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NRZ New Residential Investment

Filed: 29 Oct 20, 5:15pm
0001556593nrz:ServicingAmountPercentMembersrt:MinimumMemberus-gaap:AgencySecuritiesMembernrz:HeldthroughEquityMethodInvesteesMembernrz:OriginalPoolsMember2020-09-30

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 September 30, 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)
Delaware45-3449660
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1345 Avenue of the AmericasNew YorkNY10105
(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: 415,744,518 shares outstanding as of October 21, 2020.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, our financing needs and the size and attractiveness of market opportunities. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations, cash flows or financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
 
the uncertainty and economic impact of the ongoing coronavirus (“COVID-19”) pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties;
changes in general economic conditions, in our industry and in the commercial finance and real estate markets, including the impact on the value of our assets;
changes to our business and investment strategy;
our ability to obtain and maintain financing arrangements on terms favorable to us or at all, particularly in light of the current disruption in the financial markets;
how COVID-19 may affect us, our operations and personnel;
the forbearance program included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and related funding for servicing advances, the sources, adequacy and availability of financing to fund advances;
reductions in the value of, or cash flows received from, our investments;
the quality and size of the investment pipeline and our ability to take advantage of investment opportunities at attractive risk-adjusted prices;
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
our ability to deploy capital accretively and the timing of such deployment;
our counterparty concentration and default risks in Nationstar 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;
risks associated with our senior unsecured notes, including, but not limited to, default risk and covenants that restrict certain activities by our subsidiaries and us;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our secured financing agreements or other financings in accordance with their current terms or not entering into new financings with us;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
the availability and terms of capital for future investments;
changes in economic conditions generally and the real estate and bond markets specifically;
competition within the finance and real estate industries;
the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, U.S. government programs intended to grow the economy, future changes to tax laws, the federal conservatorship of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and legislation that permits modification of the terms of residential mortgage loans;
the risk that actions by Fannie Mae or the Freddie Mac or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs;
our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business;
our ability to maintain our exclusion from registration under the Investment Company Act of 1940 (the “1940 Act”) and the fact that maintaining such exclusion imposes limits on our operations;
the 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)
September 30, 2020
(Unaudited)
December 31, 2019
Assets
Excess mortgage servicing rights assets, at fair value$435,982 $505,343 
Mortgage servicing rights, at fair value3,651,805 3,967,960 
Mortgage servicing rights financing receivables, at fair value1,129,819 1,718,273 
Servicer advance investments, at fair value(A)
535,760 581,777 
Real estate and other securities10,830,067 19,477,728 
Residential loans and variable interest entity consumer loans held-for-investment, at fair value(A)
1,440,910 1,753,251 
Residential mortgage loans, held-for-sale (includes $4,358,473 and $4,613,612 at fair value at September 30, 2020 and December 31, 2019, respectively)4,936,826 6,042,664 
Residential mortgage loans subject to repurchase(B)
1,458,325 172,336 
Cash and cash equivalents(A)
841,022 528,737 
Restricted cash(A)
180,554 162,197 
Servicer advances receivable2,857,040 3,301,374 
Trades receivable946,321 5,256,014 
Other assets(A)
1,161,933 1,395,800 
$30,406,364 $44,863,454 
Liabilities and Equity
Liabilities
Secured financing agreements$14,666,868 $27,916,225 
Secured notes and bonds payable (includes $1,756,632 and $659,738 at fair value at September 30, 2020 and December 31, 2019, respectively)(A)
7,733,648 7,720,148 
Residential mortgage loan repurchase liability(B)
1,458,325 172,336 
Unsecured senior notes, net of issuance costs541,758 
Trades payable210 902,081 
Due to affiliates9,545 103,882 
Dividends payable69,541 211,732 
Accrued expenses and other liabilities(A)
497,838 600,790 
24,977,733 37,627,194 
Commitments and Contingencies
Equity
Preferred Stock, par value of $0.01 per share, 100,000,000 shares authorized:
7.50% Series A Preferred Stock, $0.01 par value, 11,500,000 shares authorized, 6,210,000 and 6,210,000 issued and outstanding at September 30, 2020 and December 31, 2019, 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 September 30, 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 September 30, 2020 and December 31, 2019, respectively389,548 
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 415,744,518 and 415,520,780 issued and outstanding at September 30, 2020 and December 31, 2019, respectively4,158 4,156 
Additional paid-in capital5,554,559 5,498,226 
Retained earnings (accumulated deficit)(1,094,589)549,733 
Accumulated other comprehensive income (loss)52,074 682,151 
Total New Residential stockholders’ equity5,329,194 7,157,710 
Noncontrolling interests in equity of consolidated subsidiaries99,437 78,550 
  Total Equity5,428,631 7,236,260 
$30,406,364 $44,863,454 
(A)See Note 13 regarding consolidated VIEs.
(B)See Note 8 for details.
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
September 30,
Nine Months Ended
September 30,
2020201920202019
Revenues
Interest income$233,848 $448,127 $868,419 $1,303,041 
Servicing revenue, net of change in fair value of $(395,064), $(228,405), $(1,485,472), and $(619,914), respectively(43,929)53,050 (459,313)133,366 
Gain on originated mortgage loans, held-for-sale, net495,098 126,747 984,818 294,935 
685,017 627,924 1,393,924 1,731,342 
Expenses
Interest expense130,528 245,902 463,786 686,738 
General and administrative expenses316,560 193,580 859,601 525,289 
Management fee to affiliate22,482 20,678 66,682 58,261 
Incentive compensation to affiliate36,307 49,265 
469,570 496,467 1,390,069 1,319,553 
Other Income (Loss)
Change in fair value of investments89,092 2,212 (374,408)(55,534)
Gain (loss) on settlement of investments, net(94,457)133,670 (968,995)96,385 
Earnings from investments in consumer loans, equity method investees(2,547)(890)
Other income (loss), net5,385 (30,695)(34,635)(27,234)
20 102,640 (1,378,038)12,727 
Impairment
Provision (reversal) for credit losses on securities(3,849)5,567 15,166 21,942 
Valuation and credit loss provision (reversal) on loans and real estate owned (“REO”)14,584 (10,690)118,504 8,042 
10,735 (5,123)133,670 29,984 
Income (Loss) Before Income Taxes204,732 239,220 (1,507,853)394,532 
Income tax expense (benefit)100,812 (5,440)(48,647)18,980 
Net Income (Loss)$103,920 $244,660 $(1,459,206)$375,552 
Noncontrolling Interests in Income of Consolidated Subsidiaries$11,640 $14,738 $34,118 $31,979 
Dividends on Preferred Stock$14,359 $5,338 $39,938 $5,338 
Net Income (Loss) Attributable to Common Stockholders$77,921 $224,584 $(1,533,262)$338,235 
Net Income (Loss) Per Share of Common Stock
  Basic$0.19 $0.54 $(3.69)$0.83 
  Diluted$0.19 $0.54 $(3.69)$0.83 
Weighted Average Number of Shares of Common Stock Outstanding
  Basic415,744,518 415,520,780 415,665,441 406,521,273 
  Diluted420,968,626 415,588,238 415,665,441 406,671,972 
Dividends Declared per Share of Common Stock$0.15 $0.50 $0.30 $1.50 
 
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
September 30,
Nine Months Ended
September 30,
2020201920202019
Comprehensive income (loss), net of tax
Net income (loss)$103,920 $244,660 $(1,459,206)$375,552 
Other comprehensive income (loss)
Net unrealized gain (loss) on securities17,535 109,668 108,308 469,183 
Reclassification of net realized (gain) loss on securities into earnings3,809 (89,436)(738,385)(179,280)
21,344 20,232 (630,077)289,903 
Total comprehensive income (loss)$125,264 $264,892 $(2,089,283)$665,455 
Comprehensive income (loss) attributable to noncontrolling interests$11,640 $14,738 $34,118 $31,979 
Dividends on preferred stock$14,359 $5,338 $39,938 $5,338 
Comprehensive income (loss) attributable to common stockholders$99,265 $244,816 $(2,163,339)$628,138 
 
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 SEPTEMBER 30, 2020
(dollars in thousands, except share and per share data)
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries
Total Equity
SharesAmountSharesAmount
Balance at June 30, 202033,610,000 $812,992 415,744,518 $4,158 $5,554,559 $(1,110,148)$30,730 $5,292,291 $96,681 $5,388,972 
Dividends declared on common stock, $0.15 per share— — — — — (62,362)— (62,362)— (62,362)
Dividends declared on preferred stock— — — — — (14,359)— (14,359)— (14,359)
Capital contributions— — — — — — — — 25 25 
Capital distributions— — — — — — — — (8,909)(8,909)
Comprehensive income (loss)
Net income (loss)— — — — — 92,280 — 92,280 11,640 103,920 
Net unrealized gain (loss) on securities— — — — — — 17,535 17,535 — 17,535 
Reclassification of net realized (gain) loss on securities into earnings— — — — — — 3,809 3,809 — 3,809 
Total comprehensive income (loss)113,624 11,640 125,264 
Balance at September 30, 202033,610,000 $812,992 415,744,518 $4,158 $5,554,559 $(1,094,589)$52,074 $5,329,194 $99,437 $5,428,631 
 

4


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
(dollars in thousands, except share and per share data)
 
