INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

During the three months ended March 31, 2015, New Residential sold several portfolios of reperforming and non-performing residential mortgage loans as discussed below:


•	On February 27, 2015, New Residential sold a portfolio of non-performing residential mortgage loans with a UPB of approximately $135.2 million and a carrying value of approximately $102.4 million at a price of $102.8 million and recorded a gain of $0.4 million.


•	On March 19, 2015, New Residential sold a portfolio of reperforming residential mortgage loans with a UPB of approximately $176.5 million and a carrying value of approximately $142.1 million at a price of $148.6 million and recorded a gain of $6.5 million.


•	On March 26, 2015, New Residential sold a portfolio of reperforming residential mortgage loans with a UPB of approximately $6.4 million and a carrying value of approximately $5.1 million at a price of $5.3 million and recorded a gain of $0.2 million.


•	On March 27, 2015, New Residential sold a portfolio of non-performing residential mortgage loans and REO with a UPB of approximately $469.6 million and a carrying value of approximately $362.0 million at a price of $373.0 million and recorded a gain of $11.0 million.

Loans are accounted for based on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. New Residential accounts for loans based on the following categories:


•	Loans Held-for-Investment:


◦	Reverse Mortgage Loans


◦	Performing Loans


◦	Purchased Credit Impaired (“PCI”) Loans


•	Loans Held-for-Sale (“HFS”)


•	Real Estate Owned (“REO”)

The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type, excluding REO:



	March 31, 2015
	Outstanding Face Amount		Carrying Value		Loan Count	Weighted Average Yield		Weighted Average Life (Years)^(A)	Floating Rate Loans as a % of Face Amount		Loan to Value Ratio (“LTV”)^(B)		Weighted Avg. Delinquency^(C)		Weighted Average FICO^(D)	December 31, 2014 Carrying Value
Loan Type
Reverse Mortgage Loans^(E)(F)	$	42,306	$	23,294	182	10.0	%	4.0	21.4	%	109.6	%	78.2	%	N/A	$	24,965
Performing Loans^(G)	23,548		21,673		709	8.7	%	5.8	17.9	%	79.6	%	0.3	%	620	22,873
Total Residential Mortgage Loans, held-for- investment	$	65,854	$	44,967	891	9.6	%	4.7	19.4	%	98.5	%	53.0	%	620	$	47,838

Performing Loans, held-for-sale^(G)	$	268,731	$	270,407	4,832	4.9	%	7.0	27.6	%	82.1	%	—	%	621	$	388,485
Purchased Credit Impaired (“PCI”) Loans, held-for-sale^(H)	300,598		229,767		2,133	5.9	%	2.4	32.4	%	105.9	%	87.4	%	547	737,954
Residential Mortgage Loans, held-for-sale	$	569,329	$	500,174	6,965	5.4	%	4.5	30.1	%	94.7	%	46.2	%	582	$	1,126,439


(A)	The weighted average life is based on the expected timing of the receipt of cash flows.


(B)	LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.


(C)	Represents the percentage of the total principal balance that are 60+ days delinquent.


(D)	The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.


(E)	Represents a 70% interest that New Residential holds in reverse mortgage loans. The average loan balance outstanding based on total UPB is $0.3 million. 76% of these loans have reached a termination event. As a result, the borrower can no longer make draws on these loans. Each loan matures upon the occurrence of a termination event.


(F)	FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.


(G)	Includes loans that are current or less than 30 days past due at acquisition where New Residential expects to collect all contractually required principal and interest payments. Presented net of unamortized premiums of $0.7 million.


(H)	Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments. As of March 31, 2015, New Residential has placed all of these loans on nonaccrual status.

New Residential generally considers the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as its credit quality indicators. Delinquency status is a primary credit quality indicator as loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties. For residential mortgage loans, the current LTV ratio is an indicator of the potential loss severity in the event of default. Finally, the geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events will affect credit quality.

