Delaware

45-3449660

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1345 Avenue of the Americas

New York

10105

(Address of principal executive offices)

(Zip Code)



(212)			798-3150
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report) ~~N/A~~

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	~~Trading Symbol:~~	Name of each exchange on which registered:
Common Stock, $0.01 par value per share	NRZ	New York Stock Exchange
7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	NRZ PR A	New York Stock Exchange
7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	NRZ PR B	New York Stock Exchange
6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	NRZ PR C	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Common stock, $0.01 par value per share: ~~415,520,780~~415,744,518 shares outstanding as of October ~~28, 2019.~~21, 2020.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, our financing needs and the size and attractiveness of market opportunities. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations, cash flows or financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

•the uncertainty and economic impact of the ongoing coronavirus (“COVID-19”) pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties;

•changes in general economic conditions, in our industry and in the commercial finance and real estate markets, including the impact on the value of our assets;

•changes to our business and investment strategy;

•our ability to obtain and maintain financing arrangements on terms favorable to us or at all, particularly in light of the current disruption in the financial markets;

•how COVID-19 may affect us, our operations and personnel;

•the forbearance program included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and related funding for servicing advances, the sources, adequacy and availability of financing to fund advances;

•reductions in the value of, or cash flows received from, our investments;

•the quality and size of the investment pipeline and our ability to take advantage of investment opportunities at attractive risk-adjusted prices;

•the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;

•our ability to deploy capital accretively and the timing of such deployment;

•our counterparty concentration and default risks in Nationstar ~~Ocwen,~~Mortgage LLC (d/b/a Mr. Cooper, “Mr. Cooper”), LoanCare, LLC (“LoanCare”), OneMain ~~Ditech,~~Holdings, Inc. (“OneMain”), PHH Mortgage Corporation (“PHH”) and other third parties;

•events, conditions or actions that might occur at ~~Nationstar, Ocwen,~~Mr. Cooper, LoanCare, OneMain, ~~Ditech,~~ PHH and other third parties, as well as the continued effect of prior events;

•a lack of liquidity surrounding our investments, which could impede our ability to vary our portfolio in an appropriate manner;

•the impact that risks associated with subprime mortgage loans and consumer loans, as well as deficiencies in servicing and foreclosure practices, may have on the value of our mortgage servicing rights (“MSRs”), excess mortgage servicing rights (“Excess ~~MSRs, Servicer Advance Investments,~~MSRs”), servicer advance investments, residential mortgage-backed securities (“RMBS”), residential mortgage loans and consumer loan portfolios;

•the risks related to our ~~acquisitions of Shellpoint Partners LLC and Ditech, as well as ownership of entities that perform~~ origination and servicing operations;

•the risks that default and recovery rates on our MSRs, Excess MSRs, ~~Servicer Advance Investments,~~servicer advance investments, servicer advance receivables, RMBS, residential mortgage loans and consumer loans deteriorate compared to our underwriting estimates;

•changes in prepayment rates on the loans underlying certain of our assets, including, but not limited to, our MSRs or Excess MSRs;

•the risk that projected recapture rates on the loan pools underlying our MSRs or Excess MSRs are not achieved;

•servicer advances may not be recoverable or may take longer to recover than we expect, which could cause us to fail to achieve our targeted return on our Servicer Advance Investments or MSRs;

•impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities or loans are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;

•the relative spreads between the yield on the assets in which we invest and the cost of financing;

•adverse changes in the financing markets we access affecting our ability to finance our investments on attractive terms, or at all;

•risks associated with our senior unsecured notes, including, but not limited to, default risk and covenants that restrict certain activities by our subsidiaries and us;

•changing risk assessments by lenders that potentially lead to increased margin calls, not extending our ~~repurchase~~secured financing agreements or other financings in accordance with their current terms or not entering into new financings with us;

•changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;

•the availability and terms of capital for future investments;

•changes in economic conditions generally and the real estate and bond markets specifically;

•competition within the finance and real estate industries;

•the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, U.S. government programs intended to grow the economy, future changes to tax laws, the federal conservatorship of the Federal National Mortgage Association (“Fannie ~~Mae~~Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie ~~Mac~~Mac”) and legislation that permits modification of the terms of residential mortgage loans;

•the risk that ~~Government Sponsored Enterprises~~actions by Fannie Mae or the Freddie Mac or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs;

•our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business;

•our ability to maintain our exclusion from registration under the Investment Company Act of 1940 (the “1940 Act”) and the fact that maintaining such exclusion imposes limits on our operations;

~~the risks related to Home Loan Servicing Solutions (“HLSS”) liabilities that we have assumed;~~

•the impact of current or future legal proceedings and regulatory investigations and inquiries;

•the impact of any material transactions with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest; and

•effects of the completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.

We also direct readers to other risks and uncertainties referenced in this report, including those set forth under “Risk Factors.” We caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about New Residential Investment Corp. (the “Company,” “New Residential” or “we,” “our” and “us”) or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements proved to be inaccurate;

•have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov. See “Business-Corporate Governance and Internet Address; Where Readers Can Find Additional Information.”

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.

NEW RESIDENTIAL INVESTMENT CORP.

FORM 10-Q

INDEX


		PAGE
Part I. Financial Information

		~~PAGE~~
~~Part I. Financial Information~~

Item 1. Financial Statements (Unaudited)	1

Condensed Consolidated Balance Sheets ~~as of September 30, 2019 (Unaudited) and December 31, 2018~~		1

Condensed Consolidated Statements of Income ~~(Unaudited) for the three and nine months ended September 30, 2019 and 2018~~		32

Condensed Consolidated Statements of Comprehensive Income ~~(Unaudited) for the three and nine months ended September 30, 2019 and 2018~~		43

Condensed Consolidated Statement of Changes in Stockholders’ Equity ~~(Unaudited) for the nine months ended September 30, 2019 and 2018~~		54

Condensed Consolidated Statements of Cash Flows ~~(Unaudited) for the nine months ended September 30, 2019 and 2018~~		78

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~		1011

~~Note 1. Organization and Basis of Presentation~~		10

~~Note 2. Other Income, General and Administrative, Other Assets and Liabilities~~	14

~~Note 3. Segment Reporting~~	17

~~Note 4. Investments in Excess Mortgage Servicing Rights~~	20

~~Note 5. Investments in Mortgage Servicing Rights and MSR Financing Receivables~~	22

~~Note 6. Servicer Advance Investments~~	27

~~Note 7. Investments in Real Estate and Other Securities~~	30

~~Note 8. Investments in Residential Mortgage Loans~~	33

~~Note 9. Investments in Consumer Loans~~	42

~~Note 10. Derivatives~~	47

~~Note 11. Debt Obligations~~	49

~~Note 12. Fair Value Measurement~~	52

~~Note 13. Equity and Earnings Per Share~~	60

~~Note 14. Commitments and Contingencies~~	61

~~Note 15. Transactions with Affiliates and Affiliated Entities~~	62

~~Note 16. Reclassification from Accumulated Other Comprehensive Income into Net Income~~	63

~~Note 17. Income Taxes~~	63

~~Note 18. Subsequent Events~~	64

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6569

~~General~~	65

~~Market Considerations~~	65

~~Our Portfolio~~	67

~~Application of Critical Accounting Policies~~	76

~~Results of Operations~~	76

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in ~~thousands)~~thousands, except per share data)

September 30, 2019 December 31, 2018
(Unaudited)
Assets
Investments in:
Excess mortgage servicing rights, at fair value $ 398,064
$ 447,860
Excess mortgage servicing rights, equity method investees, at fair value 132,259
147,964
Mortgage servicing rights, at fair value 3,431,968
2,884,100
Mortgage servicing rights financing receivables, at fair value 1,811,261
1,644,504
Servicer advance investments, at fair value^(A)
600,547
735,846
Real estate and other securities, available-for-sale 16,853,910
11,636,581
Residential mortgage loans, held-for-investment(includes $113,133 and $121,088 at fair value at September 30, 2019 and December 31, 2018, respectively)^(A)
613,657
735,329
Residential mortgage loans, held-for-sale 1,349,997
932,480
Residential mortgage loans, held-for-sale, at fair value 5,206,251
2,808,529
Consumer loans, held-for-investment^(A)
881,183
1,072,202
Cash and cash equivalents^(A)
738,219
251,058
Restricted cash 163,148
164,020
Servicer advances receivable 2,911,798
3,277,796
Trades receivable 4,487,772
3,925,198
Deferred tax asset, net 43,372
65,832
Other assets (includes $168,532 and $121,602 in residential mortgage loan subject to repurchase at September 30, 2019 and December 31,2018, respectively) 1,724,519
961,714
$ 41,347,925
$ 31,691,013
Liabilities and Equity
Liabilities
  Repurchase agreements $ 23,110,359
$ 15,553,969
  Notes and bonds payable (includes $474,309 and $117,048 at fair value at September 30, 2019 and December 31, 2018, respectively)^(A)
7,405,872
7,102,266
  Trades payable 2,536,188
2,048,348
  Dividends payable 213,098
184,552
  Accrued expenses and other liabilities^(A) (includes $168,532 and $121,602 in residential mortgage loans repurchase liabilities at September 30, 2019 and December 31,2018, respectively)
820,291
713,583
34,085,808
25,602,718
Commitments and Contingencies

Equity
Preferred Stock, par value of $0.01 per share, 23,000,000 shares authorized:
7.50% Series A Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 6,210,000 and 0 issued and outstanding at September 30, 2019 and December 31, 2018, respectively 150,026
—
7.125% Series B Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 11,300,000 and 0 issued and outstanding at September 30, 2019 and December 31, 2018, respectively 273,418
—
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 415,520,780 and 369,104,429 issued and outstanding at September 30, 2019 and December 31, 2018, respectively 4,156
3,692
Additional paid-in capital 5,498,226
4,746,242
Retained earnings 545,713
830,713
Accumulated other comprehensive income (loss) 706,926
417,023
Total New Residential stockholders’ equity 7,178,465
5,997,670
Noncontrolling interests in equity of consolidated subsidiaries 83,652
90,625
  Total Equity 7,262,117
6,088,295
$ 41,347,925
$ 31,691,013


	September 30, 2020 (Unaudited)		December 31, 2019
Assets
Excess mortgage servicing rights assets, at fair value	$	435,982	$	505,343
Mortgage servicing rights, at fair value	3,651,805		3,967,960
Mortgage servicing rights financing receivables, at fair value	1,129,819		1,718,273
Servicer advance investments, at fair value(A)	535,760		581,777
Real estate and other securities	10,830,067		19,477,728
Residential loans and variable interest entity consumer loans held-for-investment, at fair value(A)	1,440,910		1,753,251
Residential mortgage loans, held-for-sale (includes $4,358,473 and $4,613,612 at fair value at September 30, 2020 and December 31, 2019, respectively)	4,936,826		6,042,664
Residential mortgage loans subject to repurchase(B)	1,458,325		172,336
Cash and cash equivalents(A)	841,022		528,737
Restricted cash(A)	180,554		162,197
Servicer advances receivable	2,857,040		3,301,374
Trades receivable	946,321		5,256,014
Other assets(A)	1,161,933		1,395,800
	$	30,406,364	$	44,863,454
Liabilities and Equity
Liabilities
Secured financing agreements	$	14,666,868	$	27,916,225
Secured notes and bonds payable (includes $1,756,632 and $659,738 at fair value at September 30, 2020 and December 31, 2019, respectively)(A)	7,733,648		7,720,148
Residential mortgage loan repurchase liability(B)	1,458,325		172,336
Unsecured senior notes, net of issuance costs	541,758		0
Trades payable	210		902,081
Due to affiliates	9,545		103,882
Dividends payable	69,541		211,732
Accrued expenses and other liabilities(A)	497,838		600,790
	24,977,733		37,627,194
Commitments and Contingencies
Equity
Preferred Stock, par value of $0.01 per share, 100,000,000 shares authorized:
7.50% Series A Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 6,210,000 and 6,210,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	150,026		150,026
7.125% Series B Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 11,300,000 and 11,300,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	273,418		273,418
6.375% Series C Preferred Stock, $0.01 par value, 16,100,000 shares authorized, 16,100,000 and 0 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	389,548		0
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 415,744,518 and 415,520,780 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	4,158		4,156
Additional paid-in capital	5,554,559		5,498,226
Retained earnings (accumulated deficit)	(1,094,589)		549,733
Accumulated other comprehensive income (loss)	52,074		682,151
Total New Residential stockholders’ equity	5,329,194		7,157,710
Noncontrolling interests in equity of consolidated subsidiaries	99,437		78,550
Total Equity	5,428,631		7,236,260
	$	30,406,364	$	44,863,454

(A)See Note 13 regarding consolidated VIEs.

~~(A)~~

New Residential’s Condensed Consolidated Balance Sheets include the assets and liabilities of certain consolidated VIEs, Advance Purchaser LLC (the “Buyer”) (Note 6), the RPL Borrowers (defined in Note 8), Shellpoint Asset Funding Trust 2013-1 (“SAFT 2013-1”) and the Shelter retail mortgage origination joint ventures (“Shelter JVs”) (Note 8) and the Consumer Loan SPVs (Note 9), which primarily hold investments in Servicer Advance Investments, residential mortgage loans and consumer loans, respectively, financed with notes and bonds payable. The balance sheets of the Buyer, the RPL Borrowers, SAFT 2013-1, Shelter JVs and the Consumer Loan SPVs are included in Notes 6, 8 and 9, respectively. The creditors of the Buyer, the RPL Borrowers, SAFT 2013-1, Shelter JVs and the Consumer Loan SPVs do not have recourse to the general credit of New Residential and the assets of the Buyer, the RPL Borrowers, SAFT 2013-1, Shelter JVs and the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.

(B)See Note 8 for details.

See notes to condensed consolidated financial statements.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)


														Three Months Ended September 30,				Nine Months Ended September 30,
														2020		2019		2020		2019
Revenues													Revenues

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Interest income	$	448,127		$	425,524		$	1,303,041		$	1,212,902		Interest income	$	233,848	$	448,127	$	868,419	$	1,303,041
Servicing revenue, net of change in fair value of $(395,064), $(228,405), $(1,485,472), and $(619,914), respectively													Servicing revenue, net of change in fair value of $(395,064), $(228,405), $(1,485,472), and $(619,914), respectively	(43,929)		53,050		(459,313)		133,366
Gain on originated mortgage loans, held-for-sale, net													Gain on originated mortgage loans, held-for-sale, net	495,098		126,747		984,818		294,935
														685,017		627,924		1,393,924		1,731,342
Expenses													Expenses
Interest expense	245,902			162,806			686,738			421,109			Interest expense	130,528		245,902		463,786		686,738
Net Interest Income	202,225			262,718			616,303			791,793

Impairment
Other-than-temporary impairment (OTTI) on securities	5,567			3,889			21,942			23,190
Valuation and loss provision (reversal) on loans and real estate owned (REO)	(10,690		)	5,471			8,042			28,136
General and administrative expenses													General and administrative expenses	316,560		193,580		859,601		525,289
Management fee to affiliate													Management fee to affiliate	22,482		20,678		66,682		58,261
Incentive compensation to affiliate													Incentive compensation to affiliate	0		36,307		0		49,265
	(5,123		)	9,360			29,984			51,326

Net interest income after impairment	207,348			253,358			586,319			740,467
Servicing revenue, net of change in fair value of $(228,405), $(26,741), $(619,914), and $35,118, respectively	53,050			175,355			133,366			538,784
Gain on sale of originated mortgage loans, net	100,541			45,732			194,029			45,732
Other Income
Change in fair value of investments in excess mortgage servicing rights	2,407			(4,744		)	(1,421		)	(55,711		)
Change in fair value of investments in excess mortgage servicing rights, equity method investees	4,751			3,396			4,087			5,624
Change in fair value of investments in mortgage servicing rights financing receivables	(41,410		)	(88,345		)	(133,200		)	63,628
Change in fair value of servicer advance investments	6,641			(5,353		)	15,932			(86,581		)
Change in fair value of investments in residential mortgage loans	(19,037		)	647			90,551			647
Change in fair value of derivative instruments	58,508			24,299			(1,988		)	27,985
														469,570		496,467		1,390,069		1,319,553
Other Income (Loss)													Other Income (Loss)
Change in fair value of investments													Change in fair value of investments	89,092		2,212		(374,408)		(55,534)
Gain (loss) on settlement of investments, net	154,752			(11,893		)	157,013			106,064			Gain (loss) on settlement of investments, net	(94,457)		133,670		(968,995)		96,385
Earnings from investments in consumer loans, equity method investees	(2,547		)	4,555			(890		)	12,343			Earnings from investments in consumer loans, equity method investees	0		(2,547)		0		(890)
Other income (loss), net	(35,219		)	(5,860		)	(16,451		)	10,415			Other income (loss), net	5,385		(30,695)		(34,635)		(27,234)
	128,846			(83,298		)	113,633			84,414				20		102,640		(1,378,038)		12,727
Operating Expenses
General and administrative expenses	133,513			98,587			351,359			139,169
Management fee to affiliate	20,678			15,464			58,261			46,027
Incentive compensation to affiliate	36,307			23,848			49,265			65,169
Loan servicing expense	7,192			11,060			26,167			33,609
Subservicing expense	52,875			43,148			147,763			135,703
	250,565			192,107			632,815			419,677
Impairment													Impairment
Provision (reversal) for credit losses on securities													Provision (reversal) for credit losses on securities	(3,849)		5,567		15,166		21,942
Valuation and credit loss provision (reversal) on loans and real estate owned (“REO”)													Valuation and credit loss provision (reversal) on loans and real estate owned (“REO”)	14,584		(10,690)		118,504		8,042
														10,735		(5,123)		133,670		29,984
Income (Loss) Before Income Taxes	239,220			199,040			394,532			989,720			Income (Loss) Before Income Taxes	204,732		239,220		(1,507,853)		394,532
Income tax expense (benefit)	(5,440		)	3,563			18,980			(5,957		)	Income tax expense (benefit)	100,812		(5,440)		(48,647)		18,980
Net Income (Loss)	$	244,660		$	195,477		$	375,552		$	995,677		Net Income (Loss)	$	103,920	$	244,660	$	(1,459,206)	$	375,552
Noncontrolling Interests in Income of Consolidated Subsidiaries	$	14,738		$	10,869		$	31,979		$	32,058		Noncontrolling Interests in Income of Consolidated Subsidiaries	$	11,640	$	14,738	$	34,118	$	31,979
Dividends on Preferred Stock	$	5,338		$	—		$	5,338		$	—		Dividends on Preferred Stock	$	14,359	$	5,338	$	39,938	$	5,338
Net Income (Loss) Attributable to Common Stockholders	$	224,584		$	184,608		$	338,235		$	963,619		Net Income (Loss) Attributable to Common Stockholders	$	77,921	$	224,584	$	(1,533,262)	$	338,235
Net Income (Loss) Per Share of Common Stock													Net Income (Loss) Per Share of Common Stock
Basic	$	0.54		$	0.54		$	0.83		$	2.87		Basic	$	0.19	$	0.54	$	(3.69)	$	0.83
Diluted	$	0.54		$	0.54		$	0.83		$	2.86		Diluted	$	0.19	$	0.54	$	(3.69)	$	0.83
Weighted Average Number of Shares of Common Stock Outstanding													Weighted Average Number of Shares of Common Stock Outstanding
Basic	415,520,780			340,044,440			406,521,273			335,615,566			Basic	415,744,518		415,520,780		415,665,441		406,521,273
Diluted	415,588,238			340,868,403			406,671,972			337,078,824			Diluted	420,968,626		415,588,238		415,665,441		406,671,972

Dividends Declared per Share of Common Stock	$	0.50		$	0.50		$	1.50		$	1.50		Dividends Declared per Share of Common Stock	$	0.15	$	0.50	$	0.30	$	1.50

See notes to condensed consolidated financial statements.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018			2020		2019		2020		2019
Comprehensive income (loss), net of tax												Comprehensive income (loss), net of tax
Net (loss) income	$	244,660		$	195,477		$	375,552		$	995,677
Net income (loss)												Net income (loss)	$	103,920	$	244,660	$	(1,459,206)	$	375,552
Other comprehensive income (loss)												Other comprehensive income (loss)
Net unrealized gain (loss) on securities	109,668			(22,445		)	469,183			14,600		Net unrealized gain (loss) on securities	17,535		109,668		108,308		469,183
Reclassification of net realized (gain) loss on securities into earnings	(89,436		)	32,626			(179,280		)	89,885		Reclassification of net realized (gain) loss on securities into earnings	3,809		(89,436)		(738,385)		(179,280)
	20,232			10,181			289,903			104,485			21,344		20,232		(630,077)		289,903
Total comprehensive income	$	264,892		$	205,658		$	665,455		$	1,100,162
Comprehensive income attributable to noncontrolling interests	$	14,738		$	10,869		$	31,979		$	32,058
Total comprehensive income (loss)												Total comprehensive income (loss)	$	125,264	$	264,892	$	(2,089,283)	$	665,455
Comprehensive income (loss) attributable to noncontrolling interests												Comprehensive income (loss) attributable to noncontrolling interests	$	11,640	$	14,738	$	34,118	$	31,979
Dividends on preferred stock	$	5,338		$	—		$	5,338		$	—	Dividends on preferred stock	$	14,359	$	5,338	$	39,938	$	5,338
Comprehensive income attributable to common stockholders	$	244,816		$	194,789		$	628,138		$	1,068,104
Comprehensive income (loss) attributable to common stockholders												Comprehensive income (loss) attributable to common stockholders	$	99,265	$	244,816	$	(2,163,339)	$	628,138

See notes to condensed consolidated financial statements.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE ~~NINE~~THREE MONTHS ENDED SEPTEMBER 30, ~~2019 AND 2018~~2020



(dollars in ~~thousands)~~thousands, except share and per share data)

Common Stock
Preferred Stock Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total New Residential Stockholders’ Equity
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
Total Equity
Equity - December 31, 2018 $ —
369,104,429
$ 3,692
$ 4,746,242
$ 830,713
$ 417,023
$ 5,997,670
$ 90,625
$ 6,088,295
Dividends declared on common stock —
—
—
—
(623,235 ) —
(623,235 ) —
(623,235 )
Dividends declared on preferred stock —
—
—
—
(5,338 ) —
(5,338 ) —
(5,338 )
Capital contributions —
—
—
—
—
—
—
—
—
Capital distributions —
—
—
—
—
—
—
(38,952 ) (38,952 )
Issuance of common stock —
46,000,000
460
750,933
—
—
751,393
—
751,393
Issuance of preferred stock 423,444
—
—
—
—
—
423,444
—
423,444
Option exercise —
348,613
3
(3 ) —
—
—
—
—
Purchase of noncontrolling interests in the Buyer —
—
—
—
—
—
—
—
—
Other dilution —
—
—
—
—
—
—
—
—
Director share grants —
67,738
1
1,054
—
—
1,055
—
1,055
Comprehensive income (loss)
Net income (loss) —
—
—
—
343,573
—
343,573
31,979
375,552
Net unrealized gain (loss) on securities —
—
—
—
—
469,183
469,183
—
469,183
Reclassification of net realized (gain) loss on securities into earnings —
—
—
—
—
(179,280 ) (179,280 ) —
(179,280 )
Total comprehensive income (loss) 633,476
31,979
665,455
Equity - September 30, 2019 $ 423,444
415,520,780
$ 4,156
$ 5,498,226
$ 545,713
$ 706,926
$ 7,178,465
$ 83,652

$ 7,262,117


	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total New Residential Stockholders’ Equity		Noncontrolling Interests in Equity of Consolidated Subsidiaries		Total Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2020	33,610,000	$	812,992	415,744,518	$	4,158	$	5,554,559	$	(1,110,148)	$	30,730	$	5,292,291	$	96,681	$	5,388,972

Dividends declared on common stock, $0.15 per share	—	—		—	—		—		(62,362)		—		(62,362)		—		(62,362)
Dividends declared on preferred stock	—	—		—	—		—		(14,359)		—		(14,359)		—		(14,359)
Capital contributions	—	—		—	—		—		—		—		—		25		25
Capital distributions	—	—		—	—		—		—		—		—		(8,909)		(8,909)



Comprehensive income (loss)
Net income (loss)	—	—		—	—		—		92,280		—		92,280		11,640		103,920
Net unrealized gain (loss) on securities	—	—		—	—		—		—		17,535		17,535		—		17,535
Reclassification of net realized (gain) loss on securities into earnings	—	—		—	—		—		—		3,809		3,809		—		3,809
Total comprehensive income (loss)													113,624		11,640		125,264
Balance at September 30, 2020	33,610,000	$	812,992	415,744,518	$	4,158	$	5,554,559	$	(1,094,589)	$	52,074	$	5,329,194	$	99,437	$	5,428,631

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019


(dollars in thousands, except share and per share data)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total New Residential Stockholders’ Equity		Noncontrolling Interests in Equity of Consolidated Subsidiaries		Total Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2019	0	$	0	415,520,780	$	4,156	$	5,498,226	$	528,889	$	686,694	$	6,717,965	$	82,865	$	6,800,830
Dividends declared on common stock, $0.50 per share	—	—		—	—		—		(207,760)		—		(207,760)		—		(207,760)
Dividends declared on preferred stock	—	—		—	—		—		(5,338)		—		(5,338)		—		(5,338)
Capital contributions	—	—		—	—		—		—		—		—		—		0
Capital distributions	—	—		—	—		—		—		—		—		(13,951)		(13,951)

Issuance of preferred stock	17,510,000	423,444		—	—		—		—		—		423,444		—		423,444




Comprehensive income (loss)
Net income (loss)	—	—		—	—		—		229,922		—		229,922		14,738		244,660
Net unrealized gain (loss) on securities	—	—		—	—		—		—		109,668		109,668		—		109,668
Reclassification of net realized (gain) loss on securities into earnings	—	—		—	—		—		—		(89,436)		(89,436)		—		(89,436)
Total comprehensive income (loss)													250,154		14,738		264,892
Balance at September 30, 2019	17,510,000	$	423,444	415,520,780	$	4,156	$	5,498,226	$	545,713	$	706,926	$	7,178,465	$	83,652	$	7,262,117

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020


(dollars in thousands, except share and per share data)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total New Residential Stockholders’ Equity		Noncontrolling Interests in Equity of Consolidated Subsidiaries		Total Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	17,510,000	$	423,444	415,520,780	$	4,156	$	5,498,226	$	549,733	$	682,151	$	7,157,710	$	78,550	$	7,236,260
Cumulative adjustment for the adoption of ASU 2016-13 (See Note 1)	—	—		—	—		—		13,658		—		13,658		16,795		30,453
2020 Warrants	—	—		—	—		53,462		—		—		53,462		—		53,462
Dividends declared on common stock, $0.30 per share	—	—		—	—		—		(124,718)		—		(124,718)		—		(124,718)
Dividends declared on preferred stock	—	—		—	—		—		(39,938)		—		(39,938)		—		(39,938)
Capital contributions	—	—		—	—		—		—		—		—		1,818		1,818
Capital distributions	—	—		—	—		—		—		—		—		(31,844)		(31,844)
Issuance of common stock	—	—		97,394	1		1,661		—		—		1,662		—		1,662
Issuance of preferred stock	16,100,000	389,548		—	—		—		—		—		389,548		—		389,548
Director share grants	—	—		126,344	1		1,210		—		—		1,211		—		1,211
Comprehensive income (loss)
Net income (loss)	—	—		—	—		—		(1,493,324)		—		(1,493,324)		34,118		(1,459,206)
Net unrealized gain (loss) on securities	—	—		—	—		—		—		108,308		108,308		—		108,308
Reclassification of net realized (gain) loss on securities into earnings	—	—		—	—		—		—		(738,385)		(738,385)		—		(738,385)
Total comprehensive income (loss)													(2,123,401)		34,118		(2,089,283)
Balance at September 30, 2020	33,610,000	$	812,992	415,744,518	$	4,158	$	5,554,559	$	(1,094,589)	$	52,074	$	5,329,194	$	99,437	$	5,428,631

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 ~~AND 2018~~



(dollars in ~~thousands)~~thousands, except share and per share data)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total New Residential Stockholders’ Equity		Noncontrolling Interests in Equity of Consolidated Subsidiaries		Total Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2018	0	$	0	369,104,429	$	3,692	$	4,746,242	$	830,713	$	417,023	$	5,997,670	$	90,625	$	6,088,295
Dividends declared on common stock, $1.50 per share	—	—		—	—		—		(623,235)		—		(623,235)		—		(623,235)
Dividends declared on preferred stock	—	—		—	—		—		(5,338)		—		(5,338)		—		(5,338)

Capital distributions	—	—		—	—		—		—		—		—		(38,952)		(38,952)
Issuance of common stock	—	—		46,000,000	460		750,933		—		—		751,393		—		751,393
Issuance of preferred stock	17,510,000	423,444		—	—		—		—		—		423,444		—		423,444
Option exercise	—	—		348,613	3		(3)		—		—		—		—		—


Director share grants	—	—		67,738	1		1,054		—		—		1,055		—		1,055
Comprehensive income (loss)
Net income (loss)	—	—		—	—		—		343,573		—		343,573		31,979		375,552
Net unrealized gain (loss) on securities	—	—		—	—		—		—		469,183		469,183		—		469,183
Reclassification of net realized (gain) loss on securities into earnings	—	—		—	—		—		—		(179,280)		(179,280)		—		(179,280)
Total comprehensive income (loss)													633,476		31,979		665,455
Balance at September 30, 2019	17,510,000	$	423,444	415,520,780	$	4,156	$	5,498,226	$	545,713	$	706,926	$	7,178,465	$	83,652	$	7,262,117

Common Stock
Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total New Residential Stockholders’ Equity
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
Total Equity
Equity - December 31, 2017 307,361,309
$ 3,074
$ 3,763,188
$ 559,476
$ 364,467
$ 4,690,205
$ 105,957
$ 4,796,162
Dividends declared on common stock —
—
—
(508,176 ) —
(508,176 ) —
(508,176 )
Capital contributions —
—
—
—
—
—
—
—
Capital distributions —
—
—
—
—
—
(51,735 ) (51,735 )
Issuance of common stock 29,241,659
292
491,312
—
—
491,604
—
491,604
Option exercise 3,694,228
37
(37 ) —
—
—
—
—
Other dilution —
—
(63 ) —
—
(63 ) —
(63 )
Purchase of Noncontrolling Interests —
—
627
—
—
627
7,448
8,075
Director share grants 57,233
1
1,018
—
—
1,019
—
1,019
Comprehensive income (loss)

Net income (loss) —
—
—
963,619
—
963,619
32,058
995,677
Net unrealized gain (loss) on securities —
—
—
—
14,600
14,600
—
14,600
Reclassification of net realized (gain) loss on securities into earnings —
—
—
—
89,885
89,885
—
89,885
Total comprehensive income (loss) 1,068,104
32,058
1,100,162
Equity - September 30, 2018 340,354,429
$ 3,404
$ 4,256,045
$ 1,014,919
$ 468,952
$ 5,743,320
$ 93,728
$ 5,837,048

See notes to condensed consolidated financial statements.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

Nine Months Ended
September 30,
2019 2018
Cash Flows From Operating Activities
Net income $ 375,552
$ 995,677
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of investments in excess mortgage servicing rights 1,421
55,711
Change in fair value of investments in excess mortgage servicing rights, equity method investees (4,087 ) (5,624 )
Change in fair value of investments in mortgage servicing rights financing receivables 133,200
(63,628 )
Change in fair value of servicer advance investments (15,932 ) 86,581
Change in fair value of residential mortgage loans, at fair value, and notes and bonds payable, at fair value (85,303 ) 1,462
(Gain) / loss on settlement of investments (net) (157,013 ) (106,064 )
(Gain) / loss on sale of originated mortgage loans (net) (194,029 ) (45,732 )
Earnings from investments in consumer loans, equity method investees 890
(12,343 )
Change in fair value of derivative instruments 1,988
(27,985 )
Changes in fair value of contingent consideration 7,430
—
Unrealized (gain) / loss on other ABS (9,010 ) (12,001 )
(Gain) / loss on transfer of loans to REO (7,814 ) (16,609 )
(Gain) / loss on transfer of loans to other assets 378
1,648
(Gain) / loss on Excess MSR recapture agreements (1,771 ) (5,257 )
(Gain) / loss on Ocwen common stock (3,134 ) (4,655 )
Accretion and other amortization (298,933 ) (528,981 )
Other-than-temporary impairment 21,942
23,190
Valuation and loss provision on loans and real estate owned 8,042
28,136
Non-cash portions of servicing revenue, net 619,914
(35,118 )
Non-cash directors’ compensation 1,055
1,019
Deferred tax provision 18,080
(12,680 )
Changes in:
Servicer advances receivable 366,426
441,351
Other assets (516,107 ) (168,862 )
Due to affiliates (41,920 ) (14,826 )
Accrued expenses and other liabilities 263,420
161,246
Other operating cash flows:
Interest received from excess mortgage servicing rights 19,180
33,521
Interest received from servicer advance investments 22,212
25,901
Interest received from Non-Agency RMBS 203,309
156,420
Interest received from PCD residential mortgage loans, held-for-investment 6,697
6,656
Interest received from PCD consumer loans, held-for-investment 23,789
27,681
Distributions of earnings from excess mortgage servicing rights, equity method investees 7,762
7,976
Distributions of earnings from consumer loan equity method investees 1,178
6,176
Purchases of residential mortgage loans, held-for-sale (6,002,975 ) (3,295,378 )
Origination of residential mortgage loans, held-for-sale (10,424,325 ) (1,678,606 )
Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale 13,046,546
3,752,066
Principal repayments from purchased residential mortgage loans, held-for-sale 295,584
146,170
Net cash provided by (used in) operating activities (2,316,358 ) (75,761 )


	Nine Months Ended September 30,
	2020		2019
Cash Flows From Operating Activities
Net income	$	(1,459,206)	$	375,552
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of investments in excess mortgage servicing rights assets	14,675		(2,666)

Change in fair value of investments in mortgage servicing rights financing receivables	245,906		133,200
Change in fair value of servicer advance investments	(431)		(15,932)
Change in fair value of residential mortgage loans, at fair value	108,306		(75,095)
Change in fair value of secured notes and bonds payable	(535)		0
Change in fair value of investments in real estate and other securities	531		(9,010)
(Gain) loss on settlement of investments, net	904,200		(104,917)
(Gain) loss on sale of originated mortgage loans, net	(984,818)		(294,935)
Earnings from investments in consumer loans, equity method investees	0		890
(Gain) loss on extinguishment of debt	64,795		8,532
Change in fair value of derivative instruments	(4,213)		25,037
Change in fair value of contingent consideration	5,949		7,430
Change in fair value of investments in consumer loans, held-for-investment	9,634		0
Change in fair value of equity investments	52,413		659
(Gain) loss on transfer of loans to REO	(5,010)		(7,814)
(Gain) loss on transfer of loans to other assets	773		378
(Gain) loss on Excess MSR recapture agreements	12,191		(1,771)
(Gain) loss on Ocwen common stock	(221)		(3,134)
Accretion and other amortization	(127,456)		(298,933)
Provision for credit losses on securities	15,166		21,942
Valuation and credit loss provision on loans and real estate owned	118,504		8,042
Non-cash portions of servicing revenue, net	1,485,472		619,914
Non-cash directors’ compensation	1,211		1,055
Deferred tax provision	(42,439)		18,080
Changes in:
Servicer advances receivable	470,221		366,426
Other assets	154,969		(509,745)
Due to affiliates	(94,337)		(41,920)
Accrued expenses and other liabilities	(186,705)		263,420
Other operating cash flows:
Interest and distributions received from excess mortgage servicing rights assets	27,415		26,942
Interest received from servicer advance investments	14,183		22,212
Interest received from Non-Agency RMBS	137,000		203,309
Interest received from residential mortgage loans, held-for-investment	3,907		6,697
Interest received from consumer loans, held-for-investment	0		23,789

Distributions of earnings from consumer loan equity method investees	0		1,178
Purchases of residential mortgage loans, held-for-sale	(2,390,498)		(6,002,975)
Origination of residential mortgage loans, held-for-sale	(36,801,062)		(10,424,325)
Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale	39,908,942		13,046,546
Principal repayments from purchased residential mortgage loans, held-for-sale	226,436		295,584
Net cash provided by (used in) operating activities	1,885,868		(2,316,358)

Continued on next page.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)

Nine Months Ended
September 30,
2019 2018
Cash Flows From Investing Activities
Acquisition of Shellpoint, net of cash required —
(118,285 )
Purchase of servicer advance investments (1,255,306 ) (1,790,635 )
Purchase of MSRs, MSR financing receivables and servicer advances receivable (1,365,333 ) (971,079 )
Purchase of Agency RMBS (25,212,307 ) (6,574,783 )
Purchase of Non-Agency RMBS (689,308 ) (2,714,991 )
Purchase of residential mortgage loans —
(85,778 )
Purchase of real estate owned and other assets (44,539 ) (26,807 )
Purchase of investment in consumer loans, equity method investees (63,969 ) (292,616 )
Draws on revolving consumer loans (42,231 ) (45,017 )
Payments for settlement of derivatives (283,037 ) (59,113 )
Return of investments in excess mortgage servicing rights 43,938
43,690
Return of investments in excess mortgage servicing rights, equity method investees 12,030
14,474
Return of investments in consumer loans, equity method investees 55,848
279,669
Principal repayments from servicer advance investments 1,402,187
1,845,411
Principal repayments from Agency RMBS 987,523
76,515
Principal repayments from Non-Agency RMBS 996,396
565,460
Principal repayments from residential mortgage loans 83,483
110,770
Proceeds from sale of residential mortgage loans 41,308
21,278
Principal repayments from consumer loans 203,607
237,129
Principal repayments from MSRs and MSR financing receivables 21,306
—
Proceeds from sale of mortgage servicing rights 1,047
—
Proceeds from sale of mortgage servicing rights financing receivables 15,575
—
Proceeds from sale of excess mortgage servicing rights 114
—
Proceeds from sale of Agency RMBS 17,998,736
4,121,325
Proceeds from sale of Non-Agency RMBS 1,664,017
81,325
Proceeds from settlement of derivatives 74,724
146,146
Proceeds from sale of real estate owned 103,258
111,459
Net cash provided by (used in) investing activities (5,250,933 ) (5,024,453 )


	Nine Months Ended September 30,
	2020	2019
Cash Flows From Investing Activities
Purchase of servicer advance investments	(991,289)	(1,255,306)
Purchase of MSRs, MSR financing receivables and servicer advances receivable	(530,657)	(1,365,333)
Purchase of Agency RMBS	(18,584,357)	(25,212,307)
Purchase of Non-Agency RMBS	(56,515)	(689,308)
Purchase of real estate owned and other assets	(5,347)	(44,539)
Purchase of investment in consumer loans, equity method investees	0	(63,969)
Draws on revolving consumer loans	(25,008)	(42,231)
Payments for settlement of derivatives	(160,465)	(283,037)
Return of investments in excess mortgage servicing rights assets	40,101	55,968

Return of investments in consumer loans, equity method investees	0	55,848
Principal repayments from servicer advance investments	1,036,634	1,402,187
Principal repayments from Agency RMBS	838,200	987,523
Principal repayments from Non-Agency RMBS	358,322	996,396
Principal repayments from residential mortgage loans	100,433	83,483
Proceeds from sale of residential mortgage loans	0	41,308
Principal repayments from consumer loans	176,125	203,607
Proceeds from MSRs and MSR financing receivables	64,623	21,306
Proceeds from sale of mortgage servicing rights	10,452	1,047
Proceeds from sale of mortgage servicing rights financing receivables	3,708	15,575
Proceeds from sale of excess mortgage servicing rights	144	114
Proceeds from sale of Agency RMBS	23,249,507	17,998,736
Proceeds from sale of Non-Agency RMBS	5,292,717	1,664,017
Proceeds from settlement of derivatives	65,650	74,724
Proceeds from sale of real estate owned	84,733	103,258
Net cash provided by (used in) investing activities	10,967,711	(5,250,933)

Continued on next page.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)


	Nine Months Ended September 30,							Nine Months Ended September 30,
	2019			2018				2020		2019
Cash Flows From Financing Activities							Cash Flows From Financing Activities
Repayments of repurchase agreements	(144,545,608		)	(58,414,966		)
Margin deposits under repurchase agreements and derivatives	(2,913,627		)	(1,374,374		)
Repayments of notes and bonds payable	(7,306,541		)	(7,512,484		)
Payment of deferred financing fees	(7,821		)	(12,838		)
Repayments of secured financing agreements							Repayments of secured financing agreements	(113,038,497)		(144,545,608)
Repayments of warehouse credit facilities							Repayments of warehouse credit facilities	(40,782,950)		0
Margin deposits under secured financing agreements and derivatives							Margin deposits under secured financing agreements and derivatives	(3,519,989)		(2,913,627)
Proceeds for issuance of term loan							Proceeds for issuance of term loan	592,400
Repayment of term loan							Repayment of term loan	(600,000)		0
Proceeds for issuance of unsecured senior notes							Proceeds for issuance of unsecured senior notes	544,400		0
Repayments of secured notes and bonds payable							Repayments of secured notes and bonds payable	(7,040,542)		(7,306,541)
Deferred financing fees							Deferred financing fees	(31,863)		(7,821)
Common stock dividends paid	(600,027		)	(491,680		)	Common stock dividends paid	(270,117)		(600,027)
Borrowings under repurchase agreements	152,101,817			63,696,426
Return of margin deposits under repurchase agreements and derivatives	2,589,160			1,263,220
Borrowings under notes and bonds payable	7,600,342			7,547,541
Preferred Stock dividends paid							Preferred Stock dividends paid	(36,730)		0
Borrowings under secured financing agreements							Borrowings under secured financing agreements	101,149,869		152,101,817
Borrowings under warehouse credit facilities							Borrowings under warehouse credit facilities	39,427,045		0
Return of margin deposits under secured financing agreements and derivatives							Return of margin deposits under secured financing agreements and derivatives	3,717,645		2,589,160
Borrowings under secured notes and bonds payable							Borrowings under secured notes and bonds payable	7,057,202		7,600,342
Issuance of preferred stock	423,444			—			Issuance of preferred stock	389,548		423,444
Issuance of common stock	752,217			492,285			Issuance of common stock	1,734		752,217
Costs related to issuance of common stock	(824		)	(681		)	Costs related to issuance of common stock	(72)		(824)
Noncontrolling interest in equity of consolidated subsidiaries - contributions	—			—
Noncontrolling interest in equity of consolidated subsidiaries - distributions	(38,952		)	(51,735		)
Purchase of noncontrolling interests	—			(653		)
Noncontrolling interests in equity of consolidated subsidiaries - contributions							Noncontrolling interests in equity of consolidated subsidiaries - contributions	1,818		0
Noncontrolling interests in equity of consolidated subsidiaries - distributions							Noncontrolling interests in equity of consolidated subsidiaries - distributions	(31,844)		(38,952)
Payment of contingent consideration							Payment of contingent consideration	(51,994)		0
Net cash provided by (used in) financing activities	8,053,580			5,140,061			Net cash provided by (used in) financing activities	(12,522,937)		8,053,580

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	486,289			39,847			Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	330,642		486,289

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period	415,078			446,050			Cash, Cash Equivalents, and Restricted Cash, Beginning of Period	690,934		415,078

Cash, Cash Equivalents, and Restricted Cash, End of Period	$	901,367		$	485,897		Cash, Cash Equivalents, and Restricted Cash, End of Period	$	1,021,576	$	901,367

Supplemental Disclosure of Cash Flow Information							Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	643,349		$	405,672		Cash paid during the period for interest	$	450,792	$	643,349
Cash paid during the period for income taxes	1,208			3,176			Cash paid during the period for income taxes	105		1,208
Supplemental Schedule of Non-Cash Investing and Financing Activities							Supplemental Schedule of Non-Cash Investing and Financing Activities
Dividends declared but not paid	$	213,098		$	170,177
Purchase of Agency and Non-Agency RMBS, settled after quarter end	2,536,188			1,791,191
Sale of investments, primarily Agency RMBS, settled after quarter end	4,487,772			3,424,865
Common dividends declared but not paid							Common dividends declared but not paid	$	62,362	$	213,098
Preferred dividends declared but not paid							Preferred dividends declared but not paid	14,359		5,338
Warrants issued with term loan							Warrants issued with term loan	53,462		0
Purchase of investments, primarily Agency and Non-Agency RMBS, settled after quarter-end							Purchase of investments, primarily Agency and Non-Agency RMBS, settled after quarter-end	210		2,536,188
Sale of investments, primarily Non-Agency RMBS, settled after quarter-end							Sale of investments, primarily Non-Agency RMBS, settled after quarter-end	946,321		4,487,772
Transfer from residential mortgage loans to real estate owned and other assets	70,080			88,376			Transfer from residential mortgage loans to real estate owned and other assets	56,297		70,080
Transfer from residential mortgage loans, held-for-investment to residential mortgage loans, held-for-sale	38,842			—			Transfer from residential mortgage loans, held-for-investment to residential mortgage loans, held-for-sale	0		38,842
Non-cash distributions from LoanCo	21,314			25,739			Non-cash distributions from LoanCo	0		21,314
MSR purchase price holdback	1,963			8,692			MSR purchase price holdback	(45,014)		1,963
Shellpoint Acquisition purchase price holdback	—			10,173
Shellpoint Acquisition contingent consideration	—			42,770

Real estate securities retained from loan securitizations	454,310			762,056			Real estate securities retained from loan securitizations	518,515		454,310
Residential mortgage loans subject to repurchase	168,532			110,181			Residential mortgage loans subject to repurchase	1,458,325		168,532
Ocwen transaction (Note 5) - excess mortgage servicing rights	—			638,567
Ocwen transaction (Note 5) - servicer advance investments	—			3,175,891
Ocwen transaction (Note 5) - mortgage servicing rights financing receivables, at fair value	—			1,017,993

See notes to condensed consolidated financial statements.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

1. ORGANIZATION AND BASIS OF PRESENTATION


1.	~~ORGANIZATION AND BASIS OF PRESENTATION~~

New Residential Investment Corp. (together with its subsidiaries, “New ~~Residential”~~Residential,” or “the Company”) is a Delaware corporation that was formed as a limited liability company in September 2011 (commenced operations on December 8, 2011) for the purpose of making real estate related ~~investments and commenced operations on December 8, 2011.~~investments. New Residential is an independent publicly traded real estate investment trust (“REIT”) primarily focused on investing in residential mortgage related ~~assets. New Residential~~assets and is listed on the New York Stock Exchange (“NYSE”) under the symbol “NRZ.”

