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EXCESS MORTGAGE SERVICING RIGHTS
 3 Months Ended
Mar. 31, 2022
Transfers and Servicing [Abstract]  
EXCESS MORTGAGE SERVICING RIGHTS EXCESS MORTGAGE SERVICING RIGHTS
Excess mortgage servicing rights assets include New Residential’s direct investments in Excess MSRs and investments in joint ventures jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs.

The table below summarizes the components of Excess MSRs as presented on the Consolidated Balance Sheets:
March 31, 2022December 31, 2021
Direct investments in Excess MSRs$257,388 $259,198 
Excess MSR Joint Ventures83,799 85,749 
Excess mortgage servicing rights, at fair value$341,187 $344,947 

Direct Investments in Excess MSRs

The following table presents activity related to the carrying value of direct investments in Excess MSRs:
Servicer
Mr. Cooper
SLS(A)
Total
Balance as of December 31, 2021$257,573 $1,625 $259,198 
Interest income13,007 9 13,016 
Other income2 — 2 
Proceeds from repayments(12,113)(78)(12,191)
Proceeds from sales(6)— (6)
Change in fair value(2,645)14 (2,631)
Balance as of March 31, 2022
$255,818 $1,570 $257,388 
(A)Specialized Loan Servicing LLC (“SLS”).

Mr. Cooper or SLS, as applicable, as servicer performs all of the servicing and advancing functions, and retains the ancillary income, servicing obligations and liabilities as the servicer of the underlying loans in the portfolio.

New Residential has entered into a “recapture agreement” with respect to each of the direct Excess MSR investments serviced by Mr. Cooper and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any refinancing by Mr. Cooper of a loan in the original portfolio. These recapture agreements do not apply to New Residential’s Servicer Advance Investments (Note 6).

The following table summarizes direct investments in Excess MSRs:
March 31, 2022December 31, 2021
UPB of Underlying MortgagesInterest in Excess MSR
Weighted Average Life Years(A)
Amortized Cost Basis(B)
Carrying Value(C)
Carrying Value(C)
New Residential(D)
Fortress-managed fundsMr. Cooper
Agency
Original and Recaptured Pools
$25,430,543 
32.5% - 66.7%
(53.3%)
0.0% - 40%
20.0% - 35.0%
6.3$119,311 $129,667 $131,997 
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools
29,187,057 
33.3% - 100.0%
(59.4%)
0.0% - 50%
0.0% - 33.3%
7.195,747 127,721 127,201 
Total$54,617,600 6.7$215,058 $257,388 $259,198 
(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 March 31, 2022 (Note 6) on $19.2 billion UPB underlying these Excess MSRs.

Changes in fair value of investments consists of the following:
Three Months Ended
March 31,
20222021
Original and Recaptured Pools$(2,630)$(4,618)

As of March 31, 2022, a weighted average discount rate of 7.8% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).

Excess MSR Joint Ventures
New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees:
March 31, 2022December 31,
2021
Excess MSR$148,703$152,383
Other assets19,58119,802
Other liabilities(687)(687)
Equity$167,597$171,498
New Residential’s investment$83,799$85,749
New Residential’s percentage ownership50.0 %50.0 %

Three Months Ended
March 31,
20222021
Interest income$5,667 $9,158 
Other income (loss)(2,252)(2,820)
Expenses(8)(8)
Net income$3,407 $6,330 

The following table summarizes the activity of investments in equity method investees:
Balance at December 31, 2021$85,749 
Distributions of capital from equity method investees(3,653)
Change in fair value of investments in equity method investees1,703 
Balance at March 31, 2022$83,799 
The following is a summary of Excess MSR investments made through equity method investees:
March 31, 2022
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$21,831,692 66.7 %50.0 %$111,101 $148,703 6.1
(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.
MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES
The following table summarizes activity related to MSRs and MSR Financing Receivables:
Balance as of December 31, 2021$6,858,803 
Purchases, net(A)
(48)
Originations(B)
461,452 
Proceeds from sales(760)
Change in fair value due to:
    Realization of cash flows(C)
(200,325)
    Change in valuation inputs and assumptions845,037 
    (Gain) loss realized306 
Balance at March 31, 2022$7,964,465 
(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 residential mortgage loans.
(C)Based on the paydown of the underlying residential mortgage loans.

