OTHER INCOME (LOSS), GENERAL AND ADMINISTRATIVE, OTHER ASSETS AND LIABILITIES

6 Months Ended

Jun. 30, 2020

OTHER INCOME (LOSS), GENERAL AND ADMINISTRATIVE, OTHER ASSETS AND LIABILITIES

Change in fair value of investments — This item is comprised of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Change in fair value of investments in excess mortgage servicing rights	$	(85)	$	(8,455)	$	(11,109)	$	(3,828)
Change in fair value of investments in excess mortgage servicing rights, equity method investees	(2,052)		(3,276)		(2,509)		(664)
Change in fair value of investments in mortgage servicing rights financing receivables	(121,520)		(55,411)		(225,631)		(91,790)
Change in fair value of servicer advance investments	16,037		1,388		(2,712)		9,291
Change in fair value of real estate and other securities	58,598		7,385		(28,194)		14,064
Change in fair value of residential mortgage loans	99,998		72,393		(165,246)		81,607
Change in fair value of investments in consumer loans held-for-investment	30,694		—		(9,223)		—
Change in fair value of derivative instruments	21,106		(40,666)		(18,876)		(66,426)
	$	102,776	$	(26,642)	$	(463,500)	$	(57,746)

Gain (Loss) on Settlement of Investments, Net — This item is comprised of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Gain (loss) on sale of real estate securities	$	(6,669)	$	41,023	$	(761,209)	$	106,219
Gain (loss) on sale of acquired residential mortgage loans	(47,330)		6,575		(12,094)		9,757
Gain (loss) on settlement of derivatives	(25,195)		(45,201)		(109,907)		(138,277)
Gain (loss) on liquidated residential mortgage loans	3,220		(633)		2,381		(3,122)
Gain (loss) on sale of REO	443		(4,551)		1,616		(6,276)
Other gains (losses)	565		8,363		4,675		(5,586)
	$	(74,966)	$	5,576	$	(874,538)	$	(37,285)

Other Income (Loss), Net — This item is comprised of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Unrealized gain (loss) on notes and bonds payable	$	(10,856)	$	(1,464)	$	6,146	$	(2,601)
Unrealized gain (loss) on contingent consideration	(2,257)		(2,682)		(3,871)		(4,727)
Unrealized gain (loss) on equity investments	(2,674)		(86)		(47,697)		(159)
Gain (loss) on transfer of loans to REO	1,712		1,600		4,307		6,584
Gain (loss) on transfer of loans to other assets	(20)		244		(261)		(277)
Gain (loss) on Excess MSR recapture agreements	562		935		1,190		1,242
Gain (loss) on Ocwen common stock	929		1,451		(4,121)		4,237
Provision for servicing losses	(11,249)		(285)		(16,030)		(926)
Rental and ancillary revenue	20,112		—		39,719		—
Other income (loss)	534		(1,940)		(19,402)		88
	$	(3,207)	$	(2,227)	$	(40,020)	$	3,461

General and Administrative Expenses, Loan Servicing Expense and Subservicing Expense — General and administrative expenses are expensed as incurred and primarily include employee compensation, legal and professional fees, insurance premiums, and other costs. Loan servicing and subservicing expenses are expensed as incurred.

General and Administrative Expenses is comprised of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Compensation and benefits expense, servicing	$	59,498	$	29,480	$	110,839	$	54,781
Compensation and benefits expense, origination	73,148		39,341		134,426		70,651
Legal and professional expense	15,552		16,618		41,589		29,910
Loan origination expense	23,635		14,198		46,035		24,467
Occupancy expense	8,775		4,786		16,839		8,965
Other^(A)	36,765		14,483		74,008		29,072
	$	217,373	$	118,906	$	423,736	$	217,846

(A)Represents miscellaneous general and administrative expenses.