New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 1718, Income Taxes, for additional information regarding New Residential’s taxable REIT subsidiaries.

New Residential, through its wholly-owned subsidiaries New Residential Mortgage LLC (“NRM”) and NewRez LLC (“NewRez”), is licensed or otherwise eligible to service residential mortgage loans in all states within the United States and the District of Columbia. Each of NRM and NewRez ~~perform servicing~~is also approved to service mortgage loans on behalf of investors, including the Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, Government Sponsored Enterprises or “GSEs”) and, solely in the case of NewRez, Government National Mortgage Association (“Ginnie Mae”)~~, and~~. NewRez is also eligible to perform servicing on behalf of other servicers (subservicing).

NewRez currently originates, sells and securitizes, or has in the past originated, sold, and securitized, conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as “Agency” loans), government-insured ~~(Federal~~Federal Housing Administration (“FHA”) and Department of Veterans Affairs (“VA”), and U.S Department of Agriculture (“USDA”) and non-qualified (“Non-QM”) residential mortgage loans. The GSEs or Ginnie Mae guarantee securitizations are completed under their applicable policies and guidelines. New Residential generally retains the right to service the underlying residential mortgage loans sold and securitized by ~~NRM and~~ NewRez. NRM and NewRez are required to conduct aspects of their operations in accordance with applicable policies and guidelines published by FHA, Fannie Mae and Freddie ~~Mac in order to maintain those approvals.~~Mac.

New Residential has entered into a management agreement (the “Management Agreement”) with FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), pursuant to which the Manager provides a management team and other professionals who are responsible for implementing New Residential’s business strategy, subject to the supervision of New Residential’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement. See Note 16 for additional information.

As of September 30, ~~2019,~~2020, New Residential conducted its business through the following segments: (i) Origination, (ii) Servicing, ~~and Originations, (ii)~~(iii) MSR Related Investments, (iv) Residential Securities and Loans, ~~(iii)~~(v) Consumer Loans and ~~(iv)~~(vi) Corporate.

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, as of September 30, ~~2019.~~2020. In addition, Fortress, through its affiliates, held options relating to approximately ~~10.5~~10.9 million shares of New Residential’s common stock as of September 30, ~~2019.~~2020.

Interim Financial Statements

The accompanying condensed consolidated financial statements ~~and related notes of New Residential have been~~are prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles ~~have been condensed~~(“GAAP’’ or ~~omitted.~~“US GAAP”). In the opinion of management, all adjustments considered necessary for a fair presentation of New Residential’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The ~~operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed~~ consolidated financial statements ~~should~~include the accounts of New Residential and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. New Residential consolidates those entities in which it has control over significant operating, financing and investing decisions of the entity, as well as those entities deemed to be ~~read~~variable interest entities (“VIEs”) in ~~conjunction with~~which New ~~Residential’s~~Residential is determined to be the primary beneficiary. For entities over which New Residential exercises significant influence, but which do not meet the requirements for consolidation, New Residential uses the equity method of accounting whereby it records its share of the underlying income of such entities. Distributions from equity method investees are classified in the condensed consolidated ~~financial~~ statements for the year ended December 31, 2018 and notes thereto included in New Residential’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). Capitalized terms used herein, and not otherwise defined, are defined inof cash flows

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

based on the cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings.

~~New Residential’s consolidated financial statements for~~

Beginning in the ~~year ended December 31, 2018. Certain~~second quarter of 2020, the Company changed its presentation of certain balance sheet and income statement line items to better reflect changes in the business and how the Company is viewed and managed. As a result, the presentation of certain prior period amounts have been reclassified to ~~conform~~be consistent with the current period presentation. Such reclassifications had no impact on net income, total assets, total liabilities, or stockholders’ equity.

Use of Estimates

In March 2020, the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (“COVID-19”) outbreak, which has led to a global health emergency. In response to this outbreak, the governments of many countries have taken preventive and protective actions, such as restricting travel and business operations. Financial markets have also experienced extreme volatility and disruptions to capital and credit markets. As a result, economic uncertainties have arisen which have impacted and could continue to impact the Company’s operations and its financial position. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, regulatory and private sector responses, and the impact on the Company’s customers, workforce, and vendors, all of which are uncertain and cannot be predicted.

The Company believes the estimates and assumptions underlying its condensed consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2020; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of September 30, 2020 inherently less certain than they would be absent the current ~~period’s presentation.~~and potential impacts of COVID-19. Actual results may materially differ from those estimates.

Recent Accounting Pronouncements

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities.~~ The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-01 did not have a material impact on the condensed consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~. The standard requires that lessees recognize a right-of-use asset and corresponding lease liability on the balance sheet for most leases. The guidance applied by a lessor under ASU No. 2016-02 is substantially similar to existing GAAP. ASU No. 2016-02 was effective for New Residential in the first quarter of 2019. An entity should apply ASU No. 2016-02 by means of a modified retrospective transition method for all leases existing at, or entered into after, the date of initial application. The adoption of ASU No. 2016-02 did not have a material impact on the condensed consolidated financial statements (see Notes 2 and 14 for details).

In June 2016, the FASB issued ASU ~~No.~~ 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments (“CECL”). The standard requires that a financial asset measured at amortized cost basis be presented at the net amount expected to be collected, net of an allowance for all expected (rather than incurred) credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the ~~collectibility~~collectability of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which ~~will require~~requires the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The standard provides an option to elect the fair value option for certain investments as an alternative to adopting ASU ~~No. 2016-13~~2016-13. Lastly, an entity is ~~effective for New Residential in the first quarter of 2020. Early adoption is permitted beginning in 2019. An entity should~~required to apply ASU ~~No.~~ 2016-13 ~~by means of~~using the modified retrospective approach which requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. New Residential is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements. New Residential plans to elect the fair value option on Residential mortgage loans, held-for-investment and Consumer loans, held-for-investment.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment (Topic 805)~~. The standard simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment test. Under the new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. ASU No. 2017-04 iswas effective for New Residential in the first quarter of ~~2020 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The~~2020. Upon adoption of ~~ASU No. 2017-04 is~~the standard, New Residential elected the fair value option on its held for investment residential mortgage and consumer loans portfolios. As a result, the Company recognized a positive adjustment of $13.7 million to retained earnings, composed of a $19.7 million increase attributable to the change in the fair value of consumer loans, net of noncontrolling interests, partially offset by a $6.0 million decrease attributable to the change in fair value of residential mortgage loans. For servicer advance receivables, the Company determined credit-related losses are not ~~expected to have a material impact on~~significant because of the ~~condensed consolidated financial statements.~~contractual relationships with the agencies. For other assets, primarily trade receivables, the Company determined that these are short-term in nature (less than one year), and the estimated credit-related losses over the life of these receivables are not significant.

In August 2018, the FASB issued ASU ~~No.~~ 2018-13, Fair Value Measurement (Topic 820). The standard: (i) adds incremental requirements for entities to disclose (a) the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy, (b) the range and weighted average used to develop significant unobservable inputs and (c) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy and (ii) eliminates disclosure requirements for (a) transfers between Level 1 and Level 2 and (b) valuation processes for Level 3 fair value measurements. ASU ~~No.~~ 2018-13 iswas effective for New Residential in the first quarter of 2020. The adoption of ASU ~~No.~~ 2018-13 isdid not ~~expected to~~ have a material impact on the condensed consolidated financial statements.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate (“LIBOR”) and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt, derivatives, and other contracts affected by reference rate reform. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the impact the adoption of this standard would have on its condensed consolidated financial statements.

~~Acquisition~~

In August 2020, the FASB issued ASU 2020-06, Debt–Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Topic 815). The standard simplifies the accounting for convertible instruments by reducing the number of ~~Shellpoint Partners LLC~~

~~On November 29, 2017, NRM Acquisition LLC (the “Shellpoint Purchaser”),~~accounting models. A convertible debt instrument will generally be reported as a ~~Delaware limited~~single liability ~~company~~at its amortized cost with no separate accounting for embedded conversion features. The standard also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and ~~a wholly owned subsidiary~~requires the use of the if-converted method. ASU 2020-16 is effective for New Residential ~~entered into a Securities Purchase Agreement (the “Shellpoint SPA”) to acquire Shellpoint Partners LLC, a Delaware limited liability company (“Shellpoint”).~~

On July 3, 2018, the Shellpoint Purchaser acquired 100% of the outstanding equity interests of Shellpoint for a cash purchase price of $212.3 million (the “Shellpoint Acquisition”). As additional consideration for the Shellpoint Acquisition, the Shellpoint Purchaser may make up to 3 cash earnout payments, which will be calculated following each ofbeginning in the first ~~three anniversaries~~quarter of 2022 with early adoption permitted beginning in 2021. The Company is currently evaluating the ~~Shellpoint closing as a percentage~~impact the adoption of the amount by which the pre-tax income of certain of Shellpoint’s businesses exceeds certain specified thresholds, up to an aggregate maximum amount of $60.0 million (the “Shellpoint Earnout Payments”). The Shellpoint Earnout Payments are classified as contingent consideration recorded at fair value at the acquisition date and included in the total consideration transferred for the Shellpoint Acquisition. The contingent consideration is subsequently measured at fair valuethis standard would have on ~~a quarterly basis with changes~~its condensed consolidated financial statements.

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

Change in fair value ~~recorded in other income.~~

~~Shellpoint~~of investments — This item is a vertically integrated mortgage platform with established origination and servicing capabilities and provides New Residential with in-house servicing, asset origination and recapture capabilities. The results of Shellpoint’s operations have been included in the Company’s condensed consolidated statements of income for the nine months ended September 30, 2019 and represent $444.8 million and $97.2 million of revenue and net income, respectively.

~~The acquisition date fair value~~composed of the ~~consideration transferred includes $212.3 million in cash consideration, $39.3 million in contingent consideration and $173.9 million in effective settlement~~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)		0		(9,634)		0
Derivative instruments	23,089		41,389		4,213		(25,037)
	$	89,092	$	2,212	$	(374,408)	$	(55,534)

Gain (Loss) on Settlement of ~~preexisting relationships. The total consideration~~Investments, Net — This item is ~~summarized as follows:~~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)		0		(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

Total Consideration (in millions) Amount
Cash Consideration $ 212.3
Earnout Payment^(A)
39.3
Effective Settlement of Preexisting Relationships^(B)
173.9
Total Consideration $ 425.5

~~(A)~~

The range of outcomes for this contingent consideration is from $0 to $60.0 million, dependent on the performance of Shellpoint. New Residential derived a fair value of the remaining contingent consideration payment in three years of $39.3 million. This amount excludes contingent payments to the long-term employee incentive plans that require continuing employment and are recognized as compensation expense within General and Administrative expenses in the post-acquisition consolidated financial statements separate from New Residential’s acquisition of assets and assumption of liabilities in the business combination. On September 5, 2019, New Residential paid $10.0 million as the first of three potential earnout payments. As of September 30, 2019, the contingent consideration had a fair value of $38.3 million.


~~(B)~~	Represents the effective settlement of preexisting relationships between New Residential and Shellpoint including 1) MSR acquisitions, 2) a note payable and 3) operating accounts receivable and payable existing prior to the acquisition date. The effective settlement of these preexisting relationships had no impact to New Residential’s condensed consolidated statements of income.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

~~New Residential has performed an allocation~~Other Income (Loss), Net — This item is composed of the ~~total consideration of $425.5 million to Shellpoint’s assets~~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		0		63,346		0
Other income (loss)	(6,678)		(24,896)		(24,848)		(23,566)
	$	5,385	$	(30,695)	$	(34,635)	$	(27,234)

General and ~~liabilities,~~Administrative Expenses, Loan Servicing Expense and Subservicing Expense — General and administrative expenses are expensed as ~~set forth below. The final amount~~incurred and allocation of total consideration reflects certain measurement period adjustments identified during the fourth quarter of 2018, including the effect on earnings that would have been recorded during the third quarter of 2018 had the accounting been completed at the acquisition date. Such measurement period adjustments included 1) a decrease of $3.5 million in the amount of contingent consideration based upon finalizationprimarily 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 internal valuation 2) a decrease of $6.4 million to consideration transferred for the effective settlement of existing relationships 3) an increase of $14.1 million to the fair value of identifiable intangible assets based upon receipt of the final valuation report from a third-party valuation firmfollowing:


	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 4) an increase of $0.3 million to other assets due to a decrease in the fair value discount on certain servicing advance receivables. These measurement period adjustments resulted in a corresponding decrease to goodwill in the amount of $24.3 million.administrative expenses.

Total Consideration ($ in millions) $ 425.5
Assets
Cash and cash equivalents $ 79.2
Restricted cash 9.9
Residential mortgage loans, held-for-sale, at fair value 488.2
Mortgage servicing rights, at fair value^(A)
286.6
Residential mortgage loans, held-for-investment, at fair value 125.3
Residential mortgage loans subject to repurchase 121.4
Intangible assets^(B)
18.4
Other assets 81.5
Total Assets Acquired $ 1,210.5

Liabilities
Repurchase agreements $ 439.6
Notes and bonds payable 20.7
Mortgage-backed securities issued, at fair value 120.7
Residential mortgage loans repurchase liability 121.4
Excess spread financing, at fair value 48.3
Accrued expenses and other liabilities 50.6
Total Liabilities Assumed $ 801.3

Noncontrolling Interest $ 8.3

Net Assets $ 400.9

Goodwill $ 24.6


~~(A)~~	~~Includes~~ ~~$135.3 million~~ ~~of Ginnie Mae MSRs where New Residential acquired the rights to the economic value of the servicing rights from Shellpoint prior to the acquisition date.~~

~~(B)~~

Includes intangible assets in the form of mortgage origination and servicing licenses, internally developed software and a tradename. New Residential determined that mortgage origination and servicing licenses have an indefinite useful life and will be evaluated for impairment given no legal, regulatory, contractual, competitive or economic factors that would limit the useful life. Internally developed software will be amortized over a finite useful life of five years and tradenames were fully amortized over six months, respectively, based on the expected software development timeline and New Residential’s determination of the time to change a tradename with limited value.

The goodwill of $24.6 million primarily includes the synergies and benefits expected to result from combining operations with Shellpoint and adding in-house servicing, asset origination and recapture capabilities. The full amount of goodwill for tax purposes of $24.6 million is expected to be deductible. New Residential will assess the goodwill annually on October 1 and in interim periods in case of events or circumstances make it more likely than not that an impairment may have occurred. Based on New Residential’s assessment performed, there were no indicators of impairment as of September 30, 2019.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

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		0
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

~~Certain transactions were recognized separately from~~(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 ~~assets~~Shellpoint Partners LLC (“Shellpoint”) and ~~assumption~~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 ~~liabilities~~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 ~~business combination. These separately recognized transactions include 1) contingent payments to Shellpoint’s employees~~Company’s common and ~~2) effective settlement of preexisting relationships discussed above.~~

~~Unaudited Supplemental Pro Forma Financial Information— The following table presents unaudited pro forma combined Servicing~~preferred stock prices, the Company performed a qualitative impairment analysis for goodwill and ~~Originations Revenue, which is comprised of 1) servicing revenue, net and 2) gain~~intangible assets. Based on ~~sale of originated mortgage loans, net, and Income Before Income Taxes for~~ the ~~three and~~analysis, the Company determined no impairment had occurred during the nine months ended September 30, ~~2019~~2020. Such analysis required management to assess current and ~~2018 prepared as if~~future market conditions. Given the ~~Shellpoint Acquisition had been consummated on January 1, 2018.~~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,

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Pro Forma
Servicing and Originations Revenue $ 153,591
$ 221,087
$ 327,395
$ 733,901
Income Before Income Taxes 239,220
199,040
394,532
1,003,378

The unaudited supplemental pro forma financial information has not been adjusted for transactions other than the Shellpoint Acquisition, or for the conforming of accounting policies. The unaudited supplemental pro forma financial information does not include any anticipated synergies or other anticipated benefits of the Shellpoint Acquisition and, accordingly, the unaudited supplemental pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the Shellpoint Acquisition occurred on January 1, 2018.


2.	~~OTHER INCOME, GENERAL AND ADMINISTRATIVE, OTHER ASSETS AND LIABILITIES~~

~~Gain (loss) on settlement of investments, net is comprised of the following:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Gain (loss) on sale of real estate securities, net $ 95,003
$ (28,737 ) $ 201,222
$ (66,695 )
Gain (loss) on sale of acquired residential mortgage loans, net 43,648
4,065
53,405
(1,358 )
Gain (loss) on settlement of derivatives (14,147 ) 19,459
(152,424 ) 76,092
Gain (loss) on liquidated residential mortgage loans (198 ) (1,113 ) (3,320 ) (2,267 )
Gain (loss) on sale of REO (3,169 ) (4,971 ) (9,445 ) (12,114 )
Gains on settlement of investments in excess MSRs and servicer advance investments —
—
—
113,002
Gain (loss) on sale or securitization of originated mortgage loans^(A)
21,611
—
62,399
—
Other gains (losses) 12,004
(596 ) 5,176
(596 )
$ 154,752
$ (11,893 ) $ 157,013
$ 106,064


~~(A)~~	~~Represents gains on securitizations of Non-QM residential mortgage loans originated by NewRez.~~

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

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 ~~income (loss), net,~~Amortization — As reflected on the condensed consolidated statements of cash flows, this item is ~~comprised~~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)		0
	$	127,456	$	298,933

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Unrealized gain (loss) on other ABS $ (5,054 ) $ 7,197
$ 9,010
$ 12,001
Unrealized gain (loss) on notes and bonds payable (2,647 ) 900
(5,248 ) 900
Unrealized gain (loss) on contingent consideration (2,703 ) —
(7,430 ) —
Gain (loss) on transfer of loans to REO 1,230
6,119
7,814
16,609
Gain (loss) on transfer of loans to other assets (101 ) (1,528 ) (378 ) (1,648 )
Gain (loss) on Excess MSR recapture agreements 529
987
1,771
5,257
Gain (loss) on Ocwen common stock (1,103 ) (145 ) 3,134
4,655
Other income (loss) (25,370 ) (19,390 ) (25,124 ) (27,359 )
$ (35,219 ) $ (5,860 ) $ (16,451 ) $ 10,415

Real estate owned (REO)

~~General and Administrative Expenses is comprised~~

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Compensation and benefits expense, servicing $ 30,494
$ 22,498
$ 87,219
$ 22,498
Compensation and benefits expense, origination 44,270
32,822
112,977
32,822
Legal and professional expense 16,442
11,749
46,352
35,378
Loan origination expense 17,882
7,801
42,349
7,801
Occupancy expense 5,114
4,394
14,079
4,394
Other^(A)
19,311
19,323
48,383
36,276
$ 133,513
$ 98,587
$ 351,359
$ 139,169


~~(A)~~	~~Represents miscellaneous general and administrative expenses.~~	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.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

3. SEGMENT REPORTING

~~Other assets and liabilities are comprised of the following:~~

Other Assets
Accrued Expenses
and Other Liabilities
September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Margin receivable, net^(A)
$ 409,526
$ 145,857
MSR purchase price holdback $ 102,556
$ 100,593
Servicing fee receivables 144,550
105,563
Accounts payable 89,372
75,591
Due from servicers 171,916
95,261
Derivative liabilities (Note 10) 1,842
29,389
Principal and interest receivable 98,067
76,015
Interest payable 80,892
49,352
Equity investments^(B)
117,375
74,323
Due to servicers 144,156
95,419
Ditech deposit 70,000
—
Residential mortgage loan repurchase liability 168,532
121,602
Other receivables 103,933
23,723
Due to affiliates 59,551
101,471
Real Estate Owned 105,968
113,410
Contingent Consideration 52,761
40,842
Residential mortgage loans subject to repurchase 168,532
121,602
Excess spread financing, at fair value 30,377
39,304
Consumer loans, equity method investees (Note 9) 23,033
38,294
Operating lease liability 24,532
—
Goodwill^(C)
41,986
24,645
Reserve for sales recourse 9,173
5,880
Receivable from government agency^(D)
20,505
20,795
Other liabilities 56,547
54,140
Intangible assets 19,346
18,708
$ 820,291
$ 713,583
Prepaid expenses 33,120
29,165

Operating lease right-of-use asset 18,773
—

Derivative assets (Note 10) 36,712
10,893

Ocwen common stock, at fair value 10,912
7,778

Other assets 130,265
55,682

$ 1,724,519
$ 961,714


~~(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 and 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.


~~(C)~~	Includes goodwill derived from the Shellpoint Acquisition (see Note 1 for details) and the Company’s acquisition of Guardian Asset Management, a leading national provider of field services and property management to government agencies, financial institutions and asset management firms.


~~(D)~~	Represents claims receivable from the FHA on 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.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

~~As reflected on the Condensed Consolidated Statements of Cash Flows, accretion and other amortization is comprised of the following:~~

Nine Months Ended
September 30,
2019 2018
Accretion of net discount on securities and loans^(A)
$ 266,467
$ 296,961
Accretion of servicer advances receivable discount and servicer advance investments 18,290
207,428
Accretion of excess mortgage servicing rights income 18,203
32,371
Amortization of deferred financing costs (2,984 ) (6,180 )
Amortization of discount on notes and bonds payable (1,043 ) (1,599 )
$ 298,933
$ 528,981


~~(A)~~	~~Includes accretion of the accretable yield on PCD loans.~~


3.	~~SEGMENT REPORTING~~

New ~~Residential conducts its business through~~Residential’s portfolio consists of the following segments: (i) Origination, (ii) Servicing, ~~and Originations, (ii)~~(iii) MSR Related Investments, (iv) Residential Securities and Loans, ~~(iii)~~(v) Consumer Loans and ~~(iv) Corporate.~~(vi) Corporate, organized based on differences in services and products. The corporate segment consists primarily of ~~(i)~~ general and administrative expenses, ~~(ii) the~~ management fees and incentive compensation related to the Management Agreement, ~~and (iii)~~ corporate cash and related interest income. Securities owned by New Residential (Note 7) that are collateralized by servicer advances and consumer loans are included in the Servicing and Originations and Consumer Loans segments, respectively. Secured corporate loans effectively collateralized by Excess MSRs are included in the Servicing and Originations segment.

During the third quarter of 2018, New Residential changed the composition of its reportable segments primarily to reflect the (i) aggregation of the similar MSR, Excess MSR and Servicer Advance segments as the new Servicing and Originations segment and (ii) incorporation of the Shellpoint Acquisition. Segment information for prior periods has been restated to reflect this change.

Summary financial data on New Residential’s segments is given below, together with a reconciliation to the same data for New Residential as a whole:


	Servicing and Origination										Residential Securities and Loans
	Origination		Servicing		MSR Related Investments		Elimination(A)		Total Servicing and Origination		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
Three Months Ended September 30, 2020
Interest income	$	17,407	$	373	$	91,576	$	0	$	109,356	$	61,034	$	33,913	$	29,545	$	0	$	233,848
Servicing revenue, net	(3,767)		111,420		(80,987)		(70,595)		(43,929)		0		0		0		0		(43,929)
Gain on originated mortgage loans, held-for-sale, net	445,578		346		10,184		38,990		495,098		0		0		0		0		495,098
Total revenues	459,218		112,139		20,773		(31,605)		560,525		61,034		33,913		29,545		0		685,017
Interest expense	10,977		90		59,650		0		70,717		15,652		19,326		5,809		19,024		130,528
G&A and other	136,086		81,767		149,426		(70,595)		296,684		930		10,361		3,361		27,706		339,042
Total operating expenses	147,063		81,857		209,076		(70,595)		367,401		16,582		29,687		9,170		46,730		469,570
Other income (loss)	123		0		(19,753)		0		(19,630)		36,941		44,699		(5,240)		(56,750)		20
Impairment	0		0		218		0		218		(3,849)		14,366		0		0		10,735
Income (loss) before income taxes(B)	312,278		30,282		(208,274)		38,990		173,276		85,242		34,559		15,135		(103,480)		204,732
Income tax expense (benefit)	71,304		6,044		15,682		0		93,030		0		7,783		(1)		0		100,812
Net income (loss)	$	240,974	$	24,238	$	(223,956)	$	38,990	$	80,246	$	85,242	$	26,776	$	15,136	$	(103,480)	$	103,920
Noncontrolling interests in income (loss) of consolidated subsidiaries	$	4,840	$	0	$	2,612	$	0	$	7,452	$	0	$	0	$	4,188	$	0	$	11,640
Dividends on preferred stock	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	14,359	$	14,359
Net income (loss) attributable to common stockholders	$	236,134	$	24,238	$	(226,568)	$	38,990	$	72,794	$	85,242	$	26,776	$	10,948	$	(117,839)	$	77,921


	Servicing and Origination										Residential Securities and Loans
	Origination		Servicing		MSR Related Investments		Elimination(A)		Total Servicing and Origination		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
Nine Months Ended September 30, 2020
Interest income	$	43,105	$	8,975	$	299,315	$	0	$	351,395	$	278,702	$	141,118	$	97,204	$	0	$	868,419
Servicing revenue, net	(6,843)		295,047		(591,004)		(156,513)		(459,313)		0		0		0		0		(459,313)
Gain on originated mortgage loans, held-for-sale, net	885,730		948		65,424		26,054		978,156		0		6,662		0		0		984,818
Total revenues	921,992		304,970		(226,265)		(130,459)		870,238		278,702		147,780		97,204		0		1,393,924
Interest expense	30,071		397		178,027		0		208,495		141,340		67,570		18,691		27,690		463,786
G&A and other	338,760		220,026		374,868		(156,513)		777,141		8,128		46,395		10,947		83,672		926,283
Total operating expenses	368,831		220,423		552,895		(156,513)		985,636		149,468		113,965		29,638		111,362		1,390,069
Other income (loss)	497		499		(267,351)		0		(266,355)		(881,261)		(110,896)		(16,007)		(103,519)		(1,378,038)
Impairment	0		0		127		0		127		15,166		118,377		0		0		133,670
Income (loss) before income taxes(B)	553,658		85,046		(1,046,638)		26,054		(381,880)		(767,193)		(195,458)		51,559		(214,881)		(1,507,853)
Income tax expense (benefit)	138,304		21,244		(143,824)		0		15,724		0		(64,501)		130		0		(48,647)
Net income (loss)	$	415,354	$	63,802	$	(902,814)	$	26,054	$	(397,604)	$	(767,193)	$	(130,957)	$	51,429	$	(214,881)	$	(1,459,206)
Noncontrolling interests in income (loss) of consolidated subsidiaries	$	10,542	$	0	$	(44)	$	0	$	10,498	$	0	$	0	$	23,620	$	0	$	34,118
Dividends on preferred stock	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	39,938	$	39,938
Net income (loss) attributable to common stockholders	$	404,812	$	63,802	$	(902,770)	$	26,054	$	(408,102)	$	(767,193)	$	(130,957)	$	27,809	$	(254,819)	$	(1,533,262)

Residential Securities and Loans
Servicing and Originations Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
Three Months Ended September 30, 2019
Interest income $ 135,892
$ 184,933
$ 86,971
$ 40,331
$ —
$ 448,127
Interest expense 69,679
123,023
45,707
7,493
—
245,902
Net interest income (expense) 66,213
61,910
41,264
32,838
—
202,225
Impairment —
5,567
(16,553 ) 5,863
—
(5,123 )
Servicing revenue, net 53,050
—
—
—
—
53,050
Gain on sale of originated mortgage loans, net 100,541
—
—
—
—
100,541
Other income (loss) (38,547 ) 116,081
55,152
(2,651 ) (1,189 ) 128,846
Operating expenses 168,100
1,839
14,006
3,965
62,655
250,565
Income (Loss) Before Income Taxes 13,157
170,585
98,963
20,359
(63,844 ) 239,220
Income tax expense (benefit) 10,749
—
(15,546 ) (643 ) —
(5,440 )
Net Income (Loss) $ 2,408
$ 170,585
$ 114,509
$ 21,002
$ (63,844 ) $ 244,660
Noncontrolling interests in income (loss) of consolidated subsidiaries $ 4,141
$ —
$ —
$ 10,597
$ —
$ 14,738
Dividends on Preferred Stock $ —
$ —
$ —
$ —
$ 5,338
$ 5,338
Net income (loss) attributable to common stockholders $ (1,733 ) $ 170,585
$ 114,509
$ 10,405
$ (69,182 ) $ 224,584

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

Residential Securities and Loans
Servicing and Originations Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
Nine Months Ended September 30, 2019
Interest income $ 396,662
$ 557,895
$ 219,909
$ 128,575
$ —
$ 1,303,041
Interest expense 203,940
330,992
126,288
25,518
—
686,738
Net interest income (expense) 192,722
226,903
93,621
103,057
—
616,303
Impairment —
21,942
(16,557 ) 24,599
—
29,984
Servicing revenue, net 133,366
—
—
—
—
133,366
Gain on sale of originated mortgage loans, net 194,029
—
—
—
—
194,029
Other income (loss) (92,878 ) 31,677
180,643
(10,324 ) 4,515
113,633
Operating expenses 457,276
4,124
31,289
18,396
121,730
632,815
Income (Loss) Before Income Taxes (30,037 ) 232,514
259,532
49,738
(117,215 ) 394,532
Income tax expense (benefit) 8,474
—
11,048
(542 ) —
18,980
Net Income (Loss) $ (38,511 ) $ 232,514
$ 248,484
$ 50,280
$ (117,215 ) $ 375,552
Noncontrolling interests in income (loss) of consolidated subsidiaries $ 8,873
$ —
$ —
$ 23,106
$ —
$ 31,979
Dividends on Preferred Stock $ —
$ —
$ —
$ —
$ 5,338
$ 5,338
Net income (loss) attributable to common stockholders $ (47,384 ) $ 232,514
$ 248,484
$ 27,174
$ (122,553 ) $ 338,235


														Servicing and Origination										Residential Securities and Loans
			Residential Securities and Loans											Origination		Servicing		MSR Related Investments		Elimination(A)		Total Servicing and Origination		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
	Servicing and Originations		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
September 30, 2019
September 30, 2020													September 30, 2020
Investments	$	6,374,099	$	16,853,910	$	7,444,405	$	904,216	$	—	$	31,576,630	Investments	$	2,843,720	$	0	$	5,753,366	$	0	$	8,597,086	$	10,830,067	$	2,887,350	$	722,108	$	0	$	23,036,611
Cash and cash equivalents	197,607		43,604		7,281		12,091		477,636		738,219		Cash and cash equivalents	99,321		50,942		406,965		0		557,228		160,764		4,681		7,195		111,154		841,022
Restricted cash	129,504		—		—		33,644		—		163,148		Restricted cash	3,929		32,369		102,166		0		138,464		12,723		0		29,367		0		180,554
Other assets	3,378,631		4,939,205		247,431		34,384		228,291		8,827,942		Other assets	369,988		191,398		4,466,009		0		5,027,395		1,005,847		193,394		59,968		32,105		6,318,709
Goodwill	41,986		—		—		—		—		41,986		Goodwill	11,836		12,540		5,092		0		29,468		0		0		0		0		29,468
Total assets	$	10,121,827	$	21,836,719	$	7,699,117	$	984,335	$	705,927	$	41,347,925	Total assets	$	3,328,794	$	287,249	$	10,733,598	$	0	$	14,349,641	$	12,009,401	$	3,085,425	$	818,638	$	143,259	$	30,406,364
Debt	$	6,192,811	$	17,196,772	$	6,248,142	$	878,506	$	—	$	30,516,231	Debt	$	2,612,817	$	6,669	$	5,980,900	$	0	$	8,600,386	$	10,877,414	$	2,241,607	$	681,109	$	541,758	$	22,942,274
Other liabilities	600,622		2,608,316		68,838		14,897		276,904		3,569,577		Other liabilities	165,022		63,657		1,661,193		0		1,889,872		9,633		45,696		5,425		84,833		2,035,459
Total liabilities	6,793,433		19,805,088		6,316,980		893,403		276,904		34,085,808		Total liabilities	2,777,839		70,326		7,642,093		0		10,490,258		10,887,047		2,287,303		686,534		626,591		24,977,733
Total equity	3,328,394		2,031,631		1,382,137		90,932		429,023		7,262,117		Total equity	550,955		216,923		3,091,505		0		3,859,383		1,122,354		798,122		132,104		(483,332)		5,428,631
Noncontrolling interests in equity of consolidated subsidiaries	61,132		—		—		22,520		—		83,652		Noncontrolling interests in equity of consolidated subsidiaries	18,365		0		42,946		0		61,311		0		0		38,126		0		99,437
Total New Residential stockholders’ equity	$	3,267,262	$	2,031,631	$	1,382,137	$	68,412	$	429,023	$	7,178,465	Total New Residential stockholders’ equity	$	532,590	$	216,923	$	3,048,559	$	0	$	3,798,072	$	1,122,354	$	798,122	$	93,978	$	(483,332)	$	5,329,194
Investments in equity method investees	$	249,134	$	—	$	—	$	23,033	$	—	$	272,167	Investments in equity method investees	$	0	$	0	$	139,351	$	0	$	139,351	$	0	$	0	$	0	$	0	$	139,351


	Servicing and Origination										Residential Securities and Loans
	Origination		Servicing		MSR Related Investments		Elimination(A)		Total Servicing and Origination		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
Three Months Ended September 30, 2019
Interest income	$	10,880	$	8,847	$	129,350	$	0	$	149,077	$	184,933	$	73,786	$	40,331	$	0	$	448,127
Servicing revenue, net	(548)		54,646		18,588		(19,636)		53,050		0		0		0		0		53,050
Gain on originated mortgage loans, held-for-sale, net	104,126		348		15,554		(14,892)		105,136		0		21,611		0		0		126,747
Total revenues	114,458		63,841		163,492		(34,528)		307,263		184,933		95,397		40,331		0		627,924
Interest expense	10,359		264		59,056		0		69,679		123,023		45,707		7,493		0		245,902
G&A and other	67,708		41,850		80,522		(19,636)		170,444		1,839		11,662		3,965		62,655		250,565
Total operating expenses	78,067		42,114		139,578		(19,636)		240,123		124,862		57,369		11,458		62,655		496,467
Other income (loss)	(149)		0		(42,993)		0		(43,142)		116,081		33,541		(2,651)		(1,189)		102,640
Impairment	0		0		0		0		0		5,567		(16,553)		5,863		0		(5,123)
Income (loss) before income taxes(B)	36,242		21,727		(19,079)		(14,892)		23,998		170,585		88,122		20,359		(63,844)		239,220
Income tax expense (benefit)	9,674		5,799		(4,724)		0		10,749		0		(15,546)		(643)		0		(5,440)
Net income (loss)	$	26,568	$	15,928	$	(14,355)	$	(14,892)	$	13,249	$	170,585	$	103,668	$	21,002	$	(63,844)	$	244,660
Noncontrolling interests in income (loss) of consolidated subsidiaries	$	2,457	$	0	$	1,684	$	0	$	4,141	$	0	$	0	$	10,597	$	0	$	14,738
Dividends on Preferred Stock	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	5,338	$	5,338
Net income (loss) attributable to common stockholders	$	24,111	$	15,928	$	(16,039)	$	(14,892)	$	9,108	$	170,585	$	103,668	$	10,405	$	(69,182)	$	224,584

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)


	Servicing and Origination										Residential Securities and Loans
	Origination		Servicing		MSR Related Investments		Elimination(A)		Total Servicing and Origination		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
Nine Months Ended September 30, 2019
Interest income	$	25,744	$	23,181	$	379,368	$	0	$	428,293	$	557,895	$	188,278	$	128,575	$	0	$	1,303,041
Servicing revenue, net	(1,215)		146,730		34,400		(46,549)		133,366		0		0		0		0		133,366
Gain on originated mortgage loans, held-for-sale, net	228,881		681		37,169		(34,195)		232,536		0		62,399		0		0		294,935
Total revenues	253,410		170,592		450,937		(80,744)		794,195		557,895		250,677		128,575		0		1,731,342
Interest expense	24,012		737		183,299		0		208,048		330,992		122,180		25,518		0		686,738
G&A and other	169,980		118,329		217,860		(46,549)		459,620		4,124		28,945		18,396		121,730		632,815
Total operating expenses	193,992		119,066		401,159		(46,549)		667,668		335,116		151,125		43,914		121,730		1,319,553
Other income (loss)	808		0		(132,193)		0		(131,385)		31,677		118,244		(10,324)		4,515		12,727
Impairment	0		0		0		0		0		21,942		(16,557)		24,599		0		29,984
Income (loss) before income taxes(B)	60,226		51,526		(82,415)		(34,195)		(4,858)		232,514		234,353		49,738		(117,215)		394,532
Income tax expense (benefit)	16,075		13,753		(21,354)		0		8,474		0		11,048		(542)		0		18,980
Net income (loss)	$	44,151	$	37,773	$	(61,061)	$	(34,195)	$	(13,332)	$	232,514	$	223,305	$	50,280	$	(117,215)	$	375,552
Noncontrolling interests in income (loss) of consolidated subsidiaries	$	4,407	$	0	$	4,466	$	0	$	8,873	$	0	$	0	$	23,106	$	0	$	31,979
Dividends on Preferred Stock	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	5,338	$	5,338
Net income (loss) attributable to common stockholders	$	39,744	$	37,773	$	(65,527)	$	(34,195)	$	(22,205)	$	232,514	$	223,305	$	27,174	$	(122,553)	$	338,235

Residential Securities and Loans

Servicing and Originations
Real Estate Securities
Residential Mortgage Loans
Consumer Loans
Corporate
Total
Three Months Ended September 30, 2018

Interest income $ 187,584

$ 138,197

$ 48,782

$ 50,961

$ —

$ 425,524
Interest expense 61,706

67,117

23,662

10,321

—

162,806
Net interest income (expense) 125,878

71,080

25,120

40,640

—

262,718
Impairment —

3,889

(4,436 )
9,907

—

9,360
Servicing revenue, net 175,355
—
—
—
—
175,355
Gain on sale of originated mortgage loans, net 45,732
—
—
—
—
45,732
Other income (loss) (92,243 )
17,994

(12,729 )
3,795

(115 )
(83,298 )
Operating expenses 132,542

63

6,436

8,467

44,599

192,107
Income (Loss) Before Income Taxes 122,180
85,122
10,391
26,061
(44,714 )
199,040
Income tax expense (benefit) 495
—
3,100
(32 ) —

3,563
Net Income (Loss) $ 121,685
$ 85,122
$ 7,291
$ 26,093
$ (44,714 )
$ 195,477
Noncontrolling interests in income (loss) of consolidated subsidiaries $ 1,086
$ —
$ —
$ 9,783
$ —

$ 10,869
Net income (loss) attributable to common stockholders $ 120,599
$ 85,122
$ 7,291
$ 16,310
$ (44,714 )
$ 184,608

(A)Elimination of intercompany transactions primarily relate to servicing fees, loan sales, and MSR recaptures.

(B)Beginning in the third quarter of 2020, New Residential revised its methodology of allocating tax expense within the Servicing and Origination segments. Specifically, taxes are now allocated based on intercompany agreements rather than based on a more general pro rata approach, which better reflects the operating performance of each respective segment. The revised methodology has been applied consistently for all periods presented.

Residential Securities and Loans
Servicing and Originations Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
Nine Months Ended September 30, 2018
Interest income $ 574,379
$ 354,922
$ 123,464
$ 158,631
$ 1,506
$ 1,212,902
Interest expense 172,471
157,195
58,587
32,856
—
421,109
Net interest income (expense) 401,908
197,727
64,877
125,775
1,506
791,793
Impairment —
23,190
(8,683 ) 36,819
—
51,326
Servicing revenue, net 538,784
—
—
—
—
538,784
Gain on sale of originated mortgage loans, net 45,732
—
—
—
—
45,732
Other income (loss) 48,128
45,346
(27,219 ) 13,363
4,796
84,414
Operating expenses 235,417
1,003
25,658
26,743
130,856
419,677
Income (Loss) Before Income Taxes 799,135
218,880
20,683
75,576
(124,554 ) 989,720
Income tax expense (benefit) (6,458 ) —
289
212
—
(5,957 )
Net Income (Loss) $ 805,593
$ 218,880
$ 20,394
$ 75,364
$ (124,554 ) $ 995,677
Noncontrolling interests in income (loss) of consolidated subsidiaries $ 3,525
$ —
$ —
$ 28,533
$ —
$ 32,058
Net income (loss) attributable to common stockholders $ 802,068
$ 218,880
$ 20,394
$ 46,831
$ (124,554 ) $ 963,619

4. INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS ASSETS

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

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 mortgage servicing rights assets as presented on the condensed consolidated balance sheets:

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~


	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

Direct Investments in Excess MSRs


4.	~~INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS~~

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)		0		(12,175)
Proceeds from repayments	(51,980)		(311)		(52,291)
Proceeds from sales	(61)		0		(61)
Change in fair value	(11,939)		166		(11,773)
Balance as of September 30, 2020	$	326,704	$	1,919	$	328,623

Servicer
Nationstar
SLS^(A)
Total
Balance as of December 31, 2018 $ 445,328
$ 2,532
$ 447,860
Purchases —
—
—
Interest income 18,159
44
18,203
Other income 2,092
—
2,092
Proceeds from repayments (63,794 ) (295 ) (64,089 )
Proceeds from sales (4,581 ) —
(4,581 )
Change in fair value (1,258 ) (163 ) (1,421 )
Balance as of September 30, 2019 $ 395,946
$ 2,118
$ 398,064

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


~~(A)~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
~~Specialized Loan Servicing LLC (“SLS”).~~September 30, 2020
(dollars in tables in thousands, except share data)

~~Nationstar~~(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 ~~Nationstar~~Mr. Cooper and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any ~~initial or subsequent~~ refinancing by ~~Nationstar~~Mr. Cooper of a loan in the original portfolio. These recapture agreements do not apply to New Residential’s Servicer Advance Investments (Note 6).

New Residential elected to record its direct investments in Excess MSRs at fair value pursuant to the fair value option for financial instruments ~~in order~~ to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on the Excess MSRs.

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


	September 30, 2019										December 31, 2018			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)			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	Nationstar											New Residential(D)	Fortress-managed funds	Mr. Cooper
Agency	$	45,900,654	32.5% - 66.7% (53.3%)	0.0% - 40.0%	20.0% - 35.0%	5.4	$	183,064	$	221,560	$	257,387	Agency
Original and Recaptured Pools													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)	$	47,124,536	33.3% - 100.0% (59.4%)	0.0% - 50.0%	0.0% - 33.3%	6.5	$	129,647	$	176,504	$	190,473	Non-Agency(E)
Mr. Cooper and SLS Serviced:													Mr. Cooper and SLS Serviced:
Original and Recaptured Pools													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	$	93,025,190				5.9	$	312,711	$	398,064	$	447,860	Total	$	77,351,569				6.1	$	264,127	$	328,623	$	379,747


~~(A)~~	~~Weighted Average Life 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 or recapture agreements, as applicable.~~


~~(D)~~	~~Amounts in parentheses represent weighted averages.~~


~~(E)~~	Serviced by Nationstar and SLS, New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of September 30, 2019 (Note 6) on $33.4 billion UPB underlying these Excess MSRs.

