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CONSOLIDATED VARIABLE INTEREST ENTITIES
 9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
CONSOLIDATED VARIABLE INTEREST ENTITIES CONSOLIDATED VARIABLE INTEREST ENTITIES
VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

To assess whether New Residential has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, New Residential considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. To assess whether New Residential has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, New Residential considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

Servicer Advance Investment

New Residential, through a taxable wholly owned subsidiary, is the managing member of the Buyer and owned approximately 73.2% of the Buyer as of September 30, 2020. In 2013, New Residential created the Buyer to acquire the then outstanding servicing advance receivables related to a portfolio of residential mortgage loans from a third party. The Buyer is required to purchase all future servicer advances made with respect to this portfolio of mortgage loans and is entitled to receive cash flows from advance recoveries and a basic fee component of the related MSRs, net of subservicing compensation paid.

The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of September 30, 2020, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $328.4 million and $306.9 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.

Shelter Joint Ventures

A wholly owned subsidiary of NewRez, Shelter Mortgage Company LLC (“Shelter”) is a mortgage originator specializing in retail originations. Shelter operates its business through a series of joint ventures (“Shelter JVs”) and is deemed to be the primary beneficiary of the joint ventures as a result of its ability to direct activities that most significantly impact the economic performance of the entities and its ownership of a significant equity investment.

Residential Mortgage Loans

During the third quarter of 2020, New Residential formed entities, (collectively, the “NPL/RPL Securitizations”) that separately issued securitized debt collateralized by non-performing and reperforming residential mortgage loans. New Residential
determined that the NPL/RPL Securitizations should be evaluated for consolidation under the VIE model rather than the voting interest entity model as the equity holders as a group lack the characteristics of a controlling financial interest. Under the VIE model, New Residential’s consolidated subsidiaries had both 1) the power to direct the most significant activities of the NPL/RPL Securitizations and 2) significant variable interests in each of the NPL/RPL Securitizations, through their control of the related optional redemption feature and their ownership of certain notes issued by the NPL/RPL Securitizations and, therefore, met the primary beneficiary criterion and, accordingly, the Company consolidated the NPL/RPL Securitizations.

On October 1, 2019, as a result of New Residential’s acquisition of servicing assets from the bankruptcy estate of Ditech Holding Company and Ditech Financial LLC (“Ditech”) and its pre-existing ownership of the equity, New Residential consolidated the MDST Trusts. New Residential’s determination to consolidate the MDST Trusts is a result of its ownership of the equity in these trusts in conjunction with the ability to direct activities that most significantly impact the economic performance of the entities with the acquisition of the servicing by NewRez.
The following table comprises bonds retained pursuant to required risk retention regulations:
As of and for the
Nine Months Ended
September 30,
20202019
Residential mortgage loan UPB$14,823,202 $11,183,024 
Weighted average delinquency(A)
4.82 %1.97 %
Net credit losses$50,355 $5,738 
Face amount of debt held by third parties(B)
$12,884,341 $10,074,690 
Carrying value of bonds retained by New Residential(C)(D)
$1,549,112 $1,258,292 
Cash flows received by New Residential on these bonds$225,545 $161,794 

(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by New Residential.
(C)Includes bonds retained pursuant to required risk retention regulations.
(D)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 12 for details on unobservable inputs.

Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of September 30, 2020, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

The Consumer Loan Companies consolidate certain entities that issued securitization debt collateralized by the consumer loans (the “Consumer Loan SPVs”). The Consumer Loan SPVs are VIEs of which the Consumer Loan Companies are the primary beneficiaries.
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on New Residential’s condensed consolidated balance sheets:
The BuyerShelter Joint VenturesResidential Mortgage LoansConsumer Loan SPVsTotal
September 30, 2020
Assets
Servicer advance investments, at fair value
$521,882 $— $— $— $521,882 
Residential mortgage loans, held-for-investment, at fair value
— — 390,890 — 390,890 
Residential mortgage loans, held-for-sale— — 352,225 — 352,225 
Residential mortgage loans, held-for-sale, at fair value— — 622,269 — 622,269 
Consumer loans, held-for-investment, at fair value
— — — 718,355 718,355 
Cash and cash equivalents40,653 35,642 — — 76,295 
Restricted cash5,044 — — 5,890 10,934 
Other assets6 9,896 6,183 9,850 25,935 
Total Assets$567,585 $45,538 $1,371,567 $734,095 $2,718,785 
Liabilities
Secured notes and bonds payable(A)
$404,907 $— $1,091,426 $678,950 $2,175,283 
Accrued expenses and other liabilities2,237 8,906 1,871 1,686 14,700 
Total Liabilities$407,144 $8,906 $1,093,297 $680,636 $2,189,983 
December 31, 2019
Assets
Servicer advance investments, at fair value
$565,271 $— $— $— $565,271 
Residential mortgage loans, held-for-investment, at fair value
— — 913,030 — 913,030 
Consumer loans, held-for-investment
— — — 818,943 818,943 
Cash and cash equivalents30,065 23,802 — — 53,867 
Restricted cash5,350 — — 9,073 14,423 
Other assets2,414 3,556 — 12,409 18,379 
Total Assets$603,100 $27,358 $913,030 $840,425 $2,383,913 
Liabilities
Secured notes and bonds payable(A)
$433,300 $— $659,738 $820,658 $1,913,696 
Accrued expenses and other liabilities1,593 4,187 10,132 4,126 20,038 
Total Liabilities$434,893 $4,187 $669,870 $824,784 $1,933,734 

(A)The creditors of the VIEs do not have recourse to the general credit of New Residential, and the assets of the VIEs are not directly available to satisfy New Residential’s obligations.

Noncontrolling Interests

Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than New Residential. These interests are related to noncontrolling interests in consolidated entities that hold New Residential’s Servicer advance investments (Note 6), the Shelter JVs, (Note 8), Residential mortgage loan trusts (Note 8), and Consumer loans (Note 9).

Others’ interests in the equity of New Residential’s consolidated subsidiaries is computed as follows:
September 30, 2020December 31, 2019
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$160,440 $36,612 $80,782 $168,207 $23,171 $46,510 
Others’ ownership interest26.8 %50.2 %46.5 %26.8 %49.0 %46.5 %
Others’ interest in equity of consolidated subsidiary
$42,946 $18,365 $38,126 $45,025 $11,354 $22,171 
Others’ interests in the New Residential’s net income (loss) is computed as follows:
Three Months Ended September 30,
20202019
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income
$9,761 $9,649 $9,006 $6,288 $5,098 $22,790 
Others’ ownership interest as a percent of total
26.8 %50.2 %46.5 %26.8 %48.2 %46.5 %
Others’ interest in net income of consolidated subsidiaries
$2,612 $4,840 $4,188 $1,684 $2,457 $10,597 

(A)As a result, New Residential owned 73.2% and 73.2% of the Buyer, on average during the three months ended September 30, 2020 and 2019, respectively. See Note 11 regarding the financing of Servicer advance investments.

Nine Months Ended September 30,
20202019
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income
$(162)$21,017 $50,795 $16,678 $9,144 $49,690 
Others’ ownership interest as a percent of total
26.8 %50.2 %46.5 %26.8 %48.2 %46.5 %
Others’ interest in net income of consolidated subsidiaries
$(44)$10,542 $23,620 $4,466 $4,407 $23,106 

(A)As a result, New Residential owned 73.2% and 73.2% of the Buyer, on average during the nine months ended September 30, 2020 and 2019, respectively. See Note 11 regarding the financing of Servicer advance investments.