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries
Total Equity
SharesAmountSharesAmount
Balance at June 30, 2019$415,520,780 $4,156 $5,498,226 $528,889 $686,694 $6,717,965 $82,865 $6,800,830 
Dividends declared on common stock, $0.50 per share— — — — — (207,760)— (207,760)— (207,760)
Dividends declared on preferred stock— — — — — (5,338)— (5,338)— (5,338)
Capital contributions— — — — — — — — — 
Capital distributions— — — — — — — — (13,951)(13,951)
Issuance of preferred stock17,510,000 423,444 — — — — — 423,444 — 423,444 
Comprehensive income (loss)
Net income (loss)— — — — — 229,922 — 229,922 14,738 244,660 
Net unrealized gain (loss) on securities— — — — — — 109,668 109,668 — 109,668 
Reclassification of net realized (gain) loss on securities into earnings— — — — — — (89,436)(89,436)— (89,436)
Total comprehensive income (loss)250,154 14,738 264,892 
Balance at September 30, 201917,510,000 $423,444 415,520,780 $4,156 $5,498,226 $545,713 $706,926 $7,178,465 $83,652 $7,262,117 


5



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(dollars in thousands, except share and per share data)
 
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries
Total Equity
SharesAmountSharesAmount
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 
2020 Warrants— — — — 53,462 — — 53,462 — 53,462 
Dividends declared on common stock, $0.30 per share— — — — — (124,718)— (124,718)— (124,718)
Dividends declared on preferred stock— — — — — (39,938)— (39,938)— (39,938)
Capital contributions— — — — — — — — 1,818 1,818 
Capital distributions— — — — — — — — (31,844)(31,844)
Issuance of common stock— — 97,394 1,661 — — 1,662 — 1,662 
Issuance of preferred stock16,100,000 389,548 — — — — — 389,548 — 389,548 
Director share grants— — 126,344 1,210 — — 1,211 — 1,211 
Comprehensive income (loss)
Net income (loss)— — — — — (1,493,324)— (1,493,324)34,118 (1,459,206)
Net unrealized gain (loss) on securities— — — — — — 108,308 108,308 — 108,308 
Reclassification of net realized (gain) loss on securities into earnings— — — — — — (738,385)(738,385)— (738,385)
Total comprehensive income (loss)(2,123,401)34,118 (2,089,283)
Balance at September 30, 202033,610,000 $812,992 415,744,518 $4,158 $5,554,559 $(1,094,589)$52,074 $5,329,194 $99,437 $5,428,631 







6


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(dollars in thousands, except share and per share data)

 
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries
Total Equity
SharesAmountSharesAmount
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, $1.50 per share— — — — — (623,235)— (623,235)— (623,235)
Dividends declared on preferred stock— — — — — (5,338)— (5,338)— (5,338)
Capital distributions— — — — — — — — (38,952)(38,952)
Issuance of common stock— — 46,000,000 460 750,933 — — 751,393 — 751,393 
Issuance of preferred stock17,510,000 423,444 — — — — — 423,444 — 423,444 
Option exercise— — 348,613 (3)— — — — — 
Director share grants— — 67,738 1,054 — — 1,055 — 1,055 
Comprehensive income (loss)
Net income (loss)— — — — — 343,573 — 343,573 31,979 375,552 
Net unrealized gain (loss) on securities— — — — — — 469,183 469,183 — 469,183 
Reclassification of net realized (gain) loss on securities into earnings— — — — — — (179,280)(179,280)— (179,280)
Total comprehensive income (loss)633,476 31,979 665,455 
Balance at September 30, 201917,510,000 $423,444 415,520,780 $4,156 $5,498,226 $545,713 $706,926 $7,178,465 $83,652 $7,262,117 

See notes to condensed consolidated financial statements.

7


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Nine Months Ended
September 30,
20202019
Cash Flows From Operating Activities
Net income$(1,459,206)$375,552 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of investments in excess mortgage servicing rights assets14,675 (2,666)
Change in fair value of investments in mortgage servicing rights financing receivables245,906 133,200 
Change in fair value of servicer advance investments(431)(15,932)
Change in fair value of residential mortgage loans, at fair value108,306 (75,095)
Change in fair value of secured notes and bonds payable(535)
Change in fair value of investments in real estate and other securities531 (9,010)
(Gain) loss on settlement of investments, net904,200 (104,917)
(Gain) loss on sale of originated mortgage loans, net(984,818)(294,935)
Earnings from investments in consumer loans, equity method investees890 
(Gain) loss on extinguishment of debt64,795 8,532 
Change in fair value of derivative instruments(4,213)25,037 
Change in fair value of contingent consideration5,949 7,430 
Change in fair value of investments in consumer loans, held-for-investment9,634 
Change in fair value of equity investments52,413 659 
(Gain) loss on transfer of loans to REO(5,010)(7,814)
(Gain) loss on transfer of loans to other assets773 378 
(Gain) loss on Excess MSR recapture agreements12,191 (1,771)
(Gain) loss on Ocwen common stock(221)(3,134)
Accretion and other amortization(127,456)(298,933)
Provision for credit losses on securities15,166 21,942 
Valuation and credit loss provision on loans and real estate owned118,504 8,042 
Non-cash portions of servicing revenue, net1,485,472 619,914 
Non-cash directors’ compensation1,211 1,055 
Deferred tax provision(42,439)18,080 
Changes in:
Servicer advances receivable470,221 366,426 
Other assets154,969 (509,745)
Due to affiliates(94,337)(41,920)
Accrued expenses and other liabilities(186,705)263,420 
Other operating cash flows:
Interest and distributions received from excess mortgage servicing rights assets27,415 26,942 
Interest received from servicer advance investments14,183 22,212 
Interest received from Non-Agency RMBS137,000 203,309 
Interest received from residential mortgage loans, held-for-investment3,907 6,697 
Interest received from consumer loans, held-for-investment23,789 
Distributions of earnings from consumer loan equity method investees1,178 
Purchases of residential mortgage loans, held-for-sale(2,390,498)(6,002,975)
Origination of residential mortgage loans, held-for-sale(36,801,062)(10,424,325)
Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale39,908,942 13,046,546 
Principal repayments from purchased residential mortgage loans, held-for-sale226,436 295,584 
Net cash provided by (used in) operating activities1,885,868 (2,316,358)
Continued on next page.
8


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
Nine Months Ended
September 30,
20202019
Cash Flows From Investing Activities
Purchase of servicer advance investments(991,289)(1,255,306)
Purchase of MSRs, MSR financing receivables and servicer advances receivable(530,657)(1,365,333)
Purchase of Agency RMBS(18,584,357)(25,212,307)
Purchase of Non-Agency RMBS(56,515)(689,308)
Purchase of real estate owned and other assets(5,347)(44,539)
Purchase of investment in consumer loans, equity method investees(63,969)
Draws on revolving consumer loans(25,008)(42,231)
Payments for settlement of derivatives(160,465)(283,037)
Return of investments in excess mortgage servicing rights assets40,101 55,968 
Return of investments in consumer loans, equity method investees55,848 
Principal repayments from servicer advance investments1,036,634 1,402,187 
Principal repayments from Agency RMBS838,200 987,523 
Principal repayments from Non-Agency RMBS358,322 996,396 
Principal repayments from residential mortgage loans100,433 83,483 
Proceeds from sale of residential mortgage loans41,308 
Principal repayments from consumer loans176,125 203,607 
Proceeds from MSRs and MSR financing receivables64,623 21,306 
Proceeds from sale of mortgage servicing rights10,452 1,047 
Proceeds from sale of mortgage servicing rights financing receivables3,708 15,575 
Proceeds from sale of excess mortgage servicing rights144 114 
Proceeds from sale of Agency RMBS23,249,507 17,998,736 
Proceeds from sale of Non-Agency RMBS5,292,717 1,664,017 
Proceeds from settlement of derivatives65,650 74,724 
Proceeds from sale of real estate owned84,733 103,258 
Net cash provided by (used in) investing activities10,967,711 (5,250,933)
Continued on next page.
9


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
Nine Months Ended
September 30,
20202019
Cash Flows From Financing Activities
Repayments of secured financing agreements(113,038,497)(144,545,608)
Repayments of warehouse credit facilities(40,782,950)
Margin deposits under secured financing agreements and derivatives(3,519,989)(2,913,627)
Proceeds for issuance of term loan592,400 
Repayment of term loan(600,000)
Proceeds for issuance of unsecured senior notes544,400 
Repayments of secured notes and bonds payable(7,040,542)(7,306,541)
Deferred financing fees(31,863)(7,821)
Common stock dividends paid(270,117)(600,027)
Preferred Stock dividends paid(36,730)
Borrowings under secured financing agreements101,149,869 152,101,817 
Borrowings under warehouse credit facilities39,427,045 
Return of margin deposits under secured financing agreements and derivatives3,717,645 2,589,160 
Borrowings under secured notes and bonds payable7,057,202 7,600,342 
Issuance of preferred stock389,548 423,444 
Issuance of common stock1,734 752,217 
Costs related to issuance of common stock(72)(824)
Noncontrolling interests in equity of consolidated subsidiaries - contributions1,818 
Noncontrolling interests in equity of consolidated subsidiaries - distributions(31,844)(38,952)
Payment of contingent consideration(51,994)
   Net cash provided by (used in) financing activities(12,522,937)8,053,580 
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash330,642 486,289 
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period690,934 415,078 
Cash, Cash Equivalents, and Restricted Cash, End of Period$1,021,576 $901,367 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$450,792 $643,349 
Cash paid during the period for income taxes105 1,208 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Common dividends declared but not paid$62,362 $213,098 
Preferred dividends declared but not paid14,359 5,338 
Warrants issued with term loan53,462 
Purchase of investments, primarily Agency and Non-Agency RMBS, settled after quarter-end210 2,536,188 
Sale of investments, primarily Non-Agency RMBS, settled after quarter-end946,321 4,487,772 
Transfer from residential mortgage loans to real estate owned and other assets56,297 70,080 
Transfer from residential mortgage loans, held-for-investment to residential mortgage loans, held-for-sale38,842 
Non-cash distributions from LoanCo21,314 
MSR purchase price holdback(45,014)1,963 
Real estate securities retained from loan securitizations518,515 454,310 
Residential mortgage loans subject to repurchase1,458,325 168,532 
See notes to condensed consolidated financial statements.
10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 (commenced operations on December 8, 2011) for the purpose of making real estate related investments. New Residential is an independent publicly traded real estate investment trust (“REIT”) primarily focused on investing in residential mortgage related assets and is listed on the New York Stock Exchange (“NYSE”) under the symbol “NRZ.”
 