The following table summarizes components of Servicing Revenue, Net:
Three Months Ended
March 31,
20222021
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$421,555 $307,691 
Ancillary and other fees34,845 40,593 
Servicing fee revenue, net and fees456,400 348,284 
Change in fair value due to:
Realization of cash flows(A)
(200,325)(339,670)
Change in valuation inputs and assumptions(B)
845,037 541,966 
Change in fair value of derivative instruments7,189 (8,823)
(Gain) loss realized306 (1,199)
Gain (loss) on settlement of derivative instruments(76,814)—
Servicing revenue, net$1,031,793 $540,558 
(A)Includes $1.3 million of fair value adjustment due to realization of cash flows to Excess spread financing for the three months ended March 31, 2021.
(B)Includes $2.1 million of fair value adjustment to Excess spread financing for the three months ended March 31, 2021.

The following table summarizes MSRs and MSR Financing Receivables by type as of March 31, 2022:
UPB of Underlying Mortgages
Weighted Average Life (Years)(A)
Carrying Value(B)
Agency$376,795,155 6.7$5,318,541 
Non-Agency60,341,642 7.6857,998 
Ginnie Mae(C)
111,972,212 6.71,787,926 
Total$549,109,009 6.8$7,964,465 
(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 March 31, 2022, weighted average discount rates of 7.3% (range 7.0% - 9.0%) were used to value New Residential’s MSRs and MSR Financing Receivables.
(C)As of March 31, 2022, New Residential holds approximately $1.7 billion in residential mortgage loans subject to repurchase and the related residential mortgage loans repurchase liability on its Consolidated Balance Sheets.

Residential Mortgage Loans Subject to Repurchase

New Residential, through its wholly owned subsidiaries as approved issuers of Ginnie Mae MBS, originates and securitizes government-insured residential mortgage loans. As the issuer of the Ginnie Mae-guaranteed securitizations, New Residential has the unilateral right to repurchase loans from the securitizations when they are delinquent for more than 90 days. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. Under GAAP, New Residential is required to recognize the right to loans on its balance sheet and establish a corresponding liability upon the triggering of the repurchase right regardless of whether the Company intends to repurchase the loans. As of March 31, 2022, New Residential holds approximately $1.7 billion in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Consolidated Balance Sheets. New Residential may re-pool repurchased loans into new Ginnie Mae securitizations upon re-performance of the loan or otherwise sell to third-party investors. The Company does not change the accounting for MSRs related to previously sold loans upon recognizing loans eligible for repurchase. Rather, upon repurchase of a loan, the MSR is written off. As of March 31, 2022, New Residential holds approximately $1.1 billion of repurchased residential mortgage loans on its Consolidated Balance Sheets.

Ocwen MSR Financing Receivable Transactions

In July 2017, Ocwen Loan Servicing, LLC (collectively with certain affiliates, “Ocwen”) and New Residential entered into an agreement in which both parties agreed to undertake certain actions to facilitate the transfer from Ocwen to New Residential of Ocwen’s remaining interests in the MSRs relating to loans with an aggregate unpaid principal balance of approximately $110.0 billion and with respect to which New Residential already held certain rights (“Rights to MSRs”). Ocwen and New Residential concurrently entered into a subservicing agreement pursuant to which Ocwen agreed to subservice the mortgage loans related to the MSRs that were transferred to New Residential.

In January 2018, Ocwen sold and transferred to New Residential certain “Rights to MSRs” and other assets related to mortgage servicing rights for loans with an unpaid principal balance of approximately $86.8 billion. PHH (as successor by merger to Ocwen) will continue to service the residential mortgage loans related to the MSRs until any necessary third-party consents to transferring the MSRs are obtained and all other conditions to transferring the MSRs are satisfied.