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

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~(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.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

(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 ~~recorded in other income~~of investments is ~~comprised~~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)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Original and Recaptured Pools
$ 2,407
$ (4,744 ) $ (1,421 ) $ (55,711 )

As of September 30, ~~2019,~~2020, 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. New Residential elected to record these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

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		%

September 30, 2019 December 31, 2018
Excess MSR assets $ 236,786
$ 269,203
Other assets 28,418
27,411
Other liabilities (687 ) (687 )
Equity $ 264,517
$ 295,927
New Residential’s investment $ 132,259
$ 147,964

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Interest income $ 7,990
$ 8,935
$ 12,251
$ 21,026
Other income (loss) 1,528
(2,143 ) (4,029 ) (9,778 )
Expenses (16 ) —
(48 ) —
Net income (loss) $ 9,502
$ 6,792
$ 8,174
$ 11,248

The following table summarizes the activity of New Residential’s investments in equity method ~~investees changed during the nine months ended September 30, 2019 as follows:~~investees:

Balance at December 31, 2018 $ 147,964
Contributions to equity method investees —
Distributions of earnings from equity method investees (7,762 )
Distributions of capital from equity method investees (12,030 )
Change in fair value of investments in equity method investees 4,087
Balance at September 30, 2019 $ 132,259

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~


Balance at December 31, 2019		$	125,596

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
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, ~~2019~~2020
~~(dollars in tables in thousands, except share data)~~ $	107,359

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

September 30, 2019
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 $ 35,632,429
66.7 % 50.0 % $ 171,553
$ 236,786
5.3


	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 Nationstar.~~


~~(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 or recapture agreements, as applicable.


~~(D)~~	~~The weighted average life represents the weighted average expected timing of the receipt of cash flows of each investment.~~

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

~~See Note 11 regarding~~(B)Represents the ~~financing~~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.~~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.

5. INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES

~~A subsidiary~~The Company owns and records at fair value the rights to service residential mortgage loans, either as a result of ~~New Residential, New Residential Mortgage LLC (“NRM”), engages third party licensed~~purchase transactions or from the retained mortgage ~~servicers as subservicers to perform the operational~~ servicing ~~duties in connection~~associated with the sales and securitizations of loans originated. Investments in MSRs ~~it acquires, in exchange for a subservicing fee which is recorded as “Subservicing expense” on New Residential’s Condensed Consolidated Statements~~are comprised of ~~Income. As~~servicing rights of ~~September 30, 2019, these subservicers include PHH Mortgage Corporation (“PHH”), Nationstar, LoanCare, LLC (“LoanCare”), AmeriHome Mortgage Company, LLC (“AmeriHome”),~~both agency and Flagstar Bank, FSB (“Flagstar”), which subservice 26.9%, 23.1%, 19.2%, 1.8%, and 0.8% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 28.2% of the underlying UPB of the related mortgages is subserviced by a subsidiary of New Residential, Shellpoint Mortgage Servicing (Note 1).

New Residential has entered into recapture agreements with respect to each of its MSR investments subserviced by PHH, LoanCare, Flagstar, and Nationstar. Under the recapture agreements, New Residential is generally entitled to the MSRs on any initial or subsequent refinancing by PHH, Loancare, Flagstar or Nationstar of a loan in the original portfolios.

non-agency loans. In certain cases where New

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

Residential has legally purchased MSRs or the right to the economic interest in ~~MSRs; however,~~MSRs, New Residential has determined that the purchase agreement would not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, New Residential has recorded an investment in ~~mortgage servicing rights~~MSR financing receivables (“MSR Financing Receivables”). Income from these investments, ~~(net~~net of subservicing ~~fees)~~fees, are recorded as ~~interest~~Interest income ~~and New Residential has elected to measure the investments at fair value,~~ with changes in fair value flowing through ~~change~~Change in fair value of investments in the condensed consolidated statements of income.

A subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), engages third party licensed mortgage servicers as subservicers and, in relation to certain MSR ~~financing receivables~~purchases, interim subservicers, to perform the operational servicing duties in connection with the ~~Condensed Consolidated Statements~~MSRs it acquires, in exchange for a subservicing fee which is recorded as “Subservicing expense” in New Residential’s condensed consolidated statements of ~~Income.~~income. As of September 30, 2020, these subservicers include LoanCare, LLC (“LoanCare”), PHH Mortgage Corporation (“PHH”), Mr. Cooper, and Flagstar Bank, FSB (“Flagstar”), which subservice 19.1%, 18.5%, 17.1%, and 0.7% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 44.6% of the underlying UPB of the related mortgages is subserviced by the servicing division of NewRez.

NRM has entered into recapture agreements with respect to each of its MSR investments. Under the recapture agreements, NRM is generally entitled to the MSRs on any initial or subsequent refinancing by an NRM subservicer or by NewRez.

New Residential records its investments in MSRs and MSR Financing Receivables at fair value at acquisition and has elected to subsequently measure at fair value pursuant to the fair value measurement method.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

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)		0
Originations(B)	424,451		0		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.

MSRs MSR Financing Receivables Total
Balance as of December 31, 2018 $ 2,884,100
$ 1,644,504
$ 4,528,604
Purchases, net^(A)
632,144
735,152
1,367,296
Transfers^(B)
367,121
(367,121 ) —
Other transfers^(C)
(410 ) —
(410 )
Originations^(D)
190,666
—
190,666
Prepayments^(E)
(11,210 ) (52,499 ) (63,709 )
Proceeds from sales (1,047 ) (15,575 ) (16,622 )
Amortization of servicing rights^(F)
(351,867 ) (131,417 ) (483,284 )
Change in valuation inputs and assumptions^(G)
(279,758 ) 1,437
(278,321 )
(Gain)/loss on sales 2,229
(3,220 ) (991 )
Balance as of September 30, 2019 $ 3,431,968
$ 1,811,261
$ 5,243,229

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


~~(A)~~			~~Net of purchase price adjustments.~~

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
~~(B)~~			Represents MSRs previously accounted for as MSR Financing Receivables. As a result of the length of the initial term of the related subservicing agreement between NRM and PHH, although the MSRs were legally sold, solely for accounting purposes, the purchase agreement was not treated as a sale under GAAP through JuneSeptember 30, ~~2019.~~

	2020
~~(C)~~			~~Represents Ginnie Mae MSRs repurchased.~~(dollars in tables in thousands, except share data)


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


~~(E)~~	~~Represents purchase price fully reimbursable from sellers as a result of prepayment protection.~~


~~(F)~~	~~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.~~


~~(G)~~	~~Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.~~

Servicing revenue, net recognized by New Residential related to its investments in MSRs was ~~comprised~~composed of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Servicing fee revenue	$	320,880	$	222,966	$	945,568	$	602,241
Ancillary and other fees	30,255		58,489		80,591		151,039
Servicing fee revenue and fees	351,135		281,455		1,026,159		753,280
Amortization of servicing rights	(473,490)		(168,776)		(953,430)		(346,772)
Change in valuation inputs and assumptions(A) (B)	81,973		(61,858)		(536,154)		(275,371)
(Gain) loss realized	(3,547)		2,229		4,112		2,229
Servicing revenue, net	$	(43,929)	$	53,050	$	(459,313)	$	133,366

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Servicing fee revenue $ 222,966
$ 158,458
$ 602,241
$ 408,967
Ancillary and other fees 58,489
43,638
151,039
94,699
Servicing fee revenue and fees 281,455
202,096
753,280
503,666
Amortization of servicing rights (168,776 ) (70,933 ) (346,772 ) (191,499 )
Change in valuation inputs and assumptions^{(A) (B)}
(61,858 ) 44,192
(275,371 ) 226,617
(Gain)/loss on sales 2,229
—
2,229
—
Servicing revenue, net $ 53,050
$ 175,355
$ 133,366

$ 538,784


~~(A)~~	~~Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.~~


~~(B)~~	~~Includes $3.6 million and $4.4 million of fair value adjustment to Excess spread financing for the three and nine months ended September 30, 2019, respectively.~~

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

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~(B)Includes $(0.2) million and $(3.6) million for the three months ended September 30, 2020 and 2019, respectively, and $6.2 million and $4.4 million for the nine months ended September 30, 2020 and 2019, respectively, of fair value adjustment to excess spread financing.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

Interest income from investments in MSR Financing Receivables was ~~comprised~~composed of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Servicing fee revenue	$	83,493	$	128,936	$	303,936	$	385,306
Ancillary and other fees	16,231		21,417		59,947		82,695
Less: subservicing expense	(35,655)		(40,410)		(117,689)		(145,649)
Interest income, investments in MSR financing receivables	$	64,069	$	109,943	$	246,194	$	322,352

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Servicing fee revenue $ 128,936
$ 181,495
$ 385,306
$ 575,909
Ancillary and other fees 21,417
39,257
82,695
109,852
Less: subservicing expense (40,410 ) (61,454 ) (145,649 ) (192,275 )
Interest income, investments in mortgage servicing rights financing receivables $ 109,943
$ 159,298
$ 322,352
$ 493,486

Change in fair value of investments in MSR Financing Receivables was ~~comprised~~composed of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amortization of servicing rights	$	(36,134)	$	(48,340)	$	(182,085)	$	(131,417)
Change in valuation inputs and assumptions(A)	15,859		9,349		(62,072)		1,437
(Gain) loss on sales(B)	0		(2,419)		(1,749)		(3,220)
Change in fair value of investments in MSR financing receivables	$	(20,275)	$	(41,410)	$	(245,906)	$	(133,200)

(A)Includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.

(B)Represents the realization of unrealized gain (loss) as a result of sales.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Amortization of servicing rights $ (48,340 ) $ (49,016 ) $ (131,417 ) $ (154,559 )
Change in valuation inputs and assumptions^(A)
9,349
(39,329 ) 1,437
218,187
(Gain)/loss on sales^(B)
(2,419 ) —
(3,220 ) —
Change in fair value of investments in mortgage servicing rights financing receivables $ (41,410 ) $ (88,345 ) $ (133,200 ) $ 63,628

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


~~(A)~~			~~Change in valuation inputs and assumptions includes changes in inputs or assumptions used in the valuation model.~~

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
~~(B)~~September 30, 2020
~~Represents the realization of unrealized gain/(loss) as a result of sales.~~(dollars in tables in thousands, except share data)

The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of September 30, ~~2019:~~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

UPB of Underlying Mortgages
Weighted Average Life (Years)^(A)
Amortized Cost Basis
Carrying Value^(B)
MSRs:
Agency $ 288,673,487
4.9 $ 2,968,392
$ 3,038,721
Non-Agency 2,350,471
5.6 12,294
20,321
Ginnie Mae^(C)
28,903,327
4.0 383,454
372,926
MSR Financing Receivables:
Agency 61,162,569
4.3 659,950
597,990
Non-Agency 79,360,666
7.7 840,279
1,213,271
Total $ 460,450,520
5.2 $ 4,864,369
$ 5,243,229


~~(A)~~	~~Weighted Average Life 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, 2019, a weighted average discount rate of 7.5% and 8.8% was used to value New Residential’s investments in MSRs and MSR Financing Receivables, respectively.

~~(C)~~

NewRez, as an approved issuer of Ginnie Mae MBS, originates, sells and securitizes government-insured residential mortgage loans into Ginnie Mae guaranteed securitizations and NewRez retains the right to service the underlying residential mortgage loans. As the servicer, NewRez holds an option to repurchase delinquent loans from the securitization at its discretion. As of September 30, 2019, New Residential holds approximately $168.5 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its condensed consolidated balance sheets.

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

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~(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.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

(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.

Ginnie Mae Loans Subject to Repurchase Right

NewRez, as an approved issuer of Ginnie Mae MBS, originates and securitizes government-insured residential mortgage loans. As the issuer of the Ginnie Mae-guaranteed securitizations, NewRez 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, NewRez 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 NewRez intends to repurchase the loans. 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. New Residential may re-pool reacquired loans into new Ginnie Mae securitizations upon re-performance of the loan or otherwise sell to third-party investors. Upon recognizing loans eligible for repurchase, the Company does not change the accounting for MSRs related to previously sold loans. Upon reacquisition of a loan the MSR is written off. As of September 30, 2020, New Residential holds approximately $491.4 million of reacquired residential mortgage loans on its condensed consolidated balance sheets.

Ocwen MSR Financing Receivable Transactions

OnIn July ~~23,~~ 2017, Ocwen Loan Servicing, LLC (collectively with certain affiliates, “Ocwen”) and New Residential entered into ~~a Master Agreement (the “Ocwen Master Agreement”) and a Transfer Agreement (the “Ocwen Transfer Agreement”) pursuant to~~an agreement in which ~~Ocwen and New Residential~~both parties agreed to undertake certain actions to facilitate the transfer from Ocwen to New Residential of Ocwen’s remaining interests in the mortgage servicing rights relating to loans with an aggregate unpaid principal balance of approximately $110.0 billion ~~that are subject to the Original Ocwen Agreements (the “Ocwen Subject MSRs”)~~ and with respect to which New Residential ~~holds the~~ already held certain rights (“Rights to ~~MSRs (as defined in the Original~~MSRs”). Ocwen ~~Agreements).~~and New Residential ~~and Ocwen~~ concurrently entered into a subservicing agreement pursuant to which Ocwen ~~will~~agreed to subservice the mortgage loans related to the ~~Ocwen Subject~~ MSRs that ~~are~~were transferred to New ~~Residential pursuant to the Ocwen Master Agreement and Ocwen Transfer Agreement.~~Residential.

OnIn January ~~18,~~ 2018, New Residential entered into a new agreement regarding the rights to MSRs (the “New Ocwen RMSR Agreement”) including a servicing addendum thereto (the “Ocwen Servicing Addendum”), Amendment No. 1 to Transfer Agreement (the “New Ocwen Transfer Agreement”) and a Brokerage Services Agreement (the “Ocwen Brokerage Services Agreement” and, collectively, the “New Ocwen Agreements”) with Ocwen. The New Ocwen Agreements amend and supplement the arrangements among the parties set forth in the Original Ocwen Agreements, the Ocwen Master Agreement, the Ocwen Transfer Agreement, and the Ocwen Subservicing Agreement (together with the Original Ocwen Agreements, the Ocwen Master Agreement, and the Ocwen Transfer Agreement, the “Existing Ocwen Agreements”). NRM made a lump-sum “Fee Restructuring Payment” of $279.6 million to Ocwen on January 18, 2018, the date of the New Ocwen RMSR Agreement, with respect to such Existing Ocwen Subject MSRs.

~~Under the Existing Ocwen Agreements,~~ 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 as of the opening balances in January 2018 (the “Existing Ocwen Subject MSRs”). The New Ocwen Agreements and NRM’s Fee Restructuring Payment resulted in a new investment structured as a transfer of the full interests and economics of the Ocwen subject MSRs.

~~Pursuant~~billion. PHH (as successor by merger to ~~the New Ocwen Agreements, Ocwen~~Ocwen) will continue to service the mortgage loans related to the ~~Existing Ocwen Subject~~ MSRs until any necessary third-party consents to transferring the ~~necessary third party consents~~MSRs are obtained ~~in order~~and all other conditions to transferring the MSRs are satisfied, at which time PHH will transfer the ~~Existing Ocwen Subject~~ MSRs ~~in accordance with the~~to New ~~Ocwen Agreements.~~Residential.

Pursuant to the Ocwen Brokerage Services Agreement, Ocwen will engage NRZ Brokerage to perform brokerage and marketing services for all REO properties serviced by Ocwen pursuant to the Subject Servicing Agreements as defined in the New Ocwen RMSR Agreement. Such REO properties are subject to the Altisource Brokerage Agreement and Altisource Letter Agreement.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

As of September 30, ~~2019,~~2020, MSRs representing approximately $66.7 billion UPB of underlying loans ~~have been transferred pursuant to the Ocwen Transaction. Economics related to the remaining MSRs subject to the Ocwen Transaction~~ were transferred ~~pursuant~~from PHH to ~~the New Ocwen Agreements. As a result of the length of the initial term of the related subservicing agreement between~~ NRM and ~~Ocwen, although~~NewRez. Although the MSRs transferred ~~pursuant to the Ocwen Transaction~~ were legally sold, solely for accounting purposes, New Residential determined that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to NRM or NewRez, and that the purchase agreement would not be treated as a sale under GAAP.

~~As a part of the ongoing integration efforts related to the Ocwen and PHH merger completed on October 4, 2018, Ocwen now conducts its mortgage servicing business under the PHH tradename.~~

~~Nationstar MSR Financing Receivable Transaction~~

On February 28, 2019, NRM entered into an agreement with Nationstar to purchase the MSRs, and related servicer advance receivables, with respect to $9.5 billion in total UPB of seasoned Agency residential mortgage loans. The residential mortgage loans underlying the MSRs acquired by NRM are subserviced by Nationstar pursuant to an existing subservicing agreement with NRM. As a result of the length of the initial term of the related subservicing agreement between NRM and Nationstar, although the MSRs were legally sold, solely for accounting purposes, New Residential determined that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to NRM, and that the purchase agreement would not be treated as a sale under GAAP.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

~~United Shore MSR Financing Receivable Transactions~~

On April 2, 2019 and May 21, 2019, NRM entered into agreements with United Shore to purchase the MSRs, and related servicer advance receivables, with respect to $8.2 billion and $23.7 billion in total UPB of seasoned Agency residential mortgage loans, respectively. The residential mortgage loans underlying the MSRs acquired by NRM will be subserviced by NewRez, Nationstar and LoanCare pursuant to existing subservicing agreements with NRM. As a result of the length of term of prepayment protection provided to NRM, although the MSRs were legally sold, solely for accounting purposes, New Residential determined that the transferor retained more than minor protection provisions, and that the purchase agreement would not be treated as a sale under GAAP.

~~Quicken MSR Financing Receivable Transaction~~

On August 6, 2019, NRM entered into an agreement with Quicken to purchase the MSRs, and related servicer advance receivables, with respect to $29.1 billion in total UPB of seasoned Agency residential mortgage loans. The residential mortgage loans underlying the MSRs acquired by NRM are subserviced by LoanCare pursuant to an existing subservicing agreement with NRM. As a result of the length of term of prepayment protection provided to NRM, although the MSRs were legally sold, solely for accounting purposes, New Residential determined that the transferor retained more than minor protection provisions, and that the purchase agreement would not be treated as a sale under GAAP.

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and MSR Financing Receivables:

Percentage of Total Outstanding Unpaid Principal Amount
State Concentration September 30, 2019 December 31, 2018
California 23.0 % 21.7 %
Florida 6.8 % 6.9 %
New York 6.8 % 7.8 %
Texas 5.2 % 5.3 %
New Jersey 5.0 % 5.0 %
Illinois 3.6 % 3.7 %
Washington 3.5 % 2.3 %
Massachusetts 3.3 % 3.5 %
Maryland 3.1 % 3.4 %
Georgia 3.0 % 3.0 %
Other U.S. 36.7 % 37.4 %
100.0 % 100.0 %


	Percentage of Total Outstanding Unpaid Principal Amount
State Concentration	September 30, 2020		December 31, 2019
California	21.9	%	21.9	%
Florida	7.3	%	6.9	%
New York	6.7	%	6.4	%
Texas	5.4	%	5.5	%
New Jersey	4.8	%	4.9	%
Illinois	3.5	%	3.6	%
Massachusetts	3.3	%	3.4	%
Georgia	3.2	%	3.1	%
Maryland	3.1	%	3.0	%
Washington	3.1	%	3.3	%
Other U.S.	37.7	%	38.0	%
	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.

Mortgage Subservicing

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

NewRez performs servicing of residential mortgage loans for third parties under subservicing agreements. Mortgage subservicing does not meet the criteria to be recognized as a mortgage servicing right asset and, therefore, is not recognized on New Residential’s condensed consolidated balance sheets. The UPB of residential mortgage loans subserviced for others as of September 30, 2020 and 2019 was $77.1 billion and $54.7 billion, ~~and~~respectively. New Residential earned subservicing revenue of $138.6 million and $99.7 million for the nine months ended September 30, 2020 and 2019, respectively, related to subserviced UPB which is included within ~~servicing~~Servicing revenue, net in the ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Income.~~income.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

Servicer Advances Receivable

In connection with its investments in MSRs and MSR financing receivables, New Residential generally acquires any related outstanding servicer advances (not included in the purchase ~~prices described above)~~prices), which it records at fair value ~~within servicer advances receivable~~ upon acquisition.

In addition to receiving cash flows from the MSRs, NRM and NewRez, as servicers, have the obligation to fund future servicer advances on the underlying pool of mortgages (Note ~~14)~~15). These servicer advances are recorded when advanced and are included in ~~servicer~~Servicer advances ~~receivable.~~receivable on the condensed consolidated balance sheets.

The following types of advances are included in the Servicer ~~Advances Receivable:~~advances receivable:


	September 30, 2020		December 31, 2019
Principal and interest advances	$	595,367	$	660,807
Escrow advances (taxes and insurance advances)	2,171,877		2,427,384
Foreclosure advances	137,231		163,054
Total(A)(B)(C)	$	2,904,475	$	3,251,245

September 30, 2019 December 31, 2018
Principal and interest advances $ 723,155
$ 793,790
Escrow advances (taxes and insurance advances) 1,945,271
2,186,831
Foreclosure advances 173,032
199,203
Total^{(A) (B) (C)}
$ 2,841,458
$ 3,179,824
(A)Includes $461.0 million and $562.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.

(B)Includes $113.1 million and $166.5 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 $47.4 million and $50.1 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.


~~(A)~~	~~Includes $243.0 million and $231.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.~~


~~(B)~~	Includes $62.7 million and $41.6 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from Ginnie Mae. Reserves 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)~~	~~Net of $70.3 million and $98.0 million, respectively, in accrual for advance recoveries.~~

New Residential’s Servicer ~~Advances Receivable~~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. New Residential assesses the recoverability of ~~Servicer Advance Receivables~~servicer advance receivables periodically and as of ~~September 30, 2019 and~~ December 31, ~~2018,~~2019, expected full recovery of the ~~Servicer Advance Receivables.~~servicer advance receivables. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has reserved $18.2 million for expected non-recovery of advances as of September 30, 2020.

See Note 11 regarding the financing of MSRs.


6.	~~SERVICER ADVANCE INVESTMENTS~~

6. SERVICER ADVANCE INVESTMENTS

All of New Residential’s Servicer ~~Advance Investments are comprised~~advance investments consist of outstanding servicer advances, the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans, and the basic fee component of the related MSR. New Residential elected to record its Servicer ~~Advance Investments,~~advance investments, including the right to the basic fee component

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

of the related MSRs, at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of market factors.

A taxable wholly-owned subsidiary of New Residential is the managing member of ~~the Buyer~~Advance Purchaser LLC (the “Buyer”), a joint venture entity, and owned an approximately 73.2% interest in the Buyer as of September 30, ~~2019.~~2020. The Buyer is a limited liability company which was established in December 2013 for the purpose of investing in residential mortgage related assets. As of September 30, ~~2019,~~2020, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. 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, ~~2019,~~2020, the noncontrolling third-party co-investors and New Residential had previously funded their ~~commitments,~~commitments; however, the Buyer may recall ~~$325.0~~$328.4 million and ~~$297.6~~$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.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

See Note 5 regarding the New Ocwen Agreements. Subsequent to the New Ocwen Agreements, the Servicer Advance Investments serviced by Ocwen are accounted for as Servicer Advances Receivable, as described in Note 5.

The following is a summary of New Residential’s Servicer ~~Advance Investments,~~advance investments, including the right to the basic fee component of the related MSRs:

Amortized Cost Basis
Carrying Value^(A)

Weighted Average Discount Rate Weighted Average Yield
Weighted Average Life (Years)^(B)
September 30, 2019
Servicer Advance Investments $ 570,570
$ 600,547
5.1 % 5.7 % 6.3
As of December 31, 2018
Servicer Advance Investments $ 721,801
$ 735,846
5.9 % 5.8 % 5.7


	Amortized Cost Basis		Carrying Value(A)		Weighted Average Discount Rate		Weighted Average Yield		Weighted Average Life (Years)(B)
September 30, 2020
Servicer advance investments	$	510,995	$	535,760	5.2	%	5.7	%	6.3
December 31, 2019
Servicer advance investments	$	557,444	$	581,777	5.3	%	5.7	%	6.3


~~(A)~~	~~Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.~~


~~(B)~~	~~Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.~~

(A)Carrying value represents the fair value of the Servicer advance investments, including the basic fee component of the related MSRs.

(B)Weighted average life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019
2018
2019
2018
Change in Fair Value of Servicer Advance Investments $ 6,641
$ (5,353 ) $ 15,932
$ (86,581 )

The following is additional information regarding the Servicer ~~Advance Investments~~advance investments and related financing:


																		UPB of Underlying Residential Mortgage Loans		Outstanding Servicer Advances		Servicer Advances to UPB of Underlying Residential Mortgage Loans			Face Amount of Secured Notes and Bonds Payable		Loan-to-Value (“LTV”)(A)				Cost of Funds(C)
									Loan-to-Value (“LTV”)^(A)				Cost of Funds^(C)											Gross			Net(B)		Gross		Net
	UPB of Underlying Residential Mortgage Loans		Outstanding Servicer Advances		Servicer Advances to UPB of Underlying Residential Mortgage Loans		Face Amount of Notes and Bonds Payable		Gross		Net^(B)		Gross		Net
September 30, 2019
September 30, 2020																	September 30, 2020
Servicer Advance Investments^(D)	$	33,406,320	$	492,480	1.5	%	$	449,731	87.3	%	86.1	%	3.8	%	3.1	%	Servicer Advance Investments(D)	$	27,484,426	$	434,998	1.6	%		$	412,538	88.0	%	87.0	%	2.3	%	1.5	%
December 31, 2018
December 31, 2019																	December 31, 2019
Servicer Advance Investments^(D)	$	40,096,998	$	620,050	1.5	%	$	574,117	88.3	%	87.2	%	3.7	%	3.1	%	Servicer Advance Investments(D)	$	31,442,267	$	462,843	1.5	%		$	443,248	88.3	%	87.2	%	3.4	%	2.8	%


~~(A)~~	(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.


~~(B)~~	~~Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.~~


~~(C)~~	~~Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.~~


~~(D)~~	~~The following types of advances are included in the Servicer Advance Investments:~~

September 30, 2019
December 31, 2018
Principal and interest advances
$ 82,999

$ 108,317
Escrow advances (taxes and insurance advances)
185,774

238,349
Foreclosure advances
223,707

273,384
Total
$ 492,480
$ 620,050

(B)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.

(C)Annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, ~~2019~~2020
(dollars in tables in thousands, except share data)

(D)The following types of advances are included in the Servicer Advance Investments:


	September 30, 2020		December 31, 2019
Principal and interest advances	$	85,481	$	71,574
Escrow advances (taxes and insurance advances)	166,678		180,047
Foreclosure advances	182,839		211,222
Total	$	434,998	$	462,843

Interest income recognized by New Residential related to its Servicer ~~Advance Investments~~advance investments was ~~comprised~~composed of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income, gross of amounts attributable to servicer compensation	$	10,505	$	14,212	$	28,160	$	43,220
Amounts attributable to base servicer compensation	(703)		(1,606)		(2,325)		(4,578)
Amounts attributable to incentive servicer compensation	1,196		(7,273)		(12,755)		(20,780)
Interest income from Servicer advance investments	$	10,998	$	5,333	$	13,080	$	17,862

Three Months Ended
September 30, Nine Months Ended
September 30,

2019
2018
2019
2018
Interest income, gross of amounts attributable to servicer compensation
$ 14,212

$ 21,183

$ 43,220

$ 63,731
Amounts attributable to base servicer compensation
(1,606 )
(2,347 )
(4,578 )
(6,354 )
Amounts attributable to incentive servicer compensation
(7,273 )
(7,095 )
(20,780 )
(14,255 )
Interest income from Servicer Advance Investments
$ 5,333
$ 11,741
$ 17,862
$ 43,122

~~New Residential has determined that the Buyer is a VIE. The following table presents information on the assets and liabilities related to this consolidated VIE.~~

As of
September 30, 2019 December 31, 2018
Assets
Servicer advance investments, at fair value $ 580,829
$ 713,239
Cash and cash equivalents 36,457
29,833
All other assets 8,662
10,223
Total assets^(A)
$ 625,948
$ 753,295
Liabilities
Notes and bonds payable $ 435,935
$ 556,340
All other liabilities 2,021
2,442
Total liabilities^(A)
$ 437,956
$ 558,782


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

~~Others’ interests in the equity of the Buyer is computed as follows:~~

September 30, 2019 December 31, 2018
Total Advance Purchaser LLC equity $ 187,992
$ 194,513
Others’ ownership interest 26.8 % 26.8 %
Others’ interest in equity of consolidated subsidiary $ 50,319
$ 52,066

~~Others’ interests in the Buyer’s net income is computed as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net Advance Purchaser LLC income $ 6,288
$ (299 ) $ 16,678
$ 8,667
Others’ ownership interest as a percent of total 26.8 % 27.1 % 26.8 % 27.2 %
Others’ interest in net income of consolidated subsidiaries $ 1,684
$ (81 ) $ 4,466
$ 2,358

~~See Note 11 regarding the financing of Servicer Advance Investments.~~7. INVESTMENTS IN REAL ESTATE AND OTHER SECURITIES

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~


7.	~~INVESTMENTS IN REAL ESTATE AND OTHER SECURITIES~~

“Agency” residential mortgage backed securities (“RMBS”) are RMBS issued by a government sponsored enterprise, such as ~~the Federal National Mortgage Association (“~~Fannie ~~Mae”)~~Mae or ~~the Federal Home Loan Mortgage Corporation (“~~Freddie ~~Mac”).~~Mac. “Non-Agency” RMBS are issued by either public trusts or private label securitization entities.

Effective January 1, 2020, New Residential elected to apply the fair value option for any new purchases of Non-Agency RMBS. Effective April 1, 2020, New Residential elected to apply the fair value option for any new purchases of Agency RMBS. The fair value option provides an election which allows a company to irrevocably elect fair value for certain financial assets and liabilities on an instrument-by-instrument basis at initial recognition. For RMBS of high credit quality accounted for under the fair value option, generally Agency RMBS, the Company recognizes interest income based on the stated coupon rate and the outstanding principal amount. The original purchase premium or discount is not amortized or accreted as part of interest income but rather reflected as part of the instrument’s fair value. For RMBS that are deemed not to be of high credit quality at the time of purchase, generally Non-Agency RMBS, interest income is recognized based on the security’s effective yield.

For securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value are recorded in Change in fair value of investments in the condensed consolidated statements of income.

For securities for which the fair value option was not elected, any unrealized gains (losses) from the change in fair value are recorded as a component of accumulated other comprehensive income in the condensed consolidated statement of changes in stockholders’ equity, to the extent impairment losses are considered non-credit related. Expected credit losses are reflected in the Provision (reversal) for credit losses in the condensed consolidated statements of income. The Company estimates expected credit losses using a discounted cash flow (“DCF”) approach. The DCF approach considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, default rates, and loss severities.

Realized gains (losses) on securities are recorded in Gain (loss) on settlement of investments, net in the condensed consolidated statements of income. Interest income is recognized over the life of the security using the effective interest method and is recorded on the accrual basis.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

Activities related to New Residential’s investments in real estate and other securities were as follows:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
(in millions)	Agency		Non-Agency		Agency		Non-Agency		Agency		Non-Agency		Agency		Non-Agency
Purchases
Face	$	6,300.0	$	0	$	12,306.4	$	3,324.9	$	17,162.6	$	5,083.1	$	25,123.5	$	7,899.1
Purchase price	6,538.0		0		12,610.9		247.0		17,687.4		575.0		25,700.0		1,164.9

Sales
Face	$	1,195.5	$	716.6	$	6,073.4	$	1,325.2	$	18,590.6	$	8,204.4	$	17,898.5	$	2,162.7
Amortized cost	1,231.8		526.3		6,233.5		832.40		18,911.0		6,083.5		18,339.1		1,571.0
Sale price	1,251.5		514.6		6,252.8		910.90		19,120.5		5,139.2		18,451.4		1,662.9
Gain (loss) on sale	19.7		(11.6)		19.3		78.5		209.5		(944.3)		112.3		91.9

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
(in millions) (in millions)
Agency Non-Agency Agency Non-Agency
Purchases
Face $ 12,306.4
$ 3,324.9
$ 25,123.5
$ 7,899.1
Purchase Price 12,610.9
247.0
25,700.0
1,164.9

Sales
Face $ 6,073.4
$ 1,325.2
$ 17,898.5
$ 2,162.7
Amortized Cost 6,233.5
832.4
18,339.1
1,571.0
Sale Price 6,252.8
910.9
18,451.4
1,662.9
Gain (Loss) on Sale 19.3
78.5
112.3
91.9

As of September 30, 2020, New Residential had sold and purchased $1.2 billion and $300.0 million face amount of Agency RMBS for $1.3 billion and $309.0 million, respectively, which had not yet been settled. As of September 30, 2019, New Residential had sold and purchased $4.3 billion and $2.5 billion face amount of Agency RMBS for $4.4 billion and $2.5 billion, respectively, which had not yet been settled. These unsettled sales and purchases were recorded on the condensed consolidated balance ~~sheet~~sheets on trade date as Trades ~~Receivable~~receivable and Trades ~~Payable.~~payable. There were no sales or purchases of Non-Agency RMBS which had not yet been settled as of September 30, 2020, or September 30, 2019.

New Residential has exercised its call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. Refer to ~~Note~~Notes 8 and 16 for further details on these transactions.

The following is a summary of New Residential’s real estate and other securities:


	September 30, 2020																			December 31, 2019
					Gross Unrealized							Weighted Average
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Gains		Losses		Carrying Value(A)		Number of Securities	Rating(B)	Coupon(C)		Yield		Life (Years)(D)	Principal Subordination(E)		Carrying Value
Agency RMBS	$	114,401	$	115,223	$	12,254	$	0	$	127,476	1	AAA	3.50	%	3.50	%	8.8	—		$	11,519,943
Agency RMBS at FVO	8,921,032		9,247,334		48,905		(2,891)		9,293,347		53	AAA	2.24	%	2.24	%	4.1	—		0
Total Agency RMBS(F)(G)	9,035,433		9,362,557		61,159		(2,891)		9,420,823		54	AAA	2.25	%	2.25	%	4.2	—		11,519,943
Non-Agency RMBS(H)(I)	21,276,175		1,386,243		92,192		(69,191)		1,409,244		599	AA	3.03	%	4.86	%	5.9	16.5	%	7,957,785
Total/ Weighted Average	$	30,311,608	$	10,748,800	$	153,351	$	(72,082)	$	10,830,067	653	AAA	2.80	%	4.09	%	5.4			$	19,477,728

(A)Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.

(B)Represents the weighted average of the ratings of all securities ~~all~~in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 305 bonds with a carrying value of $647.1 million which ~~are classified~~either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies and represent the most recent credit ratings available as ~~available-for-sale~~of the reporting date and ~~are, therefore, reported at~~may not be current.

(C)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $26.5 million and $2.8 million, respectively, for which no coupon payment is expected.

(D)The weighted average life is based on the timing of expected principal reduction on the assets.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

(E)Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value ~~with changes in~~option securities.

(F)Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.

(G)The total outstanding face amount was $9.0 billion for fixed rate securities as of September 30, 2020.

(H)The total outstanding face amount was $13.0 billion (including $11.9 billion of residual and fair value ~~recorded in~~option notional amount) for fixed rate securities and $8.3 billion (including $7.7 billion of residual and fair value option notional amount) for floating rate securities as of September 30, 2020.

(I)Includes other ~~comprehensive income, except for~~asset-backed securities ~~that are other-than-temporarily impaired~~(“ABS”) consisting primarily of (i) interest-only securities and ~~except for securities~~servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through the income ~~statement.~~statement, (ii) bonds backed by consumer loans, and (iii) corporate debt.


					Gross Unrealized							Weighted Average
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Gains		Losses		Carrying Value		Number of Securities	Rating	Coupon		Yield		Life (Years)	Principal Subordination
Corporate debt	$	500	$	500	$	10	$	0	$	510	1	B-	8.25	%	8.25	%	4.5	N/A
Consumer loan bonds	13,847		11,069		0		0		11,069		6	N/A	N/A		N/A		—	N/A
Fair value option securities:
Interest-only securities	10,506,022		272,207		17,641		(33,893)		255,954		126	AA+	1.16	%	7.80	%	2.7	N/A
Servicing strips	5,418,547		55,861		4,314		(9,009)		51,167		59	N/A	0.61	%	7.60	%	3.8	N/A

September 30, 2019 December 31, 2018
Gross Unrealized Weighted Average
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses
Carrying Value^(A)
Number of Securities
Rating^(B)

Coupon^(C)
Yield
Life (Years)^(D)

Principal Subordination^(E)
Carrying Value
Agency
  RMBS^{(F) (G)}
$ 8,797,199
$ 8,950,763
$ 56,939
$ (9,636 ) $ 8,998,066
39
AAA 3.66 % 3.06 % 4.6 N/A
$ 2,665,618
Non-Agency
  RMBS^{(H) (I)}
21,845,814
7,175,703
711,078
(30,937 ) 7,855,844
950
B+ 3.03 % 4.84 % 6.3 10.6 % 8,970,963
Total/
   Weighted
    Average
$ 30,643,013
$ 16,126,466
$ 768,017
$ (40,573 ) $ 16,853,910
989
BBB+ 3.35 % 3.85 % 5.3 $ 11,636,581


~~(A)~~	~~Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.~~

~~(B)~~

Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 312 bonds with a carrying value of $1,064.1 million which either have never been rated or for which rating information is no longer provided. For each security rated by multiple rating agencies, the lowest rating is used. New Residential used an implied AAA rating for the Agency RMBS. Ratings provided were determined by third party rating agencies, and represent the most recent credit ratings available as of the reporting date and may not be current.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~


~~(C)~~	~~Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $225.2 million and $3.5 million, respectively, for which no coupon payment is expected.~~


~~(D)~~	~~The weighted average life is based on the timing of expected principal reduction on the assets.~~


~~(E)~~	~~Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value option securities.~~


~~(F)~~	~~Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.~~


~~(G)~~	~~The total outstanding face amount was $8.8 billion for fixed rate securities and $0.0 billion for floating rate securities as of September 30, 2019.~~


~~(H)~~	The total outstanding face amount was $10.2 billion (including $7.9 billion of residual and fair value option notional amount) for fixed rate securities and $11.7 billion (including $4.9 billion of residual and fair value option notional amount) for floating rate securities as of September 30, 2019.


~~(I)~~	Includes other asset backed securities (“ABS”) consisting primarily of (i) interest-only securities and servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through the income statement, (ii) bonds backed by consumer loans, and (iii) corporate debt.

Gross Unrealized Weighted Average
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses Carrying Value Number of Securities Rating Coupon Yield Life (Years) Principal Subordination
Corporate debt $ 85,000
$ 85,000
$ —
$ (7,013 ) $ 77,987
1
B- 8.25 % 8.25 % 5.5 N/A
Consumer loan bonds 30,945
29,990
566
(5,073 ) 25,483
6
N/A N/A
8.09 % 1.5 N/A
Fair Value Option Securities:
Interest-only securities 9,574,284
290,481
33,963
(13,890 ) 310,554
111
AA 1.44 % 7.43 % 3.2 N/A
Servicing Strips 2,568,427
32,216
4,306
(3,178 ) 33,344
37
N/A 0.39 % 5.88 % 5.3 N/A

Unrealized losses ~~that are considered other-than-temporary and are~~ attributable to credit ~~losses~~impairment are recognized ~~currently~~ in earnings. During the nine months ended September 30, ~~2019,~~2020, New Residential recorded ~~OTTI~~credit impairment charges of ~~$21.9~~$15.2 million with respect to real estate securities. Any remaining unrealized losses on New Residential’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. New Residential performed analyses in relation to such securities, using its best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. New Residential has no intent to sell and is not more likely than not to be required to sell these securities.

The following table summarizes New Residential’s securities in an unrealized loss position as of September 30, ~~2019.~~2020.


			Amortized Cost Basis													Weighted Average
Securities in an Unrealized Loss Position																						Securities in an Unrealized Loss Position	Outstanding Face Amount		Amortized Cost Basis						Gross Unrealized Losses		Carrying Value		Number of Securities	Weighted Average
	Outstanding Face Amount		Before Impairment		Other-Than- Temporary Impairment^(A)			After Impairment		Gross Unrealized Losses			Carrying Value		Number of Securities	Rating^(B)	Coupon		Yield		Life (Years)				Before Credit Impairment		Credit Impairment(A)		After Credit Impairment							Rating	Coupon		Yield		Life (Years)
Less than 12 Months	$	7,069,880	$	2,162,118	$	(3,768	)	$	2,158,350	$	(20,406	)	$	2,137,944	77	BBB	4.27	%	4.24	%	6.4	Less than 12 Months	$	10,511,509	$	3,144,203	$	(2,072)	$	3,142,131	$	(51,194)	$	3,090,937	112	AAA	2.30	%	2.05	%	6.1
12 or More Months	1,297,245		190,556		(1,799		)	188,757		(20,167		)	168,590		63	BB	4.58	%	5.74	%	5.1	12 or More Months	3,758,699		112,034		(8,297)		103,737		(20,889)		82,848		70	AA+	0.89	%	2.59	%	2.4
Total/Weighted Average	$	8,367,125	$	2,352,674	$	(5,567	)	$	2,347,107	$	(40,573	)	$	2,306,534	140	BB+	4.29	%	4.36	%	6.3	Total/Weighted Average	$	14,270,208	$	3,256,237	$	(10,369)	$	3,245,868	$	(72,083)	$	3,173,785	182	AAA	2.26	%	2.07	%	6.0


~~(A)~~	~~This amount represents OTTI recorded on securities that are in an unrealized loss position as of September 30, 2019.~~

~~(B)~~

The weighted average rating of securities in an unrealized loss position for less than 12 months excludes the rating of 43 bonds which either have never been rated or for which rating information is no longer provided. The weighted average rating of securities in an unrealized loss position for 12 or more months excludes the rating of 24 bonds which either have never been rated or for which rating information is no longer provided.

(A)Represents credit impairment on securities in an unrealized loss position as of September 30, 2020.

~~NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~September 30, 2019~~

~~(dollars in tables in thousands, except share data)~~

New Residential performed an assessment of all ~~of its~~ debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of ~~OTTI,~~credit impairment, exceeds its fair value) and determined the following:


												September 30, 2020								December 31, 2019
	September 30, 2019															Gross Unrealized Losses								Gross Unrealized Losses
					Gross Unrealized Losses							Fair Value		Amortized Cost Basis After Credit Impairment		Credit(A)		Non-Credit(B)		Fair Value		Amortized Cost Basis After Credit Impairment		Credit(A)		Non-Credit(B)
	Fair Value		Amortized Cost Basis After Impairment		Credit^(A)			Non-Credit^(B)
Securities New Residential intends to sell^(C)	$	—	$	—	$	—		$	—
Securities New Residential is more likely than not to be required to sell^(D)	—		—		—			N/A
Securities New Residential intends to sell											Securities New Residential intends to sell	$	0	$	0	$	0	N/A		$	0	$	0	$	0	$	0
Securities New Residential is more likely than not to be required to sell(C)											Securities New Residential is more likely than not to be required to sell(C)	0		0		0		N/A		0		0		0		N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:											Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities	159,172		165,780		(5,567		)	(6,608		)	Credit impaired securities	122,086		134,639		(10,369)		(12,553)		228,228		237,626		(3,232)		(9,398)
Non-credit impaired securities	2,147,362		2,181,327		—			(33,965		)	Non-credit impaired securities	3,051,699		3,111,229		0		(59,530)		4,726,409		4,767,837		0		(41,428)
Total debt securities in an unrealized loss position	$	2,306,534	$	2,347,107	$	(5,567	)	$	(40,573	)	Total debt securities in an unrealized loss position	$	3,173,785	$	3,245,868	$	(10,369)	$	(72,083)	$	4,954,637	$	5,005,463	$	(3,232)	$	(50,826)

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

~~NRM has entered into agreements with PHH, LoanCare, Flagstar, and Nationstar whereby NRM is entitled to the MSR on any refinancing by such subservicer of a loan in the related original portfolio.~~


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

The table below ~~summarizes our~~presents the carrying value and classification of the assets and liabilities of consolidated VIEs on New Residential’s condensed consolidated balance sheets:


	The Buyer		Shelter Joint Ventures		Residential Mortgage Loans		Consumer Loan SPVs		Total
September 30, 2020
Assets
Servicer advance investments, at fair value	$	521,882	$	0	$	0	$	0	$	521,882
Residential mortgage loans, held-for-investment, at fair value	0		0		390,890		0		390,890
Residential mortgage loans, held-for-sale	0		0		352,225		0		352,225
Residential mortgage loans, held-for-sale, at fair value	0		0		622,269		0		622,269
Consumer loans, held-for-investment, at fair value	0		0		0		718,355		718,355
Cash and cash equivalents	40,653		35,642		0		0		76,295
Restricted cash	5,044		0		0		5,890		10,934
Other assets	6		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	$	0	$	1,091,426	$	678,950	$	2,175,283
Accrued expenses and other liabilities	2,237		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	$	0	$	0	$	0	$	565,271
Residential mortgage loans, held-for-investment, at fair value	0		0		913,030		0		913,030
Consumer loans, held-for-investment	0		0		0		818,943		818,943
Cash and cash equivalents	30,065		23,802		0		0		53,867
Restricted cash	5,350		0		0		9,073		14,423
Other assets	2,414		3,556		0		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	$	0	$	659,738	$	820,658	$	1,913,696
Accrued expenses and other liabilities	1,593		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 ~~MSRs~~the equity of New Residential’s consolidated subsidiaries is computed as follows:


	September 30, 2020									December 31, 2019
	The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies			The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies
Total consolidated equity	$	160,440		$	36,612		$	80,782		$	168,207		$	23,171		$	46,510
Others’ ownership interest	26.8		%	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

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

Others’ interests in the New Residential’s net income (loss) is computed as follows:


	Three Months Ended September 30,
	2020									2019
	The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies			The Buyer(A)			Shelter Joint Ventures			Consumer 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 ~~mortgage servicing rights~~73.2% of the Buyer, on average during the three months ended September 30, 2020 and 2019, respectively. See Note 11 regarding the financing ~~receivables~~of Servicer advance investments.