New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 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.

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

As of September 30, 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 September 30, 2020. In addition, Fortress, through its affiliates, held options relating to approximately 10.9 million shares of New Residential’s common stock as of September 30, 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”). In the opinion of management, all adjustments considered necessary for a fair presentation of New Residential’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The 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, financing 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 consolidated statements of cash flows
11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
based on the cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings.

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

Use of Estimates

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

The Company believes the estimates and assumptions underlying its condensed consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2020; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of September 30, 2020 inherently less certain than they would be absent the current 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 a $19.7 million increase attributable to the change in the fair value of consumer loans, net of noncontrolling interests, partially offset by a $6.0 million decrease attributable to the change in fair value of residential mortgage loans. For servicer advance receivables, the Company determined credit-related losses are not 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 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.

12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate (“LIBOR”) and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt, derivatives, and other contracts affected by reference rate reform. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the impact the adoption of this standard would have on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt–Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Topic 815). The standard simplifies the accounting for convertible instruments by reducing the number of accounting models. A convertible debt instrument will generally be reported as a single liability at its amortized cost with no separate accounting for embedded conversion features. The standard also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-16 is effective for New Residential beginning in the first quarter of 2022 with early adoption permitted beginning in 2021. The Company is currently evaluating the impact the adoption of this standard would have on its condensed consolidated financial statements.

2.    OTHER INCOME (LOSS), GENERAL AND ADMINISTRATIVE, OTHER ASSETS AND LIABILITIES
 
Change in fair value of investments — This item is composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Excess mortgage servicing rights$(664)$2,407 $(11,773)$(1,421)
Excess mortgage servicing rights, equity method investees(393)4,751 (2,902)4,087 
Mortgage servicing rights financing receivables(20,275)(41,410)(245,906)(133,200)
Servicer advance investments3,143 6,641 431 15,932 
Real estate and other securities27,663 (5,054)(531)9,010 
Residential mortgage loans56,940 (6,512)(108,306)75,095 
Consumer loans held-for-investment(411)(9,634)
Derivative instruments23,089 41,389 4,213 (25,037)
$89,092 $2,212 $(374,408)$(55,534)

Gain (Loss) on Settlement of Investments, Net — This item is composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Gain (loss) on sale of real estate securities$7,658 $95,003 $(753,551)$201,222 
Gain (loss) on sale of acquired residential mortgage loans923 43,648 (8,343)53,405 
Gain (loss) on settlement of derivatives(23,192)(14,147)(133,099)(152,424)
Gain (loss) on liquidated residential mortgage loans165 (198)2,546 (3,320)
Gain (loss) on sale of REO1,016 (3,169)2,632 (9,445)
Gain (loss) on extinguishment of debt(66,256)(64,795)(8,532)
Gain (loss) on Excess MSR recapture agreements(13,381)529 (12,191)1,771 
Other gains (losses)(1,390)12,004 (2,194)13,708 
$(94,457)$133,670 $(968,995)$96,385 


13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Other Income (Loss), Net — This item is composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Unrealized gain (loss) on secured notes and bonds payable$(5,611)$(2,647)$535 $(5,248)
Unrealized gain (loss) on contingent consideration(2,079)(2,703)(5,949)(7,430)
Unrealized gain (loss) on equity investments(4,716)(500)(52,413)(659)
Gain (loss) on transfer of loans to REO703 1,230 5,010 7,814 
Gain (loss) on transfer of loans to other assets(512)(101)(773)(378)
Gain (loss) on Ocwen common stock4,342 (1,103)221 3,134 
Provision for servicing losses(3,734)25 (19,764)(901)
Rental and ancillary revenue23,670 63,346 
Other income (loss)(6,678)(24,896)(24,848)(23,566)
$5,385 $(30,695)$(34,635)$(27,234)

General and Administrative Expenses, Loan Servicing Expense and Subservicing Expense — General and administrative expenses are expensed as incurred and primarily include employee compensation, legal and professional fees, insurance premiums, and other costs. Loan servicing and subservicing expenses are expensed as incurred.

General and Administrative Expenses is composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Compensation and benefits expense$68,595 $30,494 $179,434 $87,219 
Compensation and benefits expense, origination98,542 44,270 232,968 112,977 
Legal and professional expense22,209 16,442 63,798 46,352 
Loan origination expense29,935 17,882 75,970 42,349 
Occupancy expense9,356 5,114 26,195 14,079 
Subservicing expense55,376 52,875 159,679 147,763 
Loan servicing expense8,311 7,192 23,313 26,167 
Other(A)
24,236 19,311 98,244 48,383 
$316,560 $193,580 $859,601 $525,289 

(A)Represents miscellaneous general and administrative expenses.

14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Other Assets and Other Liabilities — Other assets and liabilities are composed of the following:
Other AssetsAccrued Expenses
and Other Liabilities
September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Margin receivable, net(A)
$48,050 $280,176 MSR purchase price holdback$31,167 $75,348 
Servicing fee receivables113,994 159,607 Interest payable33,195 68,668 
Due from servicers92,500 163,961 Accounts payable120,116 119,771 
Principal and interest receivable64,391 85,191 Derivative liabilities (Note 10)37,820 6,885 
Equity investments(B)
59,771 114,763 Due to servicers65,212 85,728 
Other receivables109,530 117,045 Due to Agencies25,659 42,118 
Real Estate Owned49,872 93,672 Contingent Consideration13,628 55,222 
Single-family rental properties25,570 24,133 Accrued compensation and benefits71,184 41,228 
Goodwill(C)
29,468 29,737 Excess spread financing, at fair value20,129 31,777 
Notes Receivable(D)
50,516 37,001 Operating lease liabilities31,901 38,520 
Warrants, at fair value22,799 28,042 Reserve for sales recourse9,624 12,549 
Recovery asset15,310 23,100 Reserve for servicing losses19,657 
Property and equipment27,279 18,018 Other liabilities18,546 22,976 
Receivable from government agency(E)
16,823 19,670 $497,838 $600,790 
Intangible assets35,074 40,963 
Prepaid expenses21,757 19,249 
Operating lease right-of-use assets27,218 32,120 
Derivative assets (Note 10)255,496 41,501 
Ocwen common stock, at fair value8,172 7,952 
Deferred tax asset, net49,545 8,669 
Other assets38,798 51,230 
$1,161,933 $1,395,800 
(A)Represents collateral posted as a result of changes in fair value of our 1) real estate securities securing our secured financing agreements and 2) derivative instruments.
(B)Represents equity investments in funds that invest in 1) a commercial redevelopment project, 2) operating companies in the single-family housing industry. The indirect investments are accounted for at fair value based on the net asset value (“NAV”) of New Residential’s investment and as an equity method investment, respectively. Equity investments also includes an investment in Covius Holding Inc. (“Covius”), a provider of various technology-enabled services to the mortgage and real estate industries.
(C)Includes goodwill derived from the acquisition of Shellpoint Partners LLC (“Shellpoint”) and DGG RE Investments d/b/a Guardian Asset Management LLC (“Guardian”).
(D)Represents a subordinated debt facility to Covius.
(E)Represents claims receivable from the FHA on early buyout (“EBO”) and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.

As a result of 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 during the nine months ended September 30, 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,
15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
which could result in impairment charges in the future. In the event that the Company concludes that all or a portion of its goodwill or intangible asset is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital.

Accretion and Other Amortization — As reflected on the condensed consolidated statements of cash flows, this item is composed of the following:
Nine Months Ended
September 30,
20202019
Accretion of net discount on securities and loans$81,112 $266,467 
Accretion of servicer advances receivable discount and servicer advance investments38,967 18,290 
Accretion of excess mortgage servicing rights income25,177 18,203 
Amortization of deferred financing costs(12,352)(2,984)
Amortization of discount on secured notes and bonds payable(379)(1,043)
Amortization of discount on term loan(5,069)
$127,456 $298,933 

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.
Real Estate Owned
Balance at December 31, 2019$93,672 
Purchases3,910 
Transfer of loans to REO31,764 
Sales(A)
(82,100)
Valuation (provision) reversal on REO2,626 
Balance at September 30, 2020$49,872 

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

As of September 30, 2020, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $437.8 million.

