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NRZ New Residential Investment

Filed: 8 May 20, 9:51pm
0001556593 us-gaap:InterestRateSwapMember us-gaap:NondesignatedMember 2019-12-31 0001556593 srt:MaximumMember nrz:DirectlyHeldMember nrz:OriginalPoolsMember us-gaap:MeasurementInputDefaultRateMember us-gaap:AgencySecuritiesMember 2020-03-31


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2020
or
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________to________________
 
Commission File Number: 001-35777
New Residential Investment Corp.
(Exact name of registrant as specified in its charter)
Delaware 45-3449660
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1345 Avenue of the AmericasNew YorkNY 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $0.01 par value per shareNRZNew York Stock Exchange
7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNRZ PR ANew York Stock Exchange
7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNRZ PR BNew York Stock Exchange
6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNRZ PR CNew 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 companyEmerging 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: 415,649,214 shares outstanding as of May 8, 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 Mortgage LLC (d/b/a Mr. Cooper, “Mr. Cooper”), LoanCare, LLC (“LoanCare”), OneMain Holdings, Inc. (“OneMain”), PHH Mortgage Corporation (“PHH”) and other third parties;
events, conditions or actions that might occur at Mr. Cooper, LoanCare, OneMain, 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, residential mortgage-backed securities (“RMBS”), residential mortgage loans and consumer loan portfolios;
the risks related to our origination and servicing operations;
the risks that default and recovery rates on our MSRs, Excess MSRs, 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;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase 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 Fannie Mae and Freddie Mac and legislation that permits modification of the terms of residential mortgage loans;
the risk that the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and collectively with Fannie Mae, the Government Sponsored Enterprises (“GSEs”) 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 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
 




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
 
March 31, 2020
(Unaudited)
 December 31, 2019
Assets   
Investments in:   
Excess mortgage servicing rights (“MSRs”), at fair value$363,932
 $379,747
Excess mortgage servicing rights, equity method investees, at fair value119,609
 125,596
Mortgage servicing rights, at fair value3,934,384
 3,967,960
Mortgage servicing rights financing receivables, at fair value1,604,431
 1,718,273
Servicer advance investments, at fair value(A)
515,574
 581,777
Real estate and other securities, available-for-sale (amortized cost $2,591,656 and $18,782,175 at March 31, 2020 and December 31, 2019, respectively; allowance for credit losses $44,149 at March 31, 2020)2,479,603
 19,477,728
Residential mortgage loans, held-for-investment(A) (includes $824,183 and $484,443 at fair value at March 31, 2020 and December 31, 2019, respectively)
824,183
 925,706
Residential mortgage loans, held-for-sale1,264,533
 1,429,052
Residential mortgage loans, held-for-sale, at fair value3,283,973
 4,613,612
Consumer loans, held-for-investment(A) ($780,821 and $0 held at fair value at March 31, 2020 and December 31, 2019, respectively)
780,821
 827,545
Cash and cash equivalents(A)
360,453
 528,737
Restricted cash147,435
 162,197
Servicer advances receivable3,072,863
 3,301,374
Trades receivable3,293,976
 5,256,014
Deferred tax asset, net176,238
 8,669
Other assets (includes $197,715 and $172,336 in residential mortgage loan subject to repurchase at March 31, 2020 and December 31,2019, respectively)1,971,467
 1,559,467
 $24,193,475
 $44,863,454
Liabilities and Equity   
Liabilities   
Repurchase agreements$10,814,130
 $27,916,225
Notes and bonds payable (includes $272,292 and $659,738 at fair value at March 31, 2020 and December 31, 2019, respectively)(A)
7,014,579
 7,720,148
Trades payable20,913
 902,081
Due to affiliates17,216
 103,882
Dividends payable28,033
 211,732
Accrued expenses and other liabilities(A) (includes $197,715 and $172,336 in residential mortgage loans repurchase liabilities at March 31, 2020 and December 31,2019, respectively)
968,140
 773,126
 18,863,011
 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 March 31, 2020 and December 31, 2019, respectively150,026
 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 March 31, 2020 and December 31, 2019, respectively273,418
 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 March 31, 2020 and December 31, 2019, respectively389,548
 
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 415,649,214 and 415,520,780 issued and outstanding at March 31, 2020 and December 31, 2019, respectively4,157
 4,156
Additional paid-in capital5,500,308
 5,498,226
Retained earnings (accumulated deficit)(1,059,706) 549,733
Accumulated other comprehensive income (loss)6,135
 682,151
Total New Residential stockholders’ equity5,263,886
 7,157,710
Noncontrolling interests in equity of consolidated subsidiaries66,578
 78,550
  Total Equity5,330,464
 7,236,260
 $24,193,475
 $44,863,454

(A)See Note 13 regarding consolidated VIEs.
See notes to condensed consolidated financial statements.

1



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
 
  Three Months Ended 
 March 31,
  2020 2019
Interest income $402,373
 $438,867
Interest expense 216,855
 212,832
Net Interest Income 185,518
 226,035
     
Impairment    
Provision (reversal) for credit losses on securities 44,149
 7,516
Valuation and credit loss provision (reversal) on loans and real estate owned (“REO”) 100,496
 5,280
  144,645
 12,796
     
  Net interest income after impairment 40,873
 213,239
Servicing revenue, net of change in fair value of $(649,375) and $(56,910), respectively (289,115) 165,853
Gain on originated mortgage loans, held-for-sale, net 179,698
 67,170
Other Income    
Change in fair value of investments in excess mortgage servicing rights (11,024) 4,627
Change in fair value of investments in excess mortgage servicing rights, equity method investees (457) 2,612
Change in fair value of investments in mortgage servicing rights financing receivables (104,111) (36,379)
Change in fair value of servicer advance investments (18,749) 7,903
Change in fair value of investments in real estate and other securities (86,792) 6,679
Change in fair value of investments in residential mortgage loans (265,244) 9,214
Change in fair value of derivative instruments (39,982) (25,760)
Gain (loss) on settlement of investments, net (799,572) (43,168)
Earnings from investments in consumer loans, equity method investees 
 4,311
Other income (loss), net (76,730) 5,995
  (1,402,661) (63,966)
Operating Expenses    
General and administrative expenses 206,363
 98,940
Management fee to affiliate 21,721
 17,960
Incentive compensation to affiliate 
 12,958
Loan servicing expense 7,853
 9,603
Subservicing expense 66,981
 40,926
  302,918
 180,387
     
Income (Loss) Before Income Taxes (1,774,123) 201,909
Income tax expense (benefit) (166,868) 45,997
Net Income (Loss) $(1,607,255) $155,912
Noncontrolling Interests in Income of Consolidated Subsidiaries $(16,162) $10,318
Dividends on Preferred Stock $11,222
 $
Net Income (Loss) Attributable to Common Stockholders $(1,602,315) $145,594
Net Income (Loss) Per Share of Common Stock    
  Basic $(3.86) $0.37
  Diluted $(3.86) $0.37
Weighted Average Number of Shares of Common Stock Outstanding    
  Basic 415,589,155
 388,279,931
  Diluted 415,589,155
 388,601,075
     
Dividends Declared per Share of Common Stock $0.05
 $0.50
 
See notes to condensed consolidated financial statements.

2



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
  Three Months Ended 
 March 31,
  2020 2019
Comprehensive income (loss), net of tax    
Net (loss) income $(1,607,255) $155,912
Other comprehensive income (loss)    
Net unrealized gain (loss) on securities 34,375
 192,353
Reclassification of net realized (gain) loss on securities into earnings (710,391) (57,680)
  (676,016) 134,673
Total comprehensive income (loss) $(2,283,271) $290,585
Comprehensive income (loss) attributable to noncontrolling interests $(16,162) $10,318
Dividends on preferred stock $11,222
 $
Comprehensive income (loss) attributable to common stockholders $(2,278,331) $280,267
 
See notes to condensed consolidated financial statements.


3



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) 
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(dollars in thousands, except per share data)
 
 Preferred Stock Common Stock            
 Shares Amount Shares Amount 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
Balance at December 31, 201917,510,000
 $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
Dividends declared on common stock, $0.05 per share
 
 
 


 (20,782) 
 (20,782) 
 (20,782)
Dividends declared on preferred stock
 
 
 


 (11,222) 
 (11,222) 
 (11,222)
Capital distributions
 
 
 
 
 
 
 
 (12,605) (12,605)
Issuance of common stock
 
 97,394
 1
 1,582
 
 
 1,583
 
 1,583
Issuance of preferred stock16,100,000
 389,548
 
 
 
 
 
 389,548
 
 389,548
Director share grants
 
 31,040
 
 500
 
 
 500
 
 500
Comprehensive income (loss)                   
Net income (loss)
 
 
 
 
 (1,591,093) 
 (1,591,093) (16,162) (1,607,255)
Net unrealized gain (loss) on securities
 
 
 
 
 
 34,375
 34,375
 
 34,375
Reclassification of net realized (gain) loss on securities into earnings
 
 
 
 
 
 (710,391) (710,391) 
 (710,391)
Total comprehensive income (loss)              (2,267,109) (16,162) (2,283,271)
Balance at March 31, 202033,610,000
 $812,992
 415,649,214
 $4,157
 $5,500,308
 $(1,059,706) $6,135
 $5,263,886
 $66,578

$5,330,464
 

4



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(dollars in thousands, per share data)
 
 Preferred Stock Common Stock            
 Shares Amount 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
Balance at 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, $0.50 per share
 
 
 
 
 (207,715) 
 (207,715) 
 (207,715)
Capital contributions
 
 
 
 
 
 
 
 
 
Capital distributions
 
 
 
 
 
 
 
 (11,015) (11,015)
Issuance of common stock
 
 46,000,000
 460
 751,199
 
 
 751,659
 
 751,659
Issuance of preferred stock
 
 
 
 
 
 
 
 
 
Option exercise
 
 297,096
 3
 (3) 
 
 ��
 
 
Purchase of noncontrolling interests in the Buyer
 
 
 
 
 
 
 
 
 
Other dilution
 
 
 
 
 
 
 
 
 
Director share grants
 
 28,152
 
 400
 
 
 400
 
 400
Comprehensive income (loss)            

 

   

Net income (loss)
 
 
 
 
 145,594
 
 145,594
 10,318
 155,912
Net unrealized gain (loss) on securities
 
 
 
 
 
 192,353
 192,353
 
 192,353
Reclassification of net realized (gain) loss on securities into earnings
 
 
 
 
 
 (57,680) (57,680) 
 (57,680)
Total comprehensive income (loss)              280,267
 10,318
 290,585
Balance at March 31, 2019
 $
 415,429,677
 $4,155
 $5,497,838
 $768,592
 $551,696
 $6,822,281
 $89,928
 $6,912,209

See notes to condensed consolidated financial statements.


5


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 Three Months Ended  
 March 31,
 2020 2019
Cash Flows From Operating Activities   
Net income$(1,607,255) $155,912
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Change in fair value of investments in excess mortgage servicing rights11,024
 (4,627)
Change in fair value of investments in excess mortgage servicing rights, equity method investees457
 (2,612)
Change in fair value of investments in mortgage servicing rights financing receivables104,111
 36,379
Change in fair value of servicer advance investments18,749
 (7,903)
Change in fair value of residential mortgage loans, at fair value, and notes and bonds payable, at fair value248,202
 (8,077)
Change in fair value of investments in real estate and other securities86,792
 (6,679)
(Gain) loss on settlement of investments, net799,572
 43,168
(Gain) loss on sale of originated mortgage loans, net(179,698) (67,171)
Earnings from investments in consumer loans, equity method investees
 (4,311)
Change in fair value of derivative instruments39,982
 25,760
Changes in fair value of contingent consideration1,614
 2,045
Unrealized (gain) loss on consumer loans held-for-investment, at fair value39,917
 
(Gain) loss on transfer of loans to REO(2,595) (4,984)
(Gain) loss on transfer of loans to other assets241
 521
(Gain) loss on Excess MSR recapture agreements(628) (307)
(Gain) loss on Ocwen common stock5,050
 (2,786)
Accretion and other amortization(41,104) (152,894)
Provision for credit losses on securities44,149
 7,516
Valuation and credit loss provision on loans and real estate owned100,496
 5,280
Non-cash portions of servicing revenue, net649,375
 56,910
Non-cash directors’ compensation500
 400
Deferred tax provision(166,917) 46,331
Changes in:   
Servicer advances receivable235,685
 241,531
Other assets21,602
 (148,797)
Due to affiliates(86,666) (73,586)
Accrued expenses and other liabilities189,283
 (6,728)
Other operating cash flows:   
Interest received from excess mortgage servicing rights13,575
 5,327
Interest received from servicer advance investments5,203
 7,361
Interest received from Non-Agency RMBS66,479
 69,838
Interest received from residential mortgage loans, held-for-investment
 12,226
Interest received from consumer loans, held-for-investment6,013
 8,329
Distributions of earnings from excess mortgage servicing rights, equity method investees387
 2,807
Distributions of earnings from consumer loan equity method investees
 552
Purchases of residential mortgage loans, held-for-sale(988,183) (1,328,148)
Origination of residential mortgage loans, held-for-sale(11,456,291) (2,010,029)
Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale13,045,107
 2,727,071
Principal repayments from purchased residential mortgage loans, held-for-sale107,188
 73,982
Net cash provided by (used in) operating activities1,311,416
 (300,393)

Continued on next page.

6


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 Three Months Ended  
 March 31,
 2020 2019
Cash Flows From Investing Activities   
Purchase of servicer advance investments(330,140) (483,772)
Purchase of MSRs, MSR financing receivables and servicer advances receivable(417,861) (272,696)
Purchase of Agency RMBS(5,263,722) (6,971,839)
Purchase of Non-Agency RMBS(56,520) (249,520)
Purchase of real estate owned and other assets(6,438) (9,823)
Purchase of investment in consumer loans, equity method investees
 (23,442)
Draws on revolving consumer loans(11,002) (15,241)
Payments for settlement of derivatives(60,554) (48,769)
Return of investments in excess mortgage servicing rights4,934
 16,445
Return of investments in excess mortgage servicing rights, equity method investees5,143
 4,569
Return of investments in consumer loans, equity method investees
 13,967
Principal repayments from servicer advance investments354,302
 529,616
Principal repayments from Agency RMBS740,043
 74,037
Principal repayments from Non-Agency RMBS260,221
 330,185
Principal repayments from residential mortgage loans31,272
 27,970
Proceeds from sale of residential mortgage loans387
 34,494
Principal repayments from consumer loans55,201
 68,948
Proceeds from MSRs and MSR financing receivables22,217
 
Proceeds from sale of mortgage servicing rights8,504
 
Proceeds from sale of mortgage servicing rights financing receivables3,708
 6,913
Proceeds from sale of excess mortgage servicing rights117
 
Proceeds from sale of Agency RMBS20,191,706
 3,911,838
Proceeds from sale of Non-Agency RMBS1,069,493
 228,000
Proceeds from settlement of derivatives23,899
 36,362
Proceeds from sale of real estate owned35,914
 38,825
Net cash provided by (used in) investing activities16,660,824
 (2,752,933)

Continued on next page.

7


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 
 Three Months Ended  
 March 31,
 2020 2019
Cash Flows From Financing Activities   
Repayments of repurchase agreements(93,283,204) (40,803,763)
Margin deposits under repurchase agreements and derivatives(2,674,807) (841,807)
Repayments of notes and bonds payable(2,167,435) (2,210,352)
Deferred financing fees
 (115)
Common stock dividends paid(207,760) (184,552)
Preferred Stock Dividend paid(7,943) 
Borrowings under repurchase agreements76,181,064
 43,688,820
Return of margin deposits under repurchase agreements and derivatives2,147,596
 701,370
Borrowings under notes and bonds payable1,478,677
 2,057,042
Issuance of preferred stock389,548
 
Issuance of common stock1,655
 752,112
Costs related to issuance of common stock(72) (453)
Noncontrolling interests in equity of consolidated subsidiaries - distributions(12,605) (11,015)
Payment of contingent consideration
 
   Net cash provided by (used in) financing activities(18,155,286) 3,147,287
    
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash(183,046) 93,961
    
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period690,934
 415,078
    
Cash, Cash Equivalents, and Restricted Cash, End of Period$507,888
 $509,039
    
Supplemental Disclosure of Cash Flow Information   
Cash paid during the period for interest$198,437
 $194,241
Cash paid during the period for income taxes84
 79
Supplemental Schedule of Non-Cash Investing and Financing Activities   
Common dividends declared but not paid$20,782
 $207,715
Preferred dividends declared but not paid7,250
 
Purchase of investments, primarily Agency RMBS, settled after quarter-end20,913
 206,638
Sale of investments, primarily Non-Agency RMBS, settled after quarter-end3,293,976
 7,049,723
Transfer from residential mortgage loans to real estate owned and other assets16,304
 29,058
Transfer from residential mortgage loans, held-for-investment to residential mortgage loans, held-for-sale
 33,134
MSR purchase price holdback18,534
 (289)
Real estate securities retained from loan securitizations482,444
 96,799
Residential mortgage loans subject to repurchase197,715
 140,135
See notes to condensed consolidated financial statements.

8



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 
1.ORGANIZATION AND BASIS OF PRESENTATION
 
New Residential Investment Corp. (together with its subsidiaries, “New Residential,” or “the Company”) is a Delaware corporation that was formed as a limited liability company in September 2011 for the purpose of making real estate related investments and commenced operations on December 8, 2011. New Residential is an independent publicly traded real estate investment trust (“REIT”) primarily focused on investing in residential mortgage related assets. New Residential 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 18 - 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 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”). 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 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 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.

