Fortress-managed funds	Nationstar
Agency
Original and Recaptured Pools	$	48,217,901	32.5%-66.7%	0.0%-33.3%	33.3%-35%	5.7	$	140,455	$	188,733
Recapture Agreements	—		32.5%-66.7%	0.0%-33.3%	33.3%-35%	12.3	8,887		28,786
	48,217,901					6.1	149,342		217,519
Non-Agency(D)
Original and Recaptured Pools	$	54,263,857	33.3%-80.0%	0.0%-50.0%	0.0%-33.3%	5.0	$	152,763	$	189,812
Recapture Agreements	—		33.3%-80.0%	0.0%-50.0%	0.0%-33.3%	11.9	11,291		10,402
	54,263,857					5.5	164,054		200,214
Total	$	102,481,758				5.8	$	313,396	$	417,733

	December 31, 2013
	Unpaid Principal Balance ("UPB") of Underlying Mortgages		Interest in Excess MSR				Weighted Average Life Years(A)	Amortized Cost Basis(B)		Carrying Value(C)
			New Residential	Fortress-managed funds	Nationstar
Agency
Original and Recaptured Pools	$	28,134,026	65.0%-66.7%	0.0%-33.3%	33.3%-35%		5.3	$	93,099	$	120,271
Recapture Agreements	—		65.0%-66.7%	0.0%-33.3%	33.3%-35%		12.2	7,648		24,389
	28,134,026						5.8	100,747		144,660
Non-Agency(D)
Original and Recaptured Pools	$	50,819,588	40.0%-80.0%	0.0%-40.0%	20.0	%	5.2	$	149,852	$	173,007
Recapture Agreements	—		40.0%-80.0%	0.0%-40.0%	20.0	%	13.3	10,830		6,484
	50,819,588						5.8	160,682		179,491
Total	$	78,953,614					5.8	$	261,429	$	324,151

(A) Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.

(B) 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.

(C) Carrying Value represents the fair value of the pools or Recapture Agreements, as applicable.

(D) Excess MSR investments in which New Residential also invested in related servicer advances, including the basic fee component of the related MSR, as of December 31, 2014 (Note 6).

Changes in fair value recorded in other income is comprised of the following:

	Year Ended December 31,
	2014		2013		2012
Original and Recaptured Pools	$	35,000	$	37,692	$	12,467
Recapture Agreements	6,615		15,640		(3,444		)
	$	41,615	$	53,332	$	9,023

As of December 31, 2014 and 2013, weighted average discount rates of 9.6% and 12.5%, respectively, were used to value New Residential's investments in Excess MSRs (directly and through equity method investees).

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the direct investments in Excess MSRs:

	Percentage of Total Outstanding Unpaid Principal Amount
State Concentration	December 31, 2014		December 31, 2013
California	31.5	%	31.5	%
Florida	7.7	%	9.8	%
New York	4.3	%	4.9	%
Texas	4.2	%	4.0	%
Maryland	4.0	%	3.5	%
Washington	3.6	%	3.9	%
Virginia	3.3	%	3.1	%
Arizona	3.2	%	3.5	%
Illinois	3.2	%	2.7	%
New Jersey	3.2	%	3.3	%
Other U.S.	31.8	%	29.8	%
	100.0	%	100.0	%

Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the Excess MSRs.