	Nine Months Ended September 30,
	2020									2019
	The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies			The Buyer(A)			Shelter Joint Ventures			Consumer 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.

14. EQUITY AND EARNINGS PER SHARE

Equity and Dividends

In February 2019, New Residential issued 46.0 million shares of its common stock in a public offering at a price to the public of $16.50 per share for net proceeds of approximately $751.7 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 4.6 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of ~~September~~the grant date. The assumptions used in valuing the options were: a 2.40% risk-free rate, a 9.30% dividend yield, 19.26% volatility and a 10-year term.

On July 30, ~~2019.~~2018, New Residential entered into a Distribution Agreement to sell shares of its common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price of up to $500.0 million, from time to time, through an “at-the market” equity offering program (the “ATM Program”). On August 1, 2019, the Distribution Agreement was amended to, among other things, (i) add additional sales agents under the ATM Program, and (ii) restore the aggregate offering price under the ATM Program to the original amount of $500.0 million.

Current UPB (bn) Weighted Average MSR (bps) Carrying Value (mm)
Mortgage Servicing Rights
Agency $ 288.7
27
bps $ 3,038.7
Non-Agency 2.3
26
20.3
Ginnie Mae 28.9
32
372.9
MSR Financing Receivables
Agency 61.2
27
598.0
Non-Agency 79.4
47
1,213.3
Total $ 460.5
31
bps
$ 5,243.2

The following table summarizes the ~~collateral characteristics~~Company’s ATM Program activity:


Quarter Ended	Number of Common shares	Average price per share		Gross Proceeds		Fees		Net Proceeds
March 31, 2020(A)	97,394	$	17.06	$	1,662	$	12	$	1,649
June 30, 2020	0	0		0		0		0
September 30, 2020	0	0		0		0		0

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

(A)In connection with the shares sold under the ATM program, New Residential granted options to the Manager relating to 0.01 million shares of New Residential’s common stock at the offering price, which had fair value of approximately $0.2 million as of the ~~loans underlying our investments~~grant date.

On July 2, 2019, in ~~MSRs~~a public offering, New Residential issued 6.2 million shares of its 7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series A”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $150.0 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 0.6 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $0.5 million as of the grant date. The assumptions used in valuing the options were: a 1.91% risk-free rate, a 9.73% dividend yield, 17.95% volatility and ~~mortgage servicing rights financing receivables~~10-year term.

On August 15, 2019, in a public offering, New Residential issued 11.3 million shares of its 7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series B”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $273.4 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.1 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $0.7 million as of the grant date. The assumptions used in valuing the options were: a 1.56% risk-free rate, a 11.20% dividend yield, 18.23% volatility and a 10-year term.

On February 14, 2020, in a public offering, New Residential issued 16.1 million of its 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series C”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $389.5 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.6 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $1.0 million as of the grant date. The assumptions used in valuing the options were: a 1.55% risk-free rate, a 9.00% dividend yield, 17.39% volatility and a 10-year term.

The table below summarizes Preferred Shares:


								Dividends Declared per Share
Series	Number of Shares	Liquidation Preference		Issuance Discount		Carrying Value		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Fixed-to-floating rate cumulative redeemable preferred:
Preferred Series A, 7.50% issued July 2019	6,210	$	155,250	3.15	%	$	150,026	$	0.47	$	1.41
Preferred Series B, 7.125% issued August 2019	11,300	282,500		3.15	%	273,418		$	0.45	$	1.34
Preferred Series C, 6.375% issued February 2020	16,100	402,500		3.15	%	389,548		$	0.40	$	1.20
Total	33,610	$	840,250			$	812,992

On September 23, 2020, New Residential’s board of directors declared third quarter 2020 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, and $0.40 of Preferred Series C or $2.9 million, $5.0 million, and $6.4 million respectively.

Common dividends have been declared as follows:


Declaration Date	Payment Date	Per Share		Total Amounts Distributed (millions)
		Quarterly Dividend
March 31, 2020	April 2020	$	0.05	$	20.8
June 22, 2020	July 2020	$	0.10	$	41.6
September 23, 2020	October 2020	$	0.15	$	0

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at September 30, 2020.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

On August 20, 2019, New Residential announced that its board of directors had authorized the repurchase of up to $200.0 million of its common stock through December 31, 2020. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases will depend on a number of factors including the price and availability of New Residential’s shares, trading volume, capital availability, New Residential’s performance and general economic and market conditions. NaN share repurchases have been made as of the date of issuance of these condensed consolidated financial statements. The share repurchase program may be suspended or discontinued at any time.

Common Stock Purchase Warrants

As discussed in Note 11, Debt Obligations, on May 19, 2020 and May 27, 2020 (collectively, the “Issuance Date”), in conjunction with the 2020 Term Loan, the Company issued the 2020 Warrants providing the lenders with the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices: approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share.

The Company recorded the value of the 2020 Term Loan and 2020 Warrants on a relative fair value basis. The 2020 Warrants were valued using a Black-Scholes option valuation model that resulted in a fair value of approximately $53.5 million on the Issuance Date and is not subject to subsequent remeasurement. The Company used the following assumptions in the application of the Black-Scholes option valuation model: an exercise price ranging between $6.11 and $7.94, a term of 3.0 years, a risk-free interest rate of 0.24%, and volatility of 35%. The 2020 Warrants met the definition of derivatives under the guidance in ASC Topic 815, Derivatives and Hedging; however, because these instruments are determined to be indexed to the Company’s own stock and met the criteria for equity classification under ASC Topic 815, the 2020 Warrants are accounted for as an equity transaction and recorded in Additional paid-in-capital. The 2020 Warrants have a dilutive effect on net income per share to the extent that the market value per share of the Company’s common stock at the time of exercise exceeds the strike price of the 2020 Warrants.

The table below summarizes the 2020 Warrants at September 30, 2020:


	Number of Warrants (in millions)	Weighted Average Exercise Price (per share)
December 31, 2019 outstanding warrants	0	$	0
Granted	43.4	6.91
Exercised	0	0
Expired	0	0
September 30, 2020 outstanding warrants	43.4	$	6.91

Option Plan

As of September 30, 2020, New Residential’s outstanding options were summarized as follows:


Held by the Manager			10,860,706
Issued to the Manager and subsequently assigned to certain of the Manager’s employees			3,560,949
Issued to the independent directors			7,000
Total			14,428,655

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

The following table summarizes New Residential’s outstanding options as of September 30, ~~2019 (dollars~~2020. The last sales price on the New York Stock Exchange for New Residential’s common stock in ~~thousands):~~the quarter ended September 30, 2020 was $7.95 per share.


Recipient	Date of Grant/ Exercise(A)	Number of Unexercised Options	Options Exercisable as of September 30, 2020	Weighted Average Exercise Price(B)		Intrinsic Value of Exercisable Options as of September 30, 2020 (millions)
Directors	Various	7,000	7,000	$	13.57	$	0
Manager(C)	2017	1,130,916	1,130,916	13.95		0
Manager(C)	2018	5,320,000	4,552,585	16.67		0
Manager(C)	2019	6,351,000	3,692,800	16.14		0
Manager(C)	2020	1,619,739	377,939	17.41		0
Outstanding		14,428,655	9,761,240

(A)Options expire on the tenth anniversary from date of grant.

(B)The exercise prices are subject to adjustment in connection with return of capital dividends. A portion of New Residential’s 2018 dividends was deemed to be a return of capital and the exercise prices were adjusted accordingly.

(C)The Manager assigned certain of its options to its employees as follows:


Date of Grant to Manager	Range of Exercise Prices	Total Unexercised Inception to Date
2017	$13.95	1,130,916
2018	$16.55 to $18.02	1,159,833
2019	$15.14 to $16.68	1,270,200
Total		3,560,949

The following table summarizes activity in New Residential’s outstanding options:


	Amount	Weighted Average Exercise Price
December 31, 2019 outstanding options	12,808,916
Options granted	1,619,739	$	17.41
Options exercised	0	0
Options expired unexercised	0	0
September 30, 2020 outstanding options	14,428,655	See table above

Income and Earnings Per Share

New Residential is required to present both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period.

Collateral Characteristics
Current Carrying Amount Current Principal Balance Number of Loans
WA FICO Score^(A)
WA Coupon WA Maturity (months) Average Loan Age (months)
Adjustable Rate Mortgage %^(B)

Three Month Average CPR^(C)

Three Month Average CRR^(D)

Three Month Average CDR^(E)
Three Month Average Recapture Rate
Mortgage Servicing Rights
Agency $ 3,038,721
$ 288,673,487
1,820,794
749
4.3 % 263
66
2.8 % 14.6 % 14.4 % 0.2 % 10.1 %
Non-Agency 20,321
2,350,471
5,656
743
4.0 % 308
34
3.8 % 14.1 % 14.1 % — % 5.8 %
Ginnie Mae 372,926
28,903,327
137,168
681
3.8 % 319
36
5.6 % 17.6 % 17.0 % 0.7 % 24.1 %
MSR Financing Receivables
Agency 597,990
61,162,569
249,339
749
4.4 % 305
26
1.1 % 30.8 % 30.8 % — % 1.8 %
Non-Agency 1,213,271
79,360,666
577,024
645
4.5 % 306
164
16.1 % 9.9 % 8.0 % 1.9 % 0.5 %
Total $ 5,243,229
$ 460,450,520
2,789,981
727
4.3 % 280
76
5.1 % 16.1 % 15.6 % 0.5 % 8.2 %

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

Collateral Characteristics

Delinquency 30 Days^(F)

Delinquency 60 Days^(F)

Delinquency 90+ Days^(F)
Loans in Foreclosure Real Estate Owned Loans in Bankruptcy
Mortgage Servicing Rights
Agency 1.5 % 0.3 % 0.4 % 0.3 % — % 0.3 %
Non-Agency 0.4 % 0.1 % 0.1 % 0.3 % 0.1 % 0.1 %
Ginnie Mae 4.1 % 1.2 % 1.1 % 1.4 % 0.1 % 1.2 %
MSR Financing Receivables
Agency 1.6 % 0.1 % 0.1 % — % — % 0.1 %
Non-Agency 9.5 % 4.9 % 4.2 % 7.7 % 1.9 % 2.9 %
Total 3.1 % 1.1 % 1.1 % 1.6 % 0.3 % 0.8 %


~~(A)~~			The WA FICO score is based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score when loans are refinanced or become delinquent.

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
~~(B)~~			~~Adjustable Rate Mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.~~

	September 30, 2020
~~(C)~~			~~Three Month Average CPR, or the constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.~~(dollars in tables in thousands, except share data)


~~(D)~~	~~Three Month Average CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.~~


~~(E)~~	Three Month Average CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.


~~(F)~~	Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days, 60–89 days or 90 or more days, respectively.

~~Excess MSRs~~

~~The tables below summarize the terms of our investments in Excess MSRs completed as of September 30, 2019.~~

~~Summary of Direct Excess MSR Investments as of September 30, 2019~~

MSR Component^(A)

Excess MSR

Current UPB
(bn)
Weighted Average MSR (bps)
Weighted Average Excess MSR (bps)
Interest in Excess MSR (%)
Carrying Value (mm)
Agency $ 45.9
29
bps 21
bps 32.5% - 66.7% $ 221.6
Non-Agency^(B)
47.1
35
15
33.3% - 100.0% $ 176.5
Total/Weighted Average $ 93.0
32
bps 18
bps
$ 398.1


~~(A)~~	~~The MSR is a weighted average as of September 30, 2019, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).~~


~~(B)~~	Serviced by Nationstar and SLS, we also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 6 to our Condensed Consolidated Financial Statements) on $33.4 billion UPB underlying these Excess MSRs.

~~Summary of Excess MSR Investments Through Equity Method Investees as of September 30, 2019~~

MSR Component^(A)

Current UPB (bn)
Weighted Average MSR (bps)
Weighted Average Excess MSR (bps)
New Residential Interest in Investee (%)
Investee Interest in Excess MSR (%)
New Residential Effective Ownership (%)
Investee Carrying Value (mm)
Agency $ 35.6

33
bps 21
bps 50.0 %
66.7 %
33.3 %
$ 236.8


~~(A)~~	~~The MSR is a weighted average as of September 30, 2019, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).~~

The following table summarizes the basic and diluted earnings per share calculations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	103,920	$	244,660	$	(1,459,206)	$	375,552
Noncontrolling interests in income of consolidated subsidiaries	11,640		14,738		34,118		31,979
Dividends on preferred stock	14,359		5,338		39,938		5,338
Net income (loss) attributable to common stockholders	$	77,921	$	224,584	$	(1,533,262)	$	338,235

Basic weighted average shares of common stock outstanding	415,744,518		415,520,780		415,665,441		406,521,273
Dilutive effect of stock options(A)	0		67,458		0		150,699
Dilutive effect of common stock purchase warrants(A)	5,224,108		0		0		0
Diluted weighted average shares of common stock outstanding	420,968,626		415,588,238		415,665,441		406,671,972

Basic earnings per share attributable to common stockholders	$	0.19	$	0.54	$	(3.69)	$	0.83
Diluted earnings per share attributable to common stockholders	$	0.19	$	0.54	$	(3.69)	$	0.83

(A)Stock options and common stock purchase warrants that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share for the periods where a loss has been recorded because they would have been anti-dilutive for the period presented.

The Company excluded the following weighted-average potential common shares from the calculation of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020	2019		2020	2019
Stock options	0	$	0	0	$	0
Common stock purchase warrants	0	0		5,966,141	0

Noncontrolling Interests

Noncontrolling interests is composed of the interests held by third parties in consolidated entities that hold New Residential’s Servicer advance investments (Note 6), Shelter JVs (Note 8) and Consumer loans (Note 9).

15. COMMITMENTS AND CONTINGENCIES

Litigation — New Residential is or may become, from time to time, involved in various disputes, litigation and regulatory inquiry and investigation matters that arise in the ordinary course of business. Given the inherent unpredictability of these types of proceedings, it is possible that future adverse outcomes could have a material adverse effect on its business, financial position or results of operations. New Residential is not aware of any unasserted claims that it believes are material and probable of assertion where the risk of loss is expected to be reasonably possible.

New Residential is, from time to time, subject to inquiries by government entities. New Residential currently does not believe any of these inquiries would result in a material adverse effect on New Residential’s business.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

Indemnifications — In the normal course of business, New Residential and its subsidiaries enter into contracts that contain a variety of representations and warranties and that provide general indemnifications. New Residential’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against New Residential that have not yet occurred. However, based on its experience, New Residential expects the risk of material loss to be remote.

Capital Commitments — As of September 30, 2020, New Residential had outstanding capital commitments related to investments in the following investment types (also refer to Note 5 for MSR investment commitments and to Note 19 for additional capital commitments entered into subsequent to September 30, 2020, if any):

MSRs and Servicer Advance Investments — New Residential and, in some cases, third-party co-investors agreed to purchase future servicer advances related to certain Non-Agency mortgage loans. In addition, New Residential’s subsidiaries, NRM and NewRez, are generally obligated to fund future servicer advances related to the loans they are obligated to service. The actual amount of future advances purchased will be based on: (a) the credit and prepayment performance of the underlying loans, (b) the amount of advances recoverable prior to liquidation of the related collateral ~~characteristics~~and (c) the percentage of the loans ~~underlying our direct Excess MSR~~with respect to which no additional advance obligations are made. The actual amount of future advances is subject to significant uncertainty. Notes 5 and 6 for discussion on New Residential’s Investments in MSRs and Servicer advance investments, ~~as of September 30, 2019 (dollars in thousands):~~respectively.

Collateral Characteristics
Current Carrying Amount Current Principal Balance Number of Loans
WA FICO Score^(A)
WA Coupon WA Maturity (months) Average Loan Age (months)
Adjustable Rate Mortgage %^(B)

Three Month Average CPR^(C)

Three Month Average CRR^(D)

Three Month Average CDR^(E)
Three Month Average Recapture Rate
Agency
Original Pools $ 168,463
$ 33,627,899
242,096
723
4.7 % 247
115
1.9 % 13.2 % 12.7 % 0.6 % 11.6 %
Recaptured Loans 53,097
12,272,755
73,762
725
4.4 % 278
42
0.1 % 13.0 % 12.6 % 0.5 % 29.1 %

$ 221,560
$ 45,900,654
315,858
724
4.6 % 256
93
1.5 % 13.2 % 12.6 % 0.6 % 16.2 %
Non-Agency^(F)

Nationstar and SLS Serviced:
Original Pools $ 153,927
$ 43,127,383
242,478
672
4.8 % 281
162
10.1 % 14.4 % 11.6 % 3.2 % 8.8 %
Recaptured Loans 22,577
3,997,153
18,203
739
4.3 % 285
29
0.1 % 13.2 % 13.2 % — % 25.5 %

$ 176,504
$ 47,124,536
260,681
678
4.7 % 281
151
8.8 % 14.3 % 11.7 % 2.9 % 10.2 %
Total/Weighted Average^(H)
$ 398,064
$ 93,025,190
576,539
700
4.7 % 269
124
4.7 % 13.8 % 12.2 % 1.8 % 13.2 %

Collateral Characteristics

Delinquency 30 Days^(G)

Delinquency 60 Days^(G)

Delinquency 90+ Days^(G)
Loans in
Foreclosure Real
Estate
Owned Loans in
Bankruptcy
Agency
Original Pools 2.9 % 0.9 % 0.6 % 0.6 % 0.2 % 0.2 %
Recaptured Loans 1.8 % 0.4 % 0.4 % 0.2 % 0.1 % — %

2.6 % 0.7 % 0.5 % 0.5 % 0.2 % 0.1 %
Non-Agency^(F)

Nationstar and SLS Serviced:
Original Pools 10.8 % 3.2 % 2.3 % 5.4 % 1.1 % 2.0 %
Recaptured Loans 1.5 % 0.3 % 0.1 % — % — % — %

10.0 % 3.0 % 2.1 % 4.9 % 1.0 % 1.8 %
Total/Weighted Average^(H)
6.5 % 1.9 % 1.4 % 2.8 % 0.6 % 1.0 %


~~(A)~~	~~The WA FICO score is based on the weighted average of information provided by the loan servicer on~~Mortgage Origination Reserves — NewRez, a ~~monthly basis. The loan servicer generally updates the FICO score when loans are refinanced or become delinquent.~~


~~(B)~~	~~Adjustable Rate Mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.~~


~~(C)~~	~~Three Month Average CPR, or the constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.~~


~~(D)~~	~~Three Month Average CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.~~


~~(E)~~	Three Month Average CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.


~~(F)~~	We also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 6 to our Condensed Consolidated Financial Statements) on $33.4 billion UPB underlying these Excess MSRs.


~~(G)~~	Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days, 60–89 days or 90 or more days, respectively.


~~(H)~~	~~Weighted averages exclude collateral information for which collateral data was not available as of the report date.~~

The following table summarizes the collateral characteristics as of September 30, 2019 of the loans underlying Excess MSR investments made through joint ventures accounted for as equity method investees (dollars in thousands). For each of these pools, we own a 50% interest in an entity that invested in a 66.7% interest in the Excess MSRs.

Collateral Characteristics
Current Carrying Amount
Current
Principal
Balance

New Residential Effective Ownership
(%)

Number
of Loans

WA FICO Score^(A)
WA Coupon WA Maturity (months)
Average Loan
Age (months)

Adjustable Rate Mortgage %^(B)

Three Month Average CPR^(C)

Three Month Average CRR^(D)

Three Month Average CDR^(E)

Three Month Average Recapture Rate
Agency
Original Pools $ 148,573
$ 21,303,865
33.3 % 216,012
703
5.2 % 239
134
1.5 % 14.4 % 13.3 % 1.3 % 16.8 %
Recaptured Loans 88,213
14,328,564
33.3 % 102,067
710
4.3 % 272
49
0.1 % 12.7 % 11.8 % 1.0 % 35.6 %
Total/Weighted Average^(G)
$ 236,786
$ 35,632,429
318,079
706
4.9 % 252
101
1.5 % 13.7 % 12.7 % 1.2 % 24.2 %

Collateral Characteristics

Delinquency 30 Days^(F)

Delinquency 60 Days^(F)

Delinquency 90+ Days^(F)

Loans in
Foreclosure

Real
Estate
Owned

Loans in
Bankruptcy
Agency
Original Pools 4.2 % 1.3 % 0.7 % 0.9 % 0.3 % 0.3 %
Recaptured Loans 2.9 % 0.9 % 0.4 % 0.3 % 0.1 % 0.1 %
Total/Weighted Average^(G)
3.7 % 1.1 % 0.6 % 0.7 % 0.2 % 0.2 %


~~(A)~~	~~The WA FICO score is based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score on a monthly basis.~~


~~(B)~~	~~Adjustable Rate Mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.~~


~~(C)~~	~~Three Month Average CPR, or the constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.~~


~~(D)~~	~~Three Month Average CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.~~


~~(E)~~	Three Month Average CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.


~~(F)~~	Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30-59 days, 60-89 days or 90 or more days, respectively.


~~(G)~~	~~Weighted averages exclude collateral information for which collateral data was not available as of the report date.~~

~~Servicer Advance Investments~~

~~The following is a summary of our Servicer Advance Investments, including the right to the basic fee component of the related MSRs (dollars in thousands):~~

September 30, 2019
Amortized Cost Basis
Carrying Value^(A)
UPB of Underlying Residential Mortgage Loans Outstanding Servicer Advances Servicer Advances to UPB of Underlying Residential Mortgage Loans
Servicer Advance Investments
Nationstar and SLS serviced pools $ 570,570
$ 600,547
$ 33,406,320
$ 492,480
1.5 %


~~(A)~~	~~Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.~~

~~The following is additional information regarding our Servicer Advance Investments, and related financing, as of and for the nine months ended, September 30, 2019 (dollars in thousands):~~

Nine Months Ended
September 30, 2019
Loan-to-Value (“LTV”)^(A)

Cost of Funds^(B)
Weighted Average Discount Rate
Weighted Average Life (Years)^(C)
Change in Fair Value Recorded in Other Income Face Amount of Notes and Bonds Payable Gross
Net^(D)
Gross Net
Servicer Advance
Investments^(E)
5.1 % 6.3 $ 15,932
$ 449,731
87.3 % 86.1 % 3.8 % 3.1 %


~~(A)~~	~~Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.~~


~~(B)~~	~~Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.~~


~~(C)~~	~~Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.~~


~~(D)~~	~~Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.~~


~~(E)~~	~~The following types of advances are included in Servicer Advance Investments:~~

September 30, 2019
Principal and interest advances $ 82,999
Escrow advances (taxes and insurance advances) 185,774
Foreclosure advances 223,707
Total $ 492,480

~~A discussion of the sensitivity of these incentive fees to changes in LIBOR is included below under “Quantitative and Qualitative Disclosures About Market Risk.”~~

~~Originations~~

~~NewRez, our~~ wholly owned subsidiary of New Residential, currently originates, or has in the past originated, conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government insured mortgage securitizations and mortgage investors issue ~~Nonconforming~~nonconforming private label mortgage securitizations while NewRez generally retains the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, ~~we report gain~~NewRez makes representations and warranties regarding certain attributes of the loans and, subsequent to the sale, if it is determined that a sold loan is in breach of these representations and warranties, NewRez generally has an obligation to cure the breach. If NewRez is unable to cure the breach, the purchaser may require NewRez to repurchase the loan.

In addition, as the issuer of Ginnie Mae guaranteed securitizations, NewRez holds the right to repurchase loans that are at least 90 days’ delinquent from the securitizations at its discretion. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. While NewRez is not obligated to repurchase the delinquent loans, NewRez generally exercises its option to repurchase loans that will result in an economic benefit. As of September 30, 2020, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $9.6 million and $1.5 billion, respectively. See Note 5 for information on NewRez’s right to repurchase delinquent loans from Ginnie Mae securities and mortgage origination.

Residential Mortgage Loans — As part of its investment in residential mortgage loans, New Residential may be required to outlay capital. These capital outflows primarily consist of advance escrow and tax payments, residential maintenance and property disposition fees. The actual amount of these outflows is subject to significant uncertainty. See Note 8 for information on New Residential’s investments in residential mortgage loans.

Consumer Loans — The Consumer Loan Companies have invested in loans with an aggregate of $264.2 million of unfunded and available revolving credit privileges as of September 30, 2020. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at New Residential’s discretion.

Leases — New Residential determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and Operating lease liabilities are grouped and presented as part of Other assets and Accrued expenses and other liabilities, respectively, on New Residential’s condensed consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent obligations to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the net present value of lease payments over the lease term. The majority of New Residential’s lease agreements do not provide an implicit rate. As a result, New Residential used an incremental borrowing rate based on the information available as of the lease commencement dates in determining the present value of lease payments. The operating lease ROU asset reflects any upfront lease payments made as well as lease incentives received. The lease terms may include options to extend or terminate the lease and these are factored into the determination of the ROU asset and lease liability at lease inception when and if it is reasonably certain that New Residential will exercise that option. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

New Residential has certain lease agreements with non-lease components such as maintenance and executory costs, which are accounted for separately and not included in ROU assets.

ROU assets are tested for impairment whenever changes in facts or circumstances indicate that the carrying amount of an asset may not be recoverable. Modification of a lease term would result in re-measurement of the lease liability and a corresponding adjustment to the ROU asset.

New Residential, through its wholly-owned subsidiary, Shellpoint, has leases on office space expiring through 2025. Rent expense, net of sublease income for the three months ended September 30, 2020 and September 30, 2019 totaled $3.3 million and $2.4 million, respectively. Rent expense, net of sublease income for the nine months ended September 30, 2020 and September 30, 2019 totaled $10.1 million and $6.8 million, respectively. The Company has leases that include renewal options and escalation clauses. The terms of the leases do not impose any financial restrictions or covenants.

As of September 30, 2020, future commitments under the non-cancelable leases are as follows:


Year Ending	Amount
October 1 through December 31, 2020	$	3,621
2021	12,428
2022	9,635
2023	5,478
2024	2,759
2025 and thereafter	2,148
Total remaining undiscounted lease payments	36,069
Less: imputed interest	4,168
Total remaining discounted lease payments	$	31,901

The future commitments under the non-cancelable leases have not been reduced by the sublease rentals of $1.3 million due in the future periods.

Other information related to operating leases is summarized below:


	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)	3.4		3.9
Weighted-average discount rate	4.5	%	4.5	%

Environmental Costs — As a residential real estate owner, New Residential is subject to potential environmental costs. At September 30, 2020, New Residential is not aware of any environmental concerns that would have a material adverse effect on its consolidated financial position or results of operations.

Debt Covenants — Certain of the Company’s debt obligations are subject to loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in New Residential’s equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. Refer to Note 11.

Certain Tax-Related Covenants — If New Residential is treated as a successor to Drive Shack Inc. (“Drive Shack”) under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2014, New Residential could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement executed in connection with New Residential’s spin-off from Drive Shack, Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause New Residential to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Residential as necessary to enable New Residential to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to New Residential and its tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders, and its operation as a REIT; and (iii) covenanted to use its reasonable best efforts to

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2014 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the U.S. Internal Revenue Service (“IRS”) to the effect that Drive Shack’s failure to maintain its REIT status will not cause New Residential to fail to qualify as a REIT under the successor REIT rule referred to above). Additionally, New Residential covenanted to use its reasonable best efforts to qualify for taxation as a REIT for its taxable year ended December 31, 2013.

16. TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES

New Residential is party to a Management Agreement with its Manager which provides for automatically renewing one-year terms subject to certain termination rights. The Manager’s performance is reviewed annually and the Management Agreement may be terminated by New Residential by payment of a termination fee, as defined in the Management Agreement, equal to the amount of management fees earned by the Manager during the 12 consecutive calendar months immediately preceding the termination, upon the affirmative vote of at least two-thirds of the independent directors, or by a majority vote of the holders of common stock. If the Management Agreement is terminated, the Manager may require New Residential to purchase from the Manager the right of the Manager to receive the Incentive Compensation. In exchange therefor, New Residential would be obligated to pay the Manager a cash purchase price equal to the amount of the Incentive Compensation that would be paid to the Manager if all of New Residential’s assets were sold for cash at their then current fair market value (taking into account, among other things, expected future performance of the underlying investments). Pursuant to the Management Agreement, the Manager, under the supervision of New Residential’s board of directors, formulates investment strategies, arranges for the acquisition of assets and associated financing, monitors the performance of New Residential’s assets and provides certain advisory, administrative and managerial services in connection with the operations of New Residential.

The Manager is entitled to receive a management fee in an amount equal to 1.5% per annum of New Residential’s gross equity calculated and payable monthly in arrears in cash. Gross equity is generally (i) the equity transferred by Drive Shack, formerly Newcastle Investment Corp., which was the sole stockholder of New Residential until the spin-off of New Residential completed on May 15, 2013, on the date of the spin-off, (ii) plus total net proceeds from preferred and common stock offerings, plus certain capital contributions to subsidiaries, less capital distributions and repurchases of common stock.

In addition, the Manager is entitled to receive annual incentive compensation in an amount equal to the product of (A) 25% of the dollar amount by which (1) (a) New Residential’s funds from operations before the incentive compensation, excluding funds from operations from investments in the Consumer Loan Companies and any unrealized gains or losses from mark-to-market valuation changes on investments and debt (and any deferred tax impact thereof), per share of common stock, plus (b) earnings (or losses) from the Consumer Loan Companies computed on a level-yield basis (such that the loans are treated as if they qualified as loans acquired with a discount for credit quality as set forth in ASC No. 310-30, as such codification was in effect on June 30, 2013) as if the Consumer Loan Companies had been acquired at their GAAP basis on May 15, 2013, plus earnings (or losses) from equity method investees invested in Excess MSRs as if such equity method investees had not made a fair value election, plus gains (or losses) from debt restructuring and gains (or losses) from sales of property, and plus non-routine items, minus amortization of non-routine items, in each case per share of common stock, exceed (2) an amount equal to (a) the weighted average of the book value per share of the equity transferred by Drive Shack on the date of the spin-off and the prices per share of New Residential’s common stock in any offerings (adjusted for prior capital dividends or capital distributions) multiplied by (b) a simple interest rate of 10% per annum, multiplied by (B) the weighted average number of shares of common stock outstanding. “Funds from operations” means net income (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and gains (or losses) from sales of property, plus depreciation on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations will be computed on an unconsolidated basis. The computation of funds from operations may be adjusted at the direction of New Residential’s independent directors based on changes in, or certain applications of, GAAP. Funds from operations is determined from the date of the spin-off and without regard to Drive Shack’s prior performance.

In addition to the management fee and incentive compensation, New Residential is responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of New Residential.

In March 2020, the Company and certain of its subsidiaries sold (collectively, the “Sale”) through a broker-dealer to 6 purchasers (collectively, “the Purchasers”) of a portfolio consisting of non-agency residential mortgage-backed securities with an aggregate face value of approximately $6.1 billion (the “Securities”). The Sale generated proceeds of approximately $3.3 billion in the aggregate, excluding any unpaid but accrued interest. The Purchasers included an entity affiliated with funds managed by an affiliate of the Manager (the “Fortress Purchaser”), which purchased approximately $1.85 billion of Securities

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

in aggregate face value for approximately $1.0 billion. In connection with the sale of ~~originated~~the Securities to the Fortress Purchaser, the Company agreed to exercise certain rights, including call rights, that the Company holds under the securitization transactions with respect to the Securities sold to the Fortress Purchaser solely upon written direction by the Fortress Purchaser. Such rights include the rights, if any, to (i) amend and/or terminate the transactions contemplated by certain related residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements, (ii) acquire certain of the related residential mortgage loans, real estate owned and certain other assets in the trust subject to such residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements in connection with such amendment or termination against delivery of the applicable termination payment, and (iii) if applicable, direct certain related servicers, holders of subordinate securities and/or other applicable parties, to exercise the rights in (i) and (ii). Pursuant to such agreement, the Company and the Fortress Purchaser would share equally in any profits or losses arising from the exercise of any such rights, other than if the Company elects not to participate in the related transaction, in which case the Fortress Purchaser would realize all of the profits and bear all of the losses with respect thereto.

On May 19, 2020, the Company entered into a three-year senior secured term loan facility agreement in the principal amount of $600.0 million and also issued common stock purchase warrants providing the lenders with the right to acquire up to 43.4 million shares of the Company’s common stock, par value $0.01 per share. Approximately 48% of the lenders and recipients of the warrants are funds managed by an affiliate of the Manager. In September 2020, the Company used the net proceeds from a private debt offering, together with cash on hand, to fully retire all of the outstanding principal balance on the term loan facility. See Notes 11 and 14 to our condensed consolidated financial statements for further details.

Due to affiliates is composed of the following amounts:


	September 30, 2020		December 31, 2019
Management fees	$	7,499	$	7,076
Incentive compensation	0		91,892
Expense reimbursements and other	2,046		4,914
Total	$	9,545	$	103,882

Affiliate expenses and fees were composed of:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Management fees	$	22,482	$	20,678	$	66,682	$	58,261
Incentive compensation	0		36,307		0		49,265
Expense reimbursements(A)	125		125		375		375
Total	$	22,607	$	57,110	$	67,057	$	107,901

(A)Included in General and administrative expenses in the condensed consolidated statements of income.

See Note 4 regarding co-investments with Fortress-managed funds.

See Note 14 regarding options granted to the Manager.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

17. RECLASSIFICATION FROM ACCUMULATED OTHER COMPREHENSIVE INCOME INTO NET INCOME

The following table summarizes the amounts reclassified out of accumulated other comprehensive income into net income:


		Three Months Ended September 30,				Nine Months Ended September 30,
Accumulated Other Comprehensive Income Components	Statement of Income Location	2020		2019		2020		2019
Reclassification of net realized (gain) loss on securities into earnings	Gain (loss) on settlement of investments, net	$	7,658	$	(95,003)	$	(753,551)	$	(201,222)
Reclassification of net realized (gain) loss on securities into earnings	Provision (reversal) for credit losses on securities	(3,849)		5,567		15,166		21,942
Total reclassifications		$	3,809	$	(89,436)	$	(738,385)	$	(179,280)

New Residential did not allocate any income tax expense or benefit to any component of other comprehensive income for any period presented, as no taxable subsidiary generated other comprehensive income.

18. INCOME TAXES

Income tax expense (benefit) consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Current:
Federal	$	0	$	1,198	$	(7,877)	$	785
State and local	1,438		14		1,496		115
Total current income tax expense (benefit)	1,438		1,212		(6,381)		900
Deferred:
Federal	77,300		(5,385)		(29,921)		14,762
State and local	22,074		(1,267)		(12,345)		3,318
Total deferred income tax expense (benefit)	99,374		(6,652)		(42,266)		18,080
Total income tax expense (benefit)	$	100,812	$	(5,440)	$	(48,647)	$	18,980

New Residential intends to qualify as a REIT for each of its tax years through December 31, 2020. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.

New Residential operates various business segments, including servicing, origination, and MSR related investments, through taxable REIT subsidiaries (“TRSs”) that are subject to regular corporate income taxes, which have been provided for in the provision for income taxes, as applicable. Refer to Note 3 (Segment Reporting) for further details.

New Residential has recorded a net deferred tax asset of approximately $49.5 million as of September 30, 2020, primarily related to unrealized losses and net operating loss carry forwards.

On March 27, 2020, the CARES Act was signed into law. The CARES Act provides economic relief to eligible businesses and individuals impacted by the COVID-19 pandemic and includes numerous tax provisions, such as the ability to carryback net operating losses to prior tax years. Pursuant to this new legislation, the Company filed a claim to carryback $23 million of net operating losses, resulting in a net tax benefit of $3 million. The Company is continuing to monitor and evaluate the impact of the CARES Act and other COVID-19-related legislation.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

19. SUBSEQUENT EVENTS

These financial statements include a discussion of material events that have occurred subsequent to September 30, 2020 through the issuance of these condensed consolidated financial statements. Events subsequent to that date have not been considered in these financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of New Residential. The following should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto, and with “Risk Factors.”

GENERAL

New Residential is a publicly traded REIT primarily focused on opportunistically investing in, and actively managing, investments related to the residential real estate market. We seek to generate long-term value for our investors by using our investment expertise to identify and invest primarily in mortgage related assets, including operating companies, that offer attractive risk-adjusted returns. Our investment strategy also involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of the mortgage loans we originate and service by offering products and services to customers, servicers, and other parties through the lifecycle of transactions that affect each mortgage loan and underlying residential property. For more information about our investment guidelines, see “Item 1. Business — Investment Guidelines” of our annual report on Form 10-K for the year ended December 31, 2019.

As of September 30, 2020, we had $30 billion in total assets and 5,105 employees within our operating entities.

We have elected to be treated as a REIT for U.S. federal income tax purposes. New Residential became a publicly-traded entity on May 15, 2013.

OUR MANAGER

We are externally managed by an affiliate of Fortress Investment Group LLC and benefit from the resources of this highly diversified global investment manager.

On December 27, 2017, SoftBank Group Corp. (“SoftBank”) acquired Fortress (the “SoftBank Merger”) and Fortress operates within SoftBank as an independent business headquartered in New York.

MARKET CONSIDERATIONS

Beginning in the first quarter of 2020 and continuing into the second quarter, financial and mortgage-related asset markets experienced significant volatility as a result of the ongoing COVID-19 pandemic. The significant dislocation in the financial markets caused, among other things, credit spread widening, a sharp decrease in interest rates, higher unemployment levels, illiquidity in repurchase agreement financing, and declines in the fair value of many of our investments. In addition, as a result of stay-at-home or shelter-in-place orders issued by state and local governments throughout the U.S., many businesses switched to remote work or canceled or reduced operations. Consumers responded by reducing or redirecting their spending. The confluence of these factors resulted in global and U.S. equity markets experiencing the steepest decline since the 2008 recession. Beginning in May 2020, volatility somewhat subsided and U.S. stocks delivered their best quarterly returns in more than 20 years during the second quarter of 2020 following the sharp sell-off during the latter half of the first quarter. The rebound in stocks was largely driven by increased liquidity attributable to actions taken by the Federal Reserve to stabilize markets and hopeful sentiment about “reopening” the economy. While global economic activity and consumer sentiment showed signs of significant advancement, consumer spending levels remain well below normal and some of the economic progress has stalled or may stall as COVID-19 case counts continue to rise in the U.S. Furthermore, due to the possibility that a number of states or the U.S. federal government may again impose greater restrictions on economic and social activity in light of rapidly rising COVID-19 daily case counts and heightened uncertainty relating to the duration and longer term impact of the pandemic and government actions in response thereto, we expect market volatility generally to remain elevated for the remainder of 2020.

Similar to assets in the wider economy, pricing for assets within our investment portfolio rebounded during the second and third quarters of 2020 with credit spreads tightening across the board. Additionally, we continued to make significant progress with respect to our capital structure and how we finance our assets. In particular, we have sought to increase our liquidity and stabilize financing sources, both to strengthen our balance sheet and take advantage of opportunities when market conditions stabilize. Prior to the recent turmoil in the financial markets, we financed the majority of our investments with repurchase agreements and other short-term financing arrangements that contained daily mark-to-market provisions. As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in repurchase agreement financing, we procured and continue to procure financing, such as securitizations and term financings,

that provides less or no exposure to fluctuations in the daily collateral repricing determinations. While the cost of funds for such financings may be greater relative to repurchase agreement funding, we believe, given current market conditions, financing with more limited mark-to-market provisions allows us to better manage our liquidity risk and reduce exposures to events like those caused by the COVID-19 pandemic. We will continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, there can be no assurance that we will be able to access any such financing or to successfully negotiate the size, timing or terms thereof. We continue to meet all margin calls and based on information currently available to us, we believe we will be able to satisfy all margin calls and servicing obligations for the remainder of 2020. In addition, we continue to hold an increased amount of unrestricted cash due to the uncertainty surrounding the reopening of the economy and the continued spread of COVID-19.

The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors, including the supply and demand for mortgage, housing and credit assets in the marketplace, the ability of borrowers of loans that underlie our investments to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions, the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets.

The market conditions discussed below significantly influence our investment strategy and results, many of which have been significantly impacted since mid-March 2020 by the ongoing COVID-19 pandemic.

The following table summarizes the U.S. gross domestic product (“GDP”):


	Three Months Ended
	June 30, 2020		March 31, 2020		December 31, 2019
	(Percent change from the preceding quarter)
Real GDP	(31.4)	%	(5.0)	%	2.1	%

The following table summarizes he U.S. unemployment rate according to the U.S. Department of Labor:


	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
Unemployment rate	7.90	%	11.10	%	4.40	%	3.50	%

The following table summarizes the latest data released by the S&P Dow Jones Indices for their S&P CoreLogic Case-Shiller Home Price Indices:


	June 30, 2020		March 31, 2020		December 31, 2019
	(Percent change from the preceding month)
Change in annual home price	(3.60)	%	3.50	%	2.50	%

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:


	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
10-year U.S. Treasury rate	0.69	%	0.66	%	0.70	%	1.92	%
30-year fixed mortgage rate	2.89	%	3.16	%	3.45	%	3.72	%

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2020; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of September 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may materially differ from those estimates. The COVID-19 pandemic and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions.

SERVICING

The CARES Act allows borrowers with federally backed mortgage loans who are affected by COVID-19 to request temporary loan forbearance. Servicers must provide such forbearance for up to 180 days if requested by the borrower. Borrowers may request additional forbearance period of up to 180 days. During any period of forbearance granted pursuant to the CARES Act, servicers are also required to provide other relief to borrowers, including, but not limited to, suspending late fees and ceasing foreclosure and eviction activity.

While the unemployment rate has generally been trending downward, forbearances may continue to rise nominally due to economic uncertainty and the lack of a definitive end date to forbearance and foreclosure moratoria. When a definitive end date is announced, there could be an increase in forbearances and requests for assistance, however, at this time, net forbearance activity has been trending downward.

Generally, borrowers will be required to repay their forborne mortgage payments after the forbearance period ends, unless an alternate loss mitigation solution is reached, which may include extensions of forbearance, repayment plans, payment deferrals, and loan modifications, depending on the borrower’s situation, account status, and applicable investor guidelines.