In addition, New Residential has recognized $16.5 million in unpaid claims receivable from FHA on Ginnie Mae EBO loans and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim.




16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
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 OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
Three Months Ended September 30, 2020
Interest income$17,407 $373 $91,576 $$109,356 $61,034 $33,913 $29,545 $$233,848 
Servicing revenue, net(3,767)111,420 (80,987)(70,595)(43,929)(43,929)
Gain on originated mortgage loans, held-for-sale, net445,578 346 10,184 38,990 495,098 495,098 
Total revenues459,218 112,139 20,773 (31,605)560,525 61,034 33,913 29,545 685,017 
Interest expense10,977 90 59,650 70,717 15,652 19,326 5,809 19,024 130,528 
G&A and other136,086 81,767 149,426 (70,595)296,684 930 10,361 3,361 27,706 339,042 
Total operating expenses147,063 81,857 209,076 (70,595)367,401 16,582 29,687 9,170 46,730 469,570 
Other income (loss)123 (19,753)(19,630)36,941 44,699 (5,240)(56,750)20 
Impairment218 218 (3,849)14,366 10,735 
Income (loss) before income taxes(B)
312,278 30,282 (208,274)38,990 173,276 85,242 34,559 15,135 (103,480)204,732 
Income tax expense (benefit)71,304 6,044 15,682 93,030 7,783 (1)100,812 
Net income (loss)$240,974 $24,238 $(223,956)$38,990 $80,246 $85,242 $26,776 $15,136 $(103,480)$103,920 
Noncontrolling interests in income (loss) of consolidated subsidiaries$4,840 $$2,612 $$7,452 $$$4,188 $$11,640 
Dividends on preferred stock$$$$$$$$$14,359 $14,359 
Net income (loss) attributable to common stockholders$236,134 $24,238 $(226,568)$38,990 $72,794 $85,242 $26,776 $10,948 $(117,839)$77,921 

Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
Nine Months Ended September 30, 2020
Interest income$43,105 $8,975 $299,315 $$351,395 $278,702 $141,118 $97,204 $$868,419 
Servicing revenue, net(6,843)295,047 (591,004)(156,513)(459,313)(459,313)
Gain on originated mortgage loans, held-for-sale, net885,730 948 65,424 26,054 978,156 6,662 984,818 
Total revenues921,992 304,970 (226,265)(130,459)870,238 278,702 147,780 97,204 1,393,924 
Interest expense30,071 397 178,027 208,495 141,340 67,570 18,691 27,690 463,786 
G&A and other338,760 220,026 374,868 (156,513)777,141 8,128 46,395 10,947 83,672 926,283 
Total operating expenses368,831 220,423 552,895 (156,513)985,636 149,468 113,965 29,638 111,362 1,390,069 
Other income (loss)497 499 (267,351)(266,355)(881,261)(110,896)(16,007)(103,519)(1,378,038)
Impairment127 127 15,166 118,377 133,670 
Income (loss) before income taxes(B)
553,658 85,046 (1,046,638)26,054 (381,880)(767,193)(195,458)51,559 (214,881)(1,507,853)
Income tax expense (benefit)138,304 21,244 (143,824)15,724 (64,501)130 (48,647)
Net income (loss)$415,354 $63,802 $(902,814)$26,054 $(397,604)$(767,193)$(130,957)$51,429 $(214,881)$(1,459,206)
Noncontrolling interests in income (loss) of consolidated subsidiaries$10,542 $$(44)$$10,498 $$$23,620 $$34,118 
Dividends on preferred stock$$$$$$$$$39,938 $39,938 
Net income (loss) attributable to common stockholders$404,812 $63,802 $(902,770)$26,054 $(408,102)$(767,193)$(130,957)$27,809 $(254,819)$(1,533,262)

17

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
September 30, 2020
Investments$2,843,720 $$5,753,366 $$8,597,086 $10,830,067 $2,887,350 $722,108 $$23,036,611 
Cash and cash equivalents99,321 50,942 406,965 557,228 160,764 4,681 7,195 111,154 841,022 
Restricted cash3,929 32,369 102,166 138,464 12,723 29,367 180,554 
Other assets369,988 191,398 4,466,009 5,027,395 1,005,847 193,394 59,968 32,105 6,318,709 
Goodwill11,836 12,540 5,092 29,468 29,468 
Total assets$3,328,794 $287,249 $10,733,598 $$14,349,641 $12,009,401 $3,085,425 $818,638 $143,259 $30,406,364 
Debt$2,612,817 $6,669 $5,980,900 $$8,600,386 $10,877,414 $2,241,607 $681,109 $541,758 $22,942,274 
Other liabilities165,022 63,657 1,661,193 1,889,872 9,633 45,696 5,425 84,833 2,035,459 
Total liabilities2,777,839 70,326 7,642,093 10,490,258 10,887,047 2,287,303 686,534 626,591 24,977,733 
Total equity550,955 216,923 3,091,505 3,859,383 1,122,354 798,122 132,104 (483,332)5,428,631 
Noncontrolling interests in equity of consolidated subsidiaries18,365 42,946 61,311 38,126 99,437 
Total New Residential stockholders’ equity$532,590 $216,923 $3,048,559 $$3,798,072 $1,122,354 $798,122 $93,978 $(483,332)$5,329,194 
Investments in equity method investees$$$139,351 $$139,351 $$$$$139,351 
 
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
Three Months Ended September 30, 2019
Interest income$10,880 $8,847 $129,350 $$149,077 $184,933 $73,786 $40,331 $$448,127 
Servicing revenue, net(548)54,646 18,588 (19,636)53,050 53,050 
Gain on originated mortgage loans, held-for-sale, net104,126 348 15,554 (14,892)105,136 21,611 126,747 
Total revenues114,458 63,841 163,492 (34,528)307,263 184,933 95,397 40,331 627,924 
Interest expense10,359 264 59,056 69,679 123,023 45,707 7,493 245,902 
G&A and other67,708 41,850 80,522 (19,636)170,444 1,839 11,662 3,965 62,655 250,565 
Total operating expenses78,067 42,114 139,578 (19,636)240,123 124,862 57,369 11,458 62,655 496,467 
Other income (loss)(149)(42,993)(43,142)116,081 33,541 (2,651)(1,189)102,640 
Impairment5,567 (16,553)5,863 (5,123)
Income (loss) before income taxes(B)
36,242 21,727 (19,079)(14,892)23,998 170,585 88,122 20,359 (63,844)239,220 
Income tax expense (benefit)9,674 5,799 (4,724)10,749 (15,546)(643)(5,440)
Net income (loss)$26,568 $15,928 $(14,355)$(14,892)$13,249 $170,585 $103,668 $21,002 $(63,844)$244,660 
Noncontrolling interests in income (loss) of consolidated subsidiaries$2,457 $$1,684 $$4,141 $$$10,597 $$14,738 
Dividends on Preferred Stock$$$$$$$$$5,338 $5,338 
Net income (loss) attributable to common stockholders$24,111 $15,928 $(16,039)$(14,892)$9,108 $170,585 $103,668 $10,405 $(69,182)$224,584 

 
18

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
Nine Months Ended September 30, 2019
Interest income$25,744 $23,181 $379,368 $$428,293 $557,895 $188,278 $128,575 $$1,303,041 
Servicing revenue, net(1,215)146,730 34,400 (46,549)133,366 133,366 
Gain on originated mortgage loans, held-for-sale, net228,881 681 37,169 (34,195)232,536 62,399 294,935 
Total revenues253,410 170,592 450,937 (80,744)794,195 557,895 250,677 128,575 1,731,342 
Interest expense24,012 737 183,299 208,048 330,992 122,180 25,518 686,738 
G&A and other169,980 118,329 217,860 (46,549)459,620 4,124 28,945 18,396 121,730 632,815 
Total operating expenses193,992 119,066 401,159 (46,549)667,668 335,116 151,125 43,914 121,730 1,319,553 
Other income (loss)808 (132,193)(131,385)31,677 118,244 (10,324)4,515 12,727 
Impairment21,942 (16,557)24,599 29,984 
Income (loss) before income taxes(B)
60,226 51,526 (82,415)(34,195)(4,858)232,514 234,353 49,738 (117,215)394,532 
Income tax expense (benefit)16,075 13,753 (21,354)8,474 11,048 (542)18,980 
Net income (loss)$44,151 $37,773 $(61,061)$(34,195)$(13,332)$232,514 $223,305 $50,280 $(117,215)$375,552 
Noncontrolling interests in income (loss) of consolidated subsidiaries$4,407 $$4,466 $$8,873 $$$23,106 $$31,979 
Dividends on Preferred Stock$$$$$$$$$5,338 $5,338 
Net income (loss) attributable to common stockholders$39,744 $37,773 $(65,527)$(34,195)$(22,205)$232,514 $223,305 $27,174 $(122,553)$338,235 

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

4.    INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS ASSETS

Excess mortgage servicing rights assets include New Residential’s direct investments in Excess MSRs and investments in joint ventures jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. The table below summarizes the components of excess mortgage servicing rights assets as presented on the condensed consolidated balance sheets:
September 30, 2020December 31, 2019
Direct investments in Excess MSRs$328,623 $379,747 
Excess MSR Joint Ventures107,359 125,596 
Excess mortgage servicing rights assets, at fair value$435,982 $505,343 

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 
Interest income25,167 25,176 
Other income(12,175)(12,175)
Proceeds from repayments(51,980)(311)(52,291)
Proceeds from sales(61)(61)
Change in fair value(11,939)166 (11,773)
Balance as of September 30, 2020$326,704 $1,919 $328,623 

19

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
(A)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:
September 30, 2020December 31, 2019
UPB of Underlying MortgagesInterest in Excess MSR
Weighted Average Life Years(A)
Amortized Cost Basis(B)
Carrying Value(C)
Carrying Value(C)
New Residential(D)
Fortress-managed fundsMr. Cooper
Agency
Original and Recaptured Pools$37,356,300 
32.5% - 66.7%
(53.3%)
0.0% - 40%20.0% - 35.0%5.8$150,403 $173,549 $209,633 
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools39,995,269 
33.3% - 100.0%
(59.4%)
0.0% - 50%0.0% - 33.3%6.6113,724 155,074 170,114 
Total$77,351,569 6.1$264,127 $328,623 $379,747 
 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(D)Amounts in parentheses represent weighted averages.
(E)New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of September 30, 2020 (Note 6) on $27.5 billion UPB underlying these Excess MSRs.