The table below summarizes the geographic distribution of the underlying residential mortgage loans:



	Percentage of Total Outstanding Unpaid Principal Amount as of
State Concentration	March 31, 2015		December 31, 2014
New York	11.2	%	12.2	%
California	9.0	%	15.0	%
Florida	7.1	%	6.3	%
New Jersey	5.5	%	7.0	%
Georgia	4.8	%	3.6	%
Texas	4.7	%	4.1	%
Pennsylvania	4.7	%	3.9	%
North Carolina	4.6	%	3.0	%
Ohio	4.4	%	3.1	%
Illinois	4.1	%	4.4	%
Other U.S.	39.9	%	37.4	%
	100.0	%	100.0	%

Reverse Mortgage Loans

In February 2013, New Residential, through a subsidiary, entered into an agreement to co-invest in a portfolio of reverse mortgage loans. New Residential acquired a 70% interest in the reverse mortgage loans. Nationstar has co-invested on a pari passu basis with New Residential in 30% of the reverse mortgage loans and is the servicer of the loans performing all servicing and advancing functions and retaining the ancillary income, servicing obligations and liabilities as the servicer.

Performing Loans

The following table provides past due information for New Residential’s Performing Loans, which is an important indicator of credit quality and the establishment of the allowance for loan losses:



March 31, 2015
Days Past Due	Delinquency Status^(A)
Current	86.1	%
30-59	13.9	%
60-89	—	%
90-119^(B)	—	%
120+^(C)	—	%
	100.0	%


(A)	Represents the percentage of the total principal balance that corresponds to loans that are in each delinquency status.


(B)	Includes loans 90-119 days past due and still accruing because they are generally placed on nonaccrual status at 120 days or more past due.


(C)	Represents nonaccrual loans.

Activities related to the carrying value of residential mortgage loans held-for-investment were as follows:



	For the Three Months Ended March 31, 2015
	Reverse Mortgage Loans			Performing Loans
Balance at December 31, 2014	$	24,965		$	22,873
Purchases/additional fundings	340			—
Proceeds from repayments	—			(854		)
Accretion of loan discount (premium) and other amortization	1,274			(228		)
Provision for loan losses	(202		)	(118		)
Transfer of loans to other assets	(2,720		)	—
Transfer of loans to real estate owned	(363		)	—
Transfer of loans to held-for-sale	—			—
Reversal of valuation provision on loans transferred to other assets	—			—
Balance at March 31, 2015	$	23,294		$	21,673

Activities related to the valuation provision on reverse mortgage loans and allowance for loan losses on performing loans held-for-investment were as follows:



	For the Three Months Ended March 31, 2015
	Reverse Mortgage Loans		Performing Loans
Balance at December 31, 2014	$	1,518	$	1,447
Allowance for loan losses^(A)	202		118
Charge-offs^(B)	—		(1,371		)
Reversal of valuation provision on loans transferred to other assets	—		—
Balance at March 31, 2015	$	1,720	$	194


(A)	Based on an analysis of collective borrower performance, credit ratings of borrowers, loan-to-value ratios, estimated value of the underlying collateral, key terms of the loans and historical and anticipated trends in defaults and loss severities at a pool level.


(B)	Loans, other than PCI loans, are generally charged off or charged down to the net realizable value of the collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, when available information confirms that loans are uncollectible.

Purchased Credit Impaired Loans

All of New Residential’s PCI loans were classified as held-for-sale at December 31, 2014 and throughout the three months ended March 31, 2015, and therefore, are not subject to the accounting in ASC 310-30.

Loans Held-for-Sale

Activities related to the carrying value of loans held-for-sale were as follows:



	For the Three Months Ended March 31, 2015
	Loans Held-for-Sale
Balance at December 31, 2014	$	1,126,439
Purchases^(A)	—
Sales	(606,155		)
Transfer of loans to real estate owned	(15,417		)
Adoption of ASU 2014-11^(B)	1,831
Proceeds from repayments	(5,682		)
Valuation provision on loans^(C)	(842		)
Balance at March 31, 2015	$	500,174


(A)	Represents loans acquired with the intent to sell.


(B)	Represents loans financed with the selling counterparty that were previously accounted for as linked transactions.


(C)	Represents the fair value adjustments to loans upon transfer to held-for-sale and provision recorded on certain purchased held-for-sale loans.

Real estate owned (REO)

During the three months ended March 31, 2015, New Residential received properties in satisfaction of non-performing residential mortgage loans. As a result, New Residential has recognized REO assets totaling approximately $15.2 million during the three months ended March 31, 2015. As of March 31, 2015, New Residential had non-performing residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $204.8 million.

Linked Transactions

See Note 10 for a discussion of transactions formerly accounted for as linked transactions.