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.

As of March 31, 2020, New Residential conducted its business through the following segments: (i) Origination, (ii) Servicing, (iii) MSR Related Investments, (iv) Residential Securities and Loans, (v) Consumer Loans and (vi) Corporate.
 
Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, as of March 31, 2020. In addition, Fortress, through its affiliates, held options relating to approximately 10.9 million shares of New Residential’s common stock as of March 31, 2020.
 
Interim Financial Statements

The accompanying condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP’’ or “US GAAP”). The consolidated financial statements 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, financial and investing decisions of the entity, as well as those entities deemed to be variable interest entities (“VIEs”) in which New 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 Statements of Cash Flows based on the

9

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

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 March 31, 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 March 31, 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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 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 collectability of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which 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 2016-13. Lastly, an entity is required to apply ASU 2016-13 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. The standard was effective for New Residential in the first quarter of 2020. Upon adoption of 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 an $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 investments and receivables, the Company determined credit-related losses are not significant because of the 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 January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). 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 2017-04 was effective for New Residential in the first quarter of 2020. New Residential early adopted the standard starting in 2019. The adoption of ASU 2017-04 did not have a material impact on the condensed consolidated financial statements.

In August 2018, the FASB issued ASU 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 2018-13 was effective for New Residential in the first quarter of 2020. The adoption of ASU 2018-13 did not have a material impact on the condensed consolidated financial statements.

10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 


On December 18, 2019, the FASB issued Accounting Standards Update 2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its overall simplification initiative. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several areas including accounting for franchise taxes and step-up in tax basis goodwill. While not required to be adopted until 2021, New Residential early adopted this guidance in 2019. The adoption of ASU No. 2019-12 did not have a material impact on the condensed consolidated financial statements.

2.OTHER INCOME, GENERAL AND ADMINISTRATIVE, OTHER ASSETS AND LIABILITIES
 
Gain (Loss) on Settlement of Investments, Net — This item is comprised of the following:
  Three Months Ended  
 March 31,
  2020 2019
Gain (loss) on sale of real estate securities, net $(754,540) $65,196
Gain (loss) on sale of acquired residential mortgage loans, net 35,236
 3,183
Gain (loss) on settlement of derivatives (84,712) (93,076)
Gain (loss) on liquidated residential mortgage loans (839) (2,489)
Gain (loss) on sale of REO 1,173
 (1,725)
Other gains (losses) 4,110
 (14,257)
  $(799,572) $(43,168)


Other Income (Loss), Net — This item is comprised of the following:
  Three Months Ended  
 March 31,
  2020 2019
Unrealized gain (loss) on notes and bonds payable $17,002
 $(1,137)
Unrealized gain (loss) on contingent consideration (1,614) (2,045)
Unrealized gain (loss) on consumer loans held-for-investment, at fair value (39,917) 
Unrealized gain (loss) on equity investments (45,023) (73)
Gain (loss) on transfer of loans to REO 2,595
 4,984
Gain (loss) on transfer of loans to other assets (241) (521)
Gain (loss) on Excess MSR recapture agreements 628
 307
Gain (loss) on Ocwen common stock (5,050) 2,786
Rental and ancillary revenue 19,607
 
Other income (loss) (24,717) 1,694
  $(76,730) $5,995



11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

General and Administrative Expenses, Loan Servicing Expense and Subservicing Expense — General and administrative expense primarily include employee compensation, legal fees, audit fees, insurance premiums, and other costs, as well as loan servicing and subservicing expenses, and are expensed as incurred. General and Administrative Expenses is comprised of the following:
  Three Months Ended  
 March 31,
  2020 2019
Compensation and benefits expense, servicing $51,341
 $25,301
Compensation and benefits expense, origination 61,278
 31,310
Legal and professional expense 26,037
 13,292
Loan origination expense 22,400
 10,269
Occupancy expense 8,064
 4,179
Other(A)
 37,243
 14,589
  $206,363
 $98,940

(A)Represents miscellaneous general and administrative expenses.


12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Other Assets and Other Liabilities — Other assets and liabilities are comprised of the following:
 Other Assets   
Accrued Expenses
and Other Liabilities
 March 31, 2020 December 31, 2019   March 31, 2020 December 31, 2019
Margin receivable, net(A)
$733,624
 $280,176
 MSR purchase price holdback $93,882
 $75,348
Servicing fee receivables153,137
 159,607
 Interest payable 37,585
 68,668
Due from servicers140,024
 163,961
 Accounts payable 138,585
 119,771
Principal and interest receivable48,895
 85,191
 Derivative liabilities (Note 10) 160,353
 6,885
Equity investments(B)
69,533
 114,763
 Due to servicers 119,285
 127,846
Other receivables84,287
 117,045
 Residential mortgage loan repurchase liability 197,715
 172,336
Real Estate Owned81,289
 93,672
 Contingent Consideration 56,836
 55,222
Single-family rental properties26,661
 24,133
 Accrued compensation and benefits 28,644
 41,228
Goodwill(C)
29,468
 29,737
 Excess spread financing, at fair value 25,614
 31,777
Notes Receivable(D)
45,287
 37,001
 Operating lease liabilities 38,568
 38,520
Warrants, at fair value25,519
 28,042
 Reserve for sales recourse 11,144
 12,549
Recovery asset20,921
 23,100
 Other liabilities 59,929
 22,976
Residential mortgage loans subject to repurchase197,715
 172,336
   $968,140
 $773,126
Property and equipment23,271
 18,018
      
Receivable from government agency(E)
18,020
 19,670
      
Intangible assets36,496
 40,963
      
Prepaid expenses20,862
 19,249
      
Operating lease right-of-use asset32,544
 32,120
      
Derivative assets (Note 10)132,616
 41,501
      
Ocwen common stock, at fair value2,902
 7,952
      
Other assets48,396
 51,230
      
 $1,971,467
 $1,559,467
   
 


(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 acquisition of Shellpoint Partners LLC (“Shellpoint”) as well as Guardian Asset Management, a leading national provider of field services and property management to government agencies, financial institutions and asset management firms.
(D)Represents a subordinated debt facility to Covius.
(E)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.


13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Accretion and Other Amortization — As reflected on the Condensed Consolidated Statements of Cash Flows, this item is comprised of the following:
  Three Months Ended  
 March 31,
  2020 2019
Accretion of net discount on securities and loans(A)
 $40,052
 $141,586
Accretion of servicer advances receivable discount and servicer advance investments (10,915) 7,511
Accretion of excess mortgage servicing rights income 13,226
 5,115
Amortization of deferred financing costs (1,136) (863)
Amortization of discount on notes and bonds payable (123) (455)
  $41,104
 $152,894

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

3.SEGMENT REPORTING
 
New Residential’s portfolio consists of the following segments: (i) Origination, (ii) Servicing, (iii) MSR Related Investments, (iv) Residential Securities and Loans, (v) Consumer Loans and (vi) Corporate, organized based on differences in services and products. The corporate segment consists primarily of general and administrative expenses, management fees and incentive compensation related to the Management Agreement, corporate cash and related interest income.

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 March 31, 2020                    
Interest income $16,735
 $7,487
 $99,353
 $
 $123,575
 $184,005
 $59,921
 $34,872
 $
 $402,373
Interest expense 13,427
 196
 57,783
 
 71,406
 108,009
 30,773
 6,667
 
 216,855
Net interest income 3,308
 7,291
 41,570
 
 52,169
 75,996
 29,148
 28,205
 
 185,518
Impairment 
 
 
 
 
 44,149
 100,496
 
 
 144,645
Servicing revenue, net (1,078) 86,742
 (350,587) (24,192) (289,115) 
 
 
 
 (289,115)
Gain on originated mortgage loans, held-for-sale, net 158,215
 259
 22,088
 (9,375) 171,187
 
 8,511
 
 
 179,698
Other income (loss) (16) 499
 (156,933) 
 (156,450) (966,039) (192,271) (40,751) (47,150) (1,402,661)
Operating expenses 100,212
 64,352
 108,072
 (24,192) 248,444
 6,854
 16,756
 3,883
 26,981
 302,918
Income (loss) before income taxes 60,217
 30,439
 (551,934) (9,375) (470,653) (941,046) (271,864) (16,429) (74,131) (1,774,123)
Income tax expense (benefit) 11,958
 6,045
 (109,785) 
 (91,782) 
 (75,201) 115
 
 (166,868)
Net income (loss) $48,259
 $24,394
 $(442,149) $(9,375) $(378,871) $(941,046) $(196,663) $(16,544) $(74,131) $(1,607,255)
Noncontrolling interests in income (loss) of consolidated subsidiaries $1,283
 $
 $(11,247) $
 $(9,964) $
 $
 $(6,198) $
 $(16,162)
Dividends on preferred stock $
 $
 $
 $
 $
 $
 $
 $
 $11,222
 $11,222
Net income (loss) attributable to common stockholders $46,976
 $24,394
 $(430,902) $(9,375) $(368,907) $(941,046) $(196,663) $(10,346) $(85,353) $(1,602,315)


14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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
March 31, 2020                    
Investments $1,491,206
 $
 $6,537,930
 $
 $8,029,136
 $2,479,603
 $4,187,148
 $780,821
 $
 $15,476,708
Cash and cash equivalents 76,752
 14,032
 161,778
 
 252,562
 101,646
 560
 4,382
 1,303
 360,453
Restricted cash 4,907
 4,881
 105,611
 
 115,399
 
 
 32,036
 
 147,435
Other assets 403,277
 274,883
 3,023,482
 
 3,701,642
 4,064,232
 310,095
 65,602
 37,840
 8,179,411
Goodwill 11,836
 12,540
 5,092
 
 29,468
 
 
 
 
 29,468
Total assets $1,987,978
 $306,336
 $9,833,893
 $
 $12,128,207
 $6,645,481
 $4,497,803
 $882,841
 $39,143
 $24,193,475
Debt $1,352,846
 $21,157
 $6,332,172
 $
 $7,706,175
 $5,892,709
 $3,455,028
 $774,797
 $
 $17,828,709
Other liabilities 244,137
 73,889
 384,496
 
 702,522
 218,654
 53,854
 7,389
 51,883
 1,034,302
Total liabilities 1,596,983
 95,046
 6,716,668
 
 8,408,697
 6,111,363
 3,508,882
 782,186
 51,883
 18,863,011
Total equity 390,995
 211,290
 3,117,225
 
 3,719,510
 534,118
 988,921
 100,655
 (12,740) 5,330,464
Noncontrolling interests in equity of consolidated subsidiaries 11,323
 
 31,743
 
 43,066
 
 
 23,512
 
 66,578
Total New Residential stockholders’ equity $379,672
 $211,290
 $3,085,482
 $
 $3,676,444
 $534,118
 $988,921
 $77,143
 $(12,740) $5,263,886
Investments in equity method investees $
 $
 $156,731
 $
 $156,731
 $
 $
 $
 $
 $156,731
 

 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 March 31, 2019 

        








Interest income $5,584

$6,183
 $120,033
 $
 $131,800
 $204,473

$58,189

$44,405

$

$438,867
Interest expense 5,158

197
 61,131
 
 66,486
 101,300

35,851

9,195



212,832
Net interest income 426

5,986
 58,902
 
 65,314
 103,173

22,338

35,210



226,035
Impairment 


 
 
 
 7,516

(5,804)
11,084



12,796
Servicing revenue, net (270) 43,521
 128,737
 (6,135) 165,853
 
 
 
 
 165,853
Gain on sale of originated mortgage loans, net 50,812
 89
 9,510
 (9,085) 51,326
 
 15,844
 
 
 67,170
Other income (loss) 1,059


 (21,865) 
 (20,806) (46,958)
(3,445)
4,531

2,712

(63,966)
Operating expenses 46,363

36,123
 50,491
 (6,135) 126,842
 1,189

9,320

7,427

35,609

180,387
Income (loss) before income taxes 5,664
 13,473
 124,793
 (9,085) 134,845
 47,510
 31,221
 21,230
 (32,897)
201,909
Income tax expense (benefit) 1,549
 3,686
 34,139
 
 39,374
 
 6,544
 79
 

45,997
Net income (loss) $4,115
 $9,787
 $90,654
 $(9,085) $95,471
 $47,510
 $24,677
 $21,151
 $(32,897)
$155,912
Noncontrolling interests in income (loss) of consolidated subsidiaries $407
 $
 $2,451
 $
 $2,858
 $
 $
 $7,460
 $

$10,318
Dividends on Preferred Stock $
 $
 $
 $
 $
 $
 $
 $
 $
 $
Net income (loss) attributable to common stockholders $3,708
 $9,787
 $88,203
 $(9,085) $92,613
 $47,510
 $24,677
 $13,691
 $(32,897)
$145,594


As a result of the economic uncertainties arising from the COVID-19 pandemic, the impact of the uncertainty on the financial and mortgage-related asset markets, and the associated decreases in the Company’s common and preferred stock prices, the Company performed a qualitative impairment analysis for goodwill and intangible assets. Based on the analysis, the Company determined no impairment had occurred as of March 31, 2020. Such analysis required management to assess current and future market conditions. Given the uncertainty inherent in the analysis, heightened by the possibility of unforeseen effects of COVID-19, actual results may differ from assumptions used, or conditions may change, which could result in impairment charges in the future. In the event that the Company concludes that all or a portion of its goodwill or intangible asset is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital.

4.INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
 
Direct Investments in Excess MSRs

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
Purchases 
 
 
Interest income 13,150
 76
 13,226
Other income 636
 
 636
Proceeds from repayments (18,503) (116) (18,619)
Proceeds from sales (34) 
 (34)
Change in fair value (11,059) 35
 (11,024)
Balance as of March 31, 2020 $361,882
 $2,050
 $363,932

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

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

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

New Residential elected to record its direct investments in Excess 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 prepayment risk and other market factors on the Excess MSRs.

The following is a summary of New Residential’s direct investments in Excess MSRs:
 March 31, 2020 December 31, 2019
 UPB of Underlying Mortgages Interest in Excess MSR 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value(C)
   
New Residential(D)
 Fortress-managed funds Mr. Cooper        
Agency               
Original and Recaptured Pools$41,702,867
 32.5% - 66.7% (53.3%) 0.0% - 40.0% 20.0% - 35.0% 5.7 $174,694
 $200,167
 $209,633
Non-Agency(E)
               
Mr. Cooper and SLS Serviced:               
Original and Recaptured Pools$43,306,519
 33.3% - 100.0% (59.4%) 0.0% - 50.0% 0.0% - 33.3% 6.7 $123,992
 $163,765
 $170,114
Total$85,009,386
       6.1 $298,686
 $363,932
 $379,747
 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.

15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(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 March 31, 2020 (Note 6) on $30.0 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is composed of the following:
  Three Months Ended  
 March 31,
  2020 2019
Original and Recaptured Pools $(11,024) $4,627


As of March 31, 2020, a weighted average discount rate of 8.3% 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.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
  March 31, 2020 December 31, 2019
Excess MSR assets $214,950
 $226,843
Other assets 24,954
 25,035
Other liabilities (687) (687)
Equity $239,217
 $251,191
New Residential’s investment $119,609
 $125,596
     
New Residential’s ownership 50.0% 50.0%

  Three Months Ended  
 March 31,
  2020 2019
Interest income $7,313
 $4,070
Other income (loss) (8,219) 1,170
Expenses (8) (16)
Net income (loss) $(914) $5,224

The following table summarizes the activity of New Residential’s investments in equity method investees:
Balance at December 31, 2019$125,596
Contributions to equity method investees
Distributions of earnings from equity method investees(387)
Distributions of capital from equity method investees(5,143)
Change in fair value of investments in equity method investees(457)
Balance at March 31, 2020$119,609


16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
 March 31, 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$33,251,300
 66.7% 50.0% $165,403
 $214,950
 5.6
 
(A)The remaining interests are held by Mr. Cooper.
(B)Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(D)Represents the weighted average expected timing of the receipt of cash flows of each investment.

5.    INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES

A subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), engages third party licensed mortgage servicers as subservicers and, in relation to certain MSR purchases, interim subservicers, to perform the operational servicing duties in connection with the MSRs it acquires, in exchange for a subservicing fee which is recorded as “Subservicing expense” in New Residential’s Condensed Consolidated Statements of Income. As of March 31, 2020, these subservicers and interim subservicers include PHH Mortgage Corporation (“PHH”), Mr. Cooper, LoanCare, LLC (“LoanCare”), Quicken Loans Inc. (“Quicken”), United Shore Financial Services, LLC (“United Shore”), and Flagstar Bank, FSB (“Flagstar”), which subservice 21.7%, 18.0%, 17.8%, 3.0%, 2.7%, and 0.9% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 35.9% of the underlying UPB of the related mortgages is subserviced by the servicing division of NewRez.

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

In certain cases where New Residential has legally purchased MSRs or the right to the economic interest in 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 MSR financing receivables (“MSR Financing Receivables”). Income from these investments, net of subservicing fees, are recorded as Interest income with changes in fair value flowing through Change in fair value of investments in MSR financing receivables in the Condensed Consolidated Statements of Income.

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.