Changes in fair value of investments is composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Original and Recaptured Pools$(664)$2,407 $(11,773)$(1,421)

As of September 30, 2020, a weighted average discount rate of 7.8% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).

Excess MSR Joint Ventures
New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors.
20

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
September 30, 2020December 31, 2019
Excess MSR assets$190,246 $226,843 
Other assets25,158 25,035 
Other liabilities(687)(687)
Equity$214,717 $251,191 
New Residential’s investment$107,359 $125,596 
New Residential’s ownership50.0 %50.0 %

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Interest income$12,249 $7,990 $20,099 $12,251 
Other income (loss)(13,027)1,528 (25,879)(4,029)
Expenses(8)(16)(24)(48)
Net income (loss)$(786)$9,502 $(5,804)$8,174 

The following table summarizes the activity of New Residential’s investments in equity method investees:
Balance at December 31, 2019$125,596 
Distributions of earnings from equity method investees(1,170)
Distributions of capital from equity method investees(14,165)
Change in fair value of investments in equity method investees(2,902)
Balance at September 30, 2020$107,359 

The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
September 30, 2020
Unpaid Principal Balance
Investee Interest in Excess MSR(A)
New Residential Interest in Investees
Amortized Cost Basis(B)
Carrying Value(C)
Weighted Average Life (Years)(D)
Agency
Original and Recaptured Pools$30,232,940 66.7 %50.0 %$146,014 $190,246 5.7
 
(A)The remaining interests are held by Mr. Cooper.
(B)Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(D)Represents the weighted average expected timing of the receipt of cash flows of each investment.

5.    INVESTMENTS IN MORTGAGE SERVICING RIGHTS AND MSR FINANCING RECEIVABLES

The Company owns and records at fair value the rights to service residential mortgage loans, either as a result of purchase transactions or from the retained mortgage servicing associated with the sales and securitizations of loans originated. Investments in MSRs are comprised of servicing rights of both agency and non-agency loans. In certain cases where New
21

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Residential has legally purchased MSRs or the right to the economic interest in MSRs, 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 the condensed consolidated statements of income.

A subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), engages third party licensed mortgage servicers as subservicers and, in relation to certain MSR 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 September 30, 2020, these subservicers include LoanCare, LLC (“LoanCare”), PHH Mortgage Corporation (“PHH”), Mr. Cooper, and Flagstar Bank, FSB (“Flagstar”), which subservice 19.1%, 18.5%, 17.1%, and 0.7% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 44.6% of the underlying UPB of the related mortgages is subserviced by the servicing division of NewRez.

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

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

The following table presents activity related to the carrying value of New Residential’s investments in MSRs and MSR Financing Receivables:
MSRsMSR Financing ReceivablesTotal
Balance as of December 31, 2019$3,967,960 $1,718,273 $5,686,233 
Purchases, net(A)
446,964 (18,227)428,737 
Transfers320,613 (320,613)
Originations(B)
424,451 424,451 
Proceeds from sales(10,452)(3,708)(14,160)
Amortization of servicing rights(C)
(959,482)(182,085)(1,141,567)
Change in valuation inputs and assumptions(D)
(542,361)(62,072)(604,433)
(Gain) loss realized4,112 (1,749)2,363 
Balance as of September 30, 2020$3,651,805 $1,129,819 $4,781,624 

(A)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.    
(B)Represents MSRs retained on the sale of originated mortgage loans.
(C)Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(D)Includes changes in inputs or assumptions used in the valuation model.

22

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Servicing revenue, net recognized by New Residential related to its investments in MSRs was composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Servicing fee revenue$320,880 $222,966 $945,568 $602,241 
Ancillary and other fees30,255 58,489 80,591 151,039 
Servicing fee revenue and fees351,135 281,455 1,026,159 753,280 
Amortization of servicing rights(473,490)(168,776)(953,430)(346,772)
Change in valuation inputs and assumptions(A) (B)
81,973 (61,858)(536,154)(275,371)
(Gain) loss realized(3,547)2,229 4,112 2,229 
Servicing revenue, net$(43,929)$53,050 $(459,313)$133,366 

(A)Includes changes in inputs or assumptions used in the valuation model.
(B)Includes $(0.2) million and $(3.6) million for the three months ended September 30, 2020 and 2019, respectively, and $6.2 million and $4.4 million for the nine months ended September 30, 2020 and 2019, respectively, of fair value adjustment to excess spread financing.

Interest income from investments in MSR Financing Receivables was composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Servicing fee revenue$83,493 $128,936 $303,936 $385,306 
Ancillary and other fees16,231 21,417 59,947 82,695 
Less: subservicing expense(35,655)(40,410)(117,689)(145,649)
Interest income, investments in MSR financing receivables$64,069 $109,943 $246,194 $322,352 

Change in fair value of investments in MSR Financing Receivables was composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Amortization of servicing rights$(36,134)$(48,340)$(182,085)$(131,417)
Change in valuation inputs and assumptions(A)
15,859 9,349 (62,072)1,437 
(Gain) loss on sales(B)
(2,419)(1,749)(3,220)
Change in fair value of investments in MSR financing receivables$(20,275)$(41,410)$(245,906)$(133,200)

(A)Includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.
(B)Represents the realization of unrealized gain (loss) as a result of sales.

23

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of September 30, 2020:
UPB of Underlying Mortgages
Weighted Average Life (Years)(A)
Carrying Value(B)
MSRs:
Agency(C)
$323,473,921 5.4$3,012,602 
Non-Agency5,605,074 4.516,598 
Ginnie Mae(D)
57,290,646 4.3622,605 
386,369,641 5.23,651,805 
MSR Financing Receivables:
Agency(C)
6,159,819 5.657,410 
Non-Agency69,089,988 7.81,072,409 
75,249,807 7.61,129,819 
Total$461,619,448 5.6$4,781,624 

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying value represents fair value. As of September 30, 2020, weighted average discount rates of 7.7% and 9.4% were used to value New Residential’s investments in MSRs and MSR financing receivables, respectively.
(C)Represents Fannie Mae and Freddie Mac MSRs.
(D)As of September 30, 2020, New Residential holds approximately $1,458.3 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its condensed consolidated balance sheets.

Ginnie Mae Loans Subject to Repurchase Right

NewRez, as an approved issuer of Ginnie Mae MBS, originates and securitizes government-insured residential mortgage loans. As the issuer of the Ginnie Mae-guaranteed securitizations, NewRez has the unilateral right to repurchase loans from the securitizations when they are delinquent for more than 90 days. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. Under GAAP, NewRez is required to recognize the right to loans on its balance sheet and establish a corresponding liability upon the triggering of the repurchase right regardless of whether NewRez intends to repurchase the loans. As of September 30, 2020, New Residential holds approximately $1,458.3 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its condensed consolidated balance sheets. New Residential may re-pool reacquired loans into new Ginnie Mae securitizations upon re-performance of the loan or otherwise sell to third-party investors. Upon recognizing loans eligible for repurchase, the Company does not change the accounting for MSRs related to previously sold loans. Upon reacquisition of a loan the MSR is written off. As of September 30, 2020, New Residential holds approximately $491.4 million of reacquired residential mortgage loans on its condensed consolidated balance sheets.

Ocwen MSR Financing Receivable Transactions

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

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

24

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
As of September 30, 2020, MSRs representing approximately $66.7 billion UPB of underlying loans were transferred from PHH to NRM and NewRez. Although the MSRs transferred 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 ConcentrationSeptember 30, 2020December 31, 2019
California21.9 %21.9 %
Florida7.3 %6.9 %
New York6.7 %6.4 %
Texas5.4 %5.5 %
New Jersey4.8 %4.9 %
Illinois3.5 %3.6 %
Massachusetts3.3 %3.4 %
Georgia3.2 %3.1 %
Maryland3.1 %3.0 %
Washington3.1 %3.3 %
Other U.S.37.7 %38.0 %
100.0 %100.0 %
Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the MSRs.


