Of the “Rights to MSRs” sold and transferred to NRM and Newrez, consents and all other conditions to transfer have been received with respect to approximately $66.7 billion UPB of underlying loans. Although legally sold and entitled to the economics of the transfer, as of March 31, 2022, with respect to MSRs representing approximately $13.4 billion UPB of underlying loans, it was determined for accounting purposes that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to Newrez and therefore are not treated as a sale under GAAP and are classified as MSR financing receivables.
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the MSRs and MSR Financing Receivables:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationMarch 31, 2022December 31, 2021
California17.8 %18.1 %
Florida8.6 %8.6 %
Texas6.2 %6.2 %
New York6.1 %6.0 %
Washington5.7 %5.6 %
New Jersey4.5 %4.5 %
Virginia3.5 %3.4 %
Illinois3.4 %3.4 %
Maryland3.4 %3.4 %
Georgia2.9 %3.0 %
Other U.S.37.9 %37.8 %
100.0 %100.0 %

Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the MSRs.

Residential Mortgage Loan Subservicing

The Mortgage Company performs servicing of residential mortgage loans for third parties under subservicing agreements. The subservicing does not meet the criteria to be recognized as a servicing right asset and, therefore, is not recognized on New Residential’s Consolidated Balance Sheets. The UPB of residential mortgage loans subserviced for others as of March 31, 2022 and 2021 was $86.2 billion and $74.6 billion, respectively. New Residential earned subservicing revenue of $32.5 million and $43.5 million for the three months ended March 31, 2022 and 2021, respectively, related to subserviced loans which is included within Servicing Revenue, Net in the Consolidated Statements of Income.

NRM engages third party licensed mortgage servicers as subservicers and, in relation to certain MSR purchases, including to perform the operational servicing duties, including recapture activities, in connection with the MSRs it acquires, in exchange for a subservicing fee which is recorded as Subservicing Expense and reflected as part of General and Administrative expenses in New Residential’s Consolidated Statements of Income. As of March 31, 2022, these subservicers include PHH, Mr. Cooper, LoanCare, Valon and Flagstar, which subservice 9.9%, 8.9%, 7.5%, 0.9% and 0.3%, respectively, of the MSRs held by New Residential. The remaining 72.5% of the underlying UPB of the related mortgages is subserviced by the Mortgage Company (Note 1 to the Consolidated Financial Statements).
Servicer Advances Receivable

In connection with New Residential’s ownership of MSRs, the Company assumes the obligation to serve as a liquidity provider to initially fund servicer advances on the underlying pool of mortgages (Note 22) it services. These servicer advances are recorded when advanced and are included in Servicer Advances Receivable on the Consolidated Balance Sheets.

The table below summarizes the type of advances included in the Servicer Advances Receivable:
March 31, 2022December 31, 2021
Principal and interest advances$569,109 $562,418 
Escrow advances (taxes and insurance advances)1,410,276 1,523,154 
Foreclosure advances725,247 793,098 
Total(A)(B)(C)
$2,704,632 $2,878,670 
(A)Includes $506.0 million and $593.0 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.
(B)Includes $172.1 million and $212.9 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from either the borrower or Ginnie Mae. Expected losses for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a nonreimbursable advance loss assumption.
(C)Excludes $52.4 million and $23.5 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries. These reserves relate to inactive loans in the foreclosure or liquidation process.

New Residential’s Servicer Advances Receivable related to Non-Agency MSRs generally have the highest reimbursement priority pursuant to the underlying servicing agreements (i.e., “top of the waterfall”) and New Residential is generally entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by New Residential as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, New Residential has a contractual right to be reimbursed by the subservicer. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has reserved $37.4 million and $32.1 million for expected non-recovery of advances as of March 31, 2022 and December 31, 2021, respectively.

The following table summarizes servicer advances reserve:
Balance at December 31, 2021$32,122 
Provision5,328 
Transfers and Other— 
Write-offs(91)
Balance at March 31, 2022$37,359 

See Note 18 regarding the financing of MSRs and Servicer Advances Receivable.