17

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(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)
 436,395
 
 436,395
Originations(B)
 195,896
 
 195,896
Prepayments(C)
 (1,563) (6,023) (7,586)
Proceeds from sales (8,504) (3,708) (12,212)
Amortization of servicing rights(D)
 (193,243) (68,752) (261,995)
Change in valuation inputs and assumptions(E)
 (468,260) (33,610) (501,870)
(Gain)/loss on sales 5,703
 (1,749) 3,954
Balance as of March 31, 2020 $3,934,384
 $1,604,431
 $5,538,815

(A)Net of purchase price adjustments.
(B)Represents MSRs retained on the sale of originated mortgage loans.
(C)Represents purchase price fully reimbursable from sellers as a result of prepayment protection.
(D)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.
(E)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 composed of the following:
  Three Months Ended  
 March 31,
  2020 2019
Servicing fee revenue $328,122
 $183,026
Ancillary and other fees 32,138
 39,737
Servicing fee revenue and fees 360,260
 222,763
Amortization of servicing rights (191,367) (72,675)
Change in valuation inputs and assumptions(A) (B)
 (463,711) 15,765
(Gain)/loss on sales 5,703
 
Servicing revenue, net $(289,115)
$165,853


(A)Includes changes in inputs or assumptions used in the valuation model.
(B)Includes $4.5 million and $0.4 million of fair value adjustment to excess spread financing for the three months ended March 31, 2020 and 2019, respectively.

Interest income from investments in MSR Financing Receivables was composed of the following:
  Three Months Ended  
 March 31,
  2020 2019
Servicing fee revenue $113,582
 $126,244
Ancillary and other fees 26,000
 31,324
Less: subservicing expense (41,903) (55,662)
Interest income, investments in MSR financing receivables $97,679
 $101,906


18

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Change in fair value of investments in MSR Financing Receivables was composed of the following:
  Three Months Ended  
 March 31,
  2020 2019
Amortization of servicing rights $(68,752) $(42,876)
Change in valuation inputs and assumptions(A)
 (33,610) 6,938
(Gain)/loss on sales(B)
 (1,749) (441)
Change in fair value of investments in MSR financing receivables $(104,111) $(36,379)

(A)Change in valuation inputs and assumptions 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.

The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of March 31, 2020:
 UPB of Underlying Mortgages 
Weighted Average Life (Years)(A)
 
Carrying Value(B)
MSRs:     
Agency(C)
$339,416,358
 5.3 $3,227,788
Non-Agency6,630,753
 5.5 16,669
Ginnie Mae(D)
57,658,948
 4.8 689,927
 403,706,059
 5.2 3,934,384
MSR Financing Receivables:     
Agency49,533,672
 5.2 491,681
Non-Agency73,533,090
 7.8 1,112,750
 123,066,762
 6.8 1,604,431
Total$526,772,821
 5.6 $5,538,815

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying value represents fair value. As of March 31, 2020, weighted average discount rates of 8.2% and 9.4% were used to value New Residential’s investments in MSRs and MSR financing receivables, respectively.
(C)Represents Fannie Mae and Freddie Mac MSRs.
(D)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 March 31, 2020, New Residential holds approximately $197.7 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Condensed Consolidated Balance Sheets.

Ocwen MSR Financing Receivable Transactions

On July 23, 2017, Ocwen and New Residential entered into a Master Agreement (the “Ocwen Master Agreement”) and a Transfer Agreement (the “Ocwen Transfer Agreement”) pursuant to which Ocwen and New Residential 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 Rights to MSRs (as defined in the Original Ocwen Agreements). New Residential and Ocwen concurrently entered into a subservicing agreement pursuant to which Ocwen will subservice the mortgage loans related to the Ocwen Subject MSRs that are transferred to New Residential pursuant to the Ocwen Master Agreement and Ocwen Transfer Agreement.


19

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

On 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 to the New Ocwen Agreements, Ocwen will continue to service the mortgage loans related to the Existing Ocwen Subject MSRs until the necessary third-party consents are obtained in order to transfer the Existing Ocwen Subject MSRs in accordance with the New Ocwen Agreements.

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.

As of March 31, 2020, MSRs representing approximately $66.7 billion UPB of underlying loans were transferred to NRM and NewRez pursuant to the Ocwen Transaction. Economics related to the remaining MSRs subject to the Ocwen Transaction were transferred pursuant to the New Ocwen Agreements. As a result of the length of the initial term of the related subservicing agreement between NRM, NewRez and Ocwen, 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.

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 March 31, 2020 December 31, 2019
California 23.4% 21.9%
Florida 6.8% 6.9%
New York 6.2% 6.4%
Texas 5.3% 5.5%
New Jersey 4.7% 4.9%
Illinois 3.5% 3.6%
Washington 3.3% 3.3%
Massachusetts 3.3% 3.4%
Georgia 3.1% 3.1%
Colorado 3.0% 2.8%
Other U.S. 37.4% 38.2%
  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.


20

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Mortgage Subservicing

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 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 March 31, 2020 and 2019 was $83.0 billion and $48.5 billion, respectively, and subservicing revenue of $42.2 million and $31.9 million for the three months ended March 31, 2020 and 2019, respectively, is included within Servicing revenue, net, in the Condensed Consolidated Statements of Income.

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), 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 15). These servicer advances are recorded when advanced and are included in Servicer Advances Receivable on the Condensed Consolidated Balance Sheets.

The following types of advances are included in the Servicer Advances Receivable:
  March 31, 2020 December 31, 2019
Principal and interest advances $678,588
 $660,807
Escrow advances (taxes and insurance advances) 2,284,094
 2,427,384
Foreclosure advances 151,485
 163,054
Total(A) (B) (C)
 $3,114,167
 $3,251,245

(A)Includes $636.9 million and $562.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.
(B)Includes $69.9 million and $166.5 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 $41.3 million and $50.1 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries.

New Residential’s Servicer Advances Receivable related to Non-Agency MSRs generally have the highest reimbursement priority (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 periodically and as of December 31, 2019, expected full recovery of the Servicer Advance Receivables. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has reserved $10.0 million for expected non-recovery of advances as of March 31, 2020.

See Note 11 regarding the financing of MSRs.

6.SERVICER ADVANCE INVESTMENTS

All of New Residential’s Servicer Advance Investments are composed 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, including the right to the basic fee component 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.

21

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 


A taxable wholly-owned subsidiary of New Residential is the managing member of Advance Purchaser LLC (the “Buyer”), a joint venture entity, and owned an approximately 73.2% interest in the Buyer as of March 31, 2020. As of March 31, 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 March 31, 2020, the noncontrolling third-party co-investors and New Residential had previously funded their commitments; however, the Buyer may recall $328.4 million and $306.9 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.
 
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, 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)
March 31, 2020         
Servicer Advance Investments$509,989
 $515,574
 5.8% 5.6% 6.7
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.

  Three Months Ended  
 March 31,
 
2020
2019
Change in fair value of Servicer Advance Investments $(18,749) $7,903

The following is additional information regarding the Servicer Advance Investments and related financing:
         
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(C)
 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
March 31, 2020               
Servicer Advance Investments(D)
$30,043,832
 $461,723
 1.5% $423,910
 88.0% 87.1% 1.7% 1.7%
December 31, 2019               
Servicer Advance Investments(D)
$31,442,267
 $462,843
 1.5% $443,248
 88.3% 87.2% 3.4% 2.8%
 
(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.

22

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

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


March 31, 2020
December 31, 2019
Principal and interest advances
$87,292

$71,574
Escrow advances (taxes and insurance advances)
173,617

180,047
Foreclosure advances
200,814

211,222
Total
$461,723
 $462,843

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

 Three Months Ended  
 March 31,


2020
2019
Interest income, gross of amounts attributable to servicer compensation
$(10,250)
$15,076
Amounts attributable to base servicer compensation
882

(1,565)
Amounts attributable to incentive servicer compensation
(8,721)
(6,427)
Interest income from Servicer Advance Investments $(18,089) $7,084


7.INVESTMENTS IN REAL ESTATE AND OTHER SECURITIES

“Agency” residential mortgage backed securities (“RMBS”) are RMBS issued by a government sponsored enterprise, such as Fannie Mae or Freddie Mac. “Non-Agency” RMBS are issued by either public trusts or private label securitization entities.

As a result of current market conditions and consistent with the Company’s business strategy of using its Agency RMBS portfolio as a source of liquidity, the Company sold substantially all of its Agency RMBS portfolio in March 2020.

Effective January 1, 2020, for any new purchases of Non-Agency RMBS, New Residential elected to apply the fair value option. The fair value option provides an election which allows a company to irrevocably elect fair value for certain financial asset and liabilities on an instrument-by-instrument basis at initial recognition. The Company elected the fair value option for these securities to better align reported results with the underlying economic changes in value of the securities on the Company’s Condensed Consolidated Balance Sheets.

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 real estate and other securities 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 the loan using the effective interest method and is recorded on the accrual basis.


23

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 March 31, 2020 Three Months Ended March 31, 2019
  (in millions) (in millions)
  Agency Non-Agency Agency Non-Agency
Purchases        
Face $7,140.0
 $4,563.2
 $5,024.3
 $2,444.0
Purchase price 7,290.0
 539.0
 5,129.4
 349.7
         
Sales        
Face $17,395.0
 $7,200.0
 $6,778.8
 $228.0
Amortized cost 17,679.3
 5,283.8
 6,914.3
 228.0
Sale price 17,869.1
 4,358.9
 6,979.4
 228.0
Gain (loss) on sale 189.8
 (924.9) 65.1
 


As of March 31, 2020, New Residential had sold $2.8 billion and $6.1 billion face amount for $2.9 billion and $3.3 billion of Agency RMBS and Non-Agency RMBS, respectively, which had not yet been settled. As of March 31, 2019, New Residential had sold and purchased $6.8 billion and $0.2 billion face amount of Agency RMBS for $7.0 billion and $0.2 billion, respectively, and purchased $3.8 million face amount of Non-Agency RMBS for $3.4 million, which had not yet been settled. These unsettled sales and purchases were recorded on the Condensed Consolidated Balance Sheets on trade date as Trades Receivable and Trades Payable. Refer to Note 16 for further details on transactions with affiliates.

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 Notes 8 and 16 for further details on these transactions.

The following is a summary of New Residential’s real estate and other securities:
  March 31, 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(F) (G)
 $306,566
 $308,486
 $10,082
 $
 $318,568
 27
 AAA 2.95% 2.79% 6.8 N/A
 $11,519,943
Non-Agency
  RMBS(H) (I)
 20,528,139
 2,239,021
 69,347
 (147,333) 2,161,035
 593
 A- 3.16% 5.00% 8.0 13.3% 7,957,785
Total/
   Weighted
    Average
 $20,834,705
 $2,547,507
 $79,429
 $(147,333) $2,479,603
 620
 A 3.11% 4.74% 7.8   $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 in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 337 bonds with a carrying value of $971.6 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.
(C)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $29.5 million and $4.3 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 $0.3 billion for fixed rate securities as of March 31, 2020.

24

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

(H)The total outstanding face amount was $11.1 billion (including $9.7 billion of residual and fair value option notional amount) for fixed rate securities and $9.4 billion (including $8.2 billion of residual and fair value option notional amount) for floating rate securities as of March 31, 2020.
(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 $23,250
 $18,484
 $
 $
 $18,484
 1
 B- 8.25% 8.25% 5.0 N/A
Consumer loan bonds 20,114
 13,268
 232
 (458) 13,042
 6
 N/A N/A
 N/A
 N/A N/A
Fair value option securities:                      
Interest-only securities 11,698,718
 305,697
 22,129
 (23,984) 303,842
 130
 AA 1.30% 9.36% 3.1 N/A
Servicing strips 4,984,912
 56,798
 2,480
 (11,292) 47,986
 53
 N/A 0.90% 8.11% 5.5 N/A


Unrealized losses attributable to credit impairment are recognized in earnings. During the three months ended March 31, 2020, New Residential recorded credit impairment charges of $44.1 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 March 31, 2020.
    Amortized Cost Basis       Weighted Average
Securities in an Unrealized Loss Position Outstanding Face Amount Before Credit Impairment 
Credit Impairment(A)
 After Credit Impairment Gross Unrealized Losses Carrying Value Number of Securities Rating Coupon Yield 
Life
(Years)
Less than 12 Months $8,525,893
 $1,482,309
 $(30,161) $1,452,148
 $(133,907) $1,318,241
 262
 A- 3.57% 4.45% 10.0
12 or More Months 1,903,679
 119,591
 (13,988) 105,603
 (13,426) 92,177
 59
 A- 2.63% 5.26% 3.3
Total/Weighted Average $10,429,572
 $1,601,900
 $(44,149) $1,557,751
 $(147,333) $1,410,418
 321
 A- 3.50% 4.51% 9.5
 
(A)Represents credit impairment on securities in an unrealized loss position as of March 31, 2020.

New Residential performed an assessment of all 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 credit impairment, exceeds its fair value) and determined the following:
 March 31, 2020 December 31, 2019
     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)
Securities New Residential intends to sell$
 $
 $
 $
 $
 $
 $
 $
Securities New Residential is more likely than not to be required to sell(C)

 
 
 N/A
 
 
 
 N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:               
Credit impaired securities560,375
 598,610
 (44,149) (38,235) 228,228
 237,626
 (3,232) (9,398)
Non-credit impaired securities850,043
 959,141
 
 (109,098) 4,726,409
 4,767,837
 
 (41,428)
Total debt securities in an unrealized loss position$1,410,418
 $1,557,751
 $(44,149) $(147,333) $4,954,637
 $5,005,463
 $(3,232) $(50,826)
  
(A)This amount is required to be recorded through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation included 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

25

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows included New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses were measured as the decline in the present value of the expected future cash flows discounted at the security’s effective interest rate.
(B)This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.
(C)New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.

The following table summarizes the activity related to the allowance for credit losses on debt securities as of March 31, 2020:
 Purchased Credit Deteriorated Non-Purchased Credit Deteriorated Total
Beginning balance of the allowance for credit losses on available-for-sale debt securities$
 $
 $
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
 
 
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
 
 
Reductions for securities sold during the period
 
 
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
 
 
Additional increases (decreases) to the allowance for credit losses on securities that had credit losses or an allowance recorded in a previous period24,121
 20,028
 44,149
Write-offs charged against the allowance
 
 
Recoveries of amounts previously written off
 
 
Ending balance of the allowance for credit losses on available-for-sale debt securities$24,121
 $20,028
 44,149

 
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
  March 31, 2020 December 31, 2019
Geographic Location(A)
 Outstanding Face Amount
Percentage of Total Outstanding Outstanding Face Amount
Percentage of Total Outstanding
Western U.S. $7,276,817

35.5% $9,048,847
 36.6%
Southeastern U.S. 5,337,487

26.1% 5,983,966
 24.2%
Northeastern U.S. 4,532,153

22.1% 5,416,137
 21.9%
Midwestern U.S. 2,176,968

10.6% 2,562,269
 10.4%
Southwestern U.S. 1,143,615

5.6% 1,440,467
 5.8%
Other(B)
 17,735

0.1% 296,273
 1.1%
  $20,484,775

100.0% $24,747,959
 100.0%
  
(A)Excludes $20.1 million and $25.0 million face amount of bonds backed by consumer loans and $23.3 million and $85.0 million face amount of bonds backed by corporate debt as of March 31, 2020 and December 31, 2019, respectively.
(B)Represents collateral for which New Residential was unable to obtain geographic information.


26

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

New Residential evaluates the credit quality of its real estate securities, as of the acquisition date, for evidence of credit quality deterioration. As a result, New Residential identified a population of real estate securities for which it was determined that it was probable that New Residential would be unable to collect all contractually required payments.

The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and fair value option securities:
 Outstanding Face Amount Carrying Value
March 31, 2020$1,179,074
 $528,741
December 31, 20195,701,736
 3,830,369


The following is a summary of the changes in accretable yield for these securities:
 Three Months Ended March 31, 2020
Balance at December 31, 2019$1,882,476
Additions67,194
Accretion(46,906)
Reclassifications from (to) non-accretable difference(2,841,574)
Disposals1,287,097
Balance at March 31, 2020$348,287


See Note 11 regarding the financing of real estate securities.

8.INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS AND REAL ESTATE OWNED

New Residential accumulated its residential mortgage loan portfolio through various bulk acquisitions and the execution of call rights. New Residential, through its wholly-owned subsidiary, NewRez, originates residential mortgage loans for sale and securitization to third parties and generally retains the servicing rights on the underlying loans.

Upon adoption of ASU 2016-13 on January 1, 2020, New Residential elected to apply the fair value option for all held-for-investment residential mortgage loans. 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. The Company elected the fair value option for these loans to better align reported results with the underlying economic changes in value of the loans on the Company’s Condensed Consolidated Balance Sheets.

The election of the fair value option resulted in the Company recognizing an adjustment of $6.0 million to reduce retained earnings attributable to the change in the fair value of residential mortgage loans. Unrealized gains (losses) from the change in fair value of residential mortgage loans are recognized in Change in fair value of investments in residential mortgage loans in the Condensed Consolidated Statements of Income. Realized gains (losses) are recorded in Other income (loss), net in the Condensed Consolidated Statements of Income.

Residential mortgage loans for which the fair value option has been elected are not evaluated for credit impairment as changes in fair value are recorded in the Condensed Consolidated Statements of Income.

