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INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS ASSETS (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Activity Related to the Carrying Value of Investments in Excess MSRs

The table below summarizes the components of excess mortgage servicing rights assets as presented on the condensed consolidated balance sheets:


	September 30, 2020		December 31, 2019
Direct investments in Excess MSRs	$	328,623	$	379,747
Excess MSR Joint Ventures	107,359		125,596
Excess mortgage servicing rights assets, at fair value	$	435,982	$	505,343

The following table presents activity related to the carrying value of New Residential’s direct investments in Excess MSRs:


	Servicer
	Mr. Cooper		SLS(A)		Total
Balance as of December 31, 2019	$	377,692	$	2,055	$	379,747

Interest income	25,167		9		25,176
Other income	(12,175)		—		(12,175)
Proceeds from repayments	(51,980)		(311)		(52,291)
Proceeds from sales	(61)		—		(61)
Change in fair value	(11,939)		166		(11,773)
Balance as of September 30, 2020	$	326,704	$	1,919	$	328,623

(A)Specialized Loan Servicing LLC (“SLS”).

The following table presents activity related to the carrying value of New Residential’s investments in MSRs and MSR Financing Receivables:


	MSRs		MSR Financing Receivables		Total
Balance as of December 31, 2019	$	3,967,960	$	1,718,273	$	5,686,233
Purchases, net(A)	446,964		(18,227)		428,737
Transfers	320,613		(320,613)		—
Originations(B)	424,451		—		424,451

Proceeds from sales	(10,452)		(3,708)		(14,160)
Amortization of servicing rights(C)	(959,482)		(182,085)		(1,141,567)
Change in valuation inputs and assumptions(D)	(542,361)		(62,072)		(604,433)
(Gain) loss realized	4,112		(1,749)		2,363
Balance as of September 30, 2020	$	3,651,805	$	1,129,819	$	4,781,624

(A)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.

(B)Represents MSRs retained on the sale of originated mortgage loans.

(C)Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.

(D)Includes changes in inputs or assumptions used in the valuation model.

The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of September 30, 2020:


	UPB of Underlying Mortgages		Weighted Average Life (Years)(A)	Carrying Value(B)
MSRs:
Agency(C)	$	323,473,921	5.4	$	3,012,602
Non-Agency	5,605,074		4.5	16,598
Ginnie Mae(D)	57,290,646		4.3	622,605
	386,369,641		5.2	3,651,805
MSR Financing Receivables:
Agency(C)	6,159,819		5.6	57,410
Non-Agency	69,089,988		7.8	1,072,409
	75,249,807		7.6	1,129,819
Total	$	461,619,448	5.6	$	4,781,624

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.

(B)Carrying value represents fair value. As of September 30, 2020, weighted average discount rates of 7.7% and 9.4% were used to value New Residential’s investments in MSRs and MSR financing receivables, respectively.

(C)Represents Fannie Mae and Freddie Mac MSRs.

(D)As of September 30, 2020, New Residential holds approximately $1,458.3 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its condensed consolidated balance sheets.

Summary of Direct Investments in Excess MSRs

The following is a summary of New Residential’s direct investments in Excess MSRs:


	September 30, 2020										December 31, 2019
	UPB of Underlying Mortgages		Interest in Excess MSR			Weighted Average Life Years(A)	Amortized Cost Basis(B)		Carrying Value(C)		Carrying Value(C)
			New Residential(D)	Fortress-managed funds	Mr. Cooper
Agency
Original and Recaptured Pools	$	37,356,300	32.5% - 66.7% (53.3%)	0.0% - 40%	20.0% - 35.0%	5.8	$	150,403	$	173,549	$	209,633
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools	39,995,269		33.3% - 100.0% (59.4%)	0.0% - 50%	0.0% - 33.3%	6.6	113,724		155,074		170,114
Total	$	77,351,569				6.1	$	264,127	$	328,623	$	379,747

(A)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 and recapture agreements, as applicable.

(D)Amounts in parentheses represent weighted averages.

(E)New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of September 30, 2020 (Note 6) on $27.5 billion UPB underlying these Excess MSRs.

Changes in fair value of investments is composed of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Original and Recaptured Pools	$	(664)	$	2,407	$	(11,773)	$	(1,421)

Summary of the Financial Results of Excess MSR Joint Ventures, Accounted for as Equity Method Investees

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:


	September 30, 2020			December 31, 2019
Excess MSR assets	$	190,246		$	226,843
Other assets	25,158			25,035
Other liabilities	(687)			(687)
Equity	$	214,717		$	251,191
New Residential’s investment	$	107,359		$	125,596

New Residential’s ownership	50.0		%	50.0		%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income	$	12,249	$	7,990	$	20,099	$	12,251
Other income (loss)	(13,027)		1,528		(25,879)		(4,029)
Expenses	(8)		(16)		(24)		(48)
Net income (loss)	$	(786)	$	9,502	$	(5,804)	$	8,174

The following table summarizes the activity of New Residential’s investments in equity method investees:


Balance at December 31, 2019	$	125,596

Distributions of earnings from equity method investees	(1,170)
Distributions of capital from equity method investees	(14,165)
Change in fair value of investments in equity method investees	(2,902)
Balance at September 30, 2020	$	107,359

The following table summarizes the income earned from the Company’s investments in LoanCo and WarrantCo during 2019:


	Three Months Ended September 30, 2019(A)			Nine Months Ended September 30, 2019(A)
Interest income	$	636		$	20,003
Interest expense	—			(6,487)
Change in fair value of consumer loans and warrants	(2,933)			(4,390)
Gain on sale of consumer loans	(7,525)			(9,193)
Other expenses	(576)			(3,494)
Net income	$	(10,398)		$	(3,561)
New Residential’s equity in net income	$	(2,547)		$	(890)
New Residential’s ownership	24.5		%	25.0		%

(A)Data for the period ended August 31, 2019 as a result of the one month reporting lag.

The following is a summary of LoanCo’s consumer loan investments at September 30, 2019:


	Unpaid Principal Balance		Interest in Consumer Loans		Carrying Value		Weighted Average Coupon		Weighted Average Expected Life (Years)(A)	Weighted Average Delinquency(B)
September 30, 2019(C)	$	1,226	25.0	%	$	1,632	18.7	%	1.0	—	%

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.

(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.

(C)Data as of August 31, 2019 as a result of the one month reporting lag.

Summary of Excess MSR Investments made through Equity Method Investees

The following is a summary of New Residential’s Excess MSR investments made through equity method investees:


	September 30, 2020
	Unpaid Principal Balance		Investee Interest in Excess MSR(A)		New Residential Interest in Investees		Amortized Cost Basis(B)		Carrying Value(C)		Weighted Average Life (Years)(D)
Agency
Original and Recaptured Pools	$	30,232,940	66.7	%	50.0	%	$	146,014	$	190,246	5.7

(A)The remaining interests are held by Mr. Cooper.

(B)Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. 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)Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools and recapture agreements, as applicable.

(D)Represents the weighted average expected timing of the receipt of cash flows of each investment.