Mortgage Subservicing
25

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

NewRez performs servicing of residential mortgage loans for third parties under subservicing agreements. Mortgage subservicing does not meet the criteria to be recognized as a mortgage servicing right asset and, therefore, is not recognized on New Residential’s condensed consolidated balance sheets. The UPB of residential mortgage loans subserviced for others as of September 30, 2020 and 2019 was $77.1 billion and $54.7 billion, respectively. New Residential earned subservicing revenue of $138.6 million and $99.7 million for the nine months ended September 30, 2020 and 2019, respectively, related to subserviced UPB which is included within Servicing 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), which it records at fair value 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:
September 30, 2020December 31, 2019
Principal and interest advances$595,367 $660,807 
Escrow advances (taxes and insurance advances)2,171,877 2,427,384 
Foreclosure advances137,231 163,054 
Total(A)(B)(C)
$2,904,475 $3,251,245 
(A)Includes $461.0 million and $562.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.
(B)Includes $113.1 million and $166.5 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from either the borrower or Ginnie Mae. Expected losses for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a nonreimbursable advance loss assumption.
(C)Excludes $47.4 million and $50.1 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries. These reserves relate to inactive loans in the foreclosure or liquidation process.

New Residential’s Servicer advances receivable related to Non-Agency MSRs generally have the highest reimbursement priority pursuant to the underlying servicing agreements (i.e., “top of the waterfall”) and New Residential is generally entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by New Residential as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, New Residential has a contractual right to be reimbursed by the subservicer. 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 $18.2 million for expected non-recovery of advances as of September 30, 2020.

See Note 11 regarding the financing of MSRs.

6.    SERVICER ADVANCE INVESTMENTS

All of New Residential’s Servicer advance investments consist of outstanding servicer advances, the requirement to purchase all future servicer advances made with respect to a specified pool of residential mortgage loans, and the basic fee component of the related MSR. New Residential elected to record its Servicer advance investments, including the right to the basic fee component
26

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
of the related MSRs, at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of market factors.

A taxable wholly-owned subsidiary of New Residential is the managing member of Advance Purchaser LLC (the “Buyer”), a joint venture entity, and owned an approximately 73.2% interest in the Buyer as of September 30, 2020. The Buyer is a limited liability company which was established in December 2013 for the purpose of investing in residential mortgage related assets. As of September 30, 2020, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of September 30, 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.
 
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 RateWeighted Average Yield
Weighted Average Life (Years)(B)
September 30, 2020
Servicer advance investments$510,995 $535,760 5.2 %5.7 %6.3
December 31, 2019
Servicer advance investments$557,444 $581,777 5.3 %5.7 %6.3
  
(A)Carrying value represents the fair value of the Servicer advance investments, including the basic fee component of the related MSRs.
(B)Weighted average life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.

The following is additional information regarding the Servicer advance investments and related financing:
UPB of Underlying Residential Mortgage LoansOutstanding Servicer AdvancesServicer Advances to UPB of Underlying Residential Mortgage LoansFace Amount of Secured Notes and Bonds Payable
Loan-to-Value (“LTV”)(A)
Cost of Funds(C)
Gross
Net(B)
GrossNet
September 30, 2020
Servicer Advance Investments(D)
$27,484,426 $434,998 1.6 %$412,538 88.0 %87.0 %2.3 %1.5 %
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.
27

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
(D)The following types of advances are included in the Servicer Advance Investments:
September 30, 2020December 31, 2019
Principal and interest advances$85,481 $71,574 
Escrow advances (taxes and insurance advances)166,678 180,047 
Foreclosure advances182,839 211,222 
Total$434,998 $462,843 
 
Interest income recognized by New Residential related to its Servicer advance investments was composed of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Interest income, gross of amounts attributable to servicer compensation$10,505 $14,212 $28,160 $43,220 
Amounts attributable to base servicer compensation(703)(1,606)(2,325)(4,578)
Amounts attributable to incentive servicer compensation1,196 (7,273)(12,755)(20,780)
Interest income from Servicer advance investments$10,998 $5,333 $13,080 $17,862 

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.

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

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

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

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

28

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Activities related to New Residential’s investments in real estate and other securities were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)AgencyNon-AgencyAgencyNon-AgencyAgencyNon-AgencyAgencyNon-Agency
Purchases
Face$6,300.0 $$12,306.4 $3,324.9 $17,162.6 $5,083.1 $25,123.5 $7,899.1 
Purchase price6,538.012,610.9 247.0 17,687.4 575.0 25,700.0 1,164.9 
Sales
Face$1,195.5 $716.6 $6,073.4 $1,325.2 $18,590.6 $8,204.4 $17,898.5 $2,162.7 
Amortized cost1,231.8526.3 6,233.5 832.40 18,911.0 6,083.5 18,339.1 1,571.0 
Sale price1,251.5514.6 6,252.8 910.90 19,120.5 5,139.2 18,451.4 1,662.9 
Gain (loss) on sale19.7(11.6)19.3 78.5 209.5 (944.3)112.3 91.9 

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

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

The following is a summary of New Residential’s real estate and other securities:
September 30, 2020December 31, 2019
Gross UnrealizedWeighted Average
Asset TypeOutstanding Face AmountAmortized Cost BasisGainsLosses
Carrying Value(A)
Number of Securities
Rating(B)
Coupon(C)
Yield
Life (Years)(D)
Principal Subordination(E)
Carrying Value
Agency RMBS$114,401 $115,223 $12,254 $$127,476 AAA3.50 %3.50 %8.8— $11,519,943 
Agency RMBS at FVO8,921,032 9,247,334 48,905 (2,891)9,293,347 53 AAA2.24 %2.24 %4.1— 
Total Agency
  RMBS(F)(G)
9,035,433 9,362,557 61,159 (2,891)9,420,823 54 AAA2.25 %2.25 %4.2— 11,519,943 
Non-Agency
  RMBS(H)(I)
21,276,175 1,386,243 92,192 (69,191)1,409,244 599 AA3.03 %4.86 %5.916.5 %7,957,785 
Total/
Weighted
Average
$30,311,608 $10,748,800 $153,351 $(72,082)$10,830,067 653 AAA2.80 %4.09 %5.4$19,477,728 
 
(A)Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.
(B)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. This excludes the ratings of the collateral underlying 305 bonds with a carrying value of $647.1 million which 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 $26.5 million and $2.8 million, respectively, for which no coupon payment is expected.
(D)The weighted average life is based on the timing of expected principal reduction on the assets.
29

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
(E)Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value option securities.
(F)Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.
(G)The total outstanding face amount was $9.0 billion for fixed rate securities as of September 30, 2020.
(H)The total outstanding face amount was $13.0 billion (including $11.9 billion of residual and fair value option notional amount) for fixed rate securities and $8.3 billion (including $7.7 billion of residual and fair value option notional amount) for floating rate securities as of September 30, 2020.
(I)Includes other 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 UnrealizedWeighted Average
Asset TypeOutstanding Face AmountAmortized Cost BasisGainsLossesCarrying ValueNumber of SecuritiesRatingCouponYieldLife (Years)Principal Subordination
Corporate debt$500 $500 $10 $$510 B-8.25 %8.25 %4.5N/A
Consumer loan bonds13,847 11,069 11,069 N/AN/AN/AN/A
Fair value option securities:
Interest-only securities10,506,022 272,207 17,641 (33,893)255,954 126 AA+1.16 %7.80 %2.7N/A
Servicing strips5,418,547 55,861 4,314 (9,009)51,167 59 N/A0.61 %7.60 %3.8N/A

Unrealized losses attributable to credit impairment are recognized in earnings. During the nine months ended September 30, 2020, New Residential recorded credit impairment charges of $15.2 million with respect to real estate securities. Any remaining unrealized losses on New Residential’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. New Residential performed analyses in relation to such securities, using its best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. New Residential has no intent to sell and is not more likely than not to be required to sell these securities.
 
The following table summarizes New Residential’s securities in an unrealized loss position as of September 30, 2020.
Securities in an Unrealized Loss PositionOutstanding Face AmountAmortized Cost BasisGross Unrealized LossesCarrying ValueNumber of SecuritiesWeighted Average
Before Credit Impairment
Credit Impairment(A)
After Credit ImpairmentRatingCouponYieldLife
(Years)
Less than 12 Months$10,511,509 $3,144,203 $(2,072)$3,142,131 $(51,194)$3,090,937 112 AAA2.30 %2.05 %6.1
12 or More Months3,758,699 112,034 (8,297)103,737 (20,889)82,848 70 AA+0.89 %2.59 %2.4
Total/Weighted Average$14,270,208 $3,256,237 $(10,369)$3,245,868 $(72,083)$3,173,785 182 AAA2.26 %2.07 %6.0
 
(A)Represents credit impairment on securities in an unrealized loss position as of September 30, 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:
September 30, 2020December 31, 2019
Gross Unrealized LossesGross Unrealized Losses
Fair ValueAmortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Fair ValueAmortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Securities New Residential intends to sell$$$N/A$$$$
Securities New Residential is more likely than not to be required to sell(C)
N/AN/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities122,086 134,639 (10,369)(12,553)228,228 237,626 (3,232)(9,398)
Non-credit impaired securities3,051,699 3,111,229 (59,530)4,726,409 4,767,837 (41,428)
Total debt securities in an unrealized loss position$3,173,785 $3,245,868 $(10,369)$(72,083)$4,954,637 $5,005,463 $(3,232)$(50,826)
  
30

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
(A)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 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 (excluding credit impairment relating to securities New Residential intends to sell or is more likely than not required to sell):
Purchased Credit DeterioratedNon-Purchased Credit DeterioratedTotal
Allowance for credit losses on available-for-sale debt securities at December 31, 2019$$$
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 period10,359 10 10,369 
Write-offs charged against the allowance
Recoveries of amounts previously written off
Allowance for credit losses on available-for-sale debt securities at September 30, 2020$10,359 $10 $10,369 
 
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
September 30, 2020December 31, 2019
Geographic Location(A)
Outstanding Face AmountPercentage of Total OutstandingOutstanding Face AmountPercentage of Total Outstanding
Western U.S.$7,347,342 34.6 %$9,048,847 36.6 %
Southeastern U.S.5,543,854 26.1 %5,983,966 24.2 %
Northeastern U.S.4,876,703 22.9 %5,416,137 21.9 %
Midwestern U.S.2,354,349 11.1 %2,562,269 10.4 %
Southwestern U.S.1,130,535 5.3 %1,440,467 5.8 %
Other(B)
8,995 %296,273 1.1 %
$21,261,778 100.0 %$24,747,959 100.0 %
  
31

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
(A)Excludes $13.8 million and $25.0 million face amount of bonds backed by consumer loans and $0.5 million and $85.0 million face amount of bonds backed by corporate debt as of September 30, 2020 and December 31, 2019, respectively.
(B)Represents collateral for which New Residential was unable to obtain geographic information.

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 AmountCarrying Value
September 30, 2020$967,463 $406,816 
December 31, 20195,701,736 3,830,369 

The following is a summary of the changes in accretable yield for these securities:
Nine Months Ended September 30, 2020
Balance at December 31, 2019$1,882,476 
Additions76,959 
Accretion(51,840)
Reclassifications from (to) non-accretable difference(2,858,719)
Disposals1,317,537 
Balance at September 30, 2020$366,413 
See Note 11 regarding the financing of real estate securities.

8.    INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

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 the condensed consolidated statements of income. Realized gains (losses) are recorded in Gain (loss) on settlement of investments, 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.
32

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

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 September 30, 2020, New Residential accounts for loans based on the following categories:

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

The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type:
September 30, 2020December 31, 2019
Outstanding Face AmountCarrying
Value
Loan
Count
Weighted Average Yield
Weighted Average Life (Years)(A)
Carrying Value
Loan Type
Total residential mortgage loans, held-for-investment, at fair value(B)
$784,838 $718,802 12,587 6.7 %4.2$925,706 
Acquired reverse mortgage loans(C)
$11,784 $5,848 28 7.8 %3.9$5,844 
Acquired performing loans(D)(F)
205,746 191,580 4,138 6.6 %3.4857,821 
Acquired non-performing loans(E)(F)
502,003 380,925 3,363 7.5 %3.3565,387 
Total residential mortgage loans, held-for-sale$719,533 $578,353 7,529 7.2 %3.3$1,429,052 
Acquired performing loans(D)(F)
$1,205,668 $1,176,302 7,590 4.2 %9.9$3,024,288 
Acquired non-performing loans436,936 338,451 2,872 7.5 %3.3
Originated loans2,705,121 2,843,720 9,947 2.9 %22.11,589,324 
Total residential mortgage loans, held-for-sale, at fair value$4,347,725 $4,358,473 20,409 3.7 %16.8$4,613,612 
Total residential mortgage loans, held-for-sale$5,067,258 $4,936,826 $6,042,664 

(A)The weighted average life is based on the expected timing of the receipt of cash flows.
(B)Residential mortgage loans, held-for-investment, at fair value is grouped and presented as part of Residential loans and variable interest entity consumer loans held-for-investment, at fair value on the condensed consolidated balance sheets.
(C)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.
(D)Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.
(E)As of September 30, 2020, New Residential has placed Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (F) below.
(F)Includes $490.9 million and $21.2 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

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.

33

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
The table below summarizes the geographic distribution of the underlying residential mortgage loans:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationSeptember 30, 2020December 31, 2019
California13.8 %16.1 %
New York8.9 %9.0 %
Texas8.0 %7.1 %
Florida7.8 %8.4 %
Georgia5.5 %4.8 %
New Jersey5.1 %4.2 %
Illinois3.5 %3.6 %
Pennsylvania3.2 %2.9 %
Maryland3.2 %3.3 %
Massachusetts3.1 %3.3 %
Other U.S.37.9 %37.3 %
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 September 30, 2020:
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
90 to 119$157,247 $142,438 $(14,808)
120+1,104,658 931,980 (172,678)
$1,261,905 $1,074,418 $(187,486)

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 nine months ended September 30, 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 $48.3 million of gain on securitizations accounted for as sales. For the nine months ended September 30, 2019, New Residential executed calls on a total of 97 trusts and recognized $45.3 million of interest income on securities held in the collapsed trusts and $54.2 million of gain on securitizations accounted for as sales. Refer to Note 16 for transactions with affiliates.

34

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
The following table 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)
Current86.5 %
30-597.0 %
60-892.7 %
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.

The following table summarizes the activity for residential mortgage loans:
Loans Held-for-Investment, at Fair ValueLoans Held-for-Sale, at Lower Cost or Fair ValueLoans Held-for-Sale, at Fair ValueTotal
Balance at December 31, 2019$925,706 $1,429,052 $4,613,612 $6,968,370 
Fair value adjustment due to fair value option(6,020)(6,020)
Originations37,361,429 37,361,429 
Sales(733,087)(39,713,858)(40,446,945)
Purchases/additional fundings110,741 2,279,757 2,390,498 
Proceeds from repayments(105,032)(86,798)(140,657)(332,487)
Transfer of loans to other assets(A)
(3,338)(20,372)(23,710)
Transfer of loans to real estate owned(5,328)(17,085)(4,674)(27,087)
Transfers of loans to held for sale(62,274)62,274 
Valuation provision on loans(121,132)(121,132)
Changes in instrument-specific credit risk18,808 (31,488)(12,680)
Other factors(47,058)(47,550)(94,608)
Balance at September 30, 2020$718,802 $578,353 $4,358,473 $5,655,628 

(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 recognized as claims receivable in Other Assets (Note 2).


35

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Net interest income
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Interest income:
Loans held-for-investment, at fair value$12,647 $14,532 $40,985 $47,167 
Loans held-for-sale, at lower of cost or fair value7,406 15,426 38,673 43,538 
Loans held-for-sale, at fair value31,267 56,644 104,565 130,128 
Total interest income51,320 86,602 184,223 220,833 
Interest expense:
Loans held-for-investment, at fair value5,326 3,953 15,934 15,717 
Loans held-for-sale, at lower of cost or fair value4,068 9,315 17,501 26,553 
Loans held-for-sale, at fair value20,909 43,295 64,206 109,770 
Total interest expense30,303 56,563 97,641 152,040 
Net interest income$21,017 $30,039 $86,582 $68,793 

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

NewRez, a wholly-owned subsidiary of New Residential, originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government-insured mortgage securitizations and 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
September 30,
Nine Months Ended
September 30,
2020201920202019
Gain on loans originated and sold, net(A)
$244,224 $45,923 $520,094 $98,812 
Gain (loss) on settlement of mortgage loan origination derivative instruments(B)
(68,789)(32,138)(290,670)(61,879)
MSRs retained on transfer of loans(C)
156,353 96,317 424,451 190,666 
Other(D)
19,306 12,050 51,896 28,829 
Realized gain on sale of originated mortgage loans, net$351,094 $122,152 $705,771 $256,428 
Change in fair value of loans67,998 (12,524)96,375 15,458 
Change in fair value of interest rate lock commitments (Note 10)82,019 3,002 206,073 13,911 
Change in fair value of derivative instruments (Note 10)(6,013)14,117 (23,401)9,138 
Gain on originated mortgage loans, held-for-sale, net$495,098 $126,747 $984,818 $294,935 

(A)Includes loan origination fees of $566.3 million and $953.1 million for the three and nine months ended September 30, 2020, respectively, $103.5 million and $189.4 million for the three and nine months ended September 30, 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.
36

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

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 September 30, 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 and are grouped and presented as part of residential loans and variable interest entity consumer loans held-for-investment, at fair value on the condensed consolidated balance sheets. 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 BalanceInterest in Consumer LoansCarrying ValueWeighted Average Coupon
Weighted Average Expected Life (Years)(A)
Weighted Average Delinquency(B)
September 30, 2020
Consumer Loan Companies
Performing Loans$525,664 53.5 %$582,167 18.2 %3.73.4 %
Purchased Credit Deteriorated Loans(C)
137,450 53.5 %136,188 14.2 %3.56.2 %
Other - Performing Loans4,070 100.0 %3,753 15.3 %0.53.6 %
Total Consumer Loans, held-for-investment$667,184 $722,108 17.4 %3.64.0 %
December 31, 2019
Consumer Loan Companies
Performing Loans$644,676 53.5 %$682,310 18.8 %4.04.7 %
Purchased Credit Deteriorated Loans(C)
170,083 53.5 %136,633 15.5 %3.710.1 %
Other - Performing Loans9,158 100.0 %8,602 15.1 %0.76.1 %
Total Consumer Loans, held-for-investment$823,917 $827,545 18.0 %3.95.9 %

(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 Change in fair value of investments 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.