Loans are accounted for based on New Residential’s strategy for the loan and on whether the loan was credit-impaired at the date of acquisition. As of March 31, 2020, New Residential accounts for loans based on the following categories:

Loans Held-for-Investment (which may include PCD Loans)
Loans Held-for-Investment, at fair value
Loans Held-for-Sale, at lower of cost or fair value
Loans Held-for-Sale, at fair value

27

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Real Estate Owned (“REO”)

The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type, excluding REO:


March 31, 2020 December 31, 2019


Outstanding Face Amount
Carrying
Value

Loan
Count

Weighted Average Yield
Weighted Average Life (Years)(A)

Floating Rate Loans as a % of Face Amount
Loan to Value Ratio (“LTV”)(B)

Weighted Avg. Delinquency(C)

Weighted Average FICO(D)
 Carrying Value
Loan Type

















 
Total Residential Mortgage Loans, held-for-investment, at fair value
$919,461
 $824,183
 14,164

8.2%
6.5
9.0%
72.1%
17.8%
642
 $925,706
                     
Acquired Reverse Mortgage Loans(E) (F)
 $12,333
 $6,220
 29
 7.9% 5.0 5.5% 153.3% 70.7% N/A
 $5,844
Acquired Performing Loans(G) (I)
 828,323
 753,288
 11,853
 6.1% 4.2 65.9% 51.1% 8.6% 684
 857,821
Acquired Non-Performing Loans(H) (I)
 629,948
 505,025
 4,822
 8.3% 3.2 10.9% 76.6% 73.1% 581
 565,387
Total Residential Mortgage Loans, held-for-sale $1,470,604
 $1,264,533
 16,704
 7.1% 3.8 41.8% 62.9% 36.8% 639
 $1,429,052
                     
Acquired Performing Loans(G) (I)
 $2,046,090
 $1,804,443
 12,925
 5.9% 7.9 6.9% 67.3% 30.5% 644
 $3,024,288
Originated Loans 1,430,577
 1,479,530
 4,769
 3.7% 28.0 2.9% 72.7% 0.1% 732
 1,589,324
Total Residential Mortgage Loans, held-for-sale, at fair value $3,476,667
 $3,283,973
 17,694
 5.0% 16.2 5.3% 69.5% 18.0% 680
 $4,613,612

(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 that New Residential holds in a portfolio of reverse mortgage loans. Mr. Cooper holds the other 30% interest and services the loans. The average loan balance outstanding based on total UPB was $0.6 million. Approximately 47% of these loans 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 March 31, 2020, New Residential has placed Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.
(I)Includes $35.1 million and $26.6 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

New Residential generally considers the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as its credit quality indicators. Delinquency status is a primary credit quality indicator as loans that are more than 60 days past due provide an early warning of borrowers who may be experiencing financial difficulties. Current LTV ratio is an indicator of the potential loss severity in the event of default. Finally, the geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events will affect credit quality.


28

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

The table below summarizes the geographic distribution of the underlying residential mortgage loans:
  Percentage of Total Outstanding Unpaid Principal Amount
State Concentration March 31, 2020 December 31, 2019
California 16.8% 16.1%
New York 9.9% 9.0%
Florida 7.7% 8.4%
Texas 7.5% 7.1%
Georgia 4.6% 4.8%
New Jersey 4.6% 4.2%
Illinois 3.4% 3.6%
Maryland 3.1% 3.3%
Pennsylvania 3.1% 2.9%
Virginia 2.7% 2.7%
Other U.S. 36.6% 37.9%
  100.0% 100.0%


See Note 11 regarding the financing of residential mortgage loans and related assets.

The following table summarizes the difference between the aggregate unpaid principal balance and the aggregate fair value of loans as of March 31, 2020:
Days Past Due Unpaid Principal Balance Fair Value Fair Value Over (Under) Unpaid Principal Balance
90 to 119 $336,910
 $275,597
 $(61,313)
120+ 291,390
 267,673
 (23,717)
  $628,300
 $543,270
 $(85,030)


Call Rights

New Residential has executed calls with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO assets 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. For the three months ended March 31, 2020, New Residential executed calls on a total of 15 trusts and recognized $12.0 million of interest income on securities held in the collapsed trusts and $42.6 million of gain on securitizations accounted for as sales. For the three months ended March 31, 2019, New Residential executed calls on a total of 19 trusts and recognized $32.5 million of interest income on securities held in the collapsed trusts and $2.8 million of loss on securitizations accounted for as sales. Refer to Note 16 for transactions with affiliates.


29

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

The following table provides past due information regarding New Residential’s Performing Loans, which is an important indicator of credit quality and the establishment of the allowance for credit losses:
  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%

(A)Represents the percentage of the total principal balance that corresponds to loans that are in each delinquency status.
(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.
(C)Represents nonaccrual loans.

Activities related to the carrying value of residential mortgage loans held-for-investment were as follows:
Balance at December 31, 2019$925,706
Fair value adjustment due to fair value option(6,020)
Purchases/additional fundings
Proceeds from repayments(31,233)
Transfer of loans to other assets(A)

Transfer of loans to real estate owned(2,410)
Transfers of loans to held for sale
Fair value adjustment(61,860)
Balance at March 31, 2020$824,183

(A)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).

Loans Held-for-Sale, at Fair Value

Activities related to the carrying value of originated loans held-for-sale, at fair value were as follows:
Balance at December 31, 2019 $1,414,528
Originations 11,440,093
Sales (11,358,767)
Proceeds from repayments (170)
Transfer of loans to real estate owned 
Transfer of loans to other assets (1,707)
Fair value adjustment (14,447)
Balance at March 31, 2020 $1,479,530



30

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Activities related to the carrying value of acquired loans held-for-sale, at fair value were as follows:
Balance at December 31, 2019 $3,199,084
Purchases(A)
 878,049
Sales (2,028,620)
Proceeds from repayments (47,200)
Transfer of loans to real estate owned (2,997)
Transfer of loans to other assets

 (4,936)
Fair value adjustment (188,937)
Balance at March 31, 2020 $1,804,443

(A)Includes an acquisition date fair value adjustment increase of $0.4 million on loans acquired through call transactions executed during the three months ended March 31, 2020.

Activities related to the carrying value of acquired loans held-for-sale, at lower cost or fair value were as follows:
Balance at December 31, 2019 $1,429,052
Purchases 109,666
Transfer of loans from held-for-investment 
Sales (103,327)
Transfer of loans to real estate owned (12,238)
Transfer of loans to other assets

 (390)
Proceeds from repayments (59,526)
Valuation provision on loans (98,704)
Balance at March 31, 2020 $1,264,533


Net Interest Income
  Three Months Ended  
 March 31,
  2020 2019
Interest Income:    
Acquired Residential Mortgage Loans, held-for-investment $15,109
 $17,203
Acquired Residential Mortgage Loans, held-for-sale 17,780
 15,179
Acquired Residential Mortgage Loans, held-for-sale, at fair value 27,032
 25,807
Originated Residential Mortgage Loans, held-for-sale, at fair value 16,735
 5,584
Total Interest Income on Residential Mortgage Loans 76,656
 63,773
     
Interest Expense:    
Acquired Residential Mortgage Loans, held-for-investment 5,200
 6,005
Acquired Residential Mortgage Loans, held-for-sale 8,530
 8,808
Acquired Residential Mortgage Loans, held-for-sale, at fair value 17,043
 21,038
Originated Residential Mortgage Loans, held-for-sale, at fair value 13,427
 5,158
Total Interest Expense on Residential Mortgage Loans 44,200
 41,009
     
Total Net Interest Income on Residential Mortgage Loans $32,456
 $22,764



31

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Gain on originated mortgage loans, held-for-sale, net

NewRez, a wholly owned subsidiary of New Residential, 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, New Residential reports gain on originated mortgage loans, held-for-sale, net in the Condensed Consolidated Statements of Income.

Gain on originated mortgage loans, held-for-sale, net is summarized below:
  Three Months Ended  
 March 31,
  2020 2019
Gain on loans originated and sold, net(A)
 $39,289
 $27,542
Gain (loss) on settlement of mortgage loan origination derivative instruments(B)
 (46,314) (11,423)
MSRs retained on transfer of loans(C)
 195,896
 36,429
Other(D)
 16,627
 7,280
Realized gain on sale of originated mortgage loans, net $205,498
 $59,828
Change in fair value of loans 22,275
 5,349
Change in fair value of interest rate lock commitments (Note 10) 91,249
 3,208
Change in fair value of derivative instruments (Note 10) (139,324) (1,215)
Gain on originated mortgage loans, held-for-sale, net $179,698
 $67,170

(A)Includes loan origination fees of $277.0 million and $25.0 million in the three months ended March 31, 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.

Real estate owned (REO)

New Residential recognizes REO assets at the completion of the foreclosure process or upon execution of a deed in lieu of foreclosure with the borrower. REO assets are managed for prompt sale and disposition at the best possible economic value.
  Real Estate Owned
Balance at December 31, 2019 $93,672
Purchases 3,910
Transfer of loans to real estate owned 20,240
Sales(A)
 (34,741)
Valuation (provision) reversal on REO (1,792)
Balance at March 31, 2020 $81,289


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

As of March 31, 2020, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $418.9 million.


32

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

In addition, New Residential has recognized $16.6 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.

During the first quarter of 2018, New Residential formed entities (the “RPL Borrowers”) that issued securitized debt collateralized by reperforming residential mortgage loans. New Residential evaluated these entities under the VIE model and concluded them to be VIEs. See Note 13 for information on the analysis and assets and liabilities related to these consolidated VIEs.

9.INVESTMENTS IN CONSUMER LOANS

New Residential, through limited liability companies (together, the “Consumer Loan Companies”), has a co-investment in a portfolio of consumer loans. The portfolio includes personal unsecured loans and personal homeowner loans. OneMain is the servicer of the loans and provides all servicing and advancing functions for the portfolio. As of March 31, 2020, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

New Residential also purchased certain newly originated consumer loans from a third party (“Consumer Loan Seller”). These loans are not held in the Consumer Loan Companies and have been designated as performing consumer loans, held-for-investment. In addition, see “Equity Method Investees” below.

The following table summarizes the investment in consumer loans, held-for-investment held by New Residential:
 Unpaid Principal Balance
Interest in Consumer Loans
Carrying Value
Weighted Average Coupon
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
March 31, 2020           
Consumer Loan Companies           
Performing Loans$606,120
 53.5% $627,001
 18.8% 4.0 4.7%
Purchased Credit Deteriorated Loans(C)
158,920
 53.5% 147,606
 15.3% 3.7 9.7%
Other - Performing Loans6,958
 100.0% 6,214
 15.1% 0.7 5.1%
Total Consumer Loans, held-for-investment$771,998
   $780,821
 18.0% 3.9 5.7%
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 Loans9,158
 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%

(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)Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments, which are accounted for as PCD loans.

See Note 11 regarding the financing of consumer loans.

Upon adoption of ASU 2016-13 on January 1, 2020, New Residential elected to apply the fair value option for all consumer loans. The fair value option provides an election which allows a company to irrevocably elect fair value for certain financial asset and liabilities on an instrument-by-instrument basis. The Company elected the fair value option for these loans to better align reported results with the underlying economic changes in value of the loans on the Company’s Condensed Consolidated Balance Sheet.

The election of the fair value option resulted in the Company recognizing an adjustment of $19.7 million to reduce retained earnings attributable to the change in the fair value of consumer loans, net of noncontrolling interests. Unrealized gains (losses) from the change in fair value of consumer loans are recognized in Other income (loss), net in the Condensed Consolidated Statements of Income. Realized gains (losses) are recorded in Gain on settlement of investments, net in the Condensed Consolidated Statements of Income. See Note 2.

33

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 


Consumer loans for which the fair value option has been elected are not evaluated for credit impairment as changes in fair value are recorded in the Condensed Consolidated Statements of Income. Interest income is recognized over the life the loan using the effective interest method and is recorded on the accrual basis.

The following table summarizes the past due status and difference between the aggregate unpaid principal balance and the aggregate fair value of consumer loans as of March 31, 2020:
Days Past Due Unpaid Principal Balance Fair Value Fair Value Over (Under) Unpaid Principal Balance
Under 90 Days 755,681
 764,479
 8,798
90 days or more past due 16,317
 16,342
 25
Total 771,998
 780,821
 8,823


Performing Loans

The following table provides past due information regarding New Residential’s performing consumer loans, held-for-investment, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
  December 31, 2019
Days Past Due 
Delinquency Status(A)
Current 95.3%
30-59 1.8%
60-89 1.2%
90-119(B)
 0.7%
120+(B) (C)
 1.0%
  100.0%

(A)Represents the percentage of the total unpaid principal balance that corresponds to loans that are in each delinquency status.
(B)Includes loans more than 90 days past due and still accruing interest.
(C)Interest is accrued up to the date of charge-off at 180 days past due.

Activities related to the fair value of consumer loans, held-for-investment were as follows:
Balance at December 31, 2019 $827,545
Fair value adjustment due to fair value option 36,472
Purchases 
Additional fundings(A)
 11,002
Proceeds from repayments (61,213)
Accretion of loan discount and premium amortization, net 6,932
Fair value adjustment (39,917)
Balance at March 31, 2020 $780,821

(A)Represents draws on consumer loans with revolving privileges.


34

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Equity Method Investees

In February 2017, New Residential completed a co-investment, through a newly formed entity, PF LoanCo Funding LLC (“LoanCo”), to purchase up to $5.0 billion worth of newly originated consumer loans from Consumer Loan Seller over a two-year term. New Residential accounted for its investment in LoanCo pursuant to the equity method of accounting because it could exercise significant influence over LoanCo but the requirements for consolidation are not met. As of December 31, 2019, LoanCo had distributed all net assets to New Residential.

Additionally, New Residential and the LoanCo co-investors agreed to purchase warrants to purchase up to 177.7 million shares of Series F convertible preferred stock in the Consumer Loan Seller’s parent company (“ParentCo”). The holder of the warrants has the option to purchase an equivalent number of shares of Series F convertible preferred stock in ParentCo at a price of $0.01 per share. The Series F convertible preferred stock holders have the right to convert such preferred stock to common stock at any time, are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted, and will have liquidation rights in the event of liquidation. As of March 31, 2020 and December 31, 2019, the warrants are held on New Residential’s balance sheet in Other Assets and carried at $25.5 million and $28.0 million, respectively.

The following table summarizes the income earned from the Company’s investments in LoanCo and WarrantCo during 2019:
  Three Months Ended  
 March 31,
  
2019(A)
Interest income $7,977
Interest expense (2,822)
Change in fair value of consumer loans and warrants 14,536
Gain on sale of consumer loans(B)
 (446)
Other expenses (1,456)
Net income $17,789
New Residential’s equity in net income $4,311
New Residential’s ownership 24.2%


(A)Data for the period ended February 28, 2019 as a result of the one month reporting lag.
(B)During the three months ended March 31, 2019, LoanCo sold, through securitizations which were treated as sales for accounting purposes, $406.1 million in UPB of consumer loans. LoanCo retained $83.9 million of residual interest in the securitizations and distributed them to the LoanCo co-investors, including New Residential.

The following is a summary of LoanCo’s consumer loan investments at March 31, 2019:
 Unpaid Principal Balance Interest in Consumer Loans Carrying Value Weighted Average Coupon 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
March 31, 2019(C)
$259,618
 25.0% $259,618
 14.0% 1.3 1.4%

(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 February 28, 2019 as a result of the one month reporting lag.

10.DERIVATIVES
 
New Residential uses interest rate swaps and interest rate caps as economic hedges to hedge a portion of its interest rate risk exposure. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, as well as other factors. New Residential’s credit risk with respect to economic

35

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

hedges is the risk of default on New Residential’s investments that results from a borrower’s or counterparty’s inability or unwillingness to make contractually required payments.

As of March 31, 2020, New Residential held to-be-announced forward contract positions (“TBAs”) which were entered into as an economic hedge in order to mitigate New Residential’s interest rate risk on certain specified mortgage backed securities and any amounts or obligations owed by or to New Residential are subject to the right of set-off with the TBA counterparty. As part of executing these trades, New Residential has entered into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements, and various other provisions. New Residential has fulfilled all obligations and requirements entered into under these agreements.

As of March 31, 2020, New Residential also held interest rate lock commitments (“IRLCs”), which represent a commitment to a particular interest rate provided the borrower is able to close the loan within a specified period, and forward loan sale and securities delivery commitments, which represent a commitment to sell specific mortgage loans at prices which are fixed as of the forward commitment date. New Residential enters into forward loan sale and securities delivery commitments in order to hedge the exposure related to IRLCs and mortgage loans that are not covered by mortgage loan sale commitments.

New Residential’s derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:
 Balance Sheet Location March 31, 2020 December 31, 2019
Derivative assets     
Interest Rate Swaps(A)
Other assets $48
 $155
Interest Rate Lock CommitmentsOther assets 132,568
 41,346
   $132,616
 $41,501
Derivative liabilities     
Interest Rate Lock CommitmentsAccrued expenses and other liabilities $1,428
 $1,455
Forward Loan Sale CommitmentsAccrued expenses and other liabilities 
 27
TBAsAccrued expenses and other liabilities 158,925
 5,403
   $160,353
 $6,885

(A)Net of $245.4 million and $171.8 million of related variation margin accounts as of March 31, 2020 and December 31, 2019, respectively.

The following table summarizes notional amounts related to derivatives:
 March 31, 2020 December 31, 2019
Interest Rate Caps(A)
$12,500
 $12,500
Interest Rate Swaps(B)
9,070,000
 4,900,000
Interest Rate Lock Commitments5,861,166
 4,043,935
Forward Loan Sale Commitments
 43,654
TBAs, short position(C)
4,245,000
 5,048,000
TBAs, long position(C)
13,705,341
 11,692,212

(A)As of March 31, 2020, caps LIBOR at 4.00% for $12.5 million of notional. The weighted average maturity of the interest rate caps as of March 31, 2020 was 8 months.
(B)Includes $4.4 billion notional of Receive LIBOR/Pay Fixed of 2.96% and $4.7 billion notional of Receive Fixed of 0.80%/Pay LIBOR with weighted average maturities of 37 months and 36 months, respectively, as of March 31, 2020. Includes $4.0 billion notional of Receive LIBOR/Pay Fixed of 3.21% and $0.9 billion notional of Receive Fixed of 1.89%/Pay LIBOR with weighted average maturities of 36 months and 87 months, respectively, as of December 31, 2019.
(C)Represents the notional amount of Agency RMBS, classified as derivatives.


36

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

The following table summarizes all income (losses) recorded in relation to derivatives:
  For the  
 Three Months Ended 
 March 31,
  2020 2019
Change in fair value of derivative investments(A)
    
Interest Rate Caps $
 $2,776
Interest Rate Swaps (39,982) (3)
Unrealized gains (losses) on Interest Rate Lock Commitments 
 (28,533)
  (39,982) (25,760)
Gain (loss) on settlement of investments, net    
Interest Rate Swaps (13,652) (16,378)
TBAs(B)
 (71,060) (76,698)
  (84,712) (93,076)
Gain on originated mortgage loans, held-for-sale, net(A)
    
Interest Rate Lock Commitments 91,249
 3,208
TBAs (139,351) (1,194)
Forward Loan Sale Commitments 27
 (21)
  (48,075) 1,993
     
Total income (losses) $(172,769) $(116,843)


(A)Represents unrealized gains (losses).
(B)Excludes $46.3 million and $11.4 million in loss on settlement included within gain on originated mortgage loans, held-for-sale, net (Note 8), for the three months ended March 31, 2020 and 2019, respectively.


37

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

11.DEBT OBLIGATIONS
 
The following table presents certain information regarding New Residential’s debt obligations:

 March 31, 2020 December 31, 2019
            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) 
Carrying Value(A)
Repurchase Agreements(C)
                    
Agency RMBS(D)
 $302,508
 $302,508
 Apr-20 to Jun-20 1.68% 0.1 $306,566
 $308,486
 $318,567
 6.8 $15,481,677
Non-Agency RMBS (E)
 6,131,955
 6,131,955
 Apr-20 to Sep-20 2.77% 0.1 25,071,311
 6,413,847
 5,389,267
 2.8 7,317,519
Residential Mortgage Loans(F)
 4,311,309
 4,309,869
 May-20 to May-21 2.70% 0.8 5,003,435
 5,411,739
 4,612,611
 12.4 5,053,207
Real Estate Owned(G)(H)
 69,798
 69,798
 May-20 to May-21 2.70% 0.7 N/A
 N/A
 88,221
 N/A 63,822
Total Repurchase Agreements 10,815,570
 10,814,130
   2.71% 0.4         27,916,225
Notes and Bonds Payable                    
Excess MSRs(I)
 308,800
 308,800
 Feb-22 to Jul-22 4.29% 2.2 94,182,895
 302,878
 377,649
 6.1 217,300
MSRs(J)
 2,546,879
 2,541,089
 Jun-20 to Jul-24 3.76% 1.4 424,610,405
 4,450,640
 4,603,915
 5.8 2,640,036
Servicer Advances(K)
 2,976,208
 2,969,209
 Jun-20 to Aug-23 2.49% 2.0 3,388,387
 3,582,852
 3,588,437
 1.5 3,181,672
Residential Mortgage Loans(L)
 431,953
 428,218
 Apr-20 to Dec-45 4.68% 8.4 685,168
 987,623
 633,205
 4.6 864,451
Consumer Loans(M)
 764,259
 767,263
 May-36 3.26% 3.9 764,960
 772,715
 774,527
 3.9 816,689
Total Notes and Bonds Payable 7,028,099
 7,014,579
   3.25% 2.4         7,720,148
Total/ Weighted Average $17,843,669
 $17,828,709
   2.92% 1.2         $35,636,373


(A)Net of deferred financing costs.
(B)All debt obligations with a stated maturity through April 30, 2020 were refinanced, extended or repaid.
(C)These repurchase agreements had approximately $80.4 million of associated accrued interest payable as of March 31, 2020.
(D)All of the Agency RMBS repurchase agreements have a fixed rate. Collateral amounts include approximately $2.9 billion of related trade and other receivables.
(E)$5,615.0 million face amount of the Non-Agency RMBS repurchase agreements have LIBOR-based floating interest rates while the remaining $517.0 million face amount of the Non-Agency RMBS repurchase agreements have a fixed rate. This also includes repurchase agreements and related collateral of $7.5 million and $10.0 million, respectively, on retained consumer loan bonds and of $533.3 million and $697.6 million, respectively, on retained bonds collateralized by Agency MSRs. Collateral amounts also include approximately $3.3 billion of related trade and other receivables.
(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 New Residential has made or intends to make a claim on the FHA guarantee.
(I)Includes $91.5 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% and $217.3 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 2.75%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the interests in MSRs that secure these notes.
(J)Includes: $1,232.8 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%; $56.9 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%; and $1,257.2 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 MSR financing receivables that secure these notes.
(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 1.00%

38

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

to 1.98%. 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 $5.0 million note payable to Mr. Cooper which includes a $1.5 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.88%, (ii) $99.9 million fair value of SAFT 2013-1 mortgage-backed securities issued with fixed interest rates ranging from 3.50% to 3.75% (see Note 12 for fair value details), (iii) $176.1 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.60% (see Note 12 for fair value details), and (iv) $150.9 million of asset-backed notes held by third parties which include $1.2 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%.
(M)Includes the SpringCastle debt, which is composed of the following classes of asset-backed notes held by third parties: $685.1 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.

As of March 31, 2020, New Residential had 0 outstanding repurchase agreements where the amount at risk with any individual counterparty or group of related counterparties exceeded 10% of New Residential’s stockholders' equity. The amount at risk under repurchase agreements is defined as the excess of carrying amount (or market value, if higher than the carrying amount) of the securities or other assets sold under agreement to repurchase, including accrued interest plus any cash or other assets on deposit to secure the repurchase obligation, over the amount of the repurchase liability (adjusted for accrued interest).

General

Certain of the debt obligations included above are obligations of New Residential’s consolidated subsidiaries, which own the related collateral. In some cases, such collateral is not available to other creditors of New Residential.

New Residential has margin exposure on $10.8 billion of repurchase agreements as of March 31, 2020. To the extent that the value of the collateral underlying these repurchase agreements declines, New Residential may be required to post margin, which could significantly impact its liquidity.
 
Activities related to the carrying value of New Residential’s debt obligations were as follows:
 Excess MSRs MSRs 
Servicer Advances(A)
 Real Estate Securities Residential Mortgage Loans and REO Consumer Loans Total
Balance at December 31, 2019$217,300
 $2,640,036
 $3,181,672
 $22,799,196
 $5,981,480
 $816,689
 $35,636,373
Repurchase Agreements:             
Borrowings
 
 
 64,122,355
 12,058,709
 
 76,181,064
Repayments
 
 
 (80,487,088) (12,796,116) 
 (93,283,204)
Capitalized deferred financing costs, net of amortization
 
 
 
 45
 
 45
Notes and Bonds Payable:            
Borrowings97,173
 347,020
 1,034,484
 
 
 
 1,478,677
Repayments(5,673) (446,681) (1,247,762) 
 (419,231) (49,549) (2,168,896)
Discount on borrowings, net of amortization
 
 
 
 
 123
 123
Unrealized loss on notes, fair value
 
 
 
 (17,002) 
 (17,002)
Capitalized deferred financing costs, net of amortization
 714
 815
 
 
 
 1,529
Balance at March 31, 2020$308,800
 $2,541,089
 $2,969,209
 $6,434,463
 $4,807,885
 $767,263
 $17,828,709

(A)New Residential net settles daily borrowings and repayments of the Notes and Bonds Payable on its servicer advances.


39

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Maturities
 
New Residential’s debt obligations as of March 31, 2020 had contractual maturities as follows:
Year Ending Nonrecourse Recourse Total
April 1 through December 31, 2020 $134,958
 $11,639,359
 $11,774,317
2021 1,227,143
 1,090,798
 2,317,941
2022 1,271,962
 308,800
 1,580,762
2023 400,000
 361,803
 761,803
2024 
 368,593
 368,593
2025 and thereafter 1,040,253
 
 1,040,253
  $4,074,316
 $13,769,353
 $17,843,669


Borrowing Capacity

The following table represents New Residential’s borrowing capacity as of March 31, 2020:
Debt Obligations / Collateral Borrowing Capacity Balance Outstanding 
Available Financing(A)
Repurchase Agreements      
Residential mortgage loans and REO $5,731,188
 $2,876,008
 $2,855,180
New loan originations 4,083,000
 1,505,099
 2,577,901
Non-Agency RMBS 650,000
 517,004
 132,996
       
Notes and Bonds Payable      
Excess MSRs 100,000
 91,500
 8,500
MSRs 1,575,000
 1,289,637
 285,363
Servicer advances 1,575,000
 1,076,243
 498,757
Residential mortgage loans 650,000
 150,886
 499,114
Consumer loans 150,000
 
 150,000
  $14,514,188
 $7,506,377
 $7,007,811


(A)New Residential’s unused borrowing capacity is available if New Residential has additional eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements, including any applicable advance rate.

Certain of the debt obligations are subject to customary 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. New Residential was in compliance with all of its debt covenants as of March 31, 2020.


40

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

12.FAIR VALUE MEASUREMENT

The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of March 31, 2020 were as follows:
     Fair Value
 Principal Balance or Notional Amount Carrying Value Level 1 Level 2 Level 3 Total
Assets           
Investments in:           
Excess mortgage servicing rights, at fair value(A)
$85,009,386
 $363,932
 $
 $
 $363,932
 $363,932
Excess mortgage servicing rights, equity method investees, at fair value(A)
33,251,300
 119,609
 
 
 119,609
 119,609
Mortgage servicing rights, at fair value(A)
403,706,059
 3,934,384
 
 
 3,934,384
 3,934,384
Mortgage servicing rights financing receivables, at fair value123,066,762
 1,604,431
 


 1,604,431
 1,604,431
Servicer advance investments, at fair
    value
461,723
 515,574
 
 
 515,574
 515,574
Real estate and other securities, available-for-sale20,834,705
 2,479,603
 
 318,568
 2,161,035
 2,479,603
Residential mortgage loans, held-for-sale1,470,604
 1,264,533
 
 
 1,264,533
 1,264,533
Residential mortgage loans, held-for-sale, at fair value3,476,667
 3,283,973
 
 1,633,481
 1,650,492
 3,283,973
Residential mortgage loans, held-for-investment, at fair value919,461
 824,183
 
 
 824,183
 824,183
Residential mortgage loans subject to repurchase197,715
 197,715
 
 197,715
 
 197,715
Consumer loans, held-for-investment, at fair value771,998
 780,821
 
 
 780,821
 780,821
Derivative assets14,724,133
 132,616
 
 48
 132,568
 132,616
Note receivable46,724
 42,787
 
 
 42,787
 42,787
Cash and cash equivalents360,453
 360,453
 360,453
 
 
 360,453
Restricted cash147,435
 147,435
 147,435
 
 
 147,435
Other assets(B)
N/A
 45,118
 2,902
 
 42,216
 45,118
   $16,097,167
 $510,790
 $2,149,812
 $13,436,565
 $16,097,167
Liabilities           
Repurchase agreements$10,815,570
 $10,814,130
 $
 $10,815,570
 $
 $10,815,570
Notes and bonds payable(C)
7,028,099
 7,014,579
 
 
 6,238,923
 6,238,923
Residential mortgage loan repurchase liability197,715
 197,715
 
 197,715
 
 197,715
Derivative liabilities18,169,875
 160,353
 
 158,925
 1,428
 160,353
Excess spread financing2,839,463
 25,614
 
 
 25,614
 25,614
Contingent considerationN/A
 56,836
 
 
 56,836
 56,836
   $18,269,227
 $
 $11,172,210
 $6,322,801
 $17,495,011
 
(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR financing receivables and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.
(B)Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of New Residential’s investment. The investment had a fair value of $31.9 million as of March 31, 2020.

41

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

(C)Includes the SAFT 2013-1 and MDST Trusts mortgage backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $272.3 million as of March 31, 2020.

New Residential’s assets measured at fair value on a recurring basis using Level 3 inputs changed as follows:
 Level 3    
 
Excess MSRs(A)
 
Excess MSRs in Equity Method Investees(A)(B)
 
MSRs(A)
 
MSR Financing Receivables(A)
 Servicer Advance Investments Non-Agency RMBS 
Derivatives(C)
 Residential Mortgage Loans Consumer Loans  
 Agency Non-Agency      Total
Balance at December 31, 2019$209,633
 $170,114
 $125,596
 $3,967,960
 $1,718,273
 $581,777
 $7,957,785
 $39,891
 $3,998,825
 $
 $18,769,854
Transfers                     
Transfers from Level 3
 
 
 
 
 
 
 
 (467,263) 


 (467,263)
Transfers to Level 3
 
 
 
 
 
 
 
 440,168
 827,545
 1,267,713
Shellpoint Acquisition
 
 
 
 
 
 
 
 
 
 
Transfers from investments in mortgage servicing rights financing receivables to investments in mortgage servicing rights
 
 
 
 
 
 
 
 
 
 
Gains (losses) included in net income                     
Included in provision (reversal) for credit losses on securities(D)

 
 
 
 
 
 (44,149) 
 
 
 (44,149)
Included in change in fair value of investments in excess mortgage servicing rights(D)
(5,557) (5,467) 
 
 
 
 
 
 
 
 (11,024)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(D)

 
 (457) 
 
 
 
 
 
 
 (457)
Included in servicing revenue, net(E)

 
 
 (655,800) 
 
 
 
 
 
 (655,800)
Included in change in fair value of investments in mortgage servicing rights financing receivables(D)

 
 
 
 (104,111) 
 
 
 
 
 (104,111)
Included in change in fair value of servicer advance investments
 
 
 
 
 (18,749) 
 
 
 
 (18,749)
Included in change in fair value of investments in residential mortgage loans
 
 
 
 
 
 
 
 (265,244) 
 (265,244)
Included in gain (loss) on settlement of investments, net8
 1
 
 
 
 
 (924,897) 
 
 
 (924,888)
Included in other income (loss), net(D)
557
 70
 
 
 
 
 (87,650) 91,249
 730
 (39,916) (34,960)
Gains (losses) included in other comprehensive income(F)

 
 
 
 
 
 (640,403) 
 (6,020) 36,472
 (609,951)
Interest income6,146
 7,080
 
 
 
 (18,089) 67,123
 
 
 6,932
 69,192
Purchases, sales and repayments                     
Purchases
 
 
 436,395
 
 330,140
 538,964
 
 1,250,157
 11,002
 2,566,658
Proceeds from sales(31) (3) 
 (8,504) (3,708) 
 (4,358,894) 
 (2,393,309) 
 (6,764,449)
Proceeds from repayments(10,589) (8,030) (5,530) (1,563) (6,023) (359,505) (346,844) 
 (83,369) (61,214) (882,667)
Originations and other
 
 
 195,896
 
 
 
 
 
 
 195,896
Balance at March 31, 2020$200,167
 $163,765
 $119,609
 $3,934,384
 $1,604,431
 $515,574
 $2,161,035
 $131,140
 $2,474,675
 $780,821
 $12,085,601
 
(A)Includes the recapture agreement for each respective pool, as applicable.
(B)Amounts represent New Residential’s portion of the Excess MSRs held by the respective joint ventures in which New Residential has a 50% interest.
(C)For the purpose of this table, the IRLC asset and liability positions are shown net.
(D)The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates and realized gains (losses) recorded during the period.
(E)The components of Servicing revenue, net are disclosed in Note 5.
(F)These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.


42

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

New Residential’s liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
  Level 3  
  Excess Spread Financing Mortgage-Backed Securities Issued Contingent Consideration  
   Total
Balance at December 31, 2019 $31,777
 $659,738
 $55,222
 $746,737
Transfers        
Transfers from Level 3 
 
 
 
Transfers to Level 3 
 
 
 
Acquisition 
 
 
 
Gains (losses) included in net income        
Included in provision (reversal) for credit losses on securities(A)
 
 
 
 
Included in change in fair value of investments in excess mortgage servicing rights 
 
 
 
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(A)
 
 
 
 
Included in servicing revenue, net(B)
 (6,425) 
 
 (6,425)
Included in change in fair value of investments in notes receivable - rights to MSRs 
 
 
 
Included in change in fair value of servicer advance investments 
 
 
 
Included in change in fair value of investments in residential mortgage loans 
 (17,002) 
 (17,002)
Included in gain (loss) on settlement of investments, net 
 
 
 
Included in other income(A)
 
 
 1,614
 1,614
Gains (losses) included in other comprehensive income, net of tax(C)
 
 
 
 
Interest income 
 
 
 
Purchases, sales and repayments        
Purchases 
 
 
 
Proceeds from sales 
 
 
 
Payments 
 (368,979) 
 (368,979)
Other 262
 (1,465) 
 (1,203)
Balance at March 31, 2020 $25,614
 $272,292
 $56,836
 $354,742

(A)The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 liabilities still held at the reporting dates and realized gains (losses) recorded during the period.
(B)The components of Servicing revenue, net are disclosed in Note 5.
(C)These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.


