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)			Ocwen^(B)			Total
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
Transfers from indirect ownership	98,258			—			—			98,258
Purchases	254,149			—			917,078			1,171,227
Interest income	66,039			180			68,346			134,565
Other income	2,999			—			—			2,999
Proceeds from repayments	(131,621		)	(1,291		)	(148,996		)	(281,908		)
Change in fair value^{(C) (D)}	(596		)	(2,239		)	41,478			38,643
Balance as of December 31, 2015	$	698,304		$	5,307		$	877,906		$	1,581,517


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


(B)	Ocwen services the loans underlying the Excess MSRs and Servicer Advances acquired from HLSS (Note1).


(C)	In 2015, New Residential recorded a cumulative positive prior period adjustment of $4.2 million on its Excess MSR investments serviced by Nationstar resulting from adjustments to certain modeling assumptions.


(D)	In the fourth quarter of 2015, New Residential recorded a change in estimate in the calculation of fair value of $41.5 million on its Excess MSR investments serviced by Ocwen resulting from adjustments to certain modeling assumptions.

Nationstar, SLS, or Ocwen, as applicable, as servicer, performs all servicing and advancing functions, and retains 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 serviced by Nationstar and SLS, 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. New Residential has a similar recapture agreement with Ocwen; however, this agreement allows for Ocwen to retain the Excess MSR on recaptured loans up to a threshold and no payments have been made to New Residential under such arrangement to date. 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, 2015
	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	$	93,441,696	32.5% - 66.7%		0.0% - 40.0%		20.0% - 35.0%		5.8	$	335,478	$	378,083
Recapture Agreements	—		32.5% - 66.7%		0.0% - 40.0%		20.0% - 35.0%		12.0	36,627		59,118
	93,441,696								6.4	372,105		437,201

Non-Agency^(D)
Nationstar and SLS Serviced:
Original and Recaptured Pools	$	94,923,975	33.3% - 80.0%		0.0% - 50.0%		0.0% - 33.3%		5.2	$	210,691	$	250,662
Recapture Agreements	—		33.3% - 80.0%		0.0% - 50.0%		0.0% - 33.3%		12.3	14,130		15,748
Ocwen Serviced Pools	141,002,300		100.0	%	—	%	—	%	6.2	836,428		877,906
	235,926,275								6.1	1,061,249		1,144,316
Total	$	329,367,971							6.2	$	1,433,354	$	1,581,517



	December 31, 2014
	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


(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, 2015 (Note 6).

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



	Year Ended December 31,
	2015		2014		2013
Original and Recaptured Pools	$	34,936	$	35,000	$	37,692
Recapture Agreements	3,707		6,615		15,640
	$	38,643	$	41,615	$	53,332

As of December 31, 2015 and 2014, weighted average discount rates of 9.8% and 9.6%, 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
	December 31,
State Concentration	2015		2014
California	26.7	%	31.5	%
Florida	8.9	%	7.7	%
New York	7.8	%	4.3	%
Texas	4.3	%	4.2	%
New Jersey	4.1	%	3.2	%
Maryland	3.8	%	4.0	%
Illinois	3.4	%	3.2	%
Virginia	3.1	%	3.3	%
Washington	2.7	%	3.6	%
Massachusetts	2.7	%	2.1	%
Other U.S.	32.5	%	32.9	%
	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.