~~During~~ We recognize servicing and subservicing fees as revenue when the ~~third quarter of 2019, NewRez increased loan origination volume to $5.7 billion,~~fees are earned, which is ~~a 49% increase quarter over quarter and approximately 200% increase year over year. Gain on sale of originated mortgage loans, net is summarized below:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Gain on loans originated and sold^(A)
$ 24,312
$ 24,684
$ 36,413
$ 24,684
Gain (loss) on settlement of mortgage loan origination derivative instruments^(B)
(32,138 ) (2,757 ) (61,879 ) (2,757 )
MSRs retained on transfer of loans^(C)
96,317
17,282
190,666
17,282
Other^(D)
12,050
6,523
28,829
6,523
Gain on sale of originated mortgage loans, net $ 100,541
$ 45,732
$ 194,029
$ 45,732


~~(A)~~	~~Includes loan origination fees and direct loan origination costs. Other indirect costs related to loan origination are included within general and administrative expenses.~~


~~(B)~~	~~Represents settlement of forward securities delivery commitments utilized as an economic hedge for mortgage loans not included within forward loan sale commitments.~~


~~(C)~~	~~Represents the initial fair value of the capitalized mortgage servicing rights upon loan sales with servicing retained.~~


~~(D)~~	~~Includes fees for services associated with the loan origination process.~~

~~Residential Securities and Loans~~

~~Real Estate Securities~~

~~Agency RMBS~~

~~The following table summarizes our Agency RMBS portfolio as of September 30, 2019 (dollars in thousands):~~

Gross Unrealized
Asset Type Outstanding Face Amount Amortized Cost Basis Percentage of Total Amortized Cost Basis Gains Losses
Carrying
Value^(A)
Count Weighted Average Life (Years) 3-Month CPR Outstanding Repurchase Agreements
Agency Specified Pools $ 8,797,199
$ 8,950,763
100.0 % $ 56,939
$ (9,636 ) $ 8,998,066
39
4.6
0.3 % $ 7,300,198


~~(A)~~	~~Fair value, which is equal to carrying value for all securities.~~

~~The following table summarizes the net interest spread of our Agency RMBS portfolio as of September 30, 2019:~~



~~Net Interest Spread~~^(A)
~~Weighted Average Asset Yield~~	~~3.06~~	%
~~Weighted Average Funding Cost~~	~~2.31~~	%
~~Net Interest Spread~~	~~0.75~~	%


~~(A)~~	~~The Agency RMBS portfolio consists of 100.0% fixed rate securities (based on amortized cost basis).~~

~~Non-Agency RMBS~~

~~The following table summarizes our Non-Agency RMBS portfolio as of September 30, 2019 (dollars in thousands):~~

Gross Unrealized
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses
Carrying
Value^(A)
Outstanding Repurchase Agreements
Non-Agency RMBS $ 21,845,814
$ 7,175,703
$ 711,078
$ (30,937 ) $ 7,855,844
$ 7,142,351


~~(A)~~	~~Fair value, which is equal to carrying value for all securities.~~

~~The following tables summarize the characteristics of our Non-Agency RMBS portfolio and of the collateral underlying our Non-Agency RMBS as of September 30, 2019 (dollars in thousands):~~

Non-Agency RMBS Characteristics^(A)

Vintage^(B)

Average Minimum Rating^(C)
Number of Securities Outstanding Face Amount Amortized Cost Basis Percentage of Total Amortized Cost Basis Carrying Value
Principal Subordination^(D)

Excess Spread^(E)
Weighted Average Life (Years)
Weighted Average Coupon^(F)
Pre 2006 CCC- 365
$ 1,956,007
$ 1,487,306
21.1 % $ 1,663,069
14.2 % 0.8 % 6.8 3.4 %
2006 CC 133
2,774,332
1,746,860
24.7 % 1,979,226
7.1 % 1.2 % 7.6 2.3 %
2007 CCC- 82
2,224,528
1,348,788
19.1 % 1,520,709
5.2 % 0.9 % 7.1 2.5 %
2008 and later BBB 363
14,775,002
2,477,759
35.1 % 2,589,370
14.0 % 0.1 % 4.8 3.5 %
Total/Weighted Average B- 943
$ 21,729,869
$ 7,060,713
100.0 % $ 7,752,374
10.5 % 0.7 % 6.3 3.0 %

Collateral Characteristics^{(A) (G)}
Vintage^(B)
Average Loan Age (years)
Collateral Factor^(H)

3-Month CPR^(I)

Delinquency^(J)
Cumulative Losses to Date
Pre 2006 14.8
0.07
9.7 % 10.8 % 13.0 %
2006 13.4
0.12
10.0 % 10.6 % 32.2 %
2007 12.6
0.22
11.2 % 10.6 % 36.7 %
2008 and later 8.5
0.79
18.9 % 1.7 % 0.5 %
Total/Weighted Average 11.8
0.36
13.3 % 7.5 % 17.9 %


~~(A)~~	~~Excludes $30.9 million face amount of bonds backed by consumer loans and $85.0 million face amount of bonds backed by corporate debt.~~


~~(B)~~	~~The year in which the securities were issued.~~

~~(C)~~

Ratings provided above were determined by third party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current. This excludes the ratings of the collateral underlying 312 bonds with a carrying value of $1,064.1 million, which either have never been rated or for which rating information is no longer provided. We had no assets that were on negative watch for possible downgrade by at least one rating agency as of September 30, 2019.


~~(D)~~	~~The percentage of amortized cost basis of securities and residual interests that is subordinate to our investments. This excludes interest-only bonds.~~


~~(E)~~	The current amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance for the quarter ended September 30, 2019.


~~(F)~~	~~Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $225.2 million and $3.5 million, respectively, for which no coupon payment is expected.~~


~~(G)~~	~~The weighted average loan size of the underlying collateral is $204.0 thousand.~~


~~(H)~~	~~The ratio of original UPB of loans still outstanding.~~


~~(I)~~	~~Three month average constant prepayment rate and default rates.~~


~~(J)~~	~~The percentage of underlying loans that are 90+ days delinquent, or in foreclosure or considered REO.~~

~~The following table summarizes the net interest spread of our Non-Agency RMBS portfolio as of September 30, 2019:~~



~~Net Interest Spread~~^(A)
~~Weighted Average Asset Yield~~	~~4.84~~	%
~~Weighted Average Funding Cost~~	~~3.08~~	%
~~Net Interest Spread~~	~~1.76~~	%


~~(A)~~	~~The Non-Agency RMBS portfolio consists of 68.6% floating rate securities and 31.4% fixed rate securities (based on amortized cost basis).~~

~~Call Rights~~

~~We hold a limited right to cleanup call options with respect to certain securitization trusts serviced or master serviced by Nationstar whereby,~~generally when the ~~UPB~~borrowers’ payments are collected or when loans are modified or liquidated through the sale of the underlying ~~residential mortgage~~real estate collateral or otherwise. In accordance with the GSE and Ginnie Mae servicing guides, we do not collect any servicing fees on delinquent loans ~~falls below~~underlying our GSE and Ginnie Mae MSR portfolio. In addition, for certain GSE loans, we may not recognize any servicing fees during the forbearance periods. Conditions will also affect ancillary income timing and may reduce such income. While higher delinquencies tend to increase the assessment of some ancillary income, such as late fees, we do not assess late fees on loans in forbearance. The deferral of servicing fee collections due to forbearances is not expected to significantly impact our total cumulative revenue over the life of the loan but will reduce near term revenue and cash flow.

An increase in loans in forbearance or an increase in delinquencies would increase our cost to service and operating expenses. Loans in default typically require more intensive effort by the servicer or subservicer to bring the loan current or manage the foreclosure process. As forbearance periods end, additional efforts will be required to administer repayment plans, loan modifications, extensions of forbearance, payment deferrals, or other loss mitigation solutions. Upon the successful completion of the forbearance period for a ~~pre-determined threshold, we can effectively purchase~~GSE loan where the ~~underlying residential mortgage~~borrower is brought current through a payment deferral, repayment plan, or flex modification, our subservicers will earn an incentive fee from the GSEs as compensation for the additional cost to service.

An increase in loans in forbearance or an increase in delinquencies would increase our servicing advances and may increase the related interest expense.

CAPITAL ACTIVITIES

On September 16, 2020, the Company, as borrower, completed a private offering of $550.0 million aggregate principal amount of 6.250% senior unsecured notes due 2025 (the “2025 Senior Notes”). Interest on the 2025 Senior Notes accrue at ~~par, plus unreimbursed servicer advances, resulting~~the rate of 6.250% per annum with interest payable semi-annually in arrears on each April 15 and October 15, commencing on April 15, 2021.

The 2025 Senior Notes mature on October 15, 2025 and the ~~repayment of~~Company may redeem some or all of the ~~outstanding securitization financing at par, in exchange for a fee of 0.75% of UPB paid to Nationstar~~2025 Senior Notes at the Company’s option, at any time from time to time, on or after October 15, 2022 at a price equal to the following fixed redemption prices (expressed as a percentage of exercise. We similarly hold a limited right to cleanup call options with respect to certain securitization trusts master serviced by SLS for no fee, and also with respect to certain securitization trusts serviced or master serviced by Ocwen subject to a fee of 0.5% of UPB on loans that are current or thirty (30) days or less delinquent, paid to Ocwen at the time of exercise. The aggregate UPBprincipal amount of the ~~underlying residential mortgage~~2025 Senior Notes to be redeemed):


Year						Price
2022						103.125%
2023						101.563%
2024 and thereafter						100.000%

Prior to October 15, 2022, the Company will be entitled at its option on one or more occasions to redeem the 2025 Senior Notes in an aggregate principal amount not to exceed 40% of the aggregate principal amount of the 2025 Senior Notes originally issued prior to the applicable redemption date at a fixed redemption price of 106.250%.

Net proceeds from the offering were approximately $544.5 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by the Company. The Company used the net proceeds from the offering, together with cash on hand, to prepay and retire its then-existing 2020 Term Loan and to pay related fees and expenses. As a result, the Company recorded a $61.1 million loss on extinguishment of debt, representing a write-off of unamortized debt issuance costs and original issue discount related to the 2020 Term Loan.

PROPOSED CHANGES TO LIBOR

LIBOR is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, ~~within these various securitization trusts~~floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives. It is ~~approximately $101.0 billion.~~

~~We continue to evaluate the call rights we acquired from each of our servicers, and our ability to exercise such rights and realize the benefits therefrom are subject to~~expected that a number of ~~risks. See “Risk Factors—Risks Related~~private-sector banks currently reporting information used to ~~Our Business—Our ability~~set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to ~~exercise our cleanup call rights~~stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. The U.S. and other countries are currently working to replace LIBOR with alternative reference rates. In the U.S., the Alternative Reference Rates Committee, or ARRC, has identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative rate for U.S. dollar-based LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants may continue to explore whether other U.S. dollar-based reference rates would be ~~limited or delayed if~~more appropriate for certain types of instruments. The ARRC has proposed a ~~third party also possessing such cleanup call rights exercises such rights, if~~paced market transition plan to SOFR, and various organizations are currently working on industry wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity, and evaluating the related securitization trustee refuses to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.” The actual UPB of the residential mortgage loans on which we can successfully exercise call rightsrisks and ~~realize the benefits therefrom may differ materially from~~ our ~~initial assumptions.~~exposure.

We have exercised our call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, we sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, we received par on the securities issued by the called trusts which we owned prior to such trusts’ termination. Refer to Note 8 in our Condensed Consolidated Financial Statements for further details on these transactions.

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

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

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,
	2020			2019
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.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

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 Buyer		Shelter Joint Ventures		Residential Mortgage Loans		Consumer Loan SPVs		Total
September 30, 2020
Assets
Servicer advance investments, at fair value	$	521,882	$	0	$	0	$	0	$	521,882
Residential mortgage loans, held-for-investment, at fair value	0		0		390,890		0		390,890
Residential mortgage loans, held-for-sale	0		0		352,225		0		352,225
Residential mortgage loans, held-for-sale, at fair value	0		0		622,269		0		622,269
Consumer loans, held-for-investment, at fair value	0		0		0		718,355		718,355
Cash and cash equivalents	40,653		35,642		0		0		76,295
Restricted cash	5,044		0		0		5,890		10,934
Other assets	6		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	$	0	$	1,091,426	$	678,950	$	2,175,283
Accrued expenses and other liabilities	2,237		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	$	0	$	0	$	0	$	565,271
Residential mortgage loans, held-for-investment, at fair value	0		0		913,030		0		913,030
Consumer loans, held-for-investment	0		0		0		818,943		818,943
Cash and cash equivalents	30,065		23,802		0		0		53,867
Restricted cash	5,350		0		0		9,073		14,423
Other assets	2,414		3,556		0		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	$	0	$	659,738	$	820,658	$	1,913,696
Accrued expenses and other liabilities	1,593		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

Others’ interests in the equity of New Residential’s consolidated subsidiaries is computed as follows:


	September 30, 2020									December 31, 2019
	The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies			The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies
Total consolidated equity	$	160,440		$	36,612		$	80,782		$	168,207		$	23,171		$	46,510
Others’ ownership interest	26.8		%	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

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

Others’ interests in the New Residential’s net income (loss) is computed as follows:


	Three Months Ended September 30,
	2020									2019
	The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies			The Buyer(A)			Shelter Joint Ventures			Consumer 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,
	2020									2019
	The Buyer(A)			Shelter Joint Ventures			Consumer Loan Companies			The Buyer(A)			Shelter Joint Ventures			Consumer 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

14. EQUITY AND EARNINGS PER SHARE

Equity and Dividends

In February 2019, New Residential issued 46.0 million shares of its common stock in a public offering at a price to the public of $16.50 per share for net proceeds of approximately $751.7 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 4.6 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 2.40% risk-free rate, a 9.30% dividend yield, 19.26% volatility and a 10-year term.

On July 30, 2018, New Residential entered into a Distribution Agreement to sell shares of its common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price of up to $500.0 million, from time to time, through an “at-the market” equity offering program (the “ATM Program”). On August 1, 2019, the Distribution Agreement was amended to, among other things, (i) add additional sales agents under the ATM Program, and (ii) restore the aggregate offering price under the ATM Program to the original amount of $500.0 million.

The following table summarizes the Company’s ATM Program activity:


Quarter Ended	Number of Common shares	Average price per share		Gross Proceeds		Fees		Net Proceeds
March 31, 2020(A)	97,394	$	17.06	$	1,662	$	12	$	1,649
June 30, 2020	0	0		0		0		0
September 30, 2020	0	0		0		0		0

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

On July 2, 2019, in a public offering, New Residential issued 6.2 million shares of its 7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series A”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $150.0 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 0.6 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $0.5 million as of the grant date. The assumptions used in valuing the options were: a 1.91% risk-free rate, a 9.73% dividend yield, 17.95% volatility and 10-year term.

The table below summarizes Preferred Shares:


								Dividends Declared per Share
Series	Number of Shares	Liquidation Preference		Issuance Discount		Carrying Value		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Fixed-to-floating rate cumulative redeemable preferred:
Preferred Series A, 7.50% issued July 2019	6,210	$	155,250	3.15	%	$	150,026	$	0.47	$	1.41
Preferred Series B, 7.125% issued August 2019	11,300	282,500		3.15	%	273,418		$	0.45	$	1.34
Preferred Series C, 6.375% issued February 2020	16,100	402,500		3.15	%	389,548		$	0.40	$	1.20
Total	33,610	$	840,250			$	812,992

Common dividends have been declared as follows:


Declaration Date	Payment Date	Per Share		Total Amounts Distributed (millions)
		Quarterly Dividend
March 31, 2020	April 2020	$	0.05	$	20.8
June 22, 2020	July 2020	$	0.10	$	41.6
September 23, 2020	October 2020	$	0.15	$	0

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at September 30, 2020.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

Common Stock Purchase Warrants

The table below summarizes the 2020 Warrants at September 30, 2020:


	Number of Warrants (in millions)	Weighted Average Exercise Price (per share)
December 31, 2019 outstanding warrants	0	$	0
Granted	43.4	6.91
Exercised	0	0
Expired	0	0
September 30, 2020 outstanding warrants	43.4	$	6.91

Option Plan

As of September 30, 2020, New Residential’s outstanding options were summarized as follows:


Held by the Manager			10,860,706
Issued to the Manager and subsequently assigned to certain of the Manager’s employees			3,560,949
Issued to the independent directors			7,000
Total			14,428,655

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

The following table summarizes New Residential’s outstanding options as of September 30, 2020. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended September 30, 2020 was $7.95 per share.


Recipient	Date of Grant/ Exercise(A)	Number of Unexercised Options	Options Exercisable as of September 30, 2020	Weighted Average Exercise Price(B)		Intrinsic Value of Exercisable Options as of September 30, 2020 (millions)
Directors	Various	7,000	7,000	$	13.57	$	0
Manager(C)	2017	1,130,916	1,130,916	13.95		0
Manager(C)	2018	5,320,000	4,552,585	16.67		0
Manager(C)	2019	6,351,000	3,692,800	16.14		0
Manager(C)	2020	1,619,739	377,939	17.41		0
Outstanding		14,428,655	9,761,240

(A)Options expire on the tenth anniversary from date of grant.

(C)The Manager assigned certain of its options to its employees as follows:


Date of Grant to Manager	Range of Exercise Prices	Total Unexercised Inception to Date
2017	$13.95	1,130,916
2018	$16.55 to $18.02	1,159,833
2019	$15.14 to $16.68	1,270,200
Total		3,560,949

The following table summarizes activity in New Residential’s outstanding options:


	Amount	Weighted Average Exercise Price
December 31, 2019 outstanding options	12,808,916
Options granted	1,619,739	$	17.41
Options exercised	0	0
Options expired unexercised	0	0
September 30, 2020 outstanding options	14,428,655	See table above

Income and Earnings Per Share

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

The following table summarizes the basic and diluted earnings per share calculations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	103,920	$	244,660	$	(1,459,206)	$	375,552
Noncontrolling interests in income of consolidated subsidiaries	11,640		14,738		34,118		31,979
Dividends on preferred stock	14,359		5,338		39,938		5,338
Net income (loss) attributable to common stockholders	$	77,921	$	224,584	$	(1,533,262)	$	338,235

Basic weighted average shares of common stock outstanding	415,744,518		415,520,780		415,665,441		406,521,273
Dilutive effect of stock options(A)	0		67,458		0		150,699
Dilutive effect of common stock purchase warrants(A)	5,224,108		0		0		0
Diluted weighted average shares of common stock outstanding	420,968,626		415,588,238		415,665,441		406,671,972

Basic earnings per share attributable to common stockholders	$	0.19	$	0.54	$	(3.69)	$	0.83
Diluted earnings per share attributable to common stockholders	$	0.19	$	0.54	$	(3.69)	$	0.83


	Three Months Ended September 30,			Nine Months Ended September 30,
	2020	2019		2020	2019
Stock options	0	$	0	0	$	0
Common stock purchase warrants	0	0		5,966,141	0

Noncontrolling Interests

15. COMMITMENTS AND CONTINGENCIES

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

MSRs and Servicer Advance Investments — New Residential and, in some cases, third-party co-investors agreed to purchase future servicer advances related to certain Non-Agency mortgage loans. In addition, New Residential’s subsidiaries, NRM and NewRez, are generally obligated to fund future servicer advances related to the loans they are obligated to service. The actual amount of future advances purchased will be based on: (a) the credit and prepayment performance of the underlying loans, (b) the amount of advances recoverable prior to liquidation of the related collateral and (c) the percentage of the loans with respect to which no additional advance obligations are made. The actual amount of future advances is subject to significant uncertainty. Notes 5 and 6 for discussion on New Residential’s Investments in MSRs and Servicer advance investments, respectively.

Mortgage Origination Reserves — NewRez, a wholly owned subsidiary of New Residential, currently originates, or has in the past originated, conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government insured mortgage securitizations and mortgage investors issue nonconforming private label mortgage securitizations while NewRez generally retains the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, NewRez makes representations and warranties regarding certain attributes of the loans and, subsequent to the sale, if it is determined that a sold loan is in breach of these representations and warranties, NewRez generally has an obligation to cure the breach. If NewRez is unable to cure the breach, the purchaser may require NewRez to repurchase the loan.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

New Residential has certain lease agreements with non-lease components such as maintenance and executory costs, which are accounted for separately and not included in ROU assets.

As of September 30, 2020, future commitments under the non-cancelable leases are as follows:


Year Ending	Amount
October 1 through December 31, 2020	$	3,621
2021	12,428
2022	9,635
2023	5,478
2024	2,759
2025 and thereafter	2,148
Total remaining undiscounted lease payments	36,069
Less: imputed interest	4,168
Total remaining discounted lease payments	$	31,901

The future commitments under the non-cancelable leases have not been reduced by the sublease rentals of $1.3 million due in the future periods.

Other information related to operating leases is summarized below:


	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)	3.4		3.9
Weighted-average discount rate	4.5	%	4.5	%

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

16. TRANSACTIONS WITH AFFILIATES AND AFFILIATED ENTITIES

In addition to the management fee and incentive compensation, New Residential is responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of New Residential.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

in aggregate face value for approximately $1.0 billion. In connection with the sale of the Securities to the Fortress Purchaser, the Company agreed to exercise certain rights, including call rights, that the Company holds under the securitization transactions with respect to the Securities sold to the Fortress Purchaser solely upon written direction by the Fortress Purchaser. Such rights include the rights, if any, to (i) amend and/or terminate the transactions contemplated by certain related residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements, (ii) acquire certain of the related residential mortgage loans, real estate owned and certain other assets in the trust subject to such residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements in connection with such amendment or termination against delivery of the applicable termination payment, and (iii) if applicable, direct certain related servicers, holders of subordinate securities and/or other applicable parties, to exercise the rights in (i) and (ii). Pursuant to such agreement, the Company and the Fortress Purchaser would share equally in any profits or losses arising from the exercise of any such rights, other than if the Company elects not to participate in the related transaction, in which case the Fortress Purchaser would realize all of the profits and bear all of the losses with respect thereto.

Due to affiliates is composed of the following amounts:


	September 30, 2020		December 31, 2019
Management fees	$	7,499	$	7,076
Incentive compensation	0		91,892
Expense reimbursements and other	2,046		4,914
Total	$	9,545	$	103,882

Affiliate expenses and fees were composed of:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Management fees	$	22,482	$	20,678	$	66,682	$	58,261
Incentive compensation	0		36,307		0		49,265
Expense reimbursements(A)	125		125		375		375
Total	$	22,607	$	57,110	$	67,057	$	107,901

(A)Included in General and administrative expenses in the condensed consolidated statements of income.

See Note 4 regarding co-investments with Fortress-managed funds.

See Note 14 regarding options granted to the Manager.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

17. RECLASSIFICATION FROM ACCUMULATED OTHER COMPREHENSIVE INCOME INTO NET INCOME

The following table summarizes the amounts reclassified out of accumulated other comprehensive income into net income:


		Three Months Ended September 30,				Nine Months Ended September 30,
Accumulated Other Comprehensive Income Components	Statement of Income Location	2020		2019		2020		2019
Reclassification of net realized (gain) loss on securities into earnings	Gain (loss) on settlement of investments, net	$	7,658	$	(95,003)	$	(753,551)	$	(201,222)
Reclassification of net realized (gain) loss on securities into earnings	Provision (reversal) for credit losses on securities	(3,849)		5,567		15,166		21,942
Total reclassifications		$	3,809	$	(89,436)	$	(738,385)	$	(179,280)

18. INCOME TAXES

Income tax expense (benefit) consists of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Current:
Federal	$	0	$	1,198	$	(7,877)	$	785
State and local	1,438		14		1,496		115
Total current income tax expense (benefit)	1,438		1,212		(6,381)		900
Deferred:
Federal	77,300		(5,385)		(29,921)		14,762
State and local	22,074		(1,267)		(12,345)		3,318
Total deferred income tax expense (benefit)	99,374		(6,652)		(42,266)		18,080
Total income tax expense (benefit)	$	100,812	$	(5,440)	$	(48,647)	$	18,980

New Residential has recorded a net deferred tax asset of approximately $49.5 million as of September 30, 2020, primarily related to unrealized losses and net operating loss carry forwards.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data)

19. SUBSEQUENT EVENTS

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

As of September 30, 2020, we had $30 billion in total assets and 5,105 employees within our operating entities.

We have elected to be treated as a REIT for U.S. federal income tax purposes. New Residential became a publicly-traded entity on May 15, 2013.

OUR MANAGER

We are externally managed by an affiliate of Fortress Investment Group LLC and benefit from the resources of this highly diversified global investment manager.

On December 27, 2017, SoftBank Group Corp. (“SoftBank”) acquired Fortress (the “SoftBank Merger”) and Fortress operates within SoftBank as an independent business headquartered in New York.

MARKET CONSIDERATIONS

The following table summarizes the U.S. gross domestic product (“GDP”):


	Three Months Ended
	June 30, 2020		March 31, 2020		December 31, 2019
	(Percent change from the preceding quarter)
Real GDP	(31.4)	%	(5.0)	%	2.1	%

The following table summarizes he U.S. unemployment rate according to the U.S. Department of Labor:


	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
Unemployment rate	7.90	%	11.10	%	4.40	%	3.50	%

The following table summarizes the latest data released by the S&P Dow Jones Indices for their S&P CoreLogic Case-Shiller Home Price Indices:


	June 30, 2020		March 31, 2020		December 31, 2019
	(Percent change from the preceding month)
Change in annual home price	(3.60)	%	3.50	%	2.50	%

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:


	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
10-year U.S. Treasury rate	0.69	%	0.66	%	0.70	%	1.92	%
30-year fixed mortgage rate	2.89	%	3.16	%	3.45	%	3.72	%

SERVICING

An increase in loans in forbearance or an increase in delinquencies may temporarily reduce our servicing revenue or may delay the timing of revenue recognition. We earn fees for servicing and subservicing mortgage loans underlying our investments in MSRs. We collect servicing and subservicing fees, generally expressed as a percent of UPB, from the borrowers’ payments. In addition to servicing and subservicing fees, we also earn late fees, prepayment penalties, float earnings and other ancillary fees. These revenues are reported as Servicing revenue, net in our condensed consolidated statements of income. We recognize servicing and subservicing fees as revenue when the fees are earned, which is generally when the borrowers’ payments are collected or when loans are modified or liquidated through the sale of the underlying real estate collateral or otherwise. In accordance with the GSE and Ginnie Mae servicing guides, we do not collect any servicing fees on delinquent loans underlying our GSE and Ginnie Mae MSR portfolio. In addition, for certain GSE loans, we may not recognize any servicing fees during the forbearance periods. Conditions will also affect ancillary income timing and may reduce such income. While higher delinquencies tend to increase the assessment of some ancillary income, such as late fees, we do not assess late fees on loans in forbearance. The deferral of servicing fee collections due to forbearances is not expected to significantly impact our total cumulative revenue over the life of the loan but will reduce near term revenue and cash flow.

An increase in loans in forbearance or an increase in delinquencies would increase our cost to service and operating expenses. Loans in default typically require more intensive effort by the servicer or subservicer to bring the loan current or manage the foreclosure process. As forbearance periods end, additional efforts will be required to administer repayment plans, loan modifications, extensions of forbearance, payment deferrals, or other loss mitigation solutions. Upon the successful completion of the forbearance period for a GSE loan where the borrower is brought current through a payment deferral, repayment plan, or flex modification, our subservicers will earn an incentive fee from the GSEs as compensation for the additional cost to service.

An increase in loans in forbearance or an increase in delinquencies would increase our servicing advances and may increase the related interest expense.

CAPITAL ACTIVITIES

On September 16, 2020, the Company, as borrower, completed a private offering of $550.0 million aggregate principal amount of 6.250% senior unsecured notes due 2025 (the “2025 Senior Notes”). Interest on the 2025 Senior Notes accrue at the rate of 6.250% per annum with interest payable semi-annually in arrears on each April 15 and October 15, commencing on April 15, 2021.

The 2025 Senior Notes mature on October 15, 2025 and the Company may redeem some or all of the 2025 Senior Notes at the Company’s option, at any time from time to time, on or after October 15, 2022 at a price equal to the following fixed redemption prices (expressed as a percentage of principal amount of the 2025 Senior Notes to be redeemed):


Year						Price
2022						103.125%
2023						101.563%
2024 and thereafter						100.000%

PROPOSED CHANGES TO LIBOR

LIBOR is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives. It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. The U.S. and other countries are currently working to replace LIBOR with alternative reference rates. In the U.S., the Alternative Reference Rates Committee, or ARRC, has identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative rate for U.S. dollar-based LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants may continue to explore whether other U.S. dollar-based reference rates would be more appropriate for certain types of instruments. The ARRC has proposed a paced market transition plan to SOFR, and various organizations are currently working on industry wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity, and evaluating the related risks and our exposure.

OUR PORTFOLIO

Our portfolio, as of September 30, 2020, is composed of servicing and origination, including our subsidiary operating entities, residential securities and loans and other investments, as described in more detail below (dollars in thousands).


	Servicing and Origination										Residential Securities and Loans
	Origination		Servicing		MSR Related Investments		Elimination(A)		Total Servicing and Origination		Real Estate Securities		Residential Mortgage Loans		Consumer Loans		Corporate		Total
September 30, 2020
Investments	$	2,843,720	$	—	$	5,753,366	$	—	$	8,597,086	$	10,830,067	$	2,887,350	$	722,108	$	—	$	23,036,611
Cash and cash equivalents	99,321		50,942		406,965		—		557,228		160,764		4,681		7,195		111,154		841,022
Restricted cash	3,929		32,369		102,166		—		138,464		12,723		—		29,367		—		180,554
Other assets	369,988		191,398		4,466,009		—		5,027,395		1,005,847		193,394		59,968		32,105		6,318,709
Goodwill	11,836		12,540		5,092		—		29,468		—		—		—		—		29,468
Total assets	$	3,328,794	$	287,249	$	10,733,598	$	—	$	14,349,641	$	12,009,401	$	3,085,425	$	818,638	$	143,259	$	30,406,364
Debt	$	2,612,817	$	6,669	$	5,980,900	$	—	$	8,600,386	$	10,877,414	$	2,241,607	$	681,109	$	541,758	$	22,942,274
Other liabilities	165,022		63,657		1,661,193		—		1,889,872		9,633		45,696		5,425		84,833		2,035,459
Total liabilities	2,777,839		70,326		7,642,093		—		10,490,258		10,887,047		2,287,303		686,534		626,591		24,977,733
Total equity	550,955		216,923		3,091,505		—		3,859,383		1,122,354		798,122		132,104		(483,332)		5,428,631
Noncontrolling interests in equity of consolidated subsidiaries	18,365		—		42,946		—		61,311		—		—		38,126		—		99,437
Total New Residential stockholders’ equity	$	532,590	$	216,923	$	3,048,559	$	—	$	3,798,072	$	1,122,354	$	798,122	$	93,978	$	(483,332)	$	5,329,194
Investments in equity method investees	$	—	$	—	$	139,351	$	—	$	139,351	$	—	$	—	$	—	$	—	$	139,351

Operating Investments

Origination

For the nine months ended September 30, 2020, NewRez’s loan origination volume was $37.7 billion, up from $11.8 billion in the year prior. During the nine months ended September 30, 2020, the continued lower interest rate environment, increased

refinance activity by borrowers, integration of Ditech’s origination platform, and increased market share helped drive growth across all channels. Gain on sale margins in the nine-month period ended September 30, 2020 was 2.01%, 0.29% higher than 1.72% for the same period in 2019. While we expect gain on sale margins to revert to historical levels over time, we believe demand will continue to exceed supply for the balance of 2020, resulting in favorable market conditions for the rest of the year. After pausing wholesale and correspondent channel originations to reduce our pipeline and minimize hedge and margin risk in March 2020, we re-entered the wholesale and correspondent channels in May 2020 and volumes from June through September 2020 have exceeded the pre-pause levels.

Included in our Origination segment are the financial results of two affiliated businesses, E Street Appraisal Management LLC (“E Street”) and Avenue 365 Lender Services, LLC (“Avenue 365”). E Street offers appraisal valuation services and Avenue 365 provides title insurance and settlement services to NewRez.

NewRez, through its strategic relationship with Salesforce, a global leader in Customer Relationship Management (CRM), is developing a more integrated experience for customers across our origination and servicing operations. NewRez will also serve as an industry design advisor to Salesforce for its mortgage solutions platform. The partnership is a key initiative that will further the organization’s focus on growing recapture volume.

The charts below provide selected operating statistics for our Origination segment:


	Unpaid Principal Balance for the Nine Months Ended
	September 30, 2020			September 30, 2019			Change
Production by Channel (in millions)
Retail / Shelter	$	2,789		$	1,616		$	1,173
Direct to Consumer / Retention	8,571			2,509			6,062
Wholesale	4,893			3,487			1,406
Correspondent	21,494			4,145			17,349
Total Production by Channel	$	37,747		$	11,757		$	25,990

Production by Product (in millions)
Agency	$	24,316		$	6,149		$	18,167
Government	12,709			4,091			8,618
Non-QM	365			1,073			(708)
Non-Agency	294			379			(85)
Other	63			65			(2)
Total Production by Product	$	37,747		$	11,757		$	25,990

% Purchase	30		%	52		%	(22)		%
% Refinance	70		%	48		%	22		%


	September 30, 2020			September 30, 2019			Change
Origination Revenue (in thousands)
Gain on loans originated and sold(A)	$	502,436		$	55,120		$	447,316
Gain (loss) on settlement of mortgage loan derivative instruments(B)	(290,660)			(61,337)			(229,323)
MSRs retained on transfer of loans(C)	403,274			186,501			216,773
Other(D)	31,991			13,341			18,650
Realized gain on sale of originated mortgage loans, net	$	647,041		$	193,625		$	453,416

Change in fair value of loans	$	95,367		$	12,406		$	82,961
Change in fair value of interest rate lock commitments	206,073			13,911			192,162
Change in fair value of derivative instruments	(62,751)			8,939			(71,690)
Unrealized origination revenue	$	238,689		$	35,256		$	203,433

Gain on originated mortgage loans, held-for-sale, net(E) (F)	$	885,730		$	228,881		$	656,849
Pull through adjusted lock volume	$	44,044,241		$	13,304,650		$	30,739,591

Gain on originated mortgage loans, as a percentage of pull through adjusted lock volume	2.01		%	1.72		%	0.29		%

(A)Includes loan origination fees of $953.1 million and $189.4 million for the nine months ended September 30, 2020 and 2019, respectively.

(B)Represents settlement of forward securities delivery commitments utilized as an economic hedge for mortgage loans not included within forward loan sale commitments.

(C)Represents the initial fair value of the capitalized mortgage servicing rights upon loan sales with servicing retained.

(D)Includes fees for services associated with the loan origination process, and the provision for repurchase reserves, net of release.

(E)Excludes $99.1 million and $66.1 million of gain on originated mortgage loans, held-for-sale, net for the nine months ended September 30, 2020 and 2019, respectively, related to the MSR Related Investments, Servicing, and Residential Mortgage Loans segments, as well as intercompany eliminations (Note 8 to the condensed consolidated financial statements).

(F)Excludes mortgage servicing rights revenue on recaptured loan volume delivered back to NRM.

Total Gain on originated mortgage loans, held-for-sale, net, increased for the nine months ended September 30, 2020 compared to the same period in 2019 primarily driven by the higher volume from all our Channels.

Servicing

Our servicing business operates through a performing loan servicing division, NewRez Servicing and a special servicing division, Shellpoint Mortgage Servicing (“SMS”). NewRez Servicing services performing Agency and government-insured loans. SMS services delinquent Agency loans and Non-Agency loans on behalf of the owners of the underlying mortgage loans.

During the first nine months of 2020, approximately 208,400 homeowners serviced by SMS indicated that they are or were impacted by COVID. Of this population, 176,800 homeowners were setup on a forbearance plan with the vast majority under a CARES Act or COVID-19 related program. As of September 30, 2020, 75,300 of the forbearance plans remained active. SMS is generally entitled to receive incentive fees, including fees paid in connection with the completion of a repayment plan or payment deferral plan. Incentives are expected to range from $500 to a maximum of $1,000 per loan, subject to certain conditions, based upon the final form of the forbearance resolution.

During the nine months ended September 30, 2020, we boarded approximately 834,000 loans, completing the remaining Ditech acquisition transfers. Prior to the impact of Covid-19, our cost to service declined as we achieved the benefits of scale and created efficiencies. Since March 2020 our cost to service increased in connection with supporting performing homeowners navigate forbearance programs and due to a rise in delinquencies. However, annualized direct cost to service per loan declined approximately 1% to $153 per loan in the first nine months of 2020 from $155 per loan for the same time period in the prior year. Higher costs are expected to be offset by incentive and performance fees in the future as delinquencies are resolved. Direct cost to service is comprised of costs associated with administering loans and does not include corporate overhead allocations.

The table below provides the mix of our serviced assets portfolio between subserviced performing servicing on behalf of New Residential, NRM or NewRez (labeled as “Performing Servicing”) and subserviced non-performing, or special servicing (labeled as “Special Servicing”) for third parties and delinquent loans subserviced for other New Residential subsidiaries as of September 30, 2020 and 2019.


	Unpaid Principal Balance
	September 30, 2020		September 30, 2019		Change
Performing Servicing (in millions)
MSR Assets	$	185,273	$	121,860	$	63,413
Acquired Residential Whole Loans	$	2,975	$	1,469	$	1,506
Total Performing Servicing	$	188,248	$	123,329	$	64,919

Special Servicing (in millions)
MSR Assets	$	14,566	$	2,131	$	12,435
Acquired Residential Whole Loans	$	7,258	$	4,176	$	3,082
Third Party	$	77,131	$	54,709	$	22,422
Total Special Servicing	$	98,955	$	61,016	$	37,939
Total Servicing Portfolio	$	287,203	$	184,345	$	102,858
Agency Servicing (in millions)
MSR Assets	$	143,555	$	96,488	$	47,067
Acquired Residential Whole Loans	$	—	$	—	$	—
Third Party	$	19,216	$	4,249	$	14,967
Total Agency Servicing	$	162,771	$	100,737	$	62,034

Government Servicing (in millions)
MSR Assets	$	55,894	$	26,931	$	28,963
Acquired Residential Whole Loans	$	—	$	—	$	—
Third Party	$	1,342	$	1,875	$	(533)
Total Government Servicing	$	57,236	$	28,806	$	28,430

Non-Agency (Private Label) Servicing (in millions)
MSR Assets	$	390	$	572	$	(182)
Acquired Residential Whole Loans	$	10,233	$	5,645	$	4,588
Third Party	$	56,573	$	48,585	$	7,988
Total Non-Agency (Private Label) Servicing	$	67,196	$	54,802	$	12,394
Total Servicing Portfolio	$	287,203	$	184,345	$	102,858


	Nine Months Ended
	September 30, 2020		September 30, 2019		Change
Base Servicing Fees (in thousands):
MSR Assets	$	120,398	$	35,519	$	84,879
Acquired Residential Whole Loans	10,938		5,564		5,374
Third Party	83,468		51,669		31,799
Total Base Servicing Fees	$	214,804	$	92,752	$	122,052

Other Fees (in thousands):
Incentive fees	$	29,565	$	27,159	$	2,406
Ancillary fees	30,623		20,996		9,627
Boarding fees	8,580		5,357		3,223
Other fees	11,475		466		11,009
Total Other Fees(A)	$	80,243	$	53,978	$	26,265

Total Servicing Fees	$	295,047	$	146,730	$	148,317

(A)Includes other fees earned from third parties of $55.1 million and $48.0 million for the nine months ended September 30, 2020 and 2019, respectively.

MSR Related Investments

MSRs and MSR Financing Receivables

As of September 30, 2020, we had $4.8 billion carrying value of MSRs and MSR financing receivables.

We finance our investments in MSRs and MSR financing receivables with short- and medium-term bank and public capital markets notes. These borrowings are primarily recourse debt and bear both fixed and variable interest rates offered by the counterparty for the term of the notes of a specified margin over LIBOR. The capital markets notes are typically issued with a collateral coverage percentage, which is a quotient expressed as a percentage equal to the aggregate note amount divided by the market value of the underlying collateral. The market value of the underlying collateral is generally updated on a quarterly basis and if the collateral coverage percentage becomes greater than or equal to a collateral trigger, generally 90%, we may be required to add funds, pay down principal on the notes, or add additional collateral to bring the collateral coverage percentage below 90%. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.”

See Note 11 to our condensed consolidated financial statements for further information regarding financing of our MSRs and MSR financing receivables.

We have contracted with certain subservicers and, in relation to certain MSR purchases, interim subservicers, to perform the related servicing duties on the residential mortgage loans underlying our MSRs. As of September 30, 2020, these subservicers include LoanCare, PHH, Mr. Cooper, and Flagstar, which subservice 19.1%, 18.5%, 17.1%, and 0.7% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 44.6% of the underlying UPB of the related mortgages is subserviced by NewRez (Note 1 to our condensed consolidated financial statements). We have entered into agreements with certain subservicers pursuant to which we are entitled to receive the MSR on any refinancing by the subservicer or by NewRez of a loan in the related original portfolio.

We are generally obligated to fund all future servicer advances related to the underlying pools of mortgage loans on our MSRs and MSR financing receivables. Generally, we will advance funds when the borrower fails to meet, including forbearances, contractual payments (e.g. principal, interest, property taxes, insurance). We will also advance funds to maintain and report foreclosed real estate properties on behalf of investors. Advances are recovered through claims to the related investor and subservicers. Pursuant to our servicing agreements, we are obligated to make certain advances on mortgage loans to be in compliance with applicable requirements. In certain instances, the subservicer is required to reimburse us for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract.

We finance our investments in servicer advances with short- and medium-term collateralized borrowings. These borrowings are non-recourse committed facilities that are not subject to margin calls and bear both fixed and variable interest rates offered by the counterparty for the term of the notes, generally less than one year, of a specified margin over LIBOR. See Note 11 to our condensed consolidated financial statements for further information regarding financing of our servicer advances.

See Note 5 to our condensed consolidated financial statements for further information regarding our investments in MSR financing receivables. See “Results of Operations-Change in Fair Value of Investments in MSR Financing Receivables” below for further information regarding the impact of the economic uncertainties resulting from COVID-19 and the associated impacted on our MSR investments.

The table below summarizes our investments in MSRs and MSR financing receivables as of September 30, 2020.


	Current UPB (millions)		Weighted Average MSR (bps)		Carrying Value (millions)
MSRs
GSE	$	323,473.9	28	bps	$	3,012.6
Non-Agency	5,605.1		48		16.6
Ginnie Mae	57,290.6		45		622.6
MSR Financing Receivables
GSE	6,159.8		25		57.4
Non-Agency	69,090.0		48		1,072.4
Total	$	461,619.4	33	bps	$	4,781.6

The following table summarizes the collateral characteristics of the loans underlying our investments in MSRs and MSR financing receivables as of September 30, 2020 (dollars in thousands):


	Collateral Characteristics
	Current Carrying Amount		Current Principal Balance		Number of Loans	WA FICO Score(A)	WA Coupon		WA Maturity (months)	Average Loan Age (months)	Adjustable Rate Mortgage %(B)		Three Month Average CPR(C)		Three Month Average CRR(D)		Three Month Average CDR(E)		Three Month Average Recapture Rate
MSRs
GSE	$	3,012,602	$	323,473,921	2,053,857	745	4.2	%	265	68	2.9	%	31.6	%	31.4	%	0.4	%	10.1	%
Non-Agency	16,598		5,605,074		122,960	666	7.1	%	188	170	3.7	%	29.1	%	25.9	%	4.0	%	2.1	%
Ginnie Mae	622,605		57,290,646		288,365	685	3.8	%	322	34	2.5	%	26.8	%	26.5	%	0.4	%	22.2	%
MSR Financing Receivables
GSE	57,410		6,159,819		30,895	748	4.0	%	271	46	—	%	34.3	%	33.8	%	0.7	%	21.2	%
Non-Agency	1,072,409		69,089,988		511,425	642	4.2	%	303	176	13.9	%	10.2	%	8.5	%	1.7	%	2.5	%
Total	$	4,781,624	$	461,619,448	3,007,502	721	4.2	%	277	81	4.4	%	27.8	%	27.3	%	0.6	%	10.5	%


	Collateral Characteristics
	Delinquency 30 Days(F)		Delinquency 60 Days(F)		Delinquency 90+ Days(F)		Loans in Foreclosure		Real Estate Owned		Loans in Bankruptcy
MSRs
GSE	1.5	%	0.6	%	4.0	%	0.3	%	0.1	%	0.3	%
Non-Agency	3.9	%	1.6	%	3.9	%	5.4	%	0.5	%	2.9	%
Ginnie Mae	3.4	%	1.7	%	8.1	%	0.9	%	0.1	%	1.0	%
MSR financing receivables
GSE	0.9	%	0.5	%	4.3	%	—	%	—	%	—	%
Non-Agency	5.0	%	1.9	%	2.1	%	7.3	%	1.1	%	2.6	%
Total	2.3	%	1.0	%	4.2	%	1.5	%	0.2	%	0.7	%

(A)The WA FICO score is based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score when loans are refinanced or become delinquent.

(B)Adjustable rate mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)Three-month average CPR, or the constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.

(D)Three-month average CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool.

(E)Three-month average CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.

(F)Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days, 60–89 days or 90 or more days, respectively.

Excess MSRs

The tables below summarize the terms of our investments in Excess MSRs completed as of September 30, 2020.

Summary of Direct Excess MSR Investments as of September 30, 2020


			MSR Component(A)								Excess MSR
	Current UPB (billions)		Weighted Average MSR (bps)		Weighted Average Excess MSR (bps)		Interest in Excess MSR(%)				Carrying Value (millions)
Agency	$	37.4	30	bps	21	bps	32.5	%	66.7	%	$	173.5
Non-Agency(B)	40.0		35		15		33.3	%	100.0	%	$	155.1
Total/Weighted Average	$	77.4	33	bps	18	bps					$	328.6

(A)The MSR is a weighted average as of September 30, 2020, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

(B)Serviced by Mr. Cooper and SLS, we also invested in related Servicer advance investments, including the basic fee component of the related MSR (Note 6 to our condensed consolidated financial statements) on $27.5 billion UPB underlying these Excess MSRs.