43

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Investments in Excess MSRs, Excess MSRs Equity Method Investees, MSRs and MSR Financing Receivables Valuation

The following table summarizes certain information regarding the ranges and weighted averages of inputs used as of March 31, 2020:
  
Significant Inputs(A)
  
Prepayment
Rate
(B)
 
Delinquency(C)
 
Recapture
Rate
(D)
 
Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)
 
Collateral Weighted Average Maturity (Years)(F)
Excess MSRs Directly Held (Note 4)          
Agency
         
Original Pools
5.7% - 10.2% (8.1%) 0.0% - 4.8% (1.7%) 4.4% - 28.7% (18.5%) 15 - 31 (21) 15 - 22 (20)
Recaptured Pools 6.4% - 11.2% (10.1%) 0.1% - 4.0% (0.8%) 0.0% - 35.7% (26.3%) 20 - 29 (23) 20 - 24 (23)


5.7% - 11.2% (8.7%) 0.0% - 4.8% (1.4%) 0.0% - 35.7% (21.0%) 15 - 31 (22) 15 - 24 (21)
Non-Agency(G)

         
Mr. Cooper and SLS Serviced:          
Original Pools
7.8% - 11.9% (8.9%) N/A 0.0% - 14.2% (12.5%) 5 - 25 (15) 19 - 31 (23)
Recaptured Pools 6.2% - 7.5% (7.1%) N/A 12.3% - 16.5% (14.9%) 22 - 27 (25) 21 - 24 (23)


6.2% - 11.9% (8.6%) N/A 0.0% - 16.5% (12.9%) 5 - 27 (16) 19 - 31 (23)
Total/Weighted AverageExcess MSRs Directly Held

5.7% - 11.9% (8.7%) N/A 0.0% - 35.7% (17.2%) 5 - 31 (19) 15 - 31 (22)


         
Excess MSRs Held through Equity Method Investees (Note 4)        
Agency
         
Original Pools
8.4% - 9.2% (8.6%) 1.2% - 4.0% (2.1%) 13.7% - 28.6% (19.8%) 15 - 25 (19) 18 - 20 (19)
Recaptured Pools 9.4% - 10.2% (9.9%) 0.7% - 1.7% (1.2%) 20.8% - 29.3% (24.6%) 22 - 28 (24) 21 - 24 (22)
Total/Weighted AverageExcess MSRs Held through Investees

8.4% - 10.2% (9.2%) 0.7% - 4.0% (1.7%) 13.7% - 29.3% (22.1%) 15 - 28 (21) 18 - 24 (20)
           
Total/Weighted AverageExcess MSRs All Pools
 5.7% - 11.9% (8.9%) N/A 0.0% - 35.7% (18.9%) 5 - 31 (20) 15 - 31 (21)
           
MSRs          
Agency(H)
          
Mortgage Servicing Rights(I) (J)
 10.7% - 16.5% (12.0%) 0.1% - 3.4% (1.2%) 5.1% - 25.1% (20.5%) 25 - 33 (28) 0 - 30 (22)
MSR Financing Receivables(I)
 11.8% - 14.9% (13.1%) 0.5% - 0.8% (0.6%) 12.4% - 18.6% (15.1%) 25 - 29 (27) 0 - 30 (25)
  10.7% - 16.5% (12.1%) 0.1% - 3.4% (1.2%) 5.1% - 25.1% (19.8%) 25 - 33 (28) 0 - 30 (22)
Non-Agency          
Mortgage Servicing Rights(I)
 8.7% - 11.9% (11.7%) 0.3% - 13.2% (0.9%) 1.9% - 24.5% (23.5%) 26 - 87 (28) 0 - 30 (16)
MSR Financing Receivables(I)
 8.1% 15.1% 9.4% 48 0 - 30 (25)
  8.1% - 11.9% (8.2%) 0.3% - 15.1% (14.8%) 1.9% - 24.5% (9.6%) 26 - 87 (47) 0 - 30 (25)
Ginnie Mae          
Mortgage Servicing Rights(I) (J)
 14.3% - 17.0% (15.8%) 2.0% - 6.1% (5.6%) 15.3% - 35.0% (23.9%) 32 - 52 (45) 0 - 30 (27)
           
Total/Weighted AverageMSRs
 8.1% - 17.0% (11.8%) 0.1% - 15.1% (4.5%) 1.9% - 35.0% (20.0%) 25 - 87 (34) 0 - 30 (23)

44

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 


(A)Weighted by fair value of the portfolio.
(B)Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(C)Projected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.
(D)Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.
(E)Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in basis points (bps). A weighted average cost of subservicing of $6.2 - $8.8 ($7.6) per loan per month was used to value the agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $11.20 per loan per month was used to value the Non-Agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $9.70 per loan per month was used to value the Ginnie Mae MSRs.
(F)Weighted average maturity of the underlying residential mortgage loans in the pool.
(G)For certain pools, the Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO). For these pools, no delinquency assumption is used.
(H)Represents Fannie Mae and Freddie Mac MSRs.
(I)For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.
(J)Includes valuation of the related Excess spread financing (Note 5).

With respect to valuing the Ocwen-serviced MSR financing receivables, which include a significant servicer advances receivable component, the cost of financing servicer advances receivable is assumed to be LIBOR plus 1.8%.

As of March 31, 2020, a weighted average discount rate of 8.3% (range 8.0% - 8.5%) was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees). As of March 31, 2020, a weighted average discount rate of 8.2% (range 7.9% - 13.5%) was used to value New Residential’s investments in MSRs and a weighted average discount rate of 9.4% (range 8.0% - 10.0%) was used to value New Residential’s investments in MSR financing receivables.

Servicer Advance Investments Valuation

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:
 Significant Inputs
 Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans 
Prepayment Rate(A)
 Delinquency 
Mortgage Servicing Amount(B)
 Discount Rate 
Collateral Weighted Average Maturity (Years)(C)
March 31, 20200.8% - 1.6% (1.6%) 8.2% - 8.7% (8.7%) 5.4% - 17.7% (17.3%) 15.6 - 19.8 (19.6)bps5.8% - 6.3% (5.8%) 22.5 - 22.7 (22.7)


(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)Mortgage servicing amount is net of 11.0 bps which represents the amount New Residential paid its servicers as a monthly servicing fee.
(C)Weighted average maturity of the underlying residential mortgage loans in the pool.
 

45

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

Real Estate and Other Securities Valuation
 
As of March 31, 2020, New Residential’s securities valuation methodology and results are further detailed as follows:
      Fair Value
Asset Type Outstanding Face Amount Amortized Cost Basis 
Multiple Quotes(A)
 
Single Quote(B)
 Total Level
Agency RMBS $306,566
 $308,486
 $318,568
 $
 $318,568
 2
Non-Agency RMBS(C)
 20,528,139
 2,239,021
 2,139,579
 21,456
 2,161,035
 3
Total $20,834,705
 $2,547,507
 $2,458,147
 $21,456
 $2,479,603
  
 
(A)New Residential generally obtained pricing service quotations or broker quotations from 2 sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. New Residential evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for Non-Agency RMBS, there is a wide disparity between the quotes New Residential receives. New Residential believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, it selects one of the quotes which is believed to more accurately reflect fair value. New Residential has not adjusted any of the quotes received in the periods presented. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price. New Residential’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.

The third-party pricing services and brokers engaged by New Residential (collectively, “valuation providers”) use either the income approach or the market approach, or a combination of the two, in arriving at their estimated valuations of RMBS. Valuation providers using the market approach generally look at prices and other relevant information generated by market transactions involving identical or comparable assets. Valuation providers using the income approach create pricing models that generally incorporate such assumptions as discount rates, expected prepayment rates, expected default rates and expected loss severities. New Residential has reviewed the methodologies utilized by its valuation providers and has found them to be consistent with GAAP requirements. In addition to obtaining multiple quotations, when available, and reviewing the valuation methodologies of its valuation providers, New Residential creates its own internal pricing models for Level 3 securities and uses the outputs of these models as part of its process of evaluating the fair value estimates it receives from its valuation providers. These models incorporate the same types of assumptions as the models used by the valuation providers, but the assumptions are developed independently. These assumptions are regularly refined and updated at least quarterly by New Residential, and reviewed by its valuation group, which is separate from its investment acquisition and management group, to reflect market developments and actual performance.

For 75.8% of New Residential’s Non-Agency RMBS, the ranges and weighted averages of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
  Fair Value Discount Rate 
Prepayment Rate(a)
 
CDR(b)
 
Loss Severity(c)
Non-Agency RMBS $1,637,017
 1.6% - 11.8% (5.1%) 2.3% - 27.1% (10.5%) 0% - 3.0% (1.0%) 12.9% - 85.6% (43.8%)

(a)Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.
(B)New Residential was unable to obtain quotations from more than one source on these securities.

46

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

(C)Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.

Residential Mortgage Loans Valuation

New Residential, through its wholly owned subsidiary, NewRez, originates mortgage loans that it intends to sell into Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securitizations. Residential mortgage loans held-for-sale, at fair value are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality. Residential mortgage loans held-for-sale, at fair value are valued using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, New Residential classifies these valuations as Level 2 in the fair value hierarchy.

Residential mortgage loans held-for-sale, at fair value also includes certain nonconforming mortgage loans originated for sale to private investors, which are valued using internal pricing models to forecast loan level cash flows using inputs such as default rates, prepayments speeds and discount rates. As the internal pricing model is based on certain unobservable inputs, New Residential classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:
  Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Acquired Loans $1,527,770
 4.1% - 11.0%
(6.5%)
 0.0% - 14.1%
(5.0%)
 0.0% - 34.7%
(4.0%)
 0.0% - 60.0%
(27.0%)
Originated Loans 122,722
 7.0% 14.1% 1.2% 50.0%
Residential Mortgage Loans Held-for-Sale, at Fair Value $1,650,492
 
 
 
 


Residential mortgage loans held-for-investment, at fair value includes mortgage loans underlying the SAFT 2013-1 securitization, which are valued using internal pricing models using inputs such as default rates, prepayment speeds and discount rates. As the internal pricing model is based on certain unobservable inputs, New Residential classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:
  Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Residential Mortgage Loans Held-for-Investment, at Fair Value $824,183
 4.0% - 10.5%
(8.2%)
 3.0% - 15.0%
(6.6%)
 2.0% - 2.9%
(2.4%)
 20.0% - 47.9%
(36.6%)


Derivative Valuation

New Residential enters into economic hedges including interest rate swaps, caps and TBAs, which are categorized as Level 2 in the valuation hierarchy. New Residential generally values such derivatives using quotations, similarly to the method of valuation used for New Residential’s other assets that are classified as Level 2 in the fair value hierarchy.

As a part of the mortgage loan origination business, New Residential enters into forward loan sale and securities delivery commitments, which are valued based on observed market pricing for similar instruments and therefore, are classified as Level 2. In addition, New Residential enters into IRLCs, which are valued using internal pricing models (i) incorporating market pricing for instruments with similar characteristics, (ii) estimating the fair value of the servicing rights expected to be recorded at sale of the loan and (iii) adjusting for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded

47

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and therefore, IRLCs are classified as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing IRLCs:
  Fair Value Loan Funding Probability Fair Value of initial servicing rights (bps)
IRLCs (net) $131,140
 43% - 100% (76.5%) 2.33 - 306 (139.8)


Mortgage-Backed Securities Issued

New Residential and NewRez, a wholly owned subsidiary of New Residential, were deemed to be the primary beneficiaries of the MDST Trusts and SAFT 2013-1 securitization entity and therefore, New Residential’s condensed consolidated balance sheets include the mortgage-backed securities issued by the MDST Trusts and SAFT 2013-1, respectively. New Residential elected the fair value option for these financial instruments and the mortgage-backed securities issued were valued consistently with New Residential’s Non-Agency RMBS described above.

The following table summarizes certain information regards the ranges and weighted averages of inputs used in valuing Mortgage-Backed Securities Issued:
  Fair Value Discount Rate Prepayment Rate CDR Loss Severity
Mortgage-Backed Securities Issued $272,292
 4.0% - 7.3%
(6.2%)
 3.3% - 15.0%
(7.5%)
 2.0% - 2.8%
(2.5%)
 20.0% - 30.0%
(26.5%)


Contingent Consideration Valuation

New Residential, as additional consideration for the Shellpoint Acquisition, may make up to 3 cash earnout payments, which will be calculated following each of the first three anniversaries of the Shellpoint Closing as a percentage 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”). On September 5, 2019, New Residential paid $10.0 million as the first of three potential earnout payments. In accordance with ASC 805, New Residential measures its contingent consideration at fair value on a recurring basis using a scenario-based method to weigh the probability of multiple outcomes to arrive at an expected payment cash flow and then discounts the expected cash flow. The inputs utilized in valuing the contingent consideration include a discount rate of 11% and the application of probability weighting of income scenarios, which are significant unobservable inputs and therefore, contingent consideration is classified as Level 3 in the fair value hierarchy.

In addition, as additional consideration for the Guardian Acquisition, New Residential may make up to 4 cash earnout payments, calculated as the amount of cumulative Guardian earnings on specified contracts in excess of certain thresholds up to an aggregate maximum amount of $17.5 million (the “Guardian Earnout Payments”), which will be calculated following the end of each calendar year with the final payment being calculated as of the fourth anniversary date of the Guardian closing. As described above, in accordance with ASC 805, New Residential measures its contingent consideration at fair value on a recurring basis using a scenario-based method to weigh the probability of multiple outcomes to arrive at an expected payment cash flow and then discounts the expected cash flow. The inputs utilized in valuing the contingent consideration include a discount rate of 11% and the application of probability weighting of income scenarios, which are significant unobservable inputs and therefore, contingent consideration is classified as Level 3 in the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment. For residential mortgage loans held-for-sale and foreclosed real estate accounted for as REO, New Residential applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.


48

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

At March 31, 2020, assets measured at fair value on a nonrecurring basis were $1,312.2 million. The $1,312.2 million of assets include approximately $1,264.5 million of residential mortgage loans held-for-sale and $47.7 million of REO. The fair value of New Residential’s residential mortgage loans, held-for-sale is estimated based on a discounted cash flow model analysis using internal pricing models and is categorized within Level 3 of the fair value hierarchy. The following table summarizes the inputs used in valuing these residential mortgage loans as of March 31, 2020:
  Fair Value and Carrying Value Discount Rate 
Weighted Average Life (Years)(A)
 Prepayment Rate 
CDR(B)
 
Loss Severity(C)
Performing Loans $753,288
 5.0% - 11.0%
(6.1%)
 2.4 - 4.8
(4.2)
 4.3% - 20.0%
(8.5%)
 1.3% - 34.7%
(6.9%)
 0.0% - 100.0%
(38.5%)
Non-Performing Loans 511,245
 5.8% - 8.5%
(8.3%)
 2.3 - 5.1
(3.2)
 2.0% - 6.3%
(3.1%)
 2.7% - 2.9%
(2.9%)
 18.9% - 30.0%
(29.6%)
Total/Weighted Average $1,264,533
 7.0% 3.8 6.3% 5.3% 34.9%

(A)The weighted average life is based on the expected timing of the receipt of cash flows.
(B)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.

The fair value of REO is estimated using a broker’s price opinion discounted based upon New Residential’s experience with actual liquidation values and, therefore, is categorized within Level 3 of the fair value hierarchy. These discounts to the broker price opinion generally range from 10% - 25% (weighted average of 16%), depending on the information available to the broker.

The total change in the recorded value of assets for which a fair value adjustment has been included in the Condensed Consolidated Statements of Income for the three months ended March 31, 2020 consisted of a valuation allowance of $98.7 million for residential mortgage loans and $1.8 million increased allowance for REO.

13. CONSOLIDATED VARIABLE INTEREST ENTITIES

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

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

Servicer Advance Investment

New Residential, through a taxable wholly owned subsidiary, is the managing member of the Buyer and owned approximately 73.2% of the Buyer as of March 31, 2020. In 2013, New Residential created the Buyer to acquire the then outstanding servicing advance receivables related to a portfolio of residential mortgage loans from a third party. The Buyer is required to purchase all future servicer advances made with respect to this portfolio of mortgage loans and is entitled to receive cash flows from advance recoveries and a basic fee component of the related MSRs, net of subservicing compensation paid.

The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of March 31, 2020, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $328.4 million and $306.9 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors

49

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.

Shelter Joint Ventures

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

Residential Mortgage Loans

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.
 
NewRez was deemed to be the primary beneficiary of the SAFT 2013-1 securitization entity as a result of its ability to direct activities that most significantly impact the economic performance of the entity in its role as servicer and its ownership of subordinated retained interests. The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations:
  Three Months Ended  
 March 31,
  2020 2019
Residential mortgage loan UPB $14,932,876
 $9,399,416
Weighted average delinquency(A)
 2.45% 2.03%
Net credit losses $13,898
 $3,562
Face amount of debt held by third parties(B)
 $12,907,495
 $8,306,631
     
Carrying value of bonds retained by New Residential(C) (D)
 $1,814,333
 $1,271,126
Cash flows received by New Residential on these bonds $79,250
 $62,845

(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 March 31, 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.


50

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 consolidated balance sheets:
  The Buyer Shelter Joint Ventures Residential Mortgage Loans Consumer Loan SPVs Total
March 31, 2020          
Assets          
Servicer advance investments, at fair value $500,447
 $
 $
 $
 $500,447
Residential mortgage loans, held-for-investment, at fair value 
 
 429,318
 
 429,318
Consumer loans, held-for-investment, at fair value 
 
 
 774,607
 774,607
Cash and cash equivalents 29,942
 22,517
 
 
 52,459
Restricted cash 4,808
 
 
 8,825
 13,633
Other assets 7
 4,656
 1,941
 11,279
 17,883
Total Assets $535,204
 $27,173
 $431,259
 $794,711
 $1,788,347
Liabilities          
Notes and bonds payable(A)
 $415,036
 $
 $272,293
 $771,232
 $1,458,561
Accrued expenses and other liabilities 1,581
 4,481
 
 3,885
 9,947
Total Liabilities $416,617
 $4,481
 $272,293
 $775,117
 $1,468,508
March 31, 2019          
Assets          
Servicer advance investments, at fair value $674,607
 $
 $
 $
 $674,607
Residential mortgage loans, held-for-investment, at fair value 
 
 429,229
 
 429,229
Consumer loans, held-for-investment 
 
 
 981,931
 981,931
Cash and cash equivalents 29,943
 16,522
 
 
 46,465
Restricted cash 
 
 
 9,899
 9,899
Other assets 9,608
 701
 
 14,438
 24,747
Total Assets $714,158
 $17,223
 $429,229
 $1,006,268
 $2,166,878
Liabilities 

 

 

 

 
Notes and bonds payable(A)
 $514,246
 $2,225
 $377,382
 $973,158
 $1,867,011
Accrued expenses and other liabilities 2,343
 
 2,635
 4,106
 9,084
Total Liabilities $516,589
 $2,225
 $380,017
 $977,264
 $1,876,095

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

Noncontrolling Interests

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

Others’ interests in the equity of New Residential’s consolidated subsidiaries is computed as follows:
 March 31, 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$118,591
 $22,692
 $49,387
 $168,207
 $23,171
 $46,510
Others’ ownership interest26.8% 49.9% 46.5% 26.8% 49.0% 46.5%
Others’ interest in equity of consolidated subsidiary$31,743
 $11,323
 $23,512
 $45,025
 $11,354
 $22,171


51

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 March 31, 2020 Three Months Ended March 31, 2019
 
The Buyer(A)
 Shelter Joint Ventures Consumer Loan Companies 
The Buyer(A)
 Shelter Joint Ventures Consumer Loan Companies
Net income$(42,015) $2,571
 $(13,330) $9,155
 $798
 $16,042
Others’ ownership interest as a percent of total26.8% 49.9% 46.5% 26.8% 51.0% 46.5%
Others’ interest in net income of consolidated subsidiaries$(11,247) $1,283
 $(6,198) $2,451
 $407
 $7,460

(A)As a result, New Residential owned 73.2% and 73.2% of the Buyer, on average during the three months ended March 31, 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 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.

During the three months ended March 31, 2020, New Residential sold 0.1 million ATM Shares for an aggregate proceeds of $1.6 million. 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 grant date.

The following table summarizes the Company’s ATM Program activity:
Month
Number of Common shares
Average price per share
Gross Proceeds
Fees
Net Proceeds
January 1, 2020 - March 31, 2020
97,394

$17.06

$1,662

$12

$1,650


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.

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

52

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

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:
          Three Months Ended 
 March 31, 2020
Series Number of Shares Liquidation Preference Issuance Discount Carrying Value Dividend
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
Preferred Series B, 7.125% Issued August 2019 11,300
 282,500
 3.15% 273,418
 $0.45
Preferred Series C, 6.375% Issued February 2020 16,100
 402,500
 3.15% 389,548
 $0.40
Total 33,610
 $840,250
   $812,992
  


On March 23, 2020, New Residential’s board of directors declared a first 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, $5.1 million, and $6.4 million respectively.

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at March 31, 2020.

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. No 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.

Option Plan

As of March 31, 2020, New Residential’s outstanding options were summarized as follows:
Held by the Manager10,860,706
Issued to the Manager and subsequently assigned to certain of the Manager’s employees3,560,949
Issued to the independent directors7,000
Total14,428,655



53

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

The following table summarizes New Residential’s outstanding options as of March 31, 2020. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended March 31, 2020 was $5.01 per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of Unexercised
Options
 
Options
Exercisable as of
March 31, 2020
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic Value of Exercisable Options as of
March 31, 2020
(millions)
DirectorsVarious 7,000
 7,000
 $13.57
 $
Manager(C)
2017 1,130,916
 1,130,916
 13.95
 
Manager(C)
2018 5,320,000
 3,576,631
 16.65
 
Manager(C)
2019 6,351,000
 2,422,600
 16.17
 
Manager(C)
2020 1,619,739
 53,991
 17.41
 
Outstanding  14,428,655
 7,191,138
    
 
(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 $16.54 to $18.01 1,159,833
2019 $15.13 to $16.67 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 
 $
Options expired unexercised 
  
March 31, 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. New Residential recorded a net loss during the three months ended March 31, 2020, as such the outstanding stock options, under the treasury method, would be anti-dilutive. During the three months ended March 31, 2019, based on the treasury stock method, New Residential had 321,144 dilutive common stock equivalents outstanding.


54

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

The following table summarizes the basic and diluted earnings per share calculations:
  Three Months Ended  
 March 31,
  2020 2019
Net income (loss) $(1,607,255) $155,912
Noncontrolling interests in income of consolidated subsidiaries (16,162) 10,318
Dividends on preferred stock 11,222
 
Net income (loss) attributable to common stockholders $(1,602,315) $145,594
     
Basic weighted average shares of common stock outstanding 415,589,155
 388,279,931
Dilutive effect of stock options(A)
 
 321,144
Diluted weighted average shares of common stock outstanding 415,589,155
 388,601,075
     
Basic earnings per share attributable to common stockholders $(3.86) $0.37
Diluted earnings per share attributable to common stockholders $(3.86) $0.37

(A)Stock options 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.

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.

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 March 31, 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 March 31, 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 and (c) the percentage of the loans with respect to which no

55

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

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.

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.

In addition, for Ginnie Mae guaranteed securitizations, NewRez holds the Ginnie Mae Buy-Back Option to repurchase delinquent loans from the securitization at its discretion. While NewRez is not obligated to repurchase the delinquent loans, NewRez generally executes its option to repurchase that will result in an economic benefit. As of March 31, 2020, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $11.1 million and $197.7 million, respectively. See Notes 5 and 8 for information on New Residential’s Ginnie Mae Buy-Back Option and mortgage origination, respectively.

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 $267.5 million of unfunded and available revolving credit privileges as of March 31, 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, through its wholly owned subsidiary, Shellpoint, has leases on office space expiring through 2025. Future commitments under non-cancelable leases are approximately $41.2 million.

Environmental Costs — As a residential real estate owner, New Residential is subject to potential environmental costs. At March 31, 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 — New Residential’s debt obligations contain various customary loan covenants (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 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.


56

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

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 Company’s manager (the “Fortress Purchaser”), which purchased approximately $1.85 billion of Securities 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

57

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

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:
 March 31, 2020 December 31, 2019
Management fees$14,722
 $7,076
Incentive compensation
 91,892
Expense reimbursements and other2,494
 4,914
Total$17,216
 $103,882
 
Affiliate expenses and fees were composed of:
  Three Months Ended  
 March 31,
  2020 2019
Management fees $21,721
 $17,960
Incentive compensation 
 12,958
Expense reimbursements(A)
 125
 125
Total $21,846
 $31,043
 
(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.

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  
 March 31,
Accumulated Other Comprehensive Income Components Statement of Income Location 2020 2019
Reclassification of net realized (gain) loss on securities into earnings Gain (loss) on settlement of investments, net $(754,540) $(65,196)
Reclassification of net realized (gain) loss on securities into earnings Provision (reversal) for credit losses on securities 44,149
 7,516
Total reclassifications   $(710,391) $(57,680)


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.


58

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020
(dollars in tables in thousands, except share data) 
 

18.INCOME TAXES
 
Income tax expense (benefit) consists of the following:
  Three Months Ended  
 March 31,
  2020
2019
Current:    
Federal $
 $(413)
State and Local 49
 79
Total Current Income Tax Expense (Benefit) 49
 (334)
Deferred:    
Federal (127,526) 37,146
State and Local (39,391) 9,185
Total Deferred Income Tax Expense (Benefit) (166,917) 46,331
Total Income Tax (Benefit) Expense $(166,868) $45,997

 
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 securitization vehicles and has made certain investments, particularly its investments in MSRs (Note 5), Servicer Advance Investments (Note 6) and REO (Note 8), 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.

New Residential has recorded a net deferred tax asset of approximately $176.2 million as of March 31, 2020, primarily related to unrealized losses and net operating loss carry forwards.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides economic relief to eligible businesses and individuals impacted by the novel coronavirus outbreak and includes numerous tax provisions. While the Company is continuing to monitor and evaluate the impact of the CARES Act and other COVID-19-related legislation, there was no material impact on the Company’s tax provision as of March 31, 2020.

19.SUBSEQUENT EVENTS
 
These financial statements include a discussion of material events that have occurred subsequent to March 31, 2020 (referred to as “subsequent events”) through the issuance of these condensed consolidated financial statements. Events subsequent to that date have not been considered in these financial statements.

In April 2020, the Company entered into amendments to its existing servicing advance credit facilities with one of its lenders. The material terms of the amendments provide for an increase on the Company’s existing facilities by an additional $1.3 billion in the aggregate to finance servicing advances. The applicable advance rates depend upon asset type and characteristics and the interest rate is based on one-month LIBOR plus a spread of 2.50%. The maturity date of the facilities is April 2021.







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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 March 31, 2020, we had $24 billion in total assets and 3,384 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

During the first quarter of 2020, there was a global outbreak of COVID-19, which has spread to over 200 countries and territories, including every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The global impact of COVID-19 has been rapidly evolving, and many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading and limiting operations of non-essential offices and retail centers. Such actions are creating disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a prolonged period of global economic slowdown.

Beginning in mid-March 2020, financial and mortgage-related asset markets have experienced unprecedented volatility as a result of the spread of COVID-19, and this volatility may continue due to the heightened uncertainty relating to its duration and potential impact. The significant dislocation in the financial markets has caused, among other things, credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and mortgage-backed securities markets. These conditions have put significant pressure on the mortgage REIT industry, including as related to financing operations, pricing mortgage assets and meeting liquidity needs.

In response to the current market conditions, the Federal Reserve has taken a number of proactive measures, including cutting its target benchmark interest rate to 0%-0.25%, instituting a quantitative easing program, including the purchase of an unconstrained amount of Agency RMBS, and establishing a commercial paper funding facility and term and overnight repurchase agreement financing facilities. These measures are intended to bolster liquidity and to promote price stability and to reduce volatility in the mortgage-backed securities market.

As noted above, the Federal Reserve measures were intended to address the volatility in the Agency RMBS market. The Non-Agency market continued to experience unprecedented volatility and liquidity issues particularly with respect to financing of these assets with repurchase agreement financing facilities. Specifically, the amount of financing we receive under our repurchase agreements is directly related to our lenders’ valuation of our assets that cover the outstanding borrowings. Typically, repurchase

60



agreements grant the lender the absolute right to reevaluate the fair market value of the assets that cover outstanding borrowings at any time. If a lender determines in its sole discretion that the value of the assets has decreased, it has the right to initiate a margin call. These valuations may be different than the values that we ascribe to these assets and may be influenced by recent asset sales and distressed levels by forced sellers. A margin call requires us to transfer additional cash or securities to the lender. We have experienced this phenomenon beginning in mid-March. We have also observed a mark-down of a portion of our mortgage assets by the counterparties to our financing arrangements, resulting in us having to pay cash or securities to satisfy higher than historical levels of margin calls.

In light of the current overall economic environment related to the COVID-19 outbreak, such as rising unemployment levels or changes in consumer behavior related to loans, as well as government policies and pronouncements, borrowers may experience difficulties meeting their obligations or seek to forbear payment on their loans. On March 27, 2020, the U.S. government enacted the CARES Act, an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak. The CARES Act, among other things, provides any homeowner with a federally-backed mortgage who is experiencing financial hardship the option of up to six months of forbearance on their mortgage payments, with a potential to extend that forbearance for another six months. During the forbearance period, no additional fees, penalties or interest can accrue on the homeowner’s account. The CARES Act also established a 60-day moratorium on foreclosures. Unprecedented amounts of forbearances are likely to be requested pursuant to the CARES Act.

The owner of MSRs, acting as a liquidity provider, is contractually required to make payments, or servicing advances, to investors to the extent homeowners do not make those payments. MSR owners may service directly or engage another servicer, as subservicer. While the CARES Act provides for homeowner forbearance and a foreclosure moratorium, it does not mandate any liquidity initiatives to support servicers advancing obligations. We expect to participate, to the fullest extent possible, in liquidity initiatives offered by the GSEs and instrumentalities of the Federal Government, including the U.S. Department of the Treasury and Federal Reserve. We are engaged with other industry participants and associations in efforts to advance Federal government support for servicing advances, while we work to implement homeowner support programs.

The COVID-19 pandemic also introduced unprecedented challenges for our operating investments, including the health and safety of our employees, borrower delinquency rates and origination volumes. We have taken various precautions to mitigate the related health and safety risks, including moving approximately 95% of our staff to work-from-home status, restricting non-essential travel and face-to-face meetings and enhancing sanitization of our facilities.

The full extent of the impact of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market disruptions, the impact of government interventions and continued uncertainty with respect to the duration of the global economic slowdown.

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of March 31, 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 March 31, 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 outbreak of COVID-19 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.


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OUR PORTFOLIO
 
Our portfolio, as of March 31, 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
March 31, 2020                    
Investments $1,491,206
 $
 $6,537,930
 $
 $8,029,136
 $2,479,603
 $4,187,148
 $780,821
 $
 $15,476,708
Cash and cash equivalents 76,752
 14,032
 161,778
 
 252,562
 101,646
 560
 4,382
 1,303
 360,453
Restricted cash 4,907
 4,881
 105,611
 
 115,399
 
 
 32,036
 
 147,435
Other assets 403,277
 274,883
 3,023,482
 
 3,701,642
 4,064,232
 310,095
 65,602
 37,840
 8,179,411
Goodwill 11,836
 12,540
 5,092
 
 29,468
 
 
 
 
 29,468
Total assets $1,987,978
 $306,336
 $9,833,893
 $
 $12,128,207
 $6,645,481
 $4,497,803
 $882,841
 $39,143
 $24,193,475
Debt $1,352,846
 $21,157
 $6,332,172
 $
 $7,706,175
 $5,892,709
 $3,455,028
 $774,797
 $
 $17,828,709
Other liabilities 244,137
 73,889
 384,496
 
 702,522
 218,654
 53,854
 7,389
 51,883
 1,034,302
Total liabilities 1,596,983
 95,046
 6,716,668
 
 8,408,697
 6,111,363
 3,508,882
 782,186
 51,883
 18,863,011
Total equity 390,995
 211,290
 3,117,225
 
 3,719,510
 534,118
 988,921
 100,655
 (12,740) 5,330,464
Noncontrolling interests in equity of consolidated subsidiaries 11,323
 
 31,743
 
 43,066
 
 
 23,512
 
 66,578
Total New Residential stockholders’ equity $379,672
 $211,290
 $3,085,482
 $
 $3,676,444
 $534,118
 $988,921
 $77,143
 $(12,740) $5,263,886
Investments in equity method investees $
 $
 $156,731
 $
 $156,731
 $
 $
 $
 $
 $156,731

Operating Investments

Origination

NewRez’s origination division is expected to be a key contributor to our profitability and to continue generating MSRs and loans for the Company.

According to Inside Mortgage Finance, NewRez was the fastest growing non-bank originator compared to the same quarter in the prior year and broke into the ranks of top-ten non-bank originators in the three months ended March 31, 2020. For the three months ended March 31, 2020, loan origination volume was $11.4 billion, up from $2.2 billion in the year prior. During the three months ended March 31, 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.

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.

In response to market disruption caused by the COVID-19 pandemic and consistent with our actions to de-risk our balance sheet and preserve liquidity, in March 2020, NewRez shifted its focus to higher quality GSE and government loans and ceased Non-QM production due to illiquidity, and paused wholesale and correspondent channel originations to reduce the pipeline and minimize hedge and margin risk. We expect to re-enter the wholesale and correspondent channels in May 2020.

We expect that the origination business will continue to take advantage of the attractive origination environment. We believe the housing market will remain favorable through 2020 and 2021. According to the April 2020 Freddie Mac Economic and Housing Market Outlook, total originations are forecasted to be $2,351 billion and $2,369 billion, respectively. The 2020 refinance market is forecasted to be $1,260 billion, or 54%, of total forecasted originations, with a shift to the purchase market forecast for 2021, reducing the refinance market to $1,032 billion, or 44%. Our continuing investments in our Direct-to-Consumer and Retail/Shelter channels position NewRez for potential growth in both markets.