Other Assets and Other Liabilities — Other assets and liabilities are comprised of the following:


	Other Assets							Accrued Expenses and Other Liabilities
	June 30, 2020		December 31, 2019			June 30, 2020		December 31, 2019
Margin receivable, net^(A)	$	45,527	$	280,176	MSR purchase price holdback	$	44,495	$	75,348
Servicing fee receivables	145,135		159,607		Interest payable	35,524		68,668
Due from servicers	93,108		163,961		Accounts payable	109,434		119,771
Principal and interest receivable	45,566		85,191		Derivative liabilities (Note 10)	24,936		6,885
Equity investments^(B)	66,859		114,763		Due to servicers	70,477		88,645
Other receivables	99,190		117,045		Due to Agencies	42,118		39,201
Real Estate Owned	68,618		93,672		Contingent Consideration	57,149		55,222
Single-family rental properties	26,193		24,133		Accrued compensation and benefits	51,728		41,228
Goodwill^(C)	29,468		29,737		Excess spread financing, at fair value	22,059		31,777
Notes Receivable^(D)	47,318		37,001		Operating lease liabilities	35,165		38,520
Warrants, at fair value	23,009		28,042		Reserve for sales recourse	11,560		12,549
Recovery asset	17,092		23,100		Reserve for servicing losses	16,030		—
Property and equipment	23,419		18,018		Other liabilities	11,574		22,976
Receivable from government agency^(E)	15,971		19,670			$	532,249	$	600,790
Intangible assets	36,002		40,963
Prepaid expenses	24,236		19,249
Operating lease right-of-use asset	29,794		32,120
Derivative assets (Note 10)	166,613		41,501
Ocwen common stock, at fair value	3,831		7,952
Deferred tax asset, net	148,746		8,669
Other assets	38,362		51,230
	$	1,194,057	$	1,395,800

(A)Represents collateral posted primarily as a result of changes in fair value of our 1) real estate securities securing our repurchase agreements and 2) derivative instruments.

(B)Represents equity investments in funds that invest in 1) a commercial redevelopment project, 2) operating companies in the single-family housing industry. The indirect investments are accounted for at fair value based on the net asset value (“NAV”) of New Residential’s investment and as an equity method investment, respectively. Equity investments also includes an investment in Covius Holding Inc. (“Covius”), a provider of various technology-enabled services to the mortgage and real estate industries.

(C)Includes goodwill derived from the acquisition of Shellpoint Partners LLC (“Shellpoint”) and DGG RE Investments d/b/a Guardian Asset Management LLC (“Guardian”).

(D)Represents a subordinated debt facility to Covius.

(E)Represents claims receivable from the FHA on early buyout (“EBO”) and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.

As a result of the economic uncertainties arising from the COVID-19 pandemic, the impact of the uncertainty on the financial and mortgage-related asset markets, and the associated decreases in the Company’s common and preferred stock prices, the Company performed a qualitative impairment analysis for goodwill and intangible assets. Based on the analysis, the Company determined no impairment had occurred during the six months ended June 30, 2020. Such analysis required management to assess current and future market conditions. Given the uncertainty inherent in the analysis, heightened by the possibility of unforeseen effects of COVID-19, actual results may differ from assumptions used, or conditions may change, which could

result in impairment charges in the future. In the event that the Company concludes that all or a portion of its goodwill or intangible asset is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital.

Accretion and Other Amortization — As reflected on the Condensed Consolidated Statements of Cash Flows, this item is comprised of the following:


	Six Months Ended June 30,
	2020		2019
Accretion of net discount on securities and loans	$	62,791	235,003
Accretion of servicer advances receivable discount and servicer advance investments	13,464		12,957
Accretion of excess mortgage servicing rights income	12,582		11,830
Amortization of deferred financing costs	(5,992)		(1,925)
Amortization of discount on notes and bonds payable	(246)		(910)
Amortization of discount on term loan	(1,609)		—
	$	80,990	$	256,955

Real estate owned (REO)

New Residential recognizes REO assets at the completion of the foreclosure process or upon execution of a deed in lieu of foreclosure with the borrower.


	Real Estate Owned
Balance at December 31, 2019	$	93,672
Purchases	3,910
Transfer of loans to real estate owned	28,197
Sales^(A)	(55,791)
Valuation (provision) reversal on REO	(1,370)
Balance at June 30, 2020	$	68,618

(A)Recognized when control of the property has transferred to the buyer.

As of June 30, 2020, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $460.9 million.

In addition, New Residential has recognized $15.0 million in unpaid claims receivable from FHA on Ginnie Mae EBO loans and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim.