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

9 Months Ended

Sep. 30, 2020

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Excess mortgage servicing rights	$	(664)	$	2,407	$	(11,773)	$	(1,421)
Excess mortgage servicing rights, equity method investees	(393)		4,751		(2,902)		4,087
Mortgage servicing rights financing receivables	(20,275)		(41,410)		(245,906)		(133,200)
Servicer advance investments	3,143		6,641		431		15,932
Real estate and other securities	27,663		(5,054)		(531)		9,010
Residential mortgage loans	56,940		(6,512)		(108,306)		75,095
Consumer loans held-for-investment	(411)		—		(9,634)		—
Derivative instruments	23,089		41,389		4,213		(25,037)
	$	89,092	$	2,212	$	(374,408)	$	(55,534)

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Gain (loss) on sale of real estate securities	$	7,658	$	95,003	$	(753,551)	$	201,222
Gain (loss) on sale of acquired residential mortgage loans	923		43,648		(8,343)		53,405
Gain (loss) on settlement of derivatives	(23,192)		(14,147)		(133,099)		(152,424)
Gain (loss) on liquidated residential mortgage loans	165		(198)		2,546		(3,320)
Gain (loss) on sale of REO	1,016		(3,169)		2,632		(9,445)
Gain (loss) on extinguishment of debt	(66,256)		—		(64,795)		(8,532)
Gain (loss) on Excess MSR recapture agreements	(13,381)		529		(12,191)		1,771
Other gains (losses)	(1,390)		12,004		(2,194)		13,708
	$	(94,457)	$	133,670	$	(968,995)	$	96,385

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Unrealized gain (loss) on secured notes and bonds payable	$	(5,611)	$	(2,647)	$	535	$	(5,248)
Unrealized gain (loss) on contingent consideration	(2,079)		(2,703)		(5,949)		(7,430)
Unrealized gain (loss) on equity investments	(4,716)		(500)		(52,413)		(659)
Gain (loss) on transfer of loans to REO	703		1,230		5,010		7,814
Gain (loss) on transfer of loans to other assets	(512)		(101)		(773)		(378)
Gain (loss) on Ocwen common stock	4,342		(1,103)		221		3,134
Provision for servicing losses	(3,734)		25		(19,764)		(901)
Rental and ancillary revenue	23,670		—		63,346		—
Other income (loss)	(6,678)		(24,896)		(24,848)		(23,566)
	$	5,385	$	(30,695)	$	(34,635)	$	(27,234)

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 composed of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Compensation and benefits expense	$	68,595	$	30,494	$	179,434	$	87,219
Compensation and benefits expense, origination	98,542		44,270		232,968		112,977
Legal and professional expense	22,209		16,442		63,798		46,352
Loan origination expense	29,935		17,882		75,970		42,349
Occupancy expense	9,356		5,114		26,195		14,079
Subservicing expense	55,376		52,875		159,679		147,763
Loan servicing expense	8,311		7,192		23,313		26,167
Other(A)	24,236		19,311		98,244		48,383
	$	316,560	$	193,580	$	859,601	$	525,289

(A)Represents miscellaneous general and administrative expenses.

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


	Other Assets					Accrued Expenses and Other Liabilities
	September 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Margin receivable, net(A)	$	48,050	$	280,176	MSR purchase price holdback	$	31,167	$	75,348
Servicing fee receivables	113,994		159,607		Interest payable	33,195		68,668
Due from servicers	92,500		163,961		Accounts payable	120,116		119,771
Principal and interest receivable	64,391		85,191		Derivative liabilities (Note 10)	37,820		6,885
Equity investments(B)	59,771		114,763		Due to servicers	65,212		85,728
Other receivables	109,530		117,045		Due to Agencies	25,659		42,118
Real Estate Owned	49,872		93,672		Contingent Consideration	13,628		55,222
Single-family rental properties	25,570		24,133		Accrued compensation and benefits	71,184		41,228
Goodwill(C)	29,468		29,737		Excess spread financing, at fair value	20,129		31,777
Notes Receivable(D)	50,516		37,001		Operating lease liabilities	31,901		38,520
Warrants, at fair value	22,799		28,042		Reserve for sales recourse	9,624		12,549
Recovery asset	15,310		23,100		Reserve for servicing losses	19,657		—
Property and equipment	27,279		18,018		Other liabilities	18,546		22,976
Receivable from government agency(E)	16,823		19,670			$	497,838	$	600,790
Intangible assets	35,074		40,963
Prepaid expenses	21,757		19,249
Operating lease right-of-use assets	27,218		32,120
Derivative assets (Note 10)	255,496		41,501
Ocwen common stock, at fair value	8,172		7,952
Deferred tax asset, net	49,545		8,669
Other assets	38,798		51,230
	$	1,161,933	$	1,395,800

(A)Represents collateral posted as a result of changes in fair value of our 1) real estate securities securing our secured financing 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 nine months ended September 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 composed of the following:


	Nine Months Ended September 30,
	2020		2019
Accretion of net discount on securities and loans	$	81,112	$	266,467
Accretion of servicer advances receivable discount and servicer advance investments	38,967		18,290
Accretion of excess mortgage servicing rights income	25,177		18,203
Amortization of deferred financing costs	(12,352)		(2,984)
Amortization of discount on secured notes and bonds payable	(379)		(1,043)
Amortization of discount on term loan	(5,069)		—
	$	127,456	$	298,933

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 REO	31,764
Sales(A)	(82,100)
Valuation (provision) reversal on REO	2,626
Balance at September 30, 2020	$	49,872

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

As of September 30, 2020, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $437.8 million.

In addition, New Residential has recognized $16.5 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.