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The charts below provide selected operating statistics for our Origination segment:
 
Unpaid Principal Balance for the
Three Months Ended
  
 March 31, 2020 March 31, 2019 Change
Production by Channel (in millions)     
  Retail / Shelter$581
 $331
 $250
  Direct to Consumer / Retention2,115
 570
 1,545
  Wholesale1,665
 738
 927
  Correspondent7,053
 521
 6,532
Total Production by Channel$11,414
 $2,160
 $9,254
      
Production by Product (in millions)     
  Agency$5,478
 $923
 $4,555
  Government5,367
 815
 4,552
  Non-QM365
 293
 72
  Non-Agency190
 111
 79
  Other14
 18
 (4)
Total Production by Product$11,414
 $2,160
 $9,254
      
% Purchase33% 57% (24)%
% Refinance67% 43% 24 %

 March 31, 2020 March 31, 2019 Change
Origination Revenue (in thousands)     
  Gain on loans originated and sold(A)
$33,893
 $19,070
 $14,823
  Gain (loss) on settlement of mortgage loan derivative instruments(B)
(46,314) (11,163) (35,151)
  MSRs retained on transfer of loans(C)
187,174
 34,439
 152,735
  Other(D)
12,122
 3,553
 8,569
Realized gain on sale of originated mortgage loans, net$186,875
 $45,899
 $140,976
      
  Change in fair value of loans$20,479
 $3,003
 $17,476
  Change in fair value of interest rate lock commitments91,249
 3,208
 88,041
  Change in fair value of derivative instruments(140,388) (1,298) (139,090)
Unrealized origination revenue$(28,660) $4,913
 $(33,573)
      
Gain on originated mortgage loans, held-for-sale, net(E) (F)
$158,215
 $50,812
 $107,403
Pull through adjusted lock volume$12,381,939
 $2,468,156
 $9,913,783
      
Revenue as a percentage of pull through adjusted lock volume1.28% 2.06% (0.78)%

(A)Includes loan origination fees of $277.0 million and $25.0 million for the three months ended March 31, 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 $21.5 million and $16.4 million of gain on originated mortgage loans, held-for-sale, net for the three months ended March 31, 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).

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(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 three months ended March 31, 2020 compared to the same period in 2019 primarily driven by the higher volume from all our Channels.

Servicing

Our servicing business has a division dedicated to performing loan servicing, 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 three months ended March 31, 2020, we boarded approximately 450,000 loans, completing the remaining transfers of the servicing portfolios purchased from Ditech on October 1, 2019. Our cost to service continues to decline as we achieve the benefits of scale and create efficiencies. Annualized direct cost to service per loan has declined 37% to $130/loan in the first quarter of 2020 from $205/loan in the prior year. We believe that our ability to onboard additional loans while reducing costs will help the servicing business continue to succeed as it grows.

SMS is a recognized leader in specialty servicing, with an 18-year track record of providing positive outcomes for both investors and homeowners. SMS has completed over 20,000 modifications since 2017, helping many homeowners avoid foreclosure and stay in their homes. We are committed to assisting homeowners as they navigate the COVID-19 forbearance process, and have increased our ability to support homeowners experiencing financial challenges by implementing improvements to our website that enabled customers to enroll in forbearances online, and by adding staff.

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 March 31, 2020 and 2019.
 Unpaid Principal Balance  
 March 31, 2020 March 31, 2019 Change
Performing Servicing (in millions)     
MSR Assets$178,108.4
 $85,373.9
 $92,734.5
Acquired Residential Whole Loans2,473.6
 727.2
 1,746.4
Total Performing Servicing180,582.0
 86,101.1
 94,480.9
      
Special Servicing (in millions)     
MSR Assets$5,509.8
 $2,021.0
 $3,488.8
Acquired Residential Whole Loans6,699.5
 3,727.1
 2,972.4
Third Party83,029.2
 49,695.7
 33,333.5
Total Special Servicing95,238.5
 55,443.8
 39,794.7
Total Servicing Portfolio$275,820.5
 $141,544.9
 $134,275.6
Agency Servicing (in millions)     
MSR Assets$129,180.6
 $59,470.2
 $69,710.4
Acquired Residential Whole Loans
 
 
Third Party20,384.1
 3,993.7
 16,390.4
Total Agency Servicing149,564.7
 63,463.9
 86,100.8
      
Government Servicing (in millions)     
MSR Assets$53,904.9
 $27,300.3
 $26,604.6
Acquired Residential Whole Loans
 
 
Third Party1,718.3
 2,110.1
 (391.8)
Total Government Servicing55,623.2
 29,410.4
 26,212.8
      
Non-Agency (Private Label) Servicing (in millions)     
MSR Assets$532.8
 $624.4
 $(91.6)
Acquired Residential Whole Loans9,173.1
 4,454.4
 4,718.7
Third Party60,926.7
 43,591.8
 17,334.9
Total Non-Agency (Private Label) Servicing70,632.6
 48,670.6
 21,962.0
Total Servicing Portfolio$275,820.5
 $141,544.9
 $134,275.6

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 Three Months Ended  
 March 31, 2020 March 31, 2019 Change
Base Servicing Fees (in thousands):     
MSR Assets$26,948
 $8,713
 $18,235
Acquired Residential Whole Loans2,191
 1,458
 733
Third Party31,407
 17,231
 14,176
Total Base Servicing Fees$60,546
 $27,402
 $33,144
      
Other Fees (in thousands):     
Incentive fees$8,666
 $7,795
 $871
Ancillary fees9,034
 6,658
 2,376
Boarding fees4,889
 1,173
 3,716
Other fees4,111
 516
 3,595
Total Other Fees$26,700
 $16,142
 $10,558
      
Total Servicing Fees$87,246
 $43,544
 $43,702

MSR Related Investments

MSRs and MSR Financing Receivables

As of March 31, 2020, we had $5.5 billion carrying value of MSRs and MSR financing receivables within our servicer subsidiary, NRM.

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 March 31, 2020, these subservicers and interim subservicers include PHH, Mr. Cooper, LoanCare, Quicken, United Shore, and Flagstar, which subservice 21.7%, 18.0%, 17.8%, 3.0%, 2.7%, and 0.9% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 35.9% 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 PHH, LoanCare, Flagstar, and Mr. Cooper whereby we are entitled to the MSR on any refinancing by such subservicer 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.

See Note 5 to our Condensed Consolidated Financial Statements for further information regarding our investments in MSR financing receivables. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Change in Fair Value of Investments in MSR Financing Receivables” for further information regarding the impact of the economic uncertainties resulting from COVID-19 and the associated impacted on our MSR investments.


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The table below summarizes our investments in MSRs and MSR financing receivables as of March 31, 2020.
 Current UPB (mm) Weighted Average MSR (bps)  Carrying Value (mm)
MSRs      
GSE$339,416.4
 28
bps $3,227.7
Non-Agency6,630.7
 28
  16.7
Ginnie Mae57,658.9
 45
  689.9
MSR Financing Receivables      
GSE49,533.7
 27
  491.7
Non-Agency73,533.1
 48
  1,112.8
Total$526,772.8
 33
bps
$5,538.8

The following table summarizes the collateral characteristics of the loans underlying our investments in MSRs and MSR financing receivables as of March 31, 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$3,227,788
 $339,416,358
 2,122,194
 747
 4.3% 268
 66
 3.2% 14.6% 14.4% 0.2% 12.1%
Non-Agency16,669
 6,630,753
 144,045
 662
 7.4% 191
 166
 3.6% 18.5% 18.0% 0.5% 2.1%
Ginnie Mae689,927
 57,658,948
 291,213
 686
 3.9% 322
 34
 3.1% 18.7% 18.2% 0.5% 20.2%
MSR Financing Receivables                       
GSE491,681
 49,533,672
 213,815
 748
 4.3% 295
 34
 1.1% 30.7% 30.6% 0.1% 3.9%
Non-Agency1,112,750
 73,533,090
 539,047
 644
 4.4% 305
 170
 15.0% 9.4% 7.4% 2.0% 2.8%
Total$5,538,815
 $526,772,821
 3,310,314
 725
 4.3% 281
 75
 4.6% 15.9% 15.4% 0.5% 10.8%

 Collateral Characteristics
 
Delinquency 30 Days(F)
 
Delinquency 60 Days(F)
 
Delinquency 90+ Days(F)
 Loans in Foreclosure Real Estate Owned Loans in Bankruptcy
MSRs           
GSE1.7% 0.4% 0.5% 0.5% % 3.2%
Non-Agency7.5% 2.7% 7.7% 2.2% 0.6% 3.2%
Ginnie Mae4.5% 1.4% 1.1% 1.2% 0.1% 4.6%
MSR Financing Receivables           
GSE1.1% 0.2% 0.2% 0.1% % 0.1%
Non-Agency10.5% 4.7% 2.9% 8.1% 1.9% 3.0%
Total3.2% 1.1% 0.9% 1.6% 0.3% 3.0%

(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.


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Excess MSRs
 
The tables below summarize the terms of our investments in Excess MSRs completed as of March 31, 2020.

Summary of Direct Excess MSR Investments as of March 31, 2020



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$41.7
 29
bps21
bps32.5% - 66.7% $200.2
Non-Agency(B)
43.3
 35
 15
 33.3% - 100.0% $163.8
Total/Weighted Average$85.0
 32
bps18
bps
 $364.0
 
(A)The MSR is a weighted average as of March 31, 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 $30.0 billion UPB underlying these Excess MSRs.

Summary of Excess MSR Investments Through Equity Method Investees as of March 31, 2020



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$33.3

33
bps21
bps50.0%
66.7%
33.3%
$215.0
 
(A)The MSR is a weighted average as of March 31, 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 March 31, 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$142,864
 $29,911,789
 220,554
 725
 4.6% 240
 120
 1.7% 13.1% 12.6% 0.6% 16.5%
Recaptured Loans57,303
 11,791,078
 71,572
 725
 4.3% 274
 46
 0.1% 13.1% 12.9% 0.3% 38.0%

$200,167
 $41,702,867
 292,126
 725
 4.5% 251
 97
 1.2% 13.1% 12.7% 0.5% 23.0%
Non-Agency(F)
                       
Mr. Cooper and SLS Serviced:                       
Original Pools$139,883
 $39,373,793
 224,035
 671
 4.7% 276
 168
 9.5% 13.3% 11.3% 2.3% 9.9%
Recaptured Loans23,882
 3,932,726
 18,107
 738
 4.2% 281
 31
 0.1% 17.6% 17.6% 0.1% 35.4%

$163,765
 $43,306,519
 242,142
 677
 4.6% 277
 156
 8.1% 13.7% 11.8% 2.2% 12.8%
Total/Weighted Average(H)
$363,932
 $85,009,386
 534,268
 700
 4.6% 264
 128
 4.3% 13.4% 12.2% 1.4% 17.8%


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 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 Pools2.6% 0.7% 0.5% 0.5% 0.2% 0.1%
Recaptured Loans1.8% 0.4% 0.3% 0.2% 0.1% %

2.4% 0.6% 0.5% 0.4% 0.1% 0.1%
Non-Agency(F)
           
Mr. Cooper and SLS Serviced:           
Original Pools11.1% 3.2% 2.1% 5.2% 1.0% 1.9%
Recaptured Loans1.5% 0.2% 0.1% 0.1% % %

10.3% 2.9% 1.9% 4.7% 0.9% 1.7%
Total/Weighted Average(H)
6.5% 1.9% 1.2% 2.7% 0.5% 0.9%
 
(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)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 $30.0 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 March 31, 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$122,864
 $19,576,695
 33.3% 196,330
 705
 5.2% 231
 140
 1.4% 13.6% 12.4% 1.4% 19.2%
Recaptured Loans92,086
 13,674,605
 33.3% 98,529
 710
 4.3% 268
 52
 0.1% 13.2% 12.8% 0.5% 45.0%
Total/Weighted Average(G)
$214,950
 $33,251,300
   294,859
 707
 4.9% 247
 104
 1.4% 13.5% 12.6% 1.0% 30.0%

 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 Pools4.0% 1.0% 0.6% 0.7% 0.3% 0.2%
Recaptured Loans2.8% 0.7% 0.3% 0.2% 0.1% 0.1%
Total/Weighted Average(G)
3.5% 0.9% 0.5% 0.5% 0.2% 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.

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(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):
 March 31, 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$509,989
 $515,574
 $30,043,832
 $461,723
 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 three months ended, March 31, 2020 (dollars in thousands):
      Three Months Ended 
 March 31, 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 Notes and Bonds Payable Gross 
Net(D)
 Gross Net
Servicer Advance
    Investments(E)
 5.8% 6.7 $(18,749) $423,910
 88.0% 87.1% 1.7% 1.7%
 
(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:
  March 31, 2020
Principal and interest advances $87,292
Escrow advances (taxes and insurance advances) 173,617
Foreclosure advances 200,814
Total $461,723

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


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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
 
As a result of current market conditions and consistent with the Company’s business strategy of using its Agency RMBS portfolio as a source of liquidity, the Company sold substantially all of its Agency RMBS portfolio in March 2020 to strengthen its cash position. However, we expect to purchase additional Agency RMBS in the near future to replenish a portion of the assets that we recently sold.

The following table summarizes our Agency RMBS portfolio as of March 31, 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 $306,566
 $308,486
 100.0% $10,082
 $
 $318,568
 27
 6.8
 2.3% $302,508
 
(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 March 31, 2020:
Net Interest Spread(A)
Weighted Average Asset Yield2.79%
Weighted Average Funding Cost1.68%
Net Interest Spread1.11%
 
(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.

Non-Agency RMBS
 
As discussed above, 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 during the quarter ended March 31, 2020. Refer to Note 16 for details regarding Non-Agency RMBS sales with affiliates.

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The following table summarizes our Non-Agency RMBS portfolio as of March 31, 2020 (dollars in thousands):
      Gross Unrealized    
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses 
Carrying
Value(A)
 Outstanding Repurchase Agreements
Non-Agency RMBS $20,528,139
 $2,239,021
 $69,347
 $(147,333) $2,161,035
 $1,724,115
 
(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 March 31, 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 C 105
 $235,756
 $98,864
 4.5% $92,556
 % 0.4% 7.1 4.3%
2006 N/A 15
 91,603
 
 % 1
 % %  0.1%
2007 B+ 21
 420,113
 169,039
 7.7% 175,074
 % 0.3% 5.0 1.3%
2008 and later B 445
 19,737,303
 1,939,366
 87.8% 1,861,878
 15.0% % 8.4 3.2%
Total/Weighted Average B 586
 $20,484,775
 $2,207,269
 100.0% $2,129,509
 12.9% 0.1% 8.1 3.1%
 
  
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 16.7
 0.08
 7.1% 9.8% 15.5%
2006 13.6
 0.04
 11.9% % 104.9%
2007 12.8
 0.49
 9.7% 1.5% 14.7%
2008 and later 12.9
 0.84
 9.7% 2.2% 0.1%
Total/Weighted Average 13.1
 0.78
 9.6% 2.5% 1.9%
 
(A)Excludes $20.1 million face amount of bonds backed by consumer loans and $23.3 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 337 bonds with a carrying value of $971.6 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 March 31, 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 March 31, 2020.
(F)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $29.5 million and $4.3 million, respectively, for which no coupon payment is expected.
(G)The weighted average loan size of the underlying collateral is $256.0 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.


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The following table summarizes the net interest spread of our Non-Agency RMBS portfolio as of March 31, 2020:
Net Interest Spread(A)
Weighted Average Asset Yield5.00%
Weighted Average Funding Cost2.77%
Net Interest Spread2.23%
 
(A)The Non-Agency RMBS portfolio consists of 47.8% floating rate securities and 52.2% 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 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 $34.0 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 March 31, 2020, we had approximately $5.9 billion outstanding face amount of residential mortgage loans. These investments were financed with repurchase agreements with an aggregate face amount of approximately $4.4 billion and notes and bonds payable with an aggregate face amount of approximately $0.4 billion. We acquired these loans through open market purchases, as well as through the exercise of call rights and acquisitions.
 

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The following table presents the total residential mortgage loans outstanding by loan type at March 31, 2020 (dollars in thousands).
  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)
Total Residential Mortgage Loans, held-for-investment, at fair value $919,461
 $824,183
 14,164
 8.2% 6.5 9.0% 72.1% 17.8% 642
                   
Acquired Reverse Mortgage Loans(E) (F)
 $12,333
 $6,220
 29
 7.9% 5.0 5.5% 153.3% 70.7% N/A
Acquired Performing Loans(G) (I)
 828,323
 753,288
 11,853
 6.1% 4.2 65.9% 51.1% 8.6% 684
Acquired Non-Performing Loans(H) (I)
 629,948
 505,025
 4,822
 8.3% 3.2 10.9% 76.6% 73.1% 581
Total Residential Mortgage Loans, held-for-sale $1,470,604
 $1,264,533
 16,704
 7.1% 3.8 41.8% 62.9% 36.8% 639
                   
Acquired Performing Loans(G) (I)
 $2,046,090
 $1,804,443
 12,925
 5.9% 7.9 6.9% 67.3% 30.5% 644
Originated Loans 1,430,577
 1,479,530
 4,769
 3.7% 28.0 2.9% 72.7% 0.1% 732
Total Residential Mortgage Loans, held-for-sale, at fair value $3,476,667
 $3,283,973
 17,694
 5.0% 16.2 5.3% 69.5% 18.0% 680

(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 March 31, 2020, we have placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.
(I)Includes $35.1 million and $26.6 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

We consider the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as our credit quality indicators.

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 March 31, 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)
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