INVESTMENTS IN REAL ESTATE SECURITIES

Agency residential mortgage backed securities (“RMBS”) are RMBS issued by a government sponsored enterprise, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Non-Agency RMBS are issued by either public trusts or private label securitization entities.

Activities related to New Residential’s investments in real estate securities were as follows:



	Year Ended December 31, 2015				Year Ended December 31, 2014
	(in millions)				(in millions)
	Agency		Non Agency^(A)		Agency		Non Agency
Purchases
Face	$	5,140.1	$	2,397.9	$	1,341.0	$	3,187.5
Purchase Price	$	5,333.7	$	1,288.9	$	1,399.0	$	1,455.8

Sales
Face	$	5,772.5	$	476.4	$	746.9	$	2,004.3
Amortized Cost	$	5,997.5	$	422.7	$	791.3	$	1,228.4
Sale Price	$	6,007.6	$	425.7	$	796.4	$	1,289.0
Gain on Sale	$	10.1	$	3.0	$	5.1	$	60.6


(A)	Purchases include $431.0 million face of servicer advance bonds for a purchase price of $431.0 million.

On December 31, 2015, New Residential sold and purchased $1.5 billion and $0.7 billion face amount of Agency RMBS for $1.5 billion and $0.7 billion, respectively. These unsettled sales and purchases were recorded on the balance sheet on trade date as Trade Receivable and Trades Payable.

New Residential has exercised its call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans, including REO, contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. Refer to Note 8 for further details on these transactions.

On March 6, 2014, New Residential agreed to purchase approximately $625.0 million face amount of Non-Agency RMBS for approximately $553.0 million. The purchased securities represented 75% of the mezzanine and subordinate tranches (the “2009-1 Retained Certificates”) of a securitization sponsored by Third Street Funding LLC, an affiliate of OneMain. On May 30, 2014, New Residential sold the 2009-1 Retained Certificates for approximately $598.5 million and recorded a gain of approximately $39.7 million. The purchase and sale of the 2009-1 Retained Certificates is included in the table above.

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

The following is a summary of New Residential’s real estate securities, all of which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired and except for securities which New Residential elected to carry at fair value and record changes to valuation through the income statement.



					Gross Unrealized								Weighted Average
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Gains		Losses			Carrying Value^(A)		Number of Securities	Rating^(B)	Coupon^(C)		Yield		Life (Years)^(D)	Principal Subordination^(E)
December 31, 2015
Agency RMBS^(F)(G)	$	884,578	$	918,633	$	183	$	(1,218	)	$	917,598	28	AAA	3.28	%	2.75	%	6.6	N/A
Non-Agency RMBS^{(H) (I)}	3,533,974		1,579,445		22,964		(18,126		)	1,584,283		240	BB+	1.63	%	5.03	%	6.8	12.1	%
Total/Weighted Average	$	4,418,552	$	2,498,078	$	23,147	$	(19,344	)	$	2,501,881	268	A-	2.69	%	4.19	%	6.7
December 31, 2014
Agency RMBS^(F)(G)	$	1,646,361	$	1,724,329	$	18,572	$	(2,738	)	$	1,740,163	104	AAA	3.22	%	2.22	%	5.0	N/A
Non-Agency RMBS^(H)	1,896,150		710,515		15,327		(2,842		)	723,000		142	CCC	1.98	%	3.37	%	6.4	17.3	%
Total/Weighted Average	$	3,542,511	$	2,434,844	$	33,899	$	(5,580	)	$	2,463,163	246	A	2.86	%	2.83	%	5.7


(A)	Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.

(B)

Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 89 bonds with a carrying value of $333.0 million which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies, and represent the most recent credit ratings available as of the reporting date and may not be current.


(C)	Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $227.4 million and $0.0 million, respectively, for which no coupon payment is expected.


(D)	The weighted average life is based on the timing of expected principal reduction on the assets.


(E)	Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding interest-only bonds and servicer advance bonds.


(F)	Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.


(G)	The total outstanding face amount was $0.7 billion and $1.0 billion for fixed rate securities and $0.2 billion and $0.6 billion for floating rate securities as of December 31, 2015 and 2014, respectively.

(H)

The total outstanding face amount was $2.3 billion (including $1.7 billion of residual and interest-only notional amount) and $1.0 billion (including $959.1 million of interest-only notional amount) for fixed rate securities and $1.3 billion (including $164.4 million of residual and interest-only notional amount) and $882.4 million (including $130.6 million of residual and interest-only notional amount) for floating rate securities as of December 31, 2015 and 2014, respectively.


(I)	Includes Other ABS consisting primarily of (i) interest-only securities which New Residential elected to carry at fair value and record changes to valuation through the income statement and representing 5.2% of the carrying value of the Non-Agency RMBS portfolio and (ii) bonds backed by servicer advances representing 27.2% of the carrying value of the Non-Agency RMBS portfolio.



					Gross Unrealized								Weighted Average
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Gains		Losses			Carrying Value		Number of Securities	Rating	Coupon		Yield		Life (Years)	Principal Subordination
Other ABS	$	1,522,256	$	82,101	$	5,227	$	(4,348	)	$	82,980	12	AA+	1.84	%	7.11	%	4.0	N/A
Servicer Advance Bonds	$	431,000	$	430,951	$	—	$	(661	)	$	430,290	5	AA+	2.69	%	2.70	%	1.1	N/A

Unrealized losses that are considered other than temporary are recognized currently in earnings. During the year ended December 31, 2015, New Residential recorded OTTI charges of $5.8 million with respect to real estate securities. During the year ended December 31, 2014, New Residential recorded OTTI of $1.4 million. During the year ended December 31, 2013, New Residential recorded OTTI of $5.0 million, of which $3.8 million was recorded with respect to real estate securities included in the spin-off on May 15, 2013. Based on Newcastle’s analysis of these securities, Newcastle determined it did not have the intent to hold the securities past May 15, 2013. New Residential also recorded OTTI of $1.0 million with respect to real estate securities sold in January 2014 that were in an unrealized loss position as of December 31, 2013 since New Residential determined that it did not have the intent to hold the securities, as well as $0.3 million with respect to expected credit loss related to real estate securities in an unrealized loss position as of December 31, 2013, based on management’s analysis of expected cash flows of these securities. Any remaining unrealized losses on New Residential’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. New Residential performed analyses in relation to such securities, using management’s best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. New Residential has no intent to sell, and is not more likely than not to be required to sell, these securities.