Summary of Excess MSR Investments Through Equity Method Investees as of September 30, 2020


			MSR Component(A)
	Current UPB (billions)		Weighted Average MSR (bps)		Weighted Average Excess MSR (bps)		New Residential Interest in Investee (%)		Investee Interest in Excess MSR (%)		New Residential Effective Ownership (%)		Investee Carrying Value (millions)
Agency	$	30.2	33	bps	22	bps	50.0	%	66.7	%	33.3	%	$	190.2

(A)The MSR is a weighted average as of September 30, 2020, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

The following table summarizes the collateral characteristics of the loans underlying our direct Excess MSR investments as of September 30, 2020 (dollars in thousands):


	Collateral Characteristics
	Current Carrying Amount		Current Principal Balance		Number of Loans	WA FICO Score(A)	WA Coupon		WA Maturity (months)	Average Loan Age (months)	Adjustable Rate Mortgage %(B)		Three Month Average CPR(C)		Three Month Average CRR(D)		Three Month Average CDR(E)		Three Month Average Recapture Rate
Agency
Original Pools	$	120,510	$	26,123,748	199,552	723	4.6	%	236	127	1.7	%	22.5	%	21.8	%	0.9	%	13.4	%
Recaptured Loans	53,039		11,232,552		69,070	725	4.2	%	270	48	—	%	22.7	%	22.6	%	0.2	%	27.8	%
	$	173,549	$	37,356,300	268,622	724	4.5	%	247	101	1.2	%	22.6	%	22.1	%	0.7	%	18.0	%
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools	$	131,309	$	36,250,695	208,113	669	4.4	%	272	174	9.3	%	13.8	%	11.5	%	2.6	%	8.3	%
Recaptured Loans	23,765		3,744,574		17,576	736	4.1	%	277	33	0.1	%	28.8	%	28.9	%	—	%	26.5	%
	$	155,074	$	39,995,269	225,689	675	4.4	%	273	161	7.9	%	15.1	%	12.9	%	2.4	%	11.7	%
Total/Weighted Average(H)	$	328,623	$	77,351,569	494,311	698	4.4	%	261	133	4.3	%	18.7	%	17.3	%	1.6	%	15.5	%


	Collateral Characteristics
	Delinquency						Loans in Foreclosure		Real Estate Owned		Loans in Bankruptcy
	30 Days(G)		60 Days(G)		90+ Days(G)
Agency
Original Pools	2.2	%	1.1	%	5.8	%	0.4	%	0.1	%	0.1	%
Recaptured Loans	1.6	%	1.0	%	5.4	%	0.1	%	—	%	—	%
	2.0	%	1.0	%	5.7	%	0.4	%	0.1	%	0.1	%
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools	11.3	%	5.5	%	6.1	%	5.2	%	0.7	%	1.6	%
Recaptured Loans	1.7	%	0.7	%	4.7	%	0.1	%	—	%	—	%
	10.4	%	5.1	%	6.0	%	4.8	%	0.6	%	1.5	%
Total/Weighted Average(H)	6.5	%	3.2	%	5.8	%	2.7	%	0.4	%	0.8	%

(B)Adjustable rate mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)Three-month average CPR, or the constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.

(F)We also invested in related Servicer advance investments, including the basic fee component of the related MSR (Note 6 to our condensed consolidated financial statements) on $27.5 billion UPB underlying these Excess MSRs.

(G)Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days, 60–89 days or 90 or more days, respectively.

(H)Weighted averages exclude collateral information for which collateral data was not available as of the report date.

The following table summarizes the collateral characteristics as of September 30, 2020 of the loans underlying Excess MSR investments made through joint ventures accounted for as equity method investees (dollars in thousands). For each of these pools, we own a 50% interest in an entity that invested in a 66.7% interest in the Excess MSRs.


	Collateral Characteristics
	Current Carrying Amount		Current Principal Balance		New Residential Effective Ownership (%)		Number of Loans	WA FICO Score(A)	WA Coupon		WA Maturity (months)	Average Loan Age (months)	Adjustable Rate Mortgage %(B)		Three Month Average CPR(C)		Three Month Average CRR(D)		Three Month Average CDR(E)		Three Month Average Recapture Rate
Agency
Original Pools	$	102,733	$	17,315,113	33.3	%	178,600	704	5.2	%	227	147	1.3	%	21.3	%	18.3	%	3.6	%	15.8	%
Recaptured Loans	87,513		12,917,827		33.3	%	94,668	710	4.3	%	264	55	0.1	%	19.5	%	19.3	%	0.4	%	34.5	%
Total/Weighted Average(G)	$	190,246	$	30,232,940			273,268	707	4.8	%	243	108	1.3	%	20.6	%	18.8	%	2.3	%	24.0	%


	Collateral Characteristics
	Delinquency						Loans in Foreclosure		Real Estate Owned		Loans in Bankruptcy
	30 Days(F)		60 Days(F)		90+ Days(F)
Agency
Original Pools	2.9	%	1.3	%	5.0	%	0.7	%	0.2	%	0.2	%
Recaptured Loans	2.2	%	1.1	%	5.2	%	0.2	%	—	%	0.1	%
Total/Weighted Average(G)	2.6	%	1.2	%	5.1	%	0.5	%	0.1	%	0.1	%

(A)The WA FICO score is based on the weighted average of information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score on a monthly basis.

(B)Adjustable rate mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)Three-month average CPR, or the constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool.

(F)Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30-59 days, 60-89 days or 90 or more days, respectively.

(G)Weighted averages exclude collateral information for which collateral data was not available as of the report date.

Servicer Advance Investments

The following is a summary of our Servicer Advance Investments, including the right to the basic fee component of the related MSRs (dollars in thousands):


	September 30, 2020
	Amortized Cost Basis		Carrying Value(A)		UPB of Underlying Residential Mortgage Loans		Outstanding Servicer Advances		Servicer Advances to UPB of Underlying Residential Mortgage Loans
Servicer advance investments
Mr. Cooper and SLS serviced pools	$	510,995	$	535,760	$	27,484,426	$	434,998	1.6	%

(A)Carrying value represents the fair value of the Servicer advance investments, including the basic fee component of the related MSRs.

The following is additional information regarding our Servicer advance investments, and related financing, as of and for the nine months ended, September 30, 2020 (dollars in thousands):


				Nine Months Ended September 30, 2020				Loan-to-Value (“LTV”)(A)				Cost of Funds(B)
	Weighted Average Discount Rate		Weighted Average Life (Years)(C)	Change in Fair Value Recorded in Other Income		Face Amount of Secured Notes and Bonds Payable		Gross		Net(D)		Gross		Net
Servicer advance investments(E)	5.2	%	6.3	$	431	$	412,538	88.0	%	87.0	%	2.3	%	1.5	%

(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.

(B)Annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees.

(C)Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

(D)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.

(E)The following types of advances are included in Servicer advance investments:


	September 30, 2020
Principal and interest advances	$	85,481
Escrow advances (taxes and insurance advances)	166,678
Foreclosure advances	182,839
Total	$	434,998

MSR Related Ancillary Business

Our MSR related investments segment also includes the activity from several wholly-owned subsidiaries or minority investments in companies that perform various services in the mortgage and real estate industries. Our subsidiary Guardian is a national provider of field services and property management services. We also made a strategic minority investment in Covius, a provider of various technology-enabled services to the mortgage and real estate industries.

Residential Securities and Loans

Real Estate Securities

Agency RMBS

The following table summarizes our Agency RMBS portfolio as of September 30, 2020 (dollars in thousands):


							Gross Unrealized
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Percentage of Total Amortized Cost Basis		Gains		Losses		Carrying Value(A)		Count	Weighted Average Life (Years)	3-Month CPR(B)		Outstanding Repurchase Agreements

Agency RMBS	$	9,035,433	$	9,362,556	100.0	%	$	61,158	$	(2,891)	$	9,420,823	54	4.2	1.3	%	$	9,495,910

(A)Fair value, which is equal to carrying value for all securities.

(B)Three month average constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total amortized cost basis.

The following table summarizes the net interest spread of our Agency RMBS portfolio as of September 30, 2020:


Net Interest Spread(A)
Weighted Average Asset Yield	2.25	%
Weighted Average Funding Cost	0.23	%
Net Interest Spread	2.02	%

(A)The Agency RMBS portfolio consists of 100.0% fixed rate securities (based on amortized cost basis). See table above for details on rate resets of the floating rate securities.

We finance our investments in Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At September 30, 2020 and December 31, 2019, the Company pledged Agency RMBS with a carrying value of approximately $10.4 billion and $15.9 billion, respectively, as collateral for borrowings under repurchase agreements. To the extent available on desirable terms, we expect to continue to finance our acquisitions of Agency RMBS with repurchase agreement financing. See Note 11 to our condensed consolidated financial statements for further information regarding financing of our Agency RMBS.

Non-Agency RMBS

Since mid-March 2020, markets for mortgage-backed securities and other credit-related assets have experienced significant volatility, widening credit spreads and sharp declines in liquidity, which has had a material impact on our investment portfolio. A significant portion of our Non-Agency RMBS portfolio was financed with repurchase agreements. Fluctuations in the value of our portfolio of Non-Agency RMBS, including as a result of changes in credit spreads, resulted in our being required to post additional collateral with our counterparties under these repurchase agreements. These fluctuations and requirements to post additional collateral were material. In an effort to mitigate the impact to our business from these developments and improve our liquidity, we sold a substantial portion of our Non-Agency RMBS portfolio in March 2020, for which we recorded significant realized losses. Refer to Note 16 to our condensed consolidated financial statements for further information regarding Non-Agency RMBS sales with affiliates.

The following table summarizes our Non-Agency RMBS portfolio as of September 30, 2020 (dollars in thousands):


Asset Type	Outstanding Face Amount		Amortized Cost Basis		Gross Unrealized				Carrying Value(A)		Outstanding Repurchase Agreements
					Gains		Losses
Non-Agency RMBS	$	21,276,175	$	1,386,243	$	92,192	$	(69,191)	$	1,409,244	$	834,151

(A)Fair value, which is equal to carrying value for all securities.

The following tables summarize the characteristics of our Non-Agency RMBS portfolio and of the collateral underlying our Non-Agency RMBS as of September 30, 2020 (dollars in thousands):


	Non-Agency RMBS Characteristics(A)
Vintage(B)	Average Minimum Rating(C)	Number of Securities	Outstanding Face Amount		Amortized Cost Basis		Percentage of Total Amortized Cost Basis		Carrying Value		Principal Subordination(D)		Excess Spread(E)		Weighted Average Life (Years)	Weighted Average Coupon(F)
Pre-2006	NR	96	$	86,852	$	16,816	1.2	%	$	16,483	—	%	—	%	6.2	6.9	%
2006	N/A	15	91,603		—		—	%	1		—	%	—	%	—	0.1	%
2007	NR	16	175,107		3,286		0.2	%	5,083		—	%	—	%	2.6	0.1	%
2008 and later	BB-	465	20,908,266		1,355,079		98.6	%	1,376,099		16.8	%	—	%	6.0	3.0	%
Total/weighted average	BB-	592	$	21,261,828	$	1,375,181	100.0	%	$	1,397,666	16.5	%	—	%	6.0	3.0	%


	Collateral Characteristics(A)(G)
Vintage(B)	Average Loan Age (years)	Collateral Factor(H)	3-Month CPR(I)		Delinquency(J)		Cumulative Losses to Date
Pre-2006	17.9	0.05	7.7	%	13.7	%	11.3	%
2006	14.1	0.13	10.8	%	—	%	96.3	%
2007	13.3	0.16	12.0	%	15.6	%	25.5	%
2008 and later	13.4	0.76	14.4	%	3.7	%	0.3	%
Total/weighted average	13.4	0.75	14.3	%	3.9	%	0.5	%

(A)Excludes $13.8 million face amount of bonds backed by consumer loans and $0.5 million face amount of bonds backed by corporate debt.

(B)The year in which the securities were issued.

(C)Ratings provided above were determined by third party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current. This excludes the ratings of the collateral underlying 305 bonds with a carrying value of $647.1 million, which either have never been rated or for which rating information is no longer provided. We had no assets that were on negative watch for possible downgrade by at least one rating agency as of September 30, 2020.

(D)The percentage of amortized cost basis of securities and residual interests that is subordinate to our investments. This excludes interest-only bonds.

(E)The current amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance for the quarter ended September 30, 2020.

(F)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $26.5 million and $2.8 million, respectively, for which no coupon payment is expected.

(G)The weighted average loan size of the underlying collateral is $273.0 thousand.

(H)The ratio of original UPB of loans still outstanding.

(I)Three month average constant prepayment rate and default rates.

(J)The percentage of underlying loans that are 90+ days delinquent, or in foreclosure or considered REO.

The following table summarizes the net interest spread of our Non-Agency RMBS portfolio as of September 30, 2020:


Net Interest Spread(A)
Weighted average asset yield	4.91	%
Weighted average funding cost	4.09	%
Net interest spread	0.82	%

(A)The Non-Agency RMBS portfolio consists of 36.6% floating rate securities and 63.4% fixed rate securities (based on amortized cost basis).

We finance our investments in Non-Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At September 30, 2020 and December 31, 2019, the Company pledged Non-Agency RMBS with a carrying value of approximately $1.4 billion and $8.0 billion, respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements is subject to daily mark-to-market fluctuations and margin calls. In addition, a portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 11 to our condensed consolidated financial statements for further information regarding financing of our Non-Agency RMBS.

Call Rights

We hold a limited right to cleanup call options with respect to certain securitization trusts serviced or master serviced by Mr. Cooper whereby, when the UPB of the underlying residential mortgage loans falls below a pre-determined threshold, we can effectively purchase the underlying residential mortgage loans at par, plus unreimbursed servicer advances, resulting in the repayment of all of the outstanding securitization financing at par, in exchange for a fee of 0.75% of UPB paid to Mr. Cooper at the time of exercise. We similarly hold a limited right to cleanup call options with respect to certain securitization trusts master serviced by SLS for no fee, and also with respect to certain securitization trusts serviced or master serviced by Ocwen subject to a fee of 0.5% of UPB on loans that are current or thirty (30) days or less delinquent, paid to Ocwen at the time of exercise. The aggregate UPB of the underlying residential mortgage loans within these various securitization trusts is approximately $75.0 billion.

We continue to evaluate the call rights we acquired from each of our servicers, and our ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. See “Risk Factors—Risks Related to Our Business—Our ability to exercise our cleanup call rights may be limited or delayed if a third party also possessing such cleanup call rights exercises such rights, if the related securitization trustee refuses to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.” The actual UPB of the residential mortgage loans on which we can successfully exercise call rights and realize the benefits therefrom may differ materially from our initial assumptions.

We have exercised our call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, we sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, we received par on the securities issued by the called trusts which we owned prior to such trusts’ termination. Refer to Note 8 and 16 in our condensed consolidated financial statements for further details on these transactions.

On March 31, 2020, in connection with the sale of certain Non-Agency RMBS (the “Securities”), we agreed to exercise call rights with respect to those Securities on behalf and solely at the direction of one of the buyers.

Refer to Note 16 for additional discussion regarding call rights and transactions with affiliates.

Residential Mortgage Loans

In March of 2020, we began selling assets to manage and generate liquidity and de-risk our balance sheet. To realign our balance sheet in reaction to increased market risk and raise liquidity, we reduced our exposure to loan pools financed using repurchase agreements. Furthermore, while typically more expensive, to the extent possible, the Company has been opportunistically seeking long-term financing arrangements rather than short-term repurchase agreements to reduce volatility risk associated with assets valuations and margin calls.

As of September 30, 2020, we had approximately ~~$7.4~~$5.9 billion outstanding face amount of residential mortgage loans. These investments were financed with ~~repurchase~~secured financing agreements with an aggregate face amount of approximately ~~$5.2~~$3.8 billion and secured notes and bonds payable with an aggregate face amount of approximately ~~$1.0~~$1.1 billion. We acquired these loans through open market purchases, as well as through the exercise of call ~~rights.~~rights and acquisitions.

The following table presents the total residential mortgage loans outstanding by loan type at September 30, ~~2019~~2020 (dollars in thousands).


	Outstanding Face Amount		Carrying Value		Loan Count	Weighted Average Yield		Weighted Average Life (Years)(A)
Total residential mortgage loans, held-for-investment, at fair value	$	784,838	$	718,802	12,587	6.7	%	4.2

Acquired reverse mortgage loans(E)(F)	$	11,784	$	5,848	28	7.8	%	3.9
Acquired performing loans(G)(I)	205,746		191,580		4,138	6.6	%	3.4
Acquired non-performing loans(H)(I)	502,003		380,925		3,363	7.5	%	3.3
Total residential mortgage loans, held-for-sale	$	719,533	$	578,353	7,529	7.2	%	3.3

Acquired performing loans(G)(I)	$	1,205,668	$	1,176,302	7,590	4.2	%	9.9
Acquired non-performing loans	436,936.0		338,451		3	8	%	3.3
Originated loans	2,705,121		2,843,720		9,947	2.9	%	22.1
Total residential mortgage loans, held-for-sale, at fair value	$	4,347,725	$	4,358,473	20,537	3.7	%	16.8

Outstanding Face Amount Carrying
Value Loan
Count Weighted Average Yield
Weighted Average Life (Years)^(A)
Floating Rate Loans as a % of Face Amount
LTV Ratio^(B)

Weighted Avg. Delinquency^(C)

Weighted Average FICO^(D)
Performing Loans^{(G) (J)}
$ 557,762
$ 524,387
7,695
7.8 % 4.6 20.2 % 72.3 % 10.2 % 647
Purchased Credit Deteriorated Loans^(H)
124,238
89,270
1,106
7.9 % 3.2 19.3 % 88.1 % 60.7 % 590
Total Residential Mortgage Loans, held-for-investment $ 682,000
$ 613,657
8,801
7.8 % 4.4 20.1 % 75.2 % 19.4 % 636

Reverse Mortgage Loans^{(E) (F)}
$ 13,032
$ 6,450
32
7.8 % 5.3 10.1 % 151.6 % 65.1 % N/A
Performing Loans^{(G) (I)}
709,867
726,935
10,798
4.3 % 4.0 62.4 % 54.3 % 5.9 % 688
Non-Performing Loans^{(H) (I)}
726,570
616,612
5,562
5.1 % 3.3 12.0 % 80.7 % 68.7 % 594
Total Residential Mortgage Loans, held-for-sale $ 1,449,469
$ 1,349,997
16,392
4.8 % 3.6 36.7 % 68.4 % 37.9 % 641

Acquired Loans $ 4,024,252
$ 3,916,826
26,236
4.2 % 7.4 2.0 % 71.1 % 15.3 % 622
Originated Loans 1,248,711
1,289,425
4,465
4.0 % 28.6 4.0 % 77.6 % 29.2 % 672
Total Residential Mortgage Loans, held-for-sale, at fair value^(K)
$ 5,272,963
$ 5,206,251
30,701
4.1 % 12.5 2.5 % 72.7 % 18.6 % 634

(A)The weighted average life is based on the expected timing of the receipt of cash flows.

(B)LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.

(C)Represents the percentage of the total principal balance that is 60+ days delinquent.

(D)The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.

(E)Represents a 70% participation interest we hold in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB was $0.6 million. Approximately 47% of these loans outstanding have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.

(F)FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.

(G)Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.

(H)As of September 30, 2020, we have placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.

(I)Includes $490.9 million and $21.2 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.


~~(A)~~	~~The weighted average life is based on the expected timing of the receipt of cash flows.~~


~~(B)~~	~~LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.~~


~~(C)~~	~~Represents the percentage of the total principal balance that is 60+ days delinquent.~~


~~(D)~~	~~The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.~~


~~(E)~~	Represents a 70% participation interest we hold in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB was $0.6 million. Approximately 51% of these loans outstanding have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.


~~(F)~~	~~FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.~~


~~(G)~~	~~Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.~~


~~(H)~~	Includes loans with evidence of credit deterioration since origination where it is probable that we will not collect all contractually required principal and interest payments. As of September 30, 2019, we have placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.


~~(I)~~	~~Includes $37.8 million and $27.7 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.~~


~~(J)~~	~~Includes $112.1 million UPB of non-agency mortgage loans underlying the SAFT 2013-1 securitization, which are carried at fair value based on New Residential’s election of the fair value option.~~


~~(K)~~	~~New Residential elected the fair value option to measure these loans at fair value on a recurring basis.~~

We consider the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as our credit quality indicators.

We finance a significant portion of our investments in residential mortgage loans with borrowings under repurchase agreements. These recourse borrowings bear variable interest rates offered by the counterparty for the term of the proposed repurchase transaction, generally less than one year, of a specified margin over the one-month LIBOR. At September 30, 2020 and December 31, 2019, the Company pledged mortgage loans with a carrying value of approximately $3.8 billion and $5.1 billion, respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements are subject to daily mark-to-market fluctuations and margin calls. A portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 11 to our condensed consolidated financial statements for further information regarding financing of our mortgage loans.

Other

Consumer Loans

The table below summarizes the collateral characteristics of the consumer loans, including those held in the Consumer Loan Companies and those acquired from the Consumer Loan Seller, as of September 30, ~~2019~~2020 (dollars in thousands):

Collateral Characteristics
UPB Personal Unsecured Loans % Personal Homeowner Loans % Number of Loans
Weighted Average Original FICO Score^(A)
Weighted Average Coupon Adjustable Rate Loan % Average Loan Age (months) Average Expected Life (Years)
Delinquency 30 Days^(B)

Delinquency 60 Days^(B)

Delinquency 90+ Days^(B)

12-Month CRR^(C)

12-Month CDR^(D)
Consumer loans, held-for-investment $ 878,431
59.6 % 40.4 % 117,312
675
18.3 % 12.0 % 172
3.9
1.7 % 1.0 % 1.8 % 16.4 % 5.0 %


	Collateral Characteristics
	UPB		Personal Unsecured Loans %		Personal Homeowner Loans %		Number of Loans	Weighted Average Original FICO Score(A)	Weighted Average Coupon		Adjustable Rate Loan %		Average Loan Age (months)	Average Expected Life (Years)	Delinquency 30 Days(B)		Delinquency 60 Days(B)		Delinquency 90+ Days(B)		12-Month CRR(C)		12-Month CDR(D)
Consumer loans, held-for-investment	$	667,184	60.4	%	39.6	%	94,801	677	17.5	%	12.2	%	186	3.6	1.2	%	0.7	%	1.5	%	19.1	%	4.7	%


~~(A)~~	~~Weighted average original FICO score represents the FICO score at the time the loan was originated.~~


~~(B)~~	Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30-59 days, 60-89 days or 90 or more days, respectively.


~~(C)~~	~~12-Month CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the three months as a percentage of the total principal balance of the pool.~~


~~(D)~~	12-Month CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the three months as a percentage of the total principal balance of the pool.

(A)Weighted average original FICO score represents the FICO score at the time the loan was originated.

~~In addition,~~(B)Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30-59 days, 60-89 days or 90 or more days, respectively.

(C)12-month CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the three months as a percentage of the total principal balance of the pool.

(D)12-month CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the three months as a percentage of the total principal balance of the pool.

We have financed our investments in consumer loans with securitized non-recourse long-term notes with a stated maturity date of May 2036. Furthermore, the notes are non-mark-to-market and not subject to margin calls. See Note 11 to our condensed consolidated financial statements for further information regarding financing of our consumer loans.

TAXES

We have elected to be treated as a REIT for U.S. federal income tax purposes. As a REIT we generally pay no federal or state and local income tax on assets that qualify under the REIT requirements if we distribute out at least 90% of the current taxable income generated from these assets.

We hold certain assets, including Servicer Advance Investments and MSRs, in taxable REIT subsidiaries (“TRSs”) that are subject to federal, state and local income tax because these assets either do not qualify under the REIT requirements or the status of these assets is uncertain. We also operate our securitization program, servicing, origination, and ancillary businesses through TRSs.

As our operating investments continue to grow and become a larger component of our total consolidated income, we anticipate income subject to tax will increase, along with a corresponding increase in tax expense and our consolidated effective tax rate.

At September 30, ~~2019,~~2020, our net deferred tax asset of $49.5 million was primarily comprised of net operating losses generated within our TRSs partially offset by deferred tax liabilities generated through the deferral of gains from loans sold by our origination business with servicing retained by the Company.

For the three and nine months ended September 30, 2020, we ~~had a~~recognized deferred tax expense (benefit) of $99.4 million and $(42.3) million, respectively, primarily reflecting deferred tax benefits resulting from changes in the fair value of loans and MSRs during the first quarter of 2020, partially offset by deferred tax expense generated from income in our servicing and origination business segments in the second and third quarters. The taxable income of the operating businesses is absorbed by our historical net ~~investment of $23.0 million~~operating losses, reducing current taxable income in ~~LoanCo and WarrantCo. For further information, see Note 9 to~~ our ~~Condensed Consolidated Financial Statements.~~TRSs.

~~The following is a summary of LoanCo’s consumer loan investments:~~

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.~~

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our ~~Condensed Consolidated Financial Statements,~~condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates. We believe that the estimates and assumptions utilized in the preparation of the ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements are prudent and reasonable. Actual results historically have generally been in line with our estimates and judgments used in applying each of the accounting policies described below, as modified periodically to reflect current market conditions.

Our critical accounting policies as of September 30, ~~2019,~~2020, which represent our accounting policies that are most affected by judgments, estimates and assumptions, included all of the critical accounting policies referred to in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Recent Accounting Pronouncements

See Note 1 to our ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

RESULTS OF OPERATIONS

The following table summarizes the changes in our results of operations for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 ~~compared to the nine months ended September 30, 2018~~ (dollars in thousands). Our results of operations are not necessarily indicative of future performance.

Three Months Ended
September 30, Increase (Decrease) Nine Months Ended
September 30,
Increase (Decrease)

2019 2018 Amount 2019 2018
Amount
Interest income $ 448,127
$ 425,524
$ 22,603
$ 1,303,041
$ 1,212,902
$ 90,139
Interest expense 245,902
162,806
83,096
686,738
421,109
265,629
Net Interest Income 202,225
262,718
(60,493 ) 616,303
791,793
(175,490 )

Impairment
Other-than-temporary impairment (OTTI) on securities 5,567
3,889
1,678
21,942
23,190
(1,248 )
Valuation and loss provision (reversal) on loans and real estate owned (REO) (10,690 ) 5,471
(16,161 ) 8,042
28,136
(20,094 )

(5,123 ) 9,360
(14,483 ) 29,984
51,326
(21,342 )

Net interest income after impairment 207,348
253,358
(46,010 ) 586,319
740,467
(154,148 )
Servicing revenue, net of change in fair value of $(228,405), $(26,741), $(619,914), and $35,118, respectively 53,050
175,355
(122,305 ) 133,366
538,784
(405,418 )
Gain on sale of originated mortgage loans, net 100,541
45,732
54,809
194,029
45,732
148,297
Other Income
Change in fair value of investments in excess mortgage servicing rights 2,407
(4,744 ) 7,151
(1,421 ) (55,711 ) 54,290
Change in fair value of investments in excess mortgage servicing rights, equity method investees 4,751
3,396
1,355
4,087
5,624
(1,537 )
Change in fair value of investments in mortgage servicing rights financing receivables (41,410 ) (88,345 ) 46,935
(133,200 ) 63,628
(196,828 )
Change in fair value of servicer advance investments 6,641
(5,353 ) 11,994
15,932
(86,581 ) 102,513
Change in fair value of investments in residential mortgage loans (19,037 ) 647
(19,684 ) 90,551
647
89,904
Change in fair value of derivative instruments 58,508
24,299
34,209
(1,988 ) 27,985
(29,973 )
Gain (loss) on settlement of investments, net 154,752
(11,893 ) 166,645
157,013
106,064
50,949
Earnings from investments in consumer loans, equity method investees (2,547 ) 4,555
(7,102 ) (890 ) 12,343
(13,233 )
Other income (loss), net (35,219 ) (5,860 ) (29,359 ) (16,451 ) 10,415
(26,866 )

128,846
(83,298 ) 212,144
113,633
84,414
29,219

Operating Expenses
General and administrative expenses 133,513
98,587
34,926
351,359
139,169
212,190
Management fee to affiliate 20,678
15,464
5,214
58,261
46,027
12,234
Incentive compensation to affiliate 36,307
23,848
12,459
49,265
65,169
(15,904 )
Loan servicing expense 7,192
11,060
(3,868 ) 26,167
33,609
(7,442 )
Subservicing expense 52,875
43,148
9,727
147,763
135,703
12,060

250,565
192,107
58,458
632,815
419,677
213,138

Income (Loss) Before Income Taxes 239,220
199,040
40,180
394,532
989,720
(595,188 )
Income tax expense (benefit) (5,440 ) 3,563
(9,003 ) 18,980
(5,957 ) 24,937
Net Income (Loss) $ 244,660
$ 195,477
$ 49,183
$ 375,552
$ 995,677
$ (620,125 )
Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries $ 14,738
$ 10,869
$ 3,869
$ 31,979
$ 32,058
$ (79 )
Dividends on Preferred Stock $ 5,338
$ —
$ 5,338
$ 5,338
$ —
$ 5,338
Net Income (Loss) Attributable to Common Stockholders $ 224,584
$ 184,608
$ 39,976
$ 338,235
$ 963,619
$ (625,384 )


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Revenues





Interest income	$	233,848	$	448,127	$	(214,279)	$	868,419	$	1,303,041	$	(434,622)
Servicing revenue, net of change in fair value of $(395,064), $(228,405), $(1,485,472), and $(619,914), respectively	(43,929)		53,050		(96,979)		(459,313)		133,366		(592,679)
Gain on originated mortgage loans, held-for-sale, net	495,098		126,747		368,351		984,818		294,935		689,883
	685,017		627,924		57,093		1,393,924		1,731,342		(337,418)
Expenses
Interest expense	130,528		245,902		(115,374)		463,786		686,738		(222,952)
General and administrative expenses	316,560		193,580		122,980		859,601		525,289		334,312
Management fee to affiliate	22,482		20,678		1,804		66,682		58,261		8,421
Incentive compensation to affiliate	—		36,307		(36,307)		—		49,265		(49,265)
	469,570		496,467		(26,897)		1,390,069		1,319,553		70,516
Other Income (Loss)
Change in fair value of investments	89,092		2,212		86,880		(374,408)		(55,534)		(318,874)
Gain (loss) on settlement of investments, net	(94,457)		133,670		(228,127)		(968,995)		96,385		(1,065,380)
Earnings from investments in consumer loans, equity method investees	—		(2,547)		2,547		—		(890)		890
Other income (loss), net	5,385		(30,695)		36,080		(34,635)		(27,234)		(7,401)
	20		102,640		(102,620)		(1,378,038)		12,727		(1,390,765)
Impairment
Provision (reversal) for credit losses on securities	(3,849)		5,567		(9,416)		15,166		21,942		(6,776)
Valuation and credit loss provision (reversal) on loans and real estate owned (REO)	14,584		(10,690)		25,274		118,504		8,042		110,462
	10,735		(5,123)		15,858		133,670		29,984		103,686
Income (Loss) Before Income Taxes	204,732		239,220		(34,488)		(1,507,853)		394,532		(1,902,385)
Income tax expense (benefit)	100,812		(5,440)		106,252		(48,647)		18,980		(67,627)
Net Income (Loss)	$	103,920	$	244,660	$	(140,740)	$	(1,459,206)	$	375,552	$	(1,834,758)
Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries	$	11,640	$	14,738	$	(3,098)	$	34,118	$	31,979	$	2,139
Dividends on Preferred Stock	$	14,359	$	5,338	$	9,021	$	39,938	$	5,338	$	34,600
Net Income (Loss) Attributable to Common Stockholders	$	77,921	$	224,584	$	(146,663)	$	(1,533,262)	$	338,235	$	(1,871,497)

Interest Income

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Interest income increased by $22.6 million, primarily attributable to incremental~~The decrease in interest income during the third quarter of ~~(i) $46.7 million from an increase~~2020 compared to the third quarter of 2019 was driven by a decrease in the size of our investment portfolio (as noted in the ~~Real Estate Securities portfolio and (ii) $38.2 million from the Residential Mortgage Loans portfolio due to the acquisition of loans through purchases, originations,~~“Our Portfolio” section) and the ~~execution~~transition of ~~calls. The increase was~~MSRs initially accounted for as investments in MSR financing receivables to investments in MSRs. Specifically, interest income decreased by $214.3 million, primarily driven by (i) a$123.9 million decrease attributable to a smaller bond portfolio, (ii) a $50.7 million decrease related to acquired residential mortgage loans and consumer loans, partially offset by (iii) an increase of $6.5 million on loans originated as a ~~$39.2~~result of growth in our originations business. MSR related investments and servicing interest income decreased by $46.2 million ~~decrease from MSR Financing Receivable attributable~~primarily due to the ~~drop~~transfer from investments in ~~discount accretion income recognized on servicer advances related~~MSR financing receivables to investments in MSRs during

the ~~Ocwen Transaction subsequent to September 30, 2018, (iv) a $12.5 million decrease from Servicer Advance Investments and Excess Mortgage~~third quarter of 2020. The revenue associated with these transferred MSRs is reported as Servicing ~~Rights driven by retrospective adjustments resulting from changes~~Revenue, Net in ~~valuation assumptions on September 30, 2019, and (v) a $10.6 million decrease from Consumer Loans attributable to lower unpaid principal balance.~~our condensed consolidated statements of income.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~Interest~~The decrease in interest income ~~increased~~was driven by ~~$90.1~~a smaller investment portfolio (as noted in the “Our Portfolio” section) and the transition of MSRs initially accounted for as investments in MSR financing receivables to investments in MSRs. Specifically, interest income decreased by $434.6 million primarily driven by (i) a $279.2 million decrease attributable to ~~incremental interest income~~a smaller bond portfolio as well as a decrease in the accelerated accretion recognized on called deals, (ii) a $94.3 million decrease from MSR related investments and servicing, primarily due to MSR financing receivables transferring to investments in MSRs during the third quarter of ~~(i) $203.0~~2019 (the revenue associated with these transferred MSRs is reported as Servicing Revenue, Net in our condensed consolidated statements of income) and portfolio runoff, and (iii) a $78.5 million ~~from~~decrease in acquired residential mortgage loans and consumer loans due to lower unpaid principal balances, partially offset by (iv) an increase of $17.4 million on loans originated as a result of growth in our originations business.

Servicing Revenue, Net

The component of servicing revenue, net related to changes in valuation inputs and assumptions related to the ~~size~~following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(63,129)	$	(149,413)	$	86,284	$	(577,911)	$	(555,765)	$	(22,146)
Changes in discount rates	71,797		57,896		13,901		(1,705)		127,314		(129,019)
Changes in other factors	73,305		29,659		43,646		43,462		153,080		(109,618)
Total	$	81,973	$	(61,858)	$	143,831	$	(536,154)	$	(275,371)	$	(260,783)

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Servicing revenue, net decreased $97.0 million primarily driven by (i) a $304.7 million increase in amortization as a result of ~~the Real Estate Securities portfolio~~MSR acquisitions subsequent to September 30, 2019 and ~~accelerated accretion on Real Estate Securities owned in Non-Agency RMBS trusts that were terminated upon the execution of calls~~faster prepayments, and (ii) ~~$96.4~~a $28.2 million ~~from the Residential Mortgage Loans portfolio due~~decrease in ancillary and other fees attributable to ~~the acquisition of loans through purchases, originations, and the execution of calls.~~lower interest rates, specifically lower interest earned on custodial accounts. The ~~increase~~decrease was partially offset by (iii) a ~~$137.5~~$97.9 million ~~decrease from~~increase in servicing collections as a result of MSR ~~Financing Receivable attributable to the drop in discount accretion income recognized on servicer advances related to the Ocwen Transaction~~acquisitions that closed subsequent to September 30, ~~2018,~~2019, and (iv) an $82.0 million positive mark-to-market adjustments in 2020 compared to a ~~$40.2~~$61.9 million ~~decrease from Servicer Advance Investments and Excess Mortgage Servicing Rights~~negative mark-to-market adjustments in 2019. The positive mark-to-market adjustments during the three months ended September 30, 2020 were primarily driven by ~~retrospective adjustments~~a reduction in life-to-date unrealized losses due to paydowns and a decrease in discount rates resulting from changes in ~~valuation assumptions on~~estimates regarding the economic outlook caused by COVID-19.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Servicing revenue, net decreased $592.7 million primarily driven by (i) a $606.7 million increase in amortization as a result of MSR acquisitions subsequent to September 30, 2019 and ~~(v)~~faster prepayments, (ii) a ~~$30.1~~$260.8 million increase in negative mark-to-market adjustments, and (iii) a $70.4 million decrease ~~from Consumer Loans attributable~~in ancillary and other fees due to lower ~~unpaid principal balance.~~interest rates, specifically lower interest earned on custodial accounts. The negative mark-to-market adjustments during the nine months ended September 30, 2020 were primarily driven by changes in interest rates resulting in lower custodial earnings, faster prepayment rates, and higher delinquency rates, due to changes in estimates regarding the economic outlook caused by COVID-19. The decrease was partially offset by (iv) a $343.3 million increase in servicing collections as a result of MSR acquisitions that closed subsequent to September 30, 2019.

Gain on Originated Mortgage Loans, Held-for-Sale, Net

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Gain on originated mortgage loans, held-for-sale, net increased $368.4 million primarily driven by an increase in loan origination volume and higher gain on sales margins. As noted in the “Our Portfolio” section, during the third quarter of 2020, loan origination volume at NewRez was $18.1 billion, up from $5.7 billion in the year prior. During the three months ended September 30, 2020, the continued lower interest rate environment, increased refinance activity by borrowers, integration of

Ditech’s platform, and increased market share helped drive growth in originations volume channels. Gain on sale margins in the three month period ended September 30, 2020 was 2.04%, 0.34% higher than 1.70% for the same period in 2019.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Gain on originated mortgage loans, held-for-sale, net increased $689.9 million primarily driven by an increase in loan origination volume and higher gain on sales margins. As noted in the “Our Portfolio” section, during the first nine months of 2020, loan origination volume at NewRez was $37.7 billion, up from $11.8 billion in the year prior. During the nine months ended September 30, 2020, the continued lower interest rate environment, increased refinance activity by borrowers, integration of Ditech’s platform, and increased market share helped drive growth in originations volume channels. Gain on sale margins in the nine month period ended September 30, 2020 was 2.01%, 0.29% higher than 1.72% for the same period in 2019.

Interest Expense

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

Interest expense ~~increased~~decreased by ~~$83.1~~$115.4 million primarily attributable to ~~increases of~~ (i) ~~$55.9~~a $107.4 million ~~of interest expense on repurchase agreements financings on Real Estate Securities in which we made additional levered investments subsequent~~decrease related to ~~September 30, 2018, (ii) $22.0 million on Residential Mortgage Loans due to an increase in~~ the ~~underlying principal balance~~lower average size of the RMBS portfolio ~~levered~~financed with repurchase agreements and (ii) a $28.0 million decrease related to the financing of acquired residential mortgage loans and consumer loans, partially offset by (iii) ~~$7.4 million of interest expense on MSRs and related servicer advances financing obtained subsequent to September 30, 2018, and (iv)~~ a ~~$0.6~~$1.0 million increase in interest expense on ~~debt collateralized~~MSR related investments, origination, and servicing due to increased financing of the portfolio offset by ~~Excess MSRs~~a decrease in rates, and (iv) a $19.0 million increase in interest expense as a result of ~~draws subsequent~~the senior secured term loan facility agreement entered into on May 19, 2020, which was refinanced in September 2020 with proceeds from the 2025 Senior Unsecured Notes. Refer to ~~September 30, 2018. The increases were partially offset by (v) a $2.8 million decrease in interest expense on the Consumer Loan securitization notes due~~Note 11 to ~~a decrease in the principal balance outstanding and refinancing.~~our condensed consolidated financialstatements for further details.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

Interest expense ~~increased~~decreased by ~~$265.6~~$223.0 million primarily attributable to ~~increases of~~ (i) ~~$173.8~~a $189.7 million ~~of interest expense on repurchase agreements financings on Real Estate Securities in which we made additional levered investments subsequent~~decrease related to ~~September 30, 2018, (ii) $67.7 million on Residential Mortgage Loans due to an increase in~~ the ~~underlying principal balance~~lower average size of the RMBS portfolio ~~levered~~financed with repurchase agreements, (ii) a $61.4 million decrease related to residential mortgage loans and consumer loans, and (iii) ~~$31.1 million of interest expense on MSRs and related servicer advances financing obtained subsequent to September 30, 2018, and (iv)~~ a ~~$0.4 million increase in interest on debt collateralized by Excess MSRs as a result of draws subsequent to September 30, 2018. The increases were partially offset by (v) a $7.4~~$5.7 million decrease in interest expense ~~on the Consumer Loan securitization notes~~ due to runoff of MSR related investments, offset by (iv) an increase in interest expense on originations of $6.1 million driven by an increase in our originations business, and (v) a ~~decrease~~$27.7 million increase in interest expense as a result of the ~~principal balance outstanding~~senior secured term loan facility agreement entered into on May 19, 2020, which was refinanced in September 2020 with proceeds from the 2025 Senior Notes. Refer to Note 11 to our condensed consolidated financial statements for further details.

General and ~~refinancing.~~Administrative Expenses

~~Other-Than-Temporary Impairment on Securities~~

Three months ended September 30, ~~2019~~2020 ~~compared~~compared to the three months ended September 30, ~~2018.~~2019.

~~The other-than-temporary impairment on securities~~General and administrative expenses increased by ~~$1.7~~$123.0 million, primarily attributable to increases in NewRez origination and servicing volumes. As noted in the “Our Portfolio” section, during the ~~three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily resulting~~third quarter of 2020, loan origination volume at NewRez was $18.1 billion, up from ~~a decline in fair values on a larger portion of our Non-Agency RMBS, which we purchased with existing credit impairment, below their amortized cost basis as of September 30, 2019.~~

~~Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~

The other-than-temporary impairment on securities decreased by $1.2 million during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily resulting from a decline in fair values on a smaller portion of our Non-Agency RMBS, which we purchased with existing credit impairment, below their amortized cost basis as of September 30, 2019.

~~Valuation and Loss Provision (Reversal) on Loans and Real Estate Owned~~

~~Three months ended September 30,2019compared to the three months ended September 30, 2018.~~

~~The $16.2 million decrease~~$5.7 billion in the ~~valuation~~year prior and ~~loss provision (reversal) on~~ loans ~~and real estate owned resulted~~serviced at NewRez was $287.2 billion, up from (i) a $12.1 million in reversal of impairment on certain loans related to changes in interest rates and improved performance and certain REOs with an increase in home prices, and (ii) $4.1 million less provision due to a reduction in net charge-offs on the Consumer Loan Companies attributable to lower unpaid principal balance.

~~Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~

~~The $20.1 million decrease~~$184.3 billion in the ~~valuation~~year prior. The components of general and loss provision (reversal) on loans and real estate owned resulted from (i) a $7.9 million in reversal of impairment on certain loans related to changes in interest rates and improved performance, partially offset by additional impairment on certain REOs with an decrease in home prices, and (ii) $12.2 million less provision due to a reduction in net charge-offs on the Consumer Loan Companies attributable to lower unpaid principal balance.

~~Servicing Revenue, Net~~

~~The component of servicing revenue, net related to changes in valuation inputs and assumptions related to the following:~~

Three Months Ended
September 30, Increase (Decrease) Nine Months Ended
September 30, Increase (Decrease)
2019 2018 Amount 2019 2018 Amount
Changes in interest rates and prepayment rates $ (149,413 ) $ 38,546
$ (187,959 ) $ (555,765 ) $ 209,182
$ (764,947 )
Changes in discount rates 57,896
(6,695 ) 64,591
127,314
46,264
81,050
Changes in other factors 29,659
12,341
17,318
153,080
(28,829 ) 181,909
Total $ (61,858 ) $ 44,192
$ (106,050 ) $ (275,371 ) $ 226,617
$ (501,988 )

~~Three months ended September 30,2019compared to the three months ended September 30, 2018.~~

Servicing revenue, net decreased $122.3 million during the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily driven by (i) a $106.1 million change from positive mark-to-market adjustments during the three months ended September 30, 2018 to negative mark-to-market adjustments during the three months ended September 30, 2019, and (ii) a $97.8 million increase in amortizationadministrative expenses that increased as a result of MSR acquisitions by our licensed servicer subsidiary, NRM (Note 5 to our Condensed Consolidated Financial Statements) that closed subsequent to September 30, 2018. The negative mark-to-market adjustments during the three months ended September 30, 2019 was primarily driven by an increase in prepayment rates, partially offset bythese volumes were as follows: (i) a ~~decrease in discount rates. The decrease was partially offset by (iii) a $79.4~~$92.4 million increase in ~~servicing fee revenue~~compensation and ~~fees~~benefits expense, (ii) a $12.1 million increase in loan origination expenses, (iii) a $4.2 million increase in occupancy expenses, (iv) a $5.8 million increase in legal and professional expenses, and (v) a $4.9 million increase in other expenses. In addition, subservicing expense increased (vi) a $2.5 million as a result of MSR acquisitions that closed subsequent to September 30, ~~2018.~~2019 within our servicer subsidiary, NRM (Note 5 to our condensed consolidated financial statements), and transfer from investments in MSR financing receivables to investments in MSRs during the three months ended September 30, 2020, partially offset by portfolio runoff.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~Servicing revenue, net decreased $405.4~~General and administrative expenses increased by $334.3 million, primarily attributable to increases in NewRez origination and servicing volumes. As noted in the “Our Portfolio” section, during the nine months ended September 30, ~~2019 compared~~2020, loan origination volume was $37.7 billion, up from $11.8 billion in the year prior and loans serviced at NewRez was $287.2 billion, up from $184.3 billion in the year prior. The components of general and administrative expenses that increased as a result of these volumes were as follows: (i) a $212.2 million increase in compensation and benefits expense, (ii) a $17.4 million increase in legal and professional expenses, (iii) a $33.6 million increase in loan origination expenses, (iv) a $12.1 million increase in occupancy expenses, and (v) an $8.1 million increase related to technology and software enhancements. There was also (vi) a

$26.9 million increase in property maintenance and inspection expense resulting from the ~~nine months ended~~acquisition and operations of Guardian, (vii) an increase of $11.9 million as a result of MSR acquisitions that closed subsequent to September 30, ~~2018, primarily driven by (i) a $502.0 million change~~2019 within our servicer subsidiary, NRM (Note 5 to our condensed consolidated financial statements), and the transfer from ~~positive mark-to-market adjustments~~investments in MSR financing receivables to investments in MSRs during the nine months ended September 30, 2018 to negative mark-to-market adjustments during the nine months ended September 30, 2019, and (ii) a $155.3 million increase in amortization as a result of MSR acquisitions by our licensed servicer subsidiary, NRM (Note 5 to our Condensed Consolidated Financial Statements), as well as the Shellpoint Acquisition (Note 1 to our Condensed Consolidated Financial Statements), which closed in July 2018. The negative mark-to-market adjustments during the nine months ended September 30, 2019 were primarily driven by an increase in prepayment rates,2020, partially offset by portfolio runoff, and a decrease of $2.9 million in ~~discount rates~~loan servicing expense primarily due to a decrease of loan servicing expense on consumer loans, held-for-investment attributable to lower unpaid principal balance. Other expenses increased $3.5 million related to increased trustee and ~~costs~~custodian expenses, $3.3 million in amortization of ~~subservicing,~~intangible assets, and ~~an increase in ancillary income. The decrease was partially offset by (iii) a $249.6~~$8.2 million ~~increase in servicing fee revenue~~related to other general and ~~fees as a result of MSR acquisitions and the Shellpoint Acquisition that closed in July 2018.~~administrative expenses.

Management Fee to Affiliate

~~Gain on Sale of Originated Mortgage Loans, Net~~

As a result of the Shellpoint Acquisition in July 2018 (Note 1 to our Condensed Consolidated Financial Statements), our wholly owned subsidiary, NewRez, originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government insured mortgage securitizations and private investors issue nonconforming private label mortgage securitizations while NewRez generally retains the right to service the underlying residential mortgage loans.

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Gain on sale~~Management fee to affiliate increased by $1.8 million as a result of ~~originated mortgage loans, net increased $54.8 million during the three months ended~~capital raises subsequent to September 30, ~~2019compared to the~~three months ended September 30, 2018, primarily driven by (i) $79.0 million higher value of MSRs retained on transfer of loans, and (ii) a $5.5 million increase in appraisal and other revenues earned in conjunction with the loan origination process, partially offset by (iii) a $29.4 million increase in loss on settlement of mortgage loan origination derivative instruments.2019.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~

2019.

~~Gain on sale~~

Management fee to affiliate increased by $8.4 million as a result of ~~originated mortgage loans,~~capital raises subsequent to September 30, 2019.

Incentive Compensation to Affiliate

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Incentive compensation decreased $36.3 million during the three months ended September 30,2020. This decrease was due to the fact that the incentive calculation determined in accordance with the management agreement was in a cumulative net ~~increased $148.3~~loss position.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Incentive compensation decreased $49.3 million during the nine months ended September ~~30, 2019compared~~30,2020. This decrease was due to the fact that the incentive calculation determined in accordance with the management agreement was in a cumulative net loss position.

Change in Fair Value of Investments

~~nine months ended September 30, 2018, primarily driven by (i) $173.4 million higher~~

Change in fair value of ~~MSRs retained on transfer~~investments is composed of ~~loans, (ii) a $22.3 million increase in appraisal and other revenues earned in conjunction with~~ the loan origination process, and (iii) an $11.7 million increase in gain on loans originated and sold. The increase was partially offset by (iv) a $59.1 million increase in loss on settlement of mortgage loan origination derivative instruments.following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Excess mortgage servicing rights	$	(664)	$	2,407	$	(3,071)	$	(11,773)	$	(1,421)	$	(10,352)
Excess mortgage servicing rights, equity method investees	(393)		4,751		(5,144)		(2,902)		4,087		(6,989)
Mortgage servicing rights financing receivables	(20,275)		(41,410)		21,135		(245,906)		(133,200)		(112,706)
Servicer advance investments	3,143		6,641		(3,498)		431		15,932		(15,501)
Real estate and other securities	27,663		(5,054)		32,717		(531)		9,010		(9,541)
Residential mortgage loans	56,940		(6,512)		63,452		(108,306)		75,095		(183,401)
Consumer loans held-for-investment	(411)		—		(411)		(9,634)		—		(9,634)
Derivative instruments	23,089		41,389		(18,300)		4,213		(25,037)		29,250
Total	$	89,092	$	2,212	$	86,880	$	(374,408)	$	(55,534)	$	(318,874)

Change in Fair Value of Investments in Excess Mortgage Servicing Rights

Changes in the fair value of investments in Excess MSRs related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(1,384)	$	(2,566)	$	1,182	$	1,650	$	(20,268)	$	21,918
Changes in discount rates	3,650		4,167		(517)		(365)		13,446		(13,811)
Changes in other factors	(2,930)		806		(3,736)		(13,058)		5,401		(18,459)
Total	$	(664)	$	2,407	$	(3,071)	$	(11,773)	$	(1,421)	$	(10,352)

Three Months Ended
September 30, Increase (Decrease) Nine Months Ended
September 30, Increase (Decrease)
2019 2018 Amount 2019 2018 Amount
Changes in interest rates and prepayment rates $ (2,566 ) $ (9,872 ) $ 7,306
$ (20,268 ) $ (15,742 ) $ (4,526 )
Changes in discount rates 4,167
—
4,167
13,446
—
13,446
Changes in other factors 806
5,128
(4,322 ) 5,401
(39,969 ) 45,370
Total $ 2,407
$ (4,744 ) $ 7,151
$ (1,421 ) $ (55,711 ) $ 54,290

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

The ~~positive~~change in fair value of investments in excess mortgage servicing rights during the three months ended September 30, 2020 was relatively flat; however, the mark-to-market adjustments were negative, mainly driven by increased prepayment rates and decreased recapture rates. In contrast, the mark-to-market adjustments during the three months ended September 30, 2019 were ~~mainly~~positive, largely driven by ~~a decrease~~decreases in the discount rate, increases in recapture rates, ~~partially~~ offset by ~~changes~~increases in interest rates and prepayment rates. ~~The negative mark-to-market adjustments during the three months ended September 30, 2018 were mainly driven by changes in interest rates and prepayment rates, as well as lower delinquency assumptions.~~

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

The negative mark-to-market adjustments during the nine months ended September 30, 2020 were mainly driven by decreased recapture rates. In contrast, the negative mark-to-market adjustments during the nine months ended September 30, 2019 were mainly driven by ~~changes in~~increased interest rates and prepayment rates, ~~partially~~ offset by ~~a decrease in~~decreased discount rates and increased recapture rates. The change between the mark-to-market adjustments during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 were due to the realization of unrealized gains related to the Ocwen Transaction in 2018, which were reflected in Gain (Loss) on Settlement of Investments, Net.

Change in Fair Value of Investments in Excess Mortgage Servicing Rights, Equity Method Investees

Changes in the fair value of investments in Excess MSRs, equity method investees related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(404)	$	(432)	$	28	$	(52)	$	(7,897)	$	7,845
Changes in discount rates	661		768		(107)		(82)		3,939		(4,021)
Changes in other factors	(650)		4,415		(5,065)		(2,768)		8,045		(10,813)
Total	$	(393)	$	4,751	$	(5,144)	$	(2,902)	$	4,087	$	(6,989)

Three Months Ended
September 30, Increase (Decrease) Nine Months Ended
September 30, Increase (Decrease)
2019 2018 Amount 2019 2018 Amount
Changes in interest rates and prepayment rates $ (432 ) $ (2,203 ) $ 1,771
$ (7,897 ) $ (3,711 ) $ (4,186 )
Changes in discount rates 768
—
768
3,939
—
3,939
Changes in other factors 4,415
5,599
(1,184 ) 8,045
9,335
(1,290 )
Total $ 4,751
$ 3,396
$ 1,355
$ 4,087
$ 5,624
$ (1,537 )

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

The change in fair value of investments in excess mortgage servicing rights, equity method investees during the three months ended September 30, 2020 were mainly driven by increased prepayment rates and decreased recapture rates. In contrast, the positive mark-to-market adjustments during the three months ended September 30, 2019 were ~~mainly~~largely driven by interest income net of expenses recorded at the investee level, and a decrease in discount rates. Compared to the three months ended September 30, 2018 where the positive mark-to-market adjustments were mainly driven by interest income net of expenses recorded at the investee level, partially offset by changes in interestincreased recapture rates and ~~prepayment~~and decreased discount rates.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

The change in fair value of investments in excess mortgage servicing rights, equity method investees during the nine months ended September 30, 2020 were mainly driven by decreased recapture rates. In contrast, the positive mark-to-market

adjustments during the nine months ended September 30, 2019 were mainly driven by ~~interest income net of expenses recorded at the investee level,~~increased recapture rates and ~~a decrease in~~decreased discount rates, partially offset by ~~changes in interest~~increased prepayment rates and ~~prepayment rates. Compared to the nine months ended September 30, 2018 where the positive mark-to-market adjustments were mainly driven by~~ interest ~~income net of expenses recorded at the investee level and other market factors, partially offset by changes in interest rates and prepayment~~ rates.

Change in Fair Value of Investments in MSR Financing Receivables

The component of changes in the fair value of investments in ~~mortgage servicing rights~~MSR financing receivables related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Amortization of servicing rights	$	(36,134)	$	(48,340)	$	12,206	$	(182,085)	$	(131,417)	$	(50,668)
Change in valuation inputs and assumptions	15,859		9,349		6,510		(62,072)		1,437		(63,509)
(Gain) loss on sales	—		(2,419)		2,419		(1,749)		(3,220)		1,471
Total	$	(20,275)	$	(41,410)	$	21,135	$	(245,906)	$	(133,200)	$	(112,706)

The component of changes in the fair value of investments in MSR financing receivables related to changes in valuation inputs and assumptions related to the following:


	Three Months Ended September 30,						Increase (Decrease)			Nine Months Ended September 30,						Increase (Decrease)				Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2019			2018			Amount			2019			2018			Amount				2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(44,152	)	$	(4,326	)	$	(39,826	)	$	(138,727	)	$	(18,939	)	$	(119,788	)	Changes in interest rates and prepayment rates	$	(17,925)	$	(44,152)	$	26,227	$	26,118	$	(138,727)	$	164,845
Changes in discount rates	60,273			—			60,273			99,674			212,273			(112,599		)	Changes in discount rates	23,694		60,273		(36,579)		10,950		99,674		(88,724)
Changes in other factors	(6,772		)	(35,003		)	28,231			40,490			24,853			15,637			Changes in other factors	10,090		(6,772)		16,862		(99,140)		40,490		(139,630)
Total	$	9,349		$	(39,329	)	$	48,678		$	1,437		$	218,187		$	(216,750	)	Total	$	15,859	$	9,349	$	6,510	$	(62,072)	$	1,437	$	(63,509)

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

The change in fair value of investments in ~~mortgage servicing rights~~MSR financing ~~receivable~~receivables increased ~~$46.9 million during the three months ended September 30, 2019 compared to the three months ended September 30, 2018. $48.7~~$21.1 million, of ~~the increase~~which (i) $12.2 million was ~~related~~attributable to a decrease in amortization expense and (ii) $6.5 million was attributable to changes in valuation inputs and assumptions, primarily ~~due~~driven by transfer from investments in MSR financing receivables to investments in MSRs during the three months ended September 30, 2020 and decrease in discount rates, ~~and costs~~resulting from changes in estimates regarding the economic outlook caused by COVID-19. The change in fair value associated with these transferred MSRs is reported as Servicing Revenue, Net in our condensed consolidated statements of subservicing, and an increase in ancillary income, partially offset by an increase in prepayment rates. The remaining increase was primarily due to $0.7 million decrease in amortization expense, attributable to lower unpaid principal balance.income.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

The change in fair value of investments in ~~mortgage servicing rights~~MSR financing ~~receivable~~receivables decreased ~~$196.8~~$112.7 million, ~~during~~of which $63.5 million was attributable to changes in valuation inputs and assumptions. The change in fair value for the nine months ended September 30, 2020 was primarily due to higher delinquency rates, partially offset by a decrease in discount rates. These changes resulted from changes in estimates regarding the economic outlook caused by COVID-19. The change in fair value for the nine months ended September 30, 2019 ~~compared to the nine months ended September 30, 2018. $216.8 million of the decrease~~ was ~~related to~~relatively flat in comparison, with changes in ~~valuation inputs~~interest rates and ~~assumptions, primarily due to less~~prepayment rates being offset by a decrease in discount rates and an improvements in other factors. The remaining decrease was primarily due to $50.7 million

increase in ~~prepayment rates,~~amortization expense as a result faster prepayments in 2020, partially offset by ~~a decrease~~transfer from investments in ~~costs~~MSR financing receivables to investments in MSRs during the third quarter of ~~subservicing and an increase in ancillary income. The decrease was partially offset by $23.1 million decrease in amortization expense, attributable to lower unpaid principal balance.~~2020.

~~Change in Fair Value of Servicer Advance Investments~~General and Administrative Expenses

~~Changes in the fair value of Servicer Advance Investments related to the following:~~

Three Months Ended
September 30, Increase (Decrease) Nine Months Ended
September 30, Increase (Decrease)
2019 2018 Amount 2019 2018 Amount
Changes in interest rates and prepayment rates $ (675 ) $ 820
$ (1,495 ) $ (2,379 ) $ 2,357
$ (4,736 )
Changes in discount rates 8,419
(4,173 ) 12,592
22,045
(12,829 ) 34,874
Changes in other factors (1,103 ) (2,000 ) 897
(3,734 ) (76,109 ) 72,375
Total $ 6,641
$ (5,353 ) $ 11,994
$ 15,932
$ (86,581 ) $ 102,513

Three months ended September 30, 2020compared to the three months ended September 30, 2019.

General and administrative expenses increased by $123.0 million, primarily attributable to increases in NewRez origination and servicing volumes. As noted in the “Our Portfolio” section, during the third quarter of 2020, loan origination volume at NewRez was $18.1 billion, up from $5.7 billion in the year prior and loans serviced at NewRez was $287.2 billion, up from $184.3 billion in the year prior. The components of general and administrative expenses that increased as a result of these volumes were as follows: (i) a $92.4 million increase in compensation and benefits expense, (ii) a $12.1 million increase in loan origination expenses, (iii) a $4.2 million increase in occupancy expenses, (iv) a $5.8 million increase in legal and professional expenses, and (v) a $4.9 million increase in other expenses. In addition, subservicing expense increased (vi) a $2.5 million as a result of MSR acquisitions that closed subsequent to September 30, 2019 within our servicer subsidiary, NRM (Note 5 to our condensed consolidated financial statements), and transfer from investments in MSR financing receivables to investments in MSRs during the three months ended September 30, 2020, partially offset by portfolio runoff.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

General and administrative expenses increased by $334.3 million, primarily attributable to increases in NewRez origination and servicing volumes. As noted in the “Our Portfolio” section, during the nine months ended September 30, 2020, loan origination volume was $37.7 billion, up from $11.8 billion in the year prior and loans serviced at NewRez was $287.2 billion, up from $184.3 billion in the year prior. The components of general and administrative expenses that increased as a result of these volumes were as follows: (i) a $212.2 million increase in compensation and benefits expense, (ii) a $17.4 million increase in legal and professional expenses, (iii) a $33.6 million increase in loan origination expenses, (iv) a $12.1 million increase in occupancy expenses, and (v) an $8.1 million increase related to technology and software enhancements. There was also (vi) a

$26.9 million increase in property maintenance and inspection expense resulting from the acquisition and operations of Guardian, (vii) an increase of $11.9 million as a result of MSR acquisitions that closed subsequent to September 30, 2019 within our servicer subsidiary, NRM (Note 5 to our condensed consolidated financial statements), and the transfer from investments in MSR financing receivables to investments in MSRs during the nine months ended September 30, 2020, partially offset by portfolio runoff, and a decrease of $2.9 million in loan servicing expense primarily due to a decrease of loan servicing expense on consumer loans, held-for-investment attributable to lower unpaid principal balance. Other expenses increased $3.5 million related to increased trustee and custodian expenses, $3.3 million in amortization of intangible assets, and $8.2 million related to other general and administrative expenses.

Management Fee to Affiliate

Three months ended September 30,2020 compared to the three months ended September 30, ~~2018.~~2019.

Management fee to affiliate increased by $1.8 million as a result of capital raises subsequent to September 30, 2019.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Management fee to affiliate increased by $8.4 million as a result of capital raises subsequent to September 30, 2019.

Incentive Compensation to Affiliate

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Incentive compensation decreased $49.3 million during the nine months ended September 30,2020. This decrease was due to the fact that the incentive calculation determined in accordance with the management agreement was in a cumulative net loss position.

Change in Fair Value of Investments

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


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Excess mortgage servicing rights	$	(664)	$	2,407	$	(3,071)	$	(11,773)	$	(1,421)	$	(10,352)
Excess mortgage servicing rights, equity method investees	(393)		4,751		(5,144)		(2,902)		4,087		(6,989)
Mortgage servicing rights financing receivables	(20,275)		(41,410)		21,135		(245,906)		(133,200)		(112,706)
Servicer advance investments	3,143		6,641		(3,498)		431		15,932		(15,501)
Real estate and other securities	27,663		(5,054)		32,717		(531)		9,010		(9,541)
Residential mortgage loans	56,940		(6,512)		63,452		(108,306)		75,095		(183,401)
Consumer loans held-for-investment	(411)		—		(411)		(9,634)		—		(9,634)
Derivative instruments	23,089		41,389		(18,300)		4,213		(25,037)		29,250
Total	$	89,092	$	2,212	$	86,880	$	(374,408)	$	(55,534)	$	(318,874)

Change in Fair Value of Investments in Excess Mortgage Servicing Rights

Changes in the fair value of investments in Excess MSRs related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(1,384)	$	(2,566)	$	1,182	$	1,650	$	(20,268)	$	21,918
Changes in discount rates	3,650		4,167		(517)		(365)		13,446		(13,811)
Changes in other factors	(2,930)		806		(3,736)		(13,058)		5,401		(18,459)
Total	$	(664)	$	2,407	$	(3,071)	$	(11,773)	$	(1,421)	$	(10,352)

Three months ended September 30,2020compared to the three months ended September 30, 2019.

The ~~positive~~change in fair value of investments in excess mortgage servicing rights during the three months ended September 30, 2020 was relatively flat; however, the mark-to-market adjustments were negative, mainly driven by increased prepayment rates and decreased recapture rates. In contrast, the mark-to-market adjustments during the three months ended September 30, 2019 were ~~mainly~~positive, largely driven by ~~a decrease~~decreases in the discount rate, increases in recapture rates, ~~compared to the three months ended September 30, 2018 where the negative mark-to-market adjustments were mainly driven~~offset by ~~an increase~~increases in ~~discount~~interest rates and prepayment rates.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

The ~~positive~~negative mark-to-market adjustments during the nine months ended September 30, 2020 were mainly driven by decreased recapture rates. In contrast, the negative mark-to-market adjustments during the nine months ended September 30, 2019 were mainly driven by ~~a decrease in~~increased interest rates and prepayment rates, offset by decreased discount rates compared to an increase in discount rates during the nine months ended September 30, 2018 resulting in negative mark-to-market adjustments. The change between the mark-to-market adjustments during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 were due to the realization of unrealized gains related to the Ocwen Transaction in 2018, which were reflected in Gain (Loss) on Settlement of Investments, Net.and increased recapture rates.

Change in Fair Value of Investments in ~~Residential~~Excess Mortgage ~~Loans~~Servicing Rights, Equity Method Investees

Changes in the fair value of investments in Excess MSRs, equity method investees related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(404)	$	(432)	$	28	$	(52)	$	(7,897)	$	7,845
Changes in discount rates	661		768		(107)		(82)		3,939		(4,021)
Changes in other factors	(650)		4,415		(5,065)		(2,768)		8,045		(10,813)
Total	$	(393)	$	4,751	$	(5,144)	$	(2,902)	$	4,087	$	(6,989)

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

The change in fair value of investments in ~~Residential Mortgage Loans~~excess mortgage servicing rights, equity method investees during the three months ended September 30, 2020 were mainly driven by increased prepayment rates and decreased ~~$19.7 million~~recapture rates. In contrast, the positive mark-to-market adjustments during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily due to (i) $36.0 million gain realized through securitizations, net of (ii) $16.1 million unrealized gains from changes in valuation assumptionswere largely driven by increased recapture rates and ~~inputs.~~and decreased discount rates.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

The change in fair value of investments in ~~Residential Mortgage Loans of increased $89.9 million~~excess mortgage servicing rights, equity method investees during the nine months ended September 30, 2020 were mainly driven by decreased recapture rates. In contrast, the positive mark-to-market

adjustments during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to the election of the fair value option on certain Residential Mortgage Loans acquired beginning July 2018, coupled with a decrease inwere mainly driven by increased recapture rates and decreased discount rates, ~~on loans acquired. Residential Mortgage Loans were held at lower of cost or market value, rather than fair value, during the six months ended June 30, 2018.~~partially offset by increased prepayment rates and interest rates.

Change in Fair Value of ~~Derivative Instruments~~Investments in MSR Financing Receivables

The component of changes in the fair value of investments in MSR financing receivables related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Amortization of servicing rights	$	(36,134)	$	(48,340)	$	12,206	$	(182,085)	$	(131,417)	$	(50,668)
Change in valuation inputs and assumptions	15,859		9,349		6,510		(62,072)		1,437		(63,509)
(Gain) loss on sales	—		(2,419)		2,419		(1,749)		(3,220)		1,471
Total	$	(20,275)	$	(41,410)	$	21,135	$	(245,906)	$	(133,200)	$	(112,706)

The component of changes in the fair value of investments in MSR financing receivables related to changes in valuation inputs and assumptions related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(17,925)	$	(44,152)	$	26,227	$	26,118	$	(138,727)	$	164,845
Changes in discount rates	23,694		60,273		(36,579)		10,950		99,674		(88,724)
Changes in other factors	10,090		(6,772)		16,862		(99,140)		40,490		(139,630)
Total	$	15,859	$	9,349	$	6,510	$	(62,072)	$	1,437	$	(63,509)

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Change~~The change in fair value of ~~derivative instruments~~investments in MSR financing receivables increased ~~$34.2 million.~~$21.1 million, of which (i) $12.2 million was attributable to a decrease in amortization expense and (ii) $6.5 million was attributable to changes in valuation inputs and assumptions, primarily driven by transfer from investments in MSR financing receivables to investments in MSRs during the three months ended September 30, 2020 and decrease in discount rates, resulting from changes in estimates regarding the economic outlook caused by COVID-19. The ~~increase was primarily related to (i) a $23.5 million increase~~change in ~~unrealized gain on Interest Rate Swaps, (ii) a $5.7 million increase~~fair value associated with these transferred MSRs is reported as Servicing Revenue, Net in ~~unrealized gain on TBAs, and (iii) a $5.2 million change from unrealized loss to unrealized gain on Interest Rate Lock Commitments due to increase in market interest rates.~~our condensed consolidated statements of income.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~Change~~The change in fair value of ~~derivative instruments~~investments in MSR financing receivables decreased ~~$30.0 million.~~$112.7 million, of which $63.5 million was attributable to changes in valuation inputs and assumptions. The decrease was primarily related to (i) a $46.6 million change from unrealized gain to unrealized loss on Interest Rate Swaps. The decrease was partially offset by (ii) a $16.2 million change from unrealized loss to unrealized gain on Interest Rate Lock Commitments, and (iii) $0.9 million increase in unrealized gain on TBAs due to increase in market interest rates.

~~Gain (Loss) on Settlement of Investments, Net~~

~~Three months ended September 30,2019compared to the three months ended September 30, 2018.~~

~~Gain (loss) on settlement of investments increased by $166.6 million from a loss to a gain, primarily related to (i) a $123.7 million~~ change in loss on sale of real estate securities to gain on sale of real estate securities, (ii) a $39.6 million increase in gain on sale of residential mortgage loans, (iii) a $21.6 million increase in gain on sale or securitization of originated mortgage loans, (iv) a $11.5 million increase in gain on collapses due primarily to market interest rates and decreased delinquencies, (v) a $1.8 million decrease in loss on sale of REO, and (vi) a $0.6 million decrease in loss on extinguishment of debt related to debt restructuring. The increase was partially offset by (vii) a $33.6 million change in gain on settlement of derivatives to loss on settlement of derivatives related to TBAs and interest rate swaps, during the three months ended September 30, 2019 compared to the three months ended September 30, 2018.

~~Nine months ended September 30, 2019 compared to~~fair value for the nine months ended September 30, ~~2018.~~

~~Gain (loss) on settlement of investments increased by $50.9 million,~~2020 was primarily ~~related~~due to (i) a $267.9 million change in loss on sale of real estate securities to gain on sale of real estate securities, (ii) a $62.4 million increase in gain on sale or securitization of originated mortgage loans, (iii) a $54.8 million change from loss on sale of residential mortgage loans to gain on sale of residential mortgage loans, (iv) a $10.2 million increase in gain on collapses due primarily to market interesthigher delinquency rates, ~~and decreased delinquencies, and (v) a $2.7 million decrease in loss on sale of REO. The increase was~~ partially offset by ~~(vi)~~ a ~~$228.5 million~~decrease in discount rates. These changes resulted from changes in estimates regarding the economic outlook caused by COVID-19. The change in gain on settlement of derivatives to loss on settlement of derivatives related to TBAs and interest rate swaps, (vii) a $113.0 million decrease in gains on settlement of investments in excess MSRs and Servicer Advance Investments as a result of the Ocwen Transaction, and (viii) a $7.9 million increase in loss on extinguishment of debt related to debt restructuring, duringfair value for the nine months ended September 30, 2019 ~~compared~~was relatively flat in comparison, with changes in interest rates and prepayment rates being offset by a decrease in discount rates and improvements in other factors. The remaining decrease was primarily due to ~~the nine months ended September 30, 2018.~~$50.7 million

~~Earnings from Investments~~increase in ~~Consumer Loans, Equity Method Investees~~

~~Three months ended September 30,2019compared to the three months ended September 30, 2018.~~

~~Earnings~~amortization expense as a result faster prepayments in 2020, partially offset by transfer from investments in ~~Consumer Loans, Equity Method Investees decreased by $7.1 million as a result of a decrease~~MSR financing receivables to investments in net earnings generated by our approximately 25% member interest in LoanCo and WarrantCo (Note 9 to our Condensed Consolidated Financial Statements), primarily as a result of declining portfolio and securitization,MSRs during the ~~three months ended September 30, 2019 compared to the three months ended September 30, 2018.~~

~~Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~

~~Earnings from investments in Consumer Loans, Equity Method Investees decreased by $13.2 million as a result~~third quarter of a decrease in net earnings generated by our approximately 25% member interest in LoanCo and WarrantCo (Note 9 to our Condensed Consolidated Financial Statements), primarily as a result of declining portfolio and securitization, during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

~~Other Income (Loss), Net~~

2020.

~~Three months ended September 30,2019compared to the three months ended September 30, 2018.~~

Other income (loss), net decreased by $29.4 million, primarily attributable to (i) a $14.4 million loss from uncollectible receivables, (ii) a $12.3 million change in unrealized gain on other ABS to unrealized loss on other ABS, (iii) a $4.9 million decrease in gain on transfer of loans to REO, (iv) a $3.5 million change in unrealized gain to unrealized loss on notes and bonds payable related to the SAFT bonds acquired in the Shellpoint Acquisition (Note 1 to our Condensed Consolidated Financial Statements), (v) a $2.7 million increase in unrealized loss on contingent consideration related to the Shellpoint Acquisition (Note 1 to our Condensed Consolidated Financial Statements). The decrease was partially offset by (vi) a $6.2 million decrease in servicer advance expenses, and (vii) a $1.4 million decrease in loss on transfer of loans to other assets.

~~Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~

Other income (loss), net decreased by $26.9 million, primarily attributable to (i) a $14.4 million loss from uncollectible receivables,(ii) a $8.8 million decrease in gain on transfer of loans to REO, (iii) a $7.4 million increase in unrealized loss on contingent consideration related to the Shellpoint Acquisition (Note 1 to our Condensed Consolidated Financial Statements), (iv) a $6.1 million change in unrealized gain to unrealized loss on notes and bonds payable related to the SAFT bonds acquired in the Shellpoint

Acquisition (Note 1 to our Condensed Consolidated Financial Statements), (v) a $3.5 million decrease in positive mark-to-market adjustments for retained MSRs, and (vi) a $3.0 million decrease in unrealized gain on other ABS. The decrease was partially offset by (vii) a $7.1 million decrease in servicer advance expenses, (viii) a $4.3 million decrease in REO expenses, and (ix) a $3.7 million decrease in other losses related to residential mortgage loans.

General and Administrative Expenses

Three months ended September 30, 2020compared to the three months ended September 30, 2019.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Management Fee to Affiliate

Three months ended September 30,2020 compared to the three months ended September 30, ~~2018.~~2019.

~~General and administrative expenses~~Management fee to affiliate increased by ~~$34.9~~$1.8 million ~~primarily attributable~~as a result of capital raises subsequent to (i) a $30.2 million increase in compensation and benefits expenses, loan origination expense, as well as rent, office, and other miscellaneous G&A expenses resulting from the Shellpoint Acquisition (Note 1 to our Condensed Consolidated Financial Statements), and (ii) a $4.7 million increase in securitization fees, and deal and other consulting expenses due to increased securitization, deal, and refinancing activity during the three months ended September 30, ~~2019 compared to the three months ended September 30, 2018.~~2019.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~General and administrative expenses~~Management fee to affiliate increased by ~~$212.2~~$8.4 million ~~primarily attributable~~as a result of capital raises subsequent to (i) a $200.1 million increase in compensation and benefits expenses, loan origination expense, as well as rent, office, and other miscellaneous G&A expenses resulting from the Shellpoint Acquisition (Note 1 to our Condensed Consolidated Financial Statements), and (ii) an $11.0 million increase in securitization fees, and deal and other consulting expenses due to increased securitization, deal, and refinancing activity during the nine months ended September 30, ~~2019 compared to the nine months ended September 30, 2018.~~2019.

~~Management Fee~~Incentive Compensation to Affiliate

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Management fee~~Incentive compensation decreased $36.3 million during the three months ended September 30,2020. This decrease was due to ~~affiliate increased by $5.2 million as~~the fact that the incentive calculation determined in accordance with the management agreement was in a ~~result of increases to our gross equity subsequent to September 30, 2018.~~cumulative net loss position.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~

~~Management fee to affiliate increased by $12.2 million as a result of increases to our gross equity subsequent to September 30, 2018.~~

2019.

Incentive ~~Compensation~~compensation decreased $49.3 million during the nine months ended September 30,2020. This decrease was due to ~~Affiliate~~the fact that the incentive calculation determined in accordance with the management agreement was in a cumulative net loss position.

Change in Fair Value of Investments

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


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Excess mortgage servicing rights	$	(664)	$	2,407	$	(3,071)	$	(11,773)	$	(1,421)	$	(10,352)
Excess mortgage servicing rights, equity method investees	(393)		4,751		(5,144)		(2,902)		4,087		(6,989)
Mortgage servicing rights financing receivables	(20,275)		(41,410)		21,135		(245,906)		(133,200)		(112,706)
Servicer advance investments	3,143		6,641		(3,498)		431		15,932		(15,501)
Real estate and other securities	27,663		(5,054)		32,717		(531)		9,010		(9,541)
Residential mortgage loans	56,940		(6,512)		63,452		(108,306)		75,095		(183,401)
Consumer loans held-for-investment	(411)		—		(411)		(9,634)		—		(9,634)
Derivative instruments	23,089		41,389		(18,300)		4,213		(25,037)		29,250
Total	$	89,092	$	2,212	$	86,880	$	(374,408)	$	(55,534)	$	(318,874)

Change in Fair Value of Investments in Excess Mortgage Servicing Rights

Changes in the fair value of investments in Excess MSRs related to the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(1,384)	$	(2,566)	$	1,182	$	1,650	$	(20,268)	$	21,918
Changes in discount rates	3,650		4,167		(517)		(365)		13,446		(13,811)
Changes in other factors	(2,930)		806		(3,736)		(13,058)		5,401		(18,459)
Total	$	(664)	$	2,407	$	(3,071)	$	(11,773)	$	(1,421)	$	(10,352)

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Incentive compensation to affiliate~~The change in fair value of investments in excess mortgage servicing rights during the three months ended September 30, 2020 was relatively flat; however, the mark-to-market adjustments were negative, mainly driven by increased ~~by $12.5 million due to an increase in our incentive compensation earnings measure resulting from~~prepayment rates and decreased recapture rates. In contrast, the ~~changes in the income and expense items described above, excluding any unrealized gains or losses from~~ mark-to-market ~~valuation changes on investments and debt,~~adjustments during the three months ended September 30, 2019 ~~compared to~~were positive, largely driven by decreases in the ~~three months ended September 30, 2018.~~discount rate, increases in recapture rates, offset by increases in interest rates and prepayment rates.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~Incentive compensation to affiliate~~The negative mark-to-market adjustments during the nine months ended September 30, 2020 were mainly driven by decreased ~~by $15.9 million due to a decrease in our incentive compensation earnings measure resulting from~~recapture rates. In contrast, the ~~changes in the income and expense items described above, excluding any unrealized gains or losses from~~negative mark-to-market ~~valuation changes on investments and debt,~~adjustments during the nine months ended September 30, 2019 ~~compared~~were mainly driven by increased interest rates and prepayment rates, offset by decreased discount rates and increased recapture rates.

Change in Fair Value of Investments in Excess Mortgage Servicing Rights, Equity Method Investees

Changes in the fair value of investments in Excess MSRs, equity method investees related to the ~~nine months ended September 30, 2018.~~following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(404)	$	(432)	$	28	$	(52)	$	(7,897)	$	7,845
Changes in discount rates	661		768		(107)		(82)		3,939		(4,021)
Changes in other factors	(650)		4,415		(5,065)		(2,768)		8,045		(10,813)
Total	$	(393)	$	4,751	$	(5,144)	$	(2,902)	$	4,087	$	(6,989)

~~Loan Servicing Expense~~

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Loan~~The change in fair value of investments in excess mortgage servicing ~~expense~~rights, equity method investees during the three months ended September 30, 2020 were mainly driven by increased prepayment rates and decreased recapture rates. In contrast, the positive mark-to-market adjustments during the three months ended September 30, 2019 were largely driven by $3.9 million primarily due to (i) a $4.5 million decrease of loan servicing expense on Consumer Loans, held for investment, attributable to lower unpaid principal balance, partially offset by (ii) a $0.6 million increase of loan servicing expense on Residential Mortgage Loans portfolio due to the acquisition of loans through the execution of calls.increased recapture rates and and decreased discount rates.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~Loan~~The change in fair value of investments in excess mortgage servicing ~~expense~~rights, equity method investees during the nine months ended September 30, 2020 were mainly driven by decreased recapture rates. In contrast, the positive mark-to-market

adjustments during the nine months ended September 30, 2019 were mainly driven by ~~$7.4 million primarily due to (i) a $8.2 million decrease of loan servicing expense on Consumer Loans, held for investment, attributable to lower unpaid principal balance,~~increased recapture rates and decreased discount rates, partially offset by ~~(ii) a $0.8 million increase~~increased prepayment rates and interest rates.

Change in Fair Value of ~~loan servicing expense on Residential Mortgage Loans portfolio due~~Investments in MSR Financing Receivables

The component of changes in the fair value of investments in MSR financing receivables related to the ~~acquisition~~following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Amortization of servicing rights	$	(36,134)	$	(48,340)	$	12,206	$	(182,085)	$	(131,417)	$	(50,668)
Change in valuation inputs and assumptions	15,859		9,349		6,510		(62,072)		1,437		(63,509)
(Gain) loss on sales	—		(2,419)		2,419		(1,749)		(3,220)		1,471
Total	$	(20,275)	$	(41,410)	$	21,135	$	(245,906)	$	(133,200)	$	(112,706)

The component of ~~loans through~~changes in the ~~execution~~fair value of ~~calls.~~investments in MSR financing receivables related to changes in valuation inputs and assumptions related to the following:

~~Subservicing Expense~~


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	(17,925)	$	(44,152)	$	26,227	$	26,118	$	(138,727)	$	164,845
Changes in discount rates	23,694		60,273		(36,579)		10,950		99,674		(88,724)
Changes in other factors	10,090		(6,772)		16,862		(99,140)		40,490		(139,630)
Total	$	15,859	$	9,349	$	6,510	$	(62,072)	$	1,437	$	(63,509)

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Subservicing~~The change in fair value of investments in MSR financing receivables increased $21.1 million, of which (i) $12.2 million was attributable to a decrease in amortization expense ~~increased $9.7~~and (ii) $6.5 million was attributable to changes in valuation inputs and assumptions, primarily driven by transfer from investments in MSR financing receivables to investments in MSRs during the three months ended September 30, ~~2019 compared to~~2020 and decrease in discount rates, resulting from changes in estimates regarding the ~~three months ended September 30, 2018~~economic outlook caused by COVID-19. The change in fair value associated with these transferred MSRs is reported as ~~a result~~Servicing Revenue, Net in our condensed consolidated statements of an increase in subserviced loans due to transactions that closed subsequent to September 30, 2018 within our licensed servicer subsidiary, NRM (Note 5 to our Condensed Consolidated Financial Statements).income.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~Subservicing expense increased $12.1~~The change in fair value of investments in MSR financing receivables decreased $112.7 million, ~~during~~of which $63.5 million was attributable to changes in valuation inputs and assumptions. The change in fair value for the nine months ended September 30, 2020 was primarily due to higher delinquency rates, partially offset by a decrease in discount rates. These changes resulted from changes in estimates regarding the economic outlook caused by COVID-19. The change in fair value for the nine months ended September 30, 2019 ~~compared~~was relatively flat in comparison, with changes in interest rates and prepayment rates being offset by a decrease in discount rates and improvements in other factors. The remaining decrease was primarily due to ~~the nine months ended September 30, 2018~~$50.7 million

increase in amortization expense as a result faster prepayments in 2020, partially offset by transfer from investments in MSR financing receivables to investments in MSRs during the third quarter of ~~an increase~~2020.

Change in ~~subserviced loans due~~Fair Value of Servicer Advance Investments

Changes in the fair value of Servicer Advance Investments related to ~~transactions that closed subsequent to September 30, 2018 within our licensed servicer subsidiary, NRM (Note 5 to our Condensed Consolidated Financial Statements).~~the following:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		2020		2019		Amount
Changes in interest rates and prepayment rates	$	205	$	(675)	$	880	$	(1,869)	$	(2,379)	$	510
Changes in discount rates	2,219		8,419		(6,200)		2,219		22,045		(19,826)
Changes in other factors	719		(1,103)		1,822		81		(3,734)		3,815
Total	$	3,143	$	6,641	$	(3,498)	$	431	$	15,932	$	(15,501)

~~Income Tax Expense (Benefit)~~

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~Income tax expense (benefit) changed~~The positive mark-to-market adjustments during the three months ended September 30, 2020 were mainly driven by ~~$9.0 million, as~~ a ~~result of an income tax benefit of $5.4 million~~decrease in discount rates that caused the fair value to increase by $2.2 million. The mark-to-market adjustment during the three months ended September 30, 2019 ~~compared to an income tax expense of $3.6 million during~~was also positive, mainly driven by a decrease in the ~~three months ended September 30, 2018, primarily due to the deferred tax benefit generated by changes in~~discount rates that caused the fair value ~~of MSRs quarter over quarter.~~to increase by $8.4 million.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~

2019.

~~Income tax expense (benefit)~~
~~changed~~

The positive mark-to-market adjustments during the nine months ended September 30, 2020 were mainly driven by ~~$24.9 million, as~~ a ~~result of an income tax expense of $19.0 million~~decrease in the discount rates that caused the fair value to increase by $2.2 million. The positive mark-to market adjustment during the nine months ended September 30, 2019 ~~compared to an income tax benefit of $6.0 million during~~was mainly driven by a larger decrease in the ~~nine months ended September 30, 2018, primarily due to the deferred tax expense generated by changes in~~discount rates that caused the fair value ~~of MSRs giving rise~~ to an increase by $22.0 million. This was slightly offset by unfavorable changes in ~~taxable income in~~interest rates, prepayment rates, and other factors which caused the ~~TRS.~~fair value to decrease by $6.1 million.

Change in Fair Value of Real Estate and Other Securities

~~Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries~~

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

The change in fair value of investments in real estate and other securities increased $32.7 million, primarily due to an increase in the size of the portfolio of fair value option bonds due to electing fair value option on non-agency bonds acquired after January 1, 2020 and Agency bonds acquired after April 1, 2020, as well as improved economic outlook as the broad market continued to see spreads tighten relative to the levels present during the initial onset of COVID-19.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The change in fair value of investments in real estate and other securities decreased $9.5 million, primarily due to the addition of Agency fair value option bonds in the portfolio, and the amortization being recorded through the change in fair value.

Change in Fair Value of Residential Mortgage Loans

Three months ended September 30,2020compared to the three months ended September 30, 2019.

The change in fair value of investments in residential mortgage loans increased $63.5 million during the quarter ended September 30, 2020 due to $48.6 million increase in loss realized through securitization and $14.9 million increase related to changes in valuation inputs and assumptions.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The change in fair value of investments in residential mortgage loans decreased $183.4 million primarily due to (i) a $324.3 million decrease related to changes in valuation inputs and assumptions resulted from changes in estimates regarding the

economic outlook caused by COVID-19, partially offset by (ii) a $141.5 million increase due to less realization of gain through securitizations.

Change in Fair Value of Investments in Consumer Loans Held-for-Investment

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Change in fair value of investments in consumer loans decreased $0.4 million, as the valuation remained relatively consistent with June 30, 2020. Fair value option was elected as of January 1, 2020.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Change in fair value of investments in consumer loans decreased $9.6 million due to changes in valuation inputs and assumptions resulted from changes in estimates regarding the economic outlook caused by COVID-19. Fair value option was elected as of January 1, 2020.

Change in Fair Value of Derivative Instruments

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Change in fair value of derivative instruments decreased $18.3 million due to a decreased favorable change from unrealized loss to unrealized gain on interest rate swaps, largely resulting from changes in the forward LIBOR curve at September 30, 2020, and September 30, 2019, respectively.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Change in fair value of derivative instruments increased $29.3 million. The increase was primarily related to a decrease in unrealized loss on interest rate swaps largely resulting from changes in the forward LIBOR curve at September 30, 2020, and September 30, 2019, respectively.

Gain (Loss) on Settlement of Investments, Net

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Gain (loss) on settlement of investments, net decreased $228.1 million during the three months ended September 30, 2020 due to (i) an $87.3 million decrease in gain on sales of marketable securities, (ii) a $66.3 million loss on extinguishment of debt primarily attributable to the 2020 Term Loan, (iii) a decrease of $55.4 million in gains related to deal collapses, (iv) an increase of $18.0 million in losses on our MSR portfolio, and (v) a $12.9 million increase in losses on derivatives, partially offset by (vi) a $4.2 million increase in gain on REO sales, (vii) a $3.8 million decrease in losses on the mark-to-market adjustment on TBAs and (viii) a $3.4 million increase in gain on sales of loans.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Gain (loss) on settlement of investments, net decreased $1,065.4 million during the nine months ended September 30, 2020 due to (i) a $954.8 million loss on sales of non-agency mortgage-backed securities, (ii) a $56.3 million loss from extinguishment of the 2020 Term Loan, (iii) a $49.3 million increase in losses on loan sales, (iv) a $29.5 million increase in losses on derivatives, (v) a $19.9 million realized loss on our MSR portfolio, and (vi) a $15.9 million decrease in gains on deal collapses, partially

offset by (vii) a $48.8 million decrease in losses on the mark-to-market adjustment on TBAs, and (viii) a $12.1 million increase in gains on sales of REO.