The following table summarizes New Residential’s securities in an unrealized loss position as of December 31, 2015.



			Amortized Cost Basis													Weighted Average
Securities in an Unrealized Loss Position	Outstanding Face Amount		Before Impairment		Other-Than- Temporary Impairment^(A)			After Impairment		Gross Unrealized Losses			Carrying Value		Number of Securities	Rating^(B)	Coupon		Yield		Life (Years)
Less than Twelve Months	$	1,697,478	$	1,028,088	$	(5,028	)	$	1,023,060	$	(14,508	)	$	1,008,552	127	BBB	2.14	%	4.25	%	5.9
Twelve or More Months	766,444		192,699		—			192,699		(4,836		)	187,863		25	AA+	2.30	%	1.72	%	5.1
Total/Weighted Average	$	2,463,922	$	1,220,787	$	(5,028	)	$	1,215,759	$	(19,344	)	$	1,196,415	152	BBB+	2.17	%	3.85	%	5.7


(A)	This amount represents other-than-temporary impairment recorded on securities that are in an unrealized loss position as of December 31, 2015.


(B)	The weighted average rating of securities in an unrealized loss position for less than twelve months excludes the rating of 51 bonds which either have never been rated or for which rating information is no longer provided.

New Residential performed an assessment of all of its debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI, exceeds its fair value) and determined the following:



	December 31, 2015
					Unrealized Losses
	Fair Value		Amortized Cost Basis After Impairment		Credit^(A)			Non-Credit^(B)
Securities New Residential intends to sell^(C)	$	19,875	$	19,875	$	(224	)	$	—
Securities New Residential is more likely than not to be required to sell^(D)	—		—		—			N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities	172,114		174,049		(4,804		)	(1,935		)
Non-credit impaired securities	1,004,426		1,021,835		—			(17,409		)
Total debt securities in an unrealized loss position	$	1,196,415	$	1,215,759	$	(5,028	)	$	(19,344	)

(A)

This amount is required to be recorded as other-than-temporary impairment through earnings. In measuring the portion of credit losses, New Residential’s management estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include management’s expectations of prepayment speeds, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.


(B)	This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.


(C)	A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment, and, therefore do not have unrealized losses reflected in other comprehensive income as of December 31, 2015.

(D)

New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.

The following table summarizes the activity related to credit losses on debt securities:



	Year Ended December 31,
	2015			2014
Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	1,127		$	2,071
Increases to credit losses on securities for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income	5			568
Additions for credit losses on securities for which an OTTI was not previously recognized	5,782			823
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis	—			—
Reduction for credit losses on securities for which no OTTI was recognized in other comprehensive income at the current measurement date	—			(401		)
Reduction for securities sold during the period	(675		)	(1,934		)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	6,239		$	1,127

The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:



	December 31,
	2015				2014
Geographic Location^(A)	Outstanding Face Amount		Percentage of Total Outstanding		Outstanding Face Amount		Percentage of Total Outstanding
Western U.S.	$	1,097,609	35.3	%	$	779,930	41.1	%
Southeastern U.S.	758,167		24.4	%	409,755		21.6	%
Northeastern U.S.	583,366		18.8	%	344,716		18.2	%
Midwestern U.S.	335,406		10.8	%	190,480		10.0	%
Southwestern U.S.	309,236		10.0	%	170,829		9.0	%
Other^(B)	19,189		0.7	%	440		0.1	%
	$	3,102,973	100.0	%	$	1,896,150	100.0	%


(A)	Excludes $431.0 million face amount of bonds backed by servicer advances.


(B)	Represents collateral for which New Residential was unable to obtain geographic information.

New Residential evaluates the credit quality of its real estate securities, as of the acquisition date, for evidence of credit quality deterioration. As a result, New Residential identified a population of real estate securities for which it was determined that it was probable that New Residential would be unable to collect all contractually required payments. For securities acquired during the year ended December 31, 2015, the face amount of these real estate securities was $583.6 million, with total expected cash flows of $502.3 million and a fair value of $329.5 million on the dates that New Residential purchased the respective securities. For those securities acquired during the year ended December 31, 2014, the face amount was $754.6 million, the total expected cash flows were $734.9 million and the fair value was $552.1 million on the dates that New Residential purchased the respective securities.

The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and interest-only securities:



	Outstanding Face Amount		Carrying Value
December 31, 2015	$	873,763	$	504,659
December 31, 2014	$	536,342	$	414,298

The following is a summary of the changes in accretable yield for these securities:



	Year Ended December 31,
	2015			2014
Beginning Balance	$	181,671		$	143,067
Adoption of ASU No. 2014-11 (Note 2)	146,741			—
Additions	172,828			189,252
Accretion	(42,800		)	(14,035		)
Reclassifications from (to) non-accretable difference	(36,326		)	20,385
Disposals	(105,593		)	(156,998		)
Ending Balance	$	316,521		$	181,671

See Note 11 regarding the financing of real estate securities.