Earnings from Investments in Consumer Loans, Equity Method Investees

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Earnings from investments in consumer loans, equity method investees increased$2.5 million as a result of a loss during the three months ended September 30, 2019. Investments in LoanCo and WarrantCo were fully distributed as of December 31, 2019.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Earnings from investments in consumer loans, equity method investees increased$0.9 millionas a result of a loss during the nine months ended September 30, 2019. Investments in LoanCo and WarrantCo were fully distributed as of December 31, 2019.

Other Income (Loss), Net

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Other income increased by $36.1 million, primarily due to (i) a $23.7 million increase largely related to the Guardian Asset Management and Ditech recovery business acquisitions during 2019, (ii) a loss of $14.4 million on receivables related to our loan book during the third quarter of 2019, (iii) a $5.5 million unrealized gains on Ocwen stock, (iv) a $1.7 million gain on consumer loans recoveries, and (v) a $1.5 million decrease in REO expenses, partially offset by (vi) a $4.2 million unrealized loss on our equity method investments, (vii) an increase of $4.0 million in advance expenses, and (viii) a $3.8 million increase in provisions for servicing losses.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Other income decreased by $7.4 million, primarily due to (i) a $51.8 million loss on our equity method investments, (ii) an $18.9 million provision for servicing losses, (iii) a decrease to the change in fair value of our retained MSR assets of $5.0 million, (iv) a $4.2 million decrease in change in fair value of warrants, (v) a $2.9 million decrease in unrealized gains on Ocwen stock, (vi) a $2.8 million decrease in gains on transfer of loans to REO, and (vii) a $2.1 million decrease in change in fair value of advance servicing assets, partially offset by (viii) a $63.3 million increase in ancillary income largely related to the Guardian Asset Management and Ditech recovery business acquisitions during 2019, (ix) an $8.3 million loss on receivables related to our loan book during 2019, (x) a $5.5 million unrealized gain on notes and bonds payable, (xi) a $5.2 million gain on recoveries of consumer loan chargeoffs.

Provision (Reversal) for Credit Losses on Securities

Three months ended September 30, 2020 compared to the three months ended September 30, 2019.

The provision for credit losses on securities decreased by$9.4 millionmillion primarily resulting from a reversal of credit losses on securities during the third quarter of 2020, driven by improving market conditions. Effective January 1, 2020, these securities are accounted for in accordance with the new credit loss accounting standard CECL (Notes 1 and 7 to our condensed consolidated financial statements). The CECL provision in the first quarter of 2020 was impacted by the significant deterioration in macroeconomic forecasts between January 1 and March 31, 2020 due to the economic disruption caused by the COVID-19 pandemic. The negative effect of these market conditions was lessened during the second and third quarters, leading to the reversal of credit losses on securities. Our provision is inherently based on assumptions and estimates, and adjustments to such assumptions may affect our future results. Consequently, forecasts that indicate improving economic conditions may result in a reversal in previously recognized provision for credit losses.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The provision for credit losses on securities decreased by$6.8 million primarily resulting from a lesser decrease in fair values of Non-Agency RMBS due to credit losses, as compared to the impairment taken during the nine months ended September 30, 2019 on Non-Agency RMBS purchased with existing credit impairment. Impairment resulted from fair value falling below amortized cost basis for the securities held as of September 30, 2019. Effective January 1, 2020, these securities are accounted

for in accordance with the new credit loss accounting standard CECL (Notes 1 and 7 to our condensed consolidated financial statements). The CECL provision for the nine months ended September 30, 2020 was impacted by the significant deterioration in macroeconomic forecasts between January 1 and March 31, 2020 due to the economic disruption caused by the COVID-19 pandemic. The negative effect of these market conditions was lessened during the second and third quarters, leading to the reversal of credit losses on securities. Our provision is inherently based on assumptions and estimates, and adjustments to such assumptions may negatively affect our future results. Consequently, forecasts that indicate weak or deteriorating economic conditions may result in a higher provision for credit losses.

Valuation and Credit Loss Provision (Reversal) on Loans and Real Estate Owned

Three months ended September 30,2020compared to the three months ended September 30, 2019.

The $25.3 millionincrease in the valuation and loss provision (reversal) on loans and real estate owned resulted from (i) a $34.3 million increase in impairment on residential mortgage loans related to impact of the COVID-19 outbreak on the overall economy, partially offset by (ii) a $3.1 million decrease in impairment on certain REOs with a increase in home prices, and (iii) a $5.9 million decrease in provision due to electing fair value option on consumer loans.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The$110.5 millionincrease in the valuation and loss provision (reversal) on loans and real estate owned resulted from (i) a $138.4 million increase in impairment on residential mortgage loans related to changes in interest rates and low performance, partially offset by (ii) a $3.3 million decrease in impairment on certain REOs with a increase in home prices, and (iii) a $24.6 million decrease in provision due to electing fair value option on consumer loans.

Income Tax Expense (Benefit)

For the three and nine months ended September 30, 2020, we recognized deferred tax expense (benefit) of $99.4 million and $(42.3) million, respectively, primarily reflecting deferred tax benefits resulting from changes in the fair value of loans and MSRs during the first quarter of 2020, partially offset by deferred tax expense generated from income in our servicing and origination business segments in the second and third quarters. The taxable income of the operating businesses is absorbed by our historical net operating losses, reducing current taxable income in our TRSs.

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Income tax expense (benefit) changed by $106.3 million primarily due to deferred tax expense generated from income in our servicing and origination business segments.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Income tax expense (benefit) changed by $67.6 million primarily due to deferred tax benefits resulting from changes in the fair value of loans and MSRs.

Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries

Three months ended September 30,2020compared to the three months ended September 30, 2019.

Noncontrolling interests in income of consolidated subsidiaries ~~increased~~decreased by ~~$3.9~~$3.1 million primarily due to (i) a ~~$1.8~~$6.4 million decrease in noncontrolling interest income related to the consumer loan companies, partially offset by (ii) a $0.9 million increase in other’s interest in the net income of the Buyer as a result of ~~a change from negative to positive mark-to-market adjustments in the fair value of the Buyer’s assets and lower interest expense, partially offset by a net decrease in~~higher interest income, ~~earned on the Buyer’s levered assets, (ii)~~and (iii) a ~~$1.3~~$2.4 million increase from the Shelter JVs, ~~acquired as part of the Shellpoint Acquisition in the third quarter of 2018 (Note 1 to our Condensed Consolidated Financial Statements), and (iii) a $0.8 million increase~~driven by higher earnings from ~~a net increase in income from the Consumer Loan Companies, which are 46.5% owned by third parties,~~originations during the three months ended September 30, ~~2019.~~2020.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

Noncontrolling interests in income of consolidated subsidiaries ~~decreased~~increased by ~~$0.1~~$2.1 million primarily due to (i) a ~~$5.4~~$6.1 million ~~decrease~~increase in noncontrolling interests at the Shelter JVs, driven by higher earnings from originations, and (ii) a ~~net decrease~~$0.5 million increase in ~~income from~~noncontrolling interests related to the ~~Consumer Loan Companies, which are 46.5% owned by third parties, during the nine months ended September 30, 2019. The decrease was~~consumer loan companies, partially offset by ~~(ii) a $3.2 million increase from the Shelter JVs, acquired as part of the Shellpoint Acquisition in the third quarter of 2018 (Note 1 to our Condensed Consolidated Financial Statements), and~~ (iii) a ~~$2.1~~$4.5 million ~~increase~~decrease in

other’s interest in the net income of the Buyer as a result of ~~a change from negative to positive mark-to-market adjustments in the~~lower fair value ~~of the Buyer’s assets and lower interest expense, partially offset by a net decrease in interest income earned on the Buyer’s levered assets,~~adjustments during the nine months ended September 30, ~~2019.~~2020.

Dividends on Preferred Stock

Three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019.

~~During~~The dividends on preferred stock is related to our 7.500% Preferred Series A, 7.125% Preferred Series B, and 6.375% Preferred Series C preferred stock. There was an increase of $9.0 million on our preferred stock during the three months ended September 30, ~~2019, in a public offering, we issued Preferred Series A and~~2020, due to the Preferred Series B ~~(Note 13 to our Condensed Consolidated Financial Statements),~~preferred stock being issued during August 2019 and ~~declared~~the Preferred Series C preferred ~~dividends of $5.3 million.~~stock not being issued until after the three months ended September 30, 2019.

Nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019.

~~During~~The dividends on preferred stock is related to our 7.500% Preferred Series A, 7.125% Preferred Series B, and 6.375% Preferred Series C preferred stock. There was an increase of $34.6 million on our preferred stock during the nine months ended September 30, ~~2019, in a public offering, we issued Preferred Series A and~~2020, due to the Preferred Series B ~~(Note 13 to our Condensed Consolidated Financial Statements),~~preferred stock being issued during August 2019, and ~~declared~~the Preferred Series C preferred ~~dividends of $5.3 million.~~stock not being issued until after the nine months ended September 30, 2019.

Other Comprehensive Income. See “—Accumulated Other Comprehensive Income (Loss)” below.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, and other general business needs. Additionally, to maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income. We note that a portion of this requirement may be able to be met in future years through stock dividends, rather than cash, subject to limitations based on the value of our stock.

Our primary sources of funds ~~for liquidity generally consist of~~are cash provided by operating activities (primarily income from ~~our investments in Excess MSRs, MSRs, Servicer Advance Investments, RMBS~~servicing and ~~loans)~~originations), sales of and repayments from our investments, potential debt financing sources, including securitizations, and the issuance of equity securities, when feasible and appropriate. Our ability to utilize funds generated by the MSRs held in our servicer subsidiaries, NRM and NewRez, is subject to regulatory requirements regarding NRM’s and NewRez’s liquidity. As of September 30, 2019, approximately $454.3 million of our cash and cash equivalents was held at NRM and NewRez, of which $288.0 million was in excess of regulatory liquidity requirements and available for deployment.

Our primary uses of funds are the payment of interest, management fees, incentive compensation, servicing and subservicing expenses, outstanding commitments (including margins and mortgage loan originations) ~~and~~, other operating expenses, ~~and the~~ repayment of borrowings and hedge obligations, ~~as well as dividends. Although~~dividends and funding of future servicer advances, which are expected to increase in the near term due to COVID-19. The ongoing economic impact of the COVID-19 pandemic has resulted in an increase in servicing advances and liquidity demands related to the utilization of forbearance programs offered by the CARES Act. In April 2020, we ~~have other sources~~expanded our committed advance facilities capacity by $1.3 billion, which we believe will be adequate for our needs. We also plan to finance GNMA advances with existing MSR lines and corporate cash flow, and may utilize Ginnie Mae’s Pass-Through Assistance Program. In addition, on May 19, 2020, the Company entered into a three-year senior secured term loan facility agreement in the principal amount of $600.0 million. In September 2020, the Company used the net proceeds from a private debt offering, together with cash on hand, to fully retire all of the outstanding principal balance on the 2020 Term Loan. The Company’s total cash and cash equivalents at September 30, 2020 was $841.0 million.

Our ability to utilize funds generated by the MSRs held in our servicer subsidiaries, NRM and NewRez, is subject to and limited by certain regulatory requirements, including maintaining excess capital and related tangible net worth. As of September 30, 2020, approximately $555.4 million of our cash and cash equivalents were held at NRM and NewRez, of which $377.1 million were in excess of regulatory liquidity requirements. NRM and NewRez are expected to maintain compliance with applicable net worth requirements throughout the year. Use of a government-sponsored advance facility, such as ~~sales of~~Ginnie Mae’s Pass-Through Assistance Program could further limit our ability to utilize funds generated by NRM and repayments from our investments, potential debt financing sources and the issuance of equity securities, there can be no assurance that we will generate sufficient cash or achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions in the future. We have also committed to purchase certain future servicer advances. Currently, we expect that net recoveries of servicer advances will exceed net fundings for the foreseeable future. However, in the event of a significant economic downturn, net fundings could exceed net recoveries, which could have a materially adverse impact on our liquidity and could also result in additional expenses, primarily interest expense on any related financings of incremental advances.NewRez.

Currently, our primary sources of financing are secured financing agreements and secured notes and bonds payable, ~~and repurchase agreements,~~ although we have in the past and may in the future also pursue one or more other sources of financing such as securitizations and other secured and unsecured forms of borrowing. As of September 30, ~~2019,~~2020, we had outstanding ~~repurchase~~secured financing agreements with an aggregate face amount of approximately ~~$23.1~~$14.7 billion to finance our investments. The financing of our entire RMBS portfolio, which generally has 3030- to ~~90 day~~90-day terms, is subject to margin calls. Under ~~repurchase~~secured financing agreements, we sell a security to a counterparty and concurrently agree to repurchase the same security at a later date for a higher specified price. The

sale price represents financing proceeds and the difference between the sale and repurchase prices represents interest on the financing. The price at which the security is sold generally represents the market value of the security less a discount or “haircut,” which can range broadly, for example from 2%3% - 5%12% for Agency RMBS, 4%12% - ~~60%~~75% for Non-Agency RMBS, and 6%1% - ~~55%~~62% for residential mortgage loans. During the term of the ~~repurchase~~secured financing agreement, the counterparty holds the security as collateral. If the agreement is subject to margin calls, the counterparty monitors and calculates what it estimates to be the value of the collateral during the term of the agreement. If this value declines by more than a de minimis threshold, the counterparty could require us to post additional collateral (or “margin”) in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents. Furthermore, we may, from time to time, be a party to derivative agreements or financing arrangements that may be subject to margin calls based on the value of such instruments. In addition, ~~$2.6~~$3.1 billion face amount of our MSR and Excess MSR financing is subject to mandatory monthly repayment to the extent that the outstanding balance exceeds the market value (as defined in the related agreement) of the financed asset multiplied by the contractual maximum loan-to-value ratio. We seek to maintain adequate cash reserves and other sources of available liquidity to meet any margin calls or related requirements resulting from decreases in value related to a reasonably possible (in our opinion) change in interest rates.

Our ability to obtain borrowings and to raise future equity capital is dependent on our ability to access borrowings and the capital markets on attractive terms. We continually monitor market conditions for financing opportunities and at any given time may be entering or pursuing one or more of the transactions described above. Our Manager’s senior management team has extensive long-term relationships with investment banks, brokerage firms and commercial banks, which we believe ~~will~~ enhance our ability to source and finance asset acquisitions on attractive terms and access borrowings and the capital markets at attractive levels.

Our ability to fund our operations, meet financial obligations and finance target asset acquisitions may be impacted by our ability to secure and maintain our secured financing agreements, credit facilities and other financing arrangements. Because secured financing agreements and credit facilities are short-term commitments of capital, lender responses to market conditions may make it more difficult for us to renew or replace, on a continuous basis, our maturing short-term borrowings and have imposed, and may continue to impose, more onerous conditions when rolling such financings. If we are not able to renew our existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets.

Issues related to financing are exacerbated in times of significant dislocation in the financial markets, such as those experienced during the first quarter and continuing into the second quarter of 2020 due to the COVID-19 pandemic. While market volatility has subsided since the second quarter of 2020, it is possible that volatility may increase again, and our lenders may become unwilling or unable to provide us with financing and we could be forced to sell our assets at an inopportune time when prices are depressed. In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us. Our lenders also have revised and may continue to revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, including haircuts and requiring additional collateral in the form of cash, based on, among other factors, the regulatory environment and their management of actual and perceived risk. Moreover, the amount of financing we receive under our secured financing agreements will be directly related to our lenders’ valuation of our target assets that cover the outstanding borrowings.

During the first quarter and continuing into the second quarter of 2020, consistent with current conditions in the mortgage REIT industry, we have observed (i) an increase in “haircuts,” which represent the difference in percentage terms between the fair value of the collateral and the amount the counterparty will lend and (ii) a mark-down of our mortgage assets held as collateral by our financing counterparties, which resulted in us having to provide additional cash or securities to satisfy higher than historical levels of margin calls (although these conditions have moderately stabilized in recent weeks). We used our cash on hand, a portion of the approximately $389.5 million proceeds from our underwritten public offering of 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock in February 2020 and the proceeds from asset sales to meet margin calls. While we have met our margin calls to date, further significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and could cause the value of our common stock to decline.

With respect to the next 12 months, we expect that our cash on hand combined with our cash flow provided by operations and our ability to roll our ~~repurchase~~secured financing agreements and servicer advance financings will be sufficient to satisfy our anticipated liquidity needs with respect to our current investment portfolio, including related financings, potential margin calls, mortgage loan ~~originations~~origination and operating expenses. Our ability to roll over short-term borrowings is critical to our liquidity outlook. We have a significant amount of near-term maturities, which we expect to be able to refinance. If we cannot repay or refinance our debt on favorable terms, we will need to seek out other sources of liquidity. While it is inherently more difficult to forecast

beyond the next 12 months, we currently expect to meet our long-term liquidity requirements through our cash on hand and, if needed, additional borrowings, proceeds received from ~~repurchase~~secured financing agreements and other financings, proceeds from equity offerings and the liquidation or refinancing of our assets.

These short-term and long-term expectations are forward-looking and subject to a number of uncertainties and assumptions, including those described under “—Market Considerations” as well as “Risk Factors.” If our assumptions about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and such a shortfall may occur rapidly and with little or no notice, which could limit our ability to address the shortfall on a timely basis and could have a material adverse effect on our business.

Our cash flow provided by operations differs from our net income due to these primary factors: (i) the difference between (a) accretion and amortization and unrealized gains and losses recorded with respect to our investments and (b) cash received therefrom, (ii) unrealized gains and losses on our derivatives, and recorded impairments, if any, (iii) deferred taxes, and (iv) principal cash flows related to held-for-sale loans, which are characterized as operating cash flows under GAAP.

In addition to the information referenced above, the following factors could affect our liquidity, access to capital resources and our capital obligations. As such, if their outcomes do not fall within our expectations, changes in these factors could negatively affect our liquidity.

•

•Access to Financing from Counterparties – Decisions by investors, counterparties and lenders to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with the terms of our current credit arrangements, industry and market trends, the availability of capital and our investors’, counterparties’ and lenders’ policies and rates applicable thereto, and the relative attractiveness of alternative investment or lending opportunities. Our business strategy is dependent upon our ability to finance certain of our investments at rates that provide a positive net spread.

•

~~Impact of Expected Repayment or Forecasted Sale on Cash Flows~~ – The timing of and proceeds from the repayment or sale of certain investments may be different than expected or may not occur as expected. Proceeds from sales of assets are unpredictable and may vary materially from their estimated fair value and their carrying value. Further, the availability of investments that provide similar returns to those repaid or sold investments is unpredictable and returns on new investments may vary materially from those on existing investments.

•Impact of Expected Repayment or Forecasted Sale on Cash Flows – The timing of and proceeds from the repayment or sale of certain investments may be different than expected or may not occur as expected. Proceeds from sales of assets are unpredictable and may vary materially from their estimated fair value and their carrying value. Further, the availability of investments that provide similar returns to those repaid or sold investments is unpredictable and returns on new investments may vary materially from those on existing investments.

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Debt Obligations

The following table presents certain information regarding our debt obligations (dollars in thousands):


	September 30, 2019																September 30, 2020
									Collateral																Collateral
Debt Obligations/Collateral	Outstanding Face Amount		Carrying Value^(A)		Final Stated Maturity^(B)	Weighted Average Funding Cost		Weighted Average Life (Years)	Outstanding Face		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)	Debt Obligations/Collateral	Outstanding Face Amount		Carrying Value(A)		Final Stated Maturity(B)	Weighted Average Funding Cost		Weighted Average Life (Years)	Outstanding Face		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)
Repurchase Agreements^(C)
Secured Financing Agreements(C)																Secured Financing Agreements(C)
Repurchase Agreements:																Repurchase Agreements:
Warehouse Credit Facilities-Residential Mortgage Loans(F)																Warehouse Credit Facilities-Residential Mortgage Loans(F)	$	3,759,627	$	3,754,803	Oct-20 to Jul-22	2.45	%	1.0	$	4,156,437	$	4,250,005	$	4,215,066	17.1
Agency RMBS^(D)	$	10,733,236	$	10,733,236	Oct-19 to May-20	2.31	%	0.1	$	10,611,553	$	10,825,984	$	10,886,787	2.4	Agency RMBS(D)	$	9,958,246	$	9,958,246	Oct-20 to Dec-20	0.23	%	0.2	$	9,930,973	$	10,285,282	$	10,361,950	3.8
Non-Agency RMBS ^(E)	7,144,329		7,144,329		Oct-19 to Sep-20	3.08	%	0.1	21,021,981		7,113,471		7,786,425		6.3	Non-Agency RMBS(E)	952,323		950,836		Oct-20 to Dec-20	4.09	%	0.1	18,999,108		1,730,072		1,734,798		6.0
Residential Mortgage Loans^(F)	5,165,150		5,164,159		Oct-19 to May-21	3.74	%	0.6	5,960,958		6,025,596		5,805,242		13.9
Real Estate Owned^(G)(H)	68,651		68,635		Oct-19 to May-21	3.85	%	0.4	N/A		N/A		95,410		N/A	Real Estate Owned(G)(H)	2,983		2,983		Oct-20 to Jul-22	3.94	%	1.3	N/A		N/A		3,796,000		N/A
Total Repurchase Agreements	23,111,366		23,110,359			2.87	%	0.3
Notes and Bonds Payable
Total Secured Financing Agreements																Total Secured Financing Agreements	14,673,179		14,666,868			1.05	%	0.4
Secured Notes and Bonds Payable																Secured Notes and Bonds Payable
Excess MSRs^(I)	269,759		269,759		Feb-20 to Jul-22	4.95	%	1.9	103,514,484		315,847		416,899		5.8	Excess MSRs(I)	264,980		264,980		Nov-20 to Aug-24	3.91	%	1.1	107,584,509		333,874		421,907		6.0
MSRs^(J)	2,360,182		2,352,961		Mar-20 to Jul-24	4.23	%	2.0	452,215,330		4,718,333		5,113,271		5.5	MSRs(J)	2,794,108		2,786,144		Jan-21 to Jul-25	4.57	%	2.3	444,177,336		4,645,075		4,675,648		5.8
Servicer Advance Investments(K)																Servicer Advance Investments(K)	412,538		412,538		Apr-21 to Aug-21	2.27	%	0.6	434,998		510,995		535,760		6.3
Servicer Advances^(K)	2,903,093		2,896,819		Jan-20 to Aug-23	3.22	%	2.0	3,316,416		3,482,368		3,512,345		1.6	Servicer Advances(K)	2,502,158		2,492,239		Apr-21 to Sep-23	2.84	%	1.9	2,747,433		2,857,040		2,857,040		0.7
Residential Mortgage Loans^(L)	1,012,342		1,015,360		Apr-20 to Jul-43	4.09	%	3.7	1,258,875		1,277,193		1,194,186		8.0	Residential Mortgage Loans(L)	1,103,847		1,096,638		Apr-21 to Aug-60	4.26	%	30.1	1,656,351		1,588,739		1,413,258		4.1
Consumer Loans^(M)	868,214		870,973		Dec-21 to May-36	3.25	%	4.0	878,317		884,473		881,069		5.6	Consumer Loans(M)	678,951		681,109		September-37	2.03	%	3.0	663,047		718,287		718,287		3.6
Total Notes and Bonds Payable	7,413,590		7,405,872			3.73	%	2.5
Total Secured Notes and Bonds Payable																Total Secured Notes and Bonds Payable	7,756,582		7,733,648			3.60	%	6.1
Total/ Weighted Average	$	30,524,956	$	30,516,231		3.08	%	0.8								Total/ Weighted Average	$	22,429,761	$	22,400,516		1.93	%	2.3


~~(A)~~	~~Net of deferred financing costs.~~


~~(B)~~	~~All debt obligations with a stated maturity through October 31, 2019 were refinanced, extended or repaid.~~


~~(C)~~	~~These repurchase agreements had approximately $77.8 million of associated accrued interest payable as of September 30, 2019.~~


~~(D)~~	~~All of the Agency RMBS repurchase agreements have a fixed rate. Collateral amounts include approximately $4.4 billion of related trade and other receivables.~~

~~(E)~~

$6,585.6 million face amount of the Non-Agency RMBS repurchase agreements have LIBOR-based floating interest rates while the remaining $558.8 million face amount of the Non-Agency RMBS repurchase agreements have a fixed rate. This also includes repurchase agreements of $7.5 million on retained servicer advance and consumer loan bonds and of $671.3 million on retained bonds collateralized by Agency MSRs.


~~(F)~~	~~All of these repurchase agreements have LIBOR-based floating interest rates.~~


~~(G)~~	~~All of these repurchase agreements have LIBOR-based floating interest rates.~~


~~(H)~~	Includes financing collateralized by receivables including claims from FHA on Ginnie Mae EBO loans for which foreclosure has been completed and for which we have made or intend to make a claim on the FHA guarantee.

~~(I)~~

~~Includes $169.8~~

(A)Net of deferred financing costs.

(B)All debt obligations with a stated maturity through October 31, 2020 were refinanced, extended or repaid.

(C)These secured financing agreements had approximately $19.5 million of associated accrued interest payable as of September 30, 2020.

(D)All Agency RMBS repurchase agreements have a fixed rate.

(E)All Non-Agency RMBS secured financing agreements have LIBOR-based floating interest rates. This also includes repurchase agreements and related collateral of $30.4 million and $37.3 million, respectively, on retained bonds collateralized by Agency MSRs.

(F)Includes $270.7 million of repurchase agreements which bear interest at a fixed rate of 4.4%. All remaining repurchase agreements have LIBOR-based floating interest rates.

(G)All repurchase agreements have LIBOR-based floating interest rates.

(H)Includes financing collateralized by receivables including claims from FHA on Ginnie Mae EBO loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.

(I)Includes $70.2 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.00%, and $100.0 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.50%. The outstanding face amount of the collateral represents the UPB of our residential mortgage loans underlying our interests in MSRs that secure these notes.

~~(J)~~

Includes: $940.2 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin ranging from 2.25% to 2.75%; and $1,419.9 million of public notes with fixed interest rates ranging from 3.55% to 4.62%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and mortgage servicing rights financing receivables that secure these notes.

~~(K)~~

$2.6 billion face amount of the notes have a fixed rate while the remaining notes bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or a cost of funds rate, as applicable, and (ii) a margin ranging from 1.15% to 1.99%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and mortgage servicing rights financing receivables owned by NRM.

~~(L)~~

Represents: (i) a $6.0 million note payable to Nationstar which includes a $1.5 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.88%, (ii) $109.9 million fair value of SAFT 2013-1 mortgage-backed securities issued with fixed interest rates ranging from 3.50% to 3.76% (see Note 12 for details), (iii) $362.1 million of asset-backed notes held by third parties which bear interest equal to 4.59% (see Note 12 for details), and (iv)

~~$535.1 million of asset-backed notes held by third parties which include $1.3 million of REO and~~ bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of ~~1.25%~~2.50% and $194.7 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.50%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the interests in MSRs that secure these notes.

~~(M)~~

Includes the SpringCastle debt, which is comprised of the following classes of asset-backed notes held by third parties: $787.9 million UPB of Class A notes with a coupon of 3.20% and a stated maturity date in May 2036, $70.4 million UPB of Class B notes with a coupon of 3.58% and a stated maturity date in May 2036, and $8.7 million UPB of Class C notes with a coupon of 5.06% and a stated maturity date in May 2036. Also includes a $1.2 million face amount note which bears interest equal to 4.00%.

(J)Includes $933.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.50%; $37.4 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.50%; $326.1 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.50%; and $1,497.6 million of capital markets notes with fixed interest rates ranging 3.55% to 5.44%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR financing receivables that secure these notes.

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(K)$1.9 billion face amount of the notes have a fixed rate while the remaining notes bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or a cost of funds rate, as applicable, and (ii) a margin ranging from 1.38% to 1.85%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and MSR financing receivables owned by NRM.

(L)Represents (i) a $989.1 million note payable to Mr. Cooper which includes a $1.4 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.88%, (ii) $75.1 million face amount of SAFT 2013-1 mortgage-backed securities issued with fixed interest rate of 3.72% (see Note 12 for fair value details), (iii) $165.5 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.63% (see Note 12 for fair value details), and (iv) $989.1 million of bonds held by third parties which bear a fixed interest rate ranging from 3.23% to 5.00%.

(M)Includes the SpringCastle debt, which is primarily composed of the following classes of asset-backed notes held by third parties: $610.0 million UPB of Class A notes with a coupon of 1.97% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.66% and a stated maturity date in September 2037.

Certain of the debt obligations included above are obligations of our consolidated subsidiaries, which own the related collateral. In some cases, such collateral is not available to other creditors of ours.

We have margin exposure on ~~$23.1~~$14.7 billion of repurchase agreements. To the extent that the value of the collateral underlying these repurchase agreements declines, we may be required to post margin, which could significantly impact our liquidity.

The following table provides additional information regarding our short-term borrowings (dollars in thousands):


												Nine Months Ended September 30, 2020
			Nine Months Ended September 30, 2019							Outstanding Balance at September 30, 2020		Average Daily Amount Outstanding(A)		Maximum Amount Outstanding		Weighted Average Daily Interest Rate
	Outstanding Balance at September 30, 2019		Average Daily Amount Outstanding^(A)		Maximum Amount Outstanding		Weighted Average Daily Interest Rate
Repurchase Agreements
Secured Financing Agreements									Secured Financing Agreements
Agency RMBS	$	10,733,236	$	7,604,281	$	16,181,622	2.53	%	Agency RMBS	$	9,958,246	$	7,806,947	$	31,770,128	1.22	%
Non-Agency RMBS	7,144,329		7,681,276		8,864,155		3.46	%	Non-Agency RMBS	952,323		3,584,772		8,235,316		3.15	%
Residential mortgage loans	4,742,824		2,403,677		5,155,161		4.24	%	Residential mortgage loans	3,330,045		3,687,279		6,224,250		2.35	%
Real estate owned	63,831		65,768		101,153		4.40	%	Real estate owned	1,165		51,542		110,442		2.74	%
Notes and Bonds Payable
Secured Notes and Bonds Payable									Secured Notes and Bonds Payable
Excess MSRs	100,000		71,062		100,000		4.87	%	Excess MSRs	—		50,000		50,000		4.16	%
MSRs	940,188		728,119		1,256,040		4.71	%	MSRs	453,306		1,514,064		2,059,551		3.77	%
Servicer advances	615,733		357,863		773,968		3.15	%	Servicer advances	932,733		666,014		583,915		2.92	%
Residential mortgage loans	541,040		361,984		542,321		3.56	%	Residential mortgage loans	5,212		104,385		210,366		3.65	%
Total/Weighted Average	$	24,881,181	$	19,274,030			3.26	%
Total/weighted average									Total/weighted average	$	15,633,030	$	17,465,003	$	49,243,968	1.75	%



General			69

Market Considerations			69

Our Portfolio			72

Application of Critical Accounting Policies			87

Results of Operations			88

Liquidity and Capital Resources			8598

Interest Rate, Credit and Spread Risk			92107

Off-Balance Sheet Arrangements			92107

Contractual Obligations			93107

Inflation			93108

Core Earnings			93108

Item 3. Quantitative and Qualitative Disclosures About Market Risk			96110

Item 4. Controls and Procedures			~~103~~117

Part II. Other Information

Item 1. Legal Proceedings			~~104~~118

Item 1A. Risk Factors			~~104~~118

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			~~150~~167

Item 3. Defaults Upon Senior Securities			~~150~~167

Item 4. Mine Safety Disclosures			~~150~~167

Item 5. Other Information			~~150~~167

Item 6. Exhibits			~~151~~168

Signatures			~~159~~177



New Residential Investment Corp.
(Exact name of registrant as specified in its charter)



	September 30, 2019		December 31, 2018
	(Unaudited)
Assets
Investments in:
Excess mortgage servicing rights, at fair value	$	398,064	$	447,860
Excess mortgage servicing rights, equity method investees, at fair value	132,259		147,964
Mortgage servicing rights, at fair value	3,431,968		2,884,100
Mortgage servicing rights financing receivables, at fair value	1,811,261		1,644,504
Servicer advance investments, at fair value^(A)	600,547		735,846
Real estate and other securities, available-for-sale	16,853,910		11,636,581
Residential mortgage loans, held-for-investment(includes $113,133 and $121,088 at fair value at September 30, 2019 and December 31, 2018, respectively)^(A)	613,657		735,329
Residential mortgage loans, held-for-sale	1,349,997		932,480
Residential mortgage loans, held-for-sale, at fair value	5,206,251		2,808,529
Consumer loans, held-for-investment^(A)	881,183		1,072,202
Cash and cash equivalents^(A)	738,219		251,058
Restricted cash	163,148		164,020
Servicer advances receivable	2,911,798		3,277,796
Trades receivable	4,487,772		3,925,198
Deferred tax asset, net	43,372		65,832
Other assets (includes $168,532 and $121,602 in residential mortgage loan subject to repurchase at September 30, 2019 and December 31,2018, respectively)	1,724,519		961,714
	$	41,347,925	$	31,691,013
Liabilities and Equity
Liabilities
Repurchase agreements	$	23,110,359	$	15,553,969
Notes and bonds payable (includes $474,309 and $117,048 at fair value at September 30, 2019 and December 31, 2018, respectively)^(A)	7,405,872		7,102,266
Trades payable	2,536,188		2,048,348
Dividends payable	213,098		184,552
Accrued expenses and other liabilities^(A) (includes $168,532 and $121,602 in residential mortgage loans repurchase liabilities at September 30, 2019 and December 31,2018, respectively)	820,291		713,583
	34,085,808		25,602,718
Commitments and Contingencies
Equity
Preferred Stock, par value of $0.01 per share, 23,000,000 shares authorized:
7.50% Series A Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 6,210,000 and 0 issued and outstanding at September 30, 2019 and December 31, 2018, respectively	150,026		—
7.125% Series B Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 11,300,000 and 0 issued and outstanding at September 30, 2019 and December 31, 2018, respectively	273,418		—
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 415,520,780 and 369,104,429 issued and outstanding at September 30, 2019 and December 31, 2018, respectively	4,156		3,692
Additional paid-in capital	5,498,226		4,746,242
Retained earnings	545,713		830,713
Accumulated other comprehensive income (loss)	706,926		417,023
Total New Residential stockholders’ equity	7,178,465		5,997,670
Noncontrolling interests in equity of consolidated subsidiaries	83,652		90,625
Total Equity	7,262,117		6,088,295
	$	41,347,925	$	31,691,013



Total Consideration (in millions)	Amount
Cash Consideration	$	212.3
Earnout Payment^(A)	39.3
Effective Settlement of Preexisting Relationships^(B)	173.9
Total Consideration	$	425.5



Total Consideration ($ in millions)	$	425.5
Assets
Cash and cash equivalents	$	79.2
Restricted cash	9.9
Residential mortgage loans, held-for-sale, at fair value	488.2
Mortgage servicing rights, at fair value^(A)	286.6
Residential mortgage loans, held-for-investment, at fair value	125.3
Residential mortgage loans subject to repurchase	121.4
Intangible assets^(B)	18.4
Other assets	81.5
Total Assets Acquired	$	1,210.5

Liabilities
Repurchase agreements	$	439.6
Notes and bonds payable	20.7
Mortgage-backed securities issued, at fair value	120.7
Residential mortgage loans repurchase liability	121.4
Excess spread financing, at fair value	48.3
Accrued expenses and other liabilities	50.6
Total Liabilities Assumed	$	801.3

Noncontrolling Interest	$	8.3

Net Assets	$	400.9

Goodwill	$	24.6



	Servicer
	Nationstar			SLS^(A)			Total
Balance as of December 31, 2018	$	445,328		$	2,532		$	447,860
Purchases	—			—			—
Interest income	18,159			44			18,203
Other income	2,092			—			2,092
Proceeds from repayments	(63,794		)	(295		)	(64,089		)
Proceeds from sales	(4,581		)	—			(4,581		)
Change in fair value	(1,258		)	(163		)	(1,421		)
Balance as of September 30, 2019	$	395,946		$	2,118		$	398,064



Balance at December 31, 2018	$	147,964
Contributions to equity method investees	—
Distributions of earnings from equity method investees	(7,762		)
Distributions of capital from equity method investees	(12,030		)
Change in fair value of investments in equity method investees	4,087
Balance at September 30, 2019	$	132,259



	September 30, 2019
	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	$	35,632,429	66.7	%	50.0	%	$	171,553	$	236,786	5.3



	UPB of Underlying Mortgages		Weighted Average Life (Years)^(A)	Amortized Cost Basis		Carrying Value^(B)
MSRs:
Agency	$	288,673,487	4.9	$	2,968,392	$	3,038,721
Non-Agency	2,350,471		5.6	12,294		20,321
Ginnie Mae^(C)	28,903,327		4.0	383,454		372,926
MSR Financing Receivables:
Agency	61,162,569		4.3	659,950		597,990
Non-Agency	79,360,666		7.7	840,279		1,213,271
Total	$	460,450,520	5.2	$	4,864,369	$	5,243,229



	As of
	September 30, 2019		December 31, 2018
Assets
Servicer advance investments, at fair value	$	580,829	$	713,239
Cash and cash equivalents	36,457		29,833
All other assets	8,662		10,223
Total assets^(A)	$	625,948	$	753,295
Liabilities
Notes and bonds payable	$	435,935	$	556,340
All other liabilities	2,021		2,442
Total liabilities^(A)	$	437,956	$	558,782



	September 30, 2019			December 31, 2018
Total Advance Purchaser LLC equity	$	187,992		$	194,513
Others’ ownership interest	26.8		%	26.8		%
Others’ interest in equity of consolidated subsidiary	$	50,319		$	52,066


~~(A)~~			This amount is required to be recorded as OTTI through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
~~(B)~~			~~This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.~~

	September 30, 2020
~~(C)~~			~~A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment, and, therefore do 0t have unrealized losses reflected~~(dollars in ~~other comprehensive income as of September 30, 2019.~~tables in thousands, except share data)



	Nine Months Ended September 30, 2019
Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	52,803
Increases to credit losses on securities for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income	20,034
Additions for credit losses on securities for which an OTTI was not previously recognized	1,908
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis	—
Reduction for credit losses on securities for which no OTTI was recognized in other comprehensive income at the current measurement date	—
Reduction for securities sold/paid off during the period	(18,431		)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	56,314


	Purchased Credit Deteriorated		Non-Purchased Credit Deteriorated		Total
Allowance for credit losses on available-for-sale debt securities at December 31, 2019	$	0	$	0	$	0
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded	0		0		0
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration	0		0		0
Reductions for securities sold during the period	0		0		0
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis	0		0		0
Additional increases (decreases) to the allowance for credit losses on securities that had credit losses or an allowance recorded in a previous period	10,359		10		10,369
Write-offs charged against the allowance	0		0		0
Recoveries of amounts previously written off	0		0		0
Allowance for credit losses on available-for-sale debt securities at September 30, 2020	$	10,359	$	10	$	10,369


~~(A)~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
~~Excludes $30.9 million and $56.8 million face amount of bonds backed by consumer loans and $85.0 million and $85.0 million face amount of bonds backed by corporate debt as of~~ September 30, ~~2019 and December 31, 2018, respectively.~~

	2020
~~(B)~~			~~Represents collateral for which New Residential was unable to obtain geographic information.~~(dollars in tables in thousands, except share data)



	Nine Months Ended September 30, 2019
Balance at December 31, 2018	$	2,245,983
Additions	190,482
Accretion	(191,559		)
Reclassifications from (to) non-accretable difference	(430,080		)
Disposals	(266,552		)
Balance at September 30, 2019	$	1,548,274


	Nine Months Ended September 30, 2020
Balance at December 31, 2019	$	1,882,476
Additions	76,959
Accretion	(51,840)
Reclassifications from (to) non-accretable difference	(2,858,719)
Disposals	1,317,537
Balance at September 30, 2020	$	366,413


~~(J)~~	Includes $112.1 million UPB of non-agency mortgage loans underlying the SAFT 2013-1 securitization, which are carried at fair value based on New Residential’s election of the fair value option. Interest earned on loans measured at fair value are reported in other income.


Days Past Due	Unpaid Principal Balance		Fair Value		Fair Value Over (Under) Unpaid Principal Balance
90 to 119	$	157,247	$	142,438	$	(14,808)
120+	1,104,658		931,980		(172,678)
	$	1,261,905	$	1,074,418	$	(187,486)


		December 31, 2019
Days Past Due	Delinquency Status(A)
Current		86.5	%
30-59		7.0	%
60-89		2.7	%
90-119(B)		0.7	%
120+(C)		3.1	%
		100.0	%


	Loans Held-for-Investment, at Fair Value		Loans Held-for-Sale, at Lower Cost or Fair Value		Loans Held-for-Sale, at Fair Value		Total
Balance at December 31, 2019	$	925,706	$	1,429,052	$	4,613,612	$	6,968,370
Fair value adjustment due to fair value option	(6,020)		0		0		(6,020)
Originations	0		0		37,361,429		37,361,429
Sales	0		(733,087)		(39,713,858)		(40,446,945)
Purchases/additional fundings	0		110,741		2,279,757		2,390,498
Proceeds from repayments	(105,032)		(86,798)		(140,657)		(332,487)
Transfer of loans to other assets(A)	0		(3,338)		(20,372)		(23,710)
Transfer of loans to real estate owned	(5,328)		(17,085)		(4,674)		(27,087)
Transfers of loans to held for sale	(62,274)		0		62,274		0

Valuation provision on loans	0		(121,132)		0		(121,132)

Changes in instrument-specific credit risk	18,808		0		(31,488)		(12,680)
Other factors	(47,058)		0		(47,550)		(94,608)
Balance at September 30, 2020	$	718,802	$	578,353	$	4,358,473	$	5,655,628


	Unpaid Principal Balance		Interest in Consumer Loans		Carrying Value		Weighted Average Coupon		Weighted Average Expected Life (Years)(A)	Weighted Average Delinquency(B)
September 30, 2020
Consumer Loan Companies
Performing Loans	$	525,664	53.5	%	$	582,167	18.2	%	3.7	3.4	%
Purchased Credit Deteriorated Loans(C)	137,450		53.5	%	136,188		14.2	%	3.5	6.2	%
Other - Performing Loans	4,070		100.0	%	3,753		15.3	%	0.5	3.6	%
Total Consumer Loans, held-for-investment	$	667,184			$	722,108	17.4	%	3.6	4.0	%
December 31, 2019
Consumer Loan Companies
Performing Loans	$	644,676	53.5	%	$	682,310	18.8	%	4.0	4.7	%
Purchased Credit Deteriorated Loans(C)	170,083		53.5	%	136,633		15.5	%	3.7	10.1	%
Other - Performing Loans	9,158		100.0	%	8,602		15.1	%	0.7	6.1	%
Total Consumer Loans, held-for-investment	$	823,917			$	827,545	18.0	%	3.9	5.9	%



~~September 30, 2019~~
~~Days Past Due~~	~~Delinquency Status~~^(A)
~~Current~~	~~84.1~~	%
~~30-59~~	~~8.2~~	%
~~60-89~~	~~2.7~~	%
~~90-119~~^(B)	~~0.7~~	%
~~120+~~^(C)	~~4.3~~	%
	~~100.0~~	%


~~(B)~~	~~Includes loans 90-119 days past due and still accruing interest because they are generally placed on nonaccrual status at 120 days or more past due.~~



	Performing Loans
Balance at December 31, 2018	$	591,253
Purchases/additional fundings	—
Proceeds from repayments	(73,397		)
Accretion of loan discount (premium) and other amortization^(A)	9,998
Provision for loan losses	(800		)
Transfer of loans to other assets^(B)	—
Transfer of loans to real estate owned	(4,739		)
Transfers of loans to held for sale	(168		)
Fair value adjustment	2,240
Balance at September 30, 2019	$	524,387


~~(A)~~	~~Includes accelerated accretion of discount on loans paid in full and on loans transferred to other assets.~~


~~(B)~~	Represents loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are now recognized as claims receivable in Other Assets (Note 2).



	~~Performing Loans~~
~~Balance at December 31, 2018~~	$	—
~~Provision for loan losses~~^(A)	~~800~~
~~Charge-offs~~^(B)	~~(800~~		)
~~Balance at September 30, 2019~~	$	—