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 of the loan using the effective interest method and is recorded on the accrual basis.
37

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

The following table summarizes the past due status and difference between the aggregate unpaid principal balance and the aggregate fair value of consumer loans as of September 30, 2020:
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
Under 90 Days$656,284 $710,367 $54,083 
90 days or more past due10,900 11,741 841 
Total$667,184 $722,108 $54,924 

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)
Current95.3 %
30-591.8 %
60-891.2 %
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 option36,472 
Additional fundings(A)
25,008 
Proceeds from repayments(176,127)
Accretion of loan discount and premium amortization, net18,844 
Fair value adjustment due to:
Changes in instrument-specific credit risk(429)
Other factors(9,205)
Balance at September 30, 2020$722,108 

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

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
38

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
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 September 30, 2020 and December 31, 2019, the warrants are held on New Residential’s condensed consolidated balance sheets in Other Assets and carried at $22.8 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
September 30, 2019(A)
Nine Months Ended
September 30, 2019(A)
Interest income$636$20,003
Interest expense0(6,487)
Change in fair value of consumer loans and warrants(2,933)(4,390)
Gain on sale of consumer loans(7,525)(9,193)
Other expenses(576)(3,494)
Net income$(10,398)$(3,561)
New Residential’s equity in net income$(2,547)$(890)
New Residential’s ownership24.5 %25.0 %

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

The following is a summary of LoanCo’s consumer loan investments at September 30, 2019:
Unpaid Principal BalanceInterest in Consumer LoansCarrying ValueWeighted Average Coupon
Weighted Average Expected Life (Years)(A)
Weighted Average Delinquency(B)
September 30, 2019(C)
$1,226 25.0 %$1,632 18.7 %1.0%

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)Data as of August 31, 2019 as a result of the one month reporting lag.

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 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.

New Residential may at times hold to-be-announced forward contract positions (“TBAs”) 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 may enter 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.

39

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
As of September 30, 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 LocationSeptember 30, 2020December 31, 2019
Derivative assets
Interest rate swaps(A)
Other assets$$155 
Interest rate lock commitmentsOther assets246,247 41,346 
TBAsOther assets9,249 
$255,496 $41,501 
Derivative liabilities
Interest rate swaps(A)
Accrued expenses and other liabilities$263 $
Interest rate lock commitmentsAccrued expenses and other liabilities283 1,455 
Forward loan sale commitmentsAccrued expenses and other liabilities27 
TBAsAccrued expenses and other liabilities37,274 5,403 
$37,820 $6,885 

(A)Net of $206.3 million and $171.8 million of related variation margin accounts as of September 30, 2020 and December 31, 2019, respectively.

The following table summarizes notional amounts related to derivatives:
September 30, 2020December 31, 2019
Interest rate caps(A)
$12,500 $12,500 
Interest rate swaps(B)
9,070,000 4,900,000 
Interest rate lock commitments12,412,095 4,043,935 
Forward loan sale commitments43,654 
TBAs, short position(C)
15,254,283 5,048,000 
TBAs, long position(C)
11,692,212 

(A)As of September 30, 2020, caps LIBOR at 4.00% for $12.5 million of notional. The weighted average maturity of the interest rate caps as of September 30, 2020 was 2 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 31 months and 30 months, respectively, as of September 30, 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.

40

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
The following table summarizes all income (losses) recorded in relation to derivatives:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Change in fair value of derivative investments(A)
Interest rate caps$$$$(3)
Interest rate swaps23,089 42,306 4,213 (26,893)
TBAs(917)1,859 
23,089 41,389 4,213 (25,037)
Gain (loss) on settlement of investments, net
Interest rate swaps(23,192)(10,338)(62,039)(32,529)
TBAs(B)
(3,809)(71,060)(119,895)
(23,192)(14,147)(133,099)(152,424)
Gain on originated mortgage loans, held-for-sale, net(A)
Interest rate lock commitments82,019 3,002 206,073 13,911 
TBAs(6,013)14,389 (23,428)9,208 
Forward loan sale commitments(272)27 (70)
76,006 17,119 182,672 23,049 
Total income (losses)$75,903 $44,361 $53,786 $(154,412)

(A)Represents unrealized gains (losses).
(B)Excludes $68.8 million and $290.7 million for the three and nine months ended September 30, 2020, respectively, and $32.1 million and $61.9 million for the three and nine months ended September 30, 2019, respectively, in loss on settlement included within gain on originated mortgage loans, held-for-sale, net (Note 8).

11.    DEBT OBLIGATIONS
 
Secured Financing Agreements
The Company finances the acquisition of certain assets within its investment portfolio using secured financing agreements, including repurchase agreements and warehouse credit facilities. Repurchase agreements and warehouse credit facilities are treated as collateralized financing transactions and carried at their contractual amounts, including accrued interest, as specified in the respective agreements. The carrying amount of the Company’s secured financing agreements and warehouse credit facilities approximates fair value. The Company pledges certain securities, loans or other assets as collateral under secured financing agreements and warehouse credit facilities with financial institutions, the terms and conditions of which are negotiated on a transaction-by-transaction basis. The amounts available to be borrowed under repurchase agreements and warehouse credit facilities are dependent upon the fair value of the securities, or loans pledged as collateral, which can fluctuate with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries.
41

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

The following table presents certain information regarding New Residential’s secured financing agreements and secured notes and bonds payable debt obligations:
September 30, 2020December 31, 2019
Collateral
Debt Obligations/CollateralOutstanding Face Amount
Carrying Value(A)
Final Stated Maturity(B)
Weighted Average Funding CostWeighted Average Life (Years)Outstanding FaceAmortized Cost BasisCarrying ValueWeighted Average Life (Years)
Carrying Value(A)
Secured Financing Agreements(C)
Repurchase Agreements:
Warehouse Credit Facilities-Residential Mortgage Loans(F)
$3,759,627 $3,754,803 Oct-20 to Jul-222.5 %1.0$4,156,437 $4,250,005 $4,215,066 17.1$5,053,207 
Agency RMBS(D)
$9,958,246 $9,958,246 Oct-20 to Dec-200.2 %0.2$9,930,973 $10,285,282 $10,361,950 3.8$15,481,677 
Non-Agency RMBS(E)
$952,323 $950,836 Oct-20 to Dec-204.1 %0.1$18,999,108 $1,730,072 $1,734,798 6.0$7,317,519 
Real Estate Owned(G)(H)
$2,983 $2,983 Oct-20 to Jul-223.94 %1.3N/AN/A3,796 N/A63,822 
Total Secured Financing Agreements14,673,179 14,666,868 1.05 %0.427,916,225 
Secured Notes and Bonds Payable
Excess MSRs(I)
264,980 264,980 Nov-20 to Aug-243.91 %1.1107,584,509 333,874 421,907 6.0217,300 
MSRs(J)
2,794,108 2,786,144 Jan-21 to Jul-254.57 %2.3444,177,336 4,645,075 4,675,648 5.82,640,036 
Servicer Advance Investments(K)
412,538 412,538 Apr-21 to Aug-212.27 %0.6434,998 510,995 535,760 6.3581,777 
Servicer Advances(K)
2,502,158 2,492,239 Apr-21 to Sep-232.84 %1.92,747,433 2,857,040 2,857,040 0.72,599,895 
Residential Mortgage Loans(L)
1,103,847 1,096,638 Apr-21 to Aug-604.26 %30.11,656,351 1,588,739 1,413,258 4.1864,451 
Consumer Loans(M)
678,951 681,109 September-372.03 %3.0663,047 718,287 718,287 3.6816,689 
Total Secured Notes and Bonds Payable7,756,582 7,733,648 3.60 %6.17,720,148 
Total/ Weighted Average$22,429,761 $22,400,516 1.93 %2.3$35,636,373 

(A)Net of deferred financing costs.
(B)All debt obligations with a stated maturity through October 31, 2020 were refinanced, extended or repaid.
(C)These secured financing agreements had approximately $19.5 million of associated accrued interest payable as of September 30, 2020.
(D)All Agency RMBS repurchase agreements have a fixed rate.
(E)All Non-Agency RMBS secured financing agreements have LIBOR-based floating interest rates. This also includes repurchase agreements and related collateral of $30.4 million and $37.3 million, respectively, on retained bonds collateralized by Agency MSRs.
(F)Includes $270.7 million of repurchase agreements which bear interest at a fixed rate of 4.4%. All remaining repurchase agreements have LIBOR-based floating interest rates.
(G)All repurchase agreements have LIBOR-based floating interest rates.
(H)Includes financing collateralized by receivables including claims from FHA on Ginnie Mae EBO loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.
(I)Includes $70.2 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.50% and $194.7 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.50%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the interests in MSRs that secure these notes.
(J)Includes $933.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.50%; $37.4 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.50%; $326.1 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.50%; and
42

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
$1,497.6 million of capital markets notes with fixed interest rates ranging 3.55% to 5.44%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR financing receivables that secure these notes.
(K)$1.9 billion face amount of the notes have a fixed rate while the remaining notes bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or a cost of funds rate, as applicable, and (ii) a margin ranging from 1.38% to 1.85%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and MSR financing receivables owned by NRM.
(L)Represents (i) a $989.1 million note payable to Mr. Cooper which includes a $1.4 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.88%, (ii) $75.1 million face amount of SAFT 2013-1 mortgage-backed securities issued with fixed interest rate of 3.72% (see Note 12 for fair value details), (iii) $165.5 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.63% (see Note 12 for fair value details), and (iv) $989.1 million of bonds held by third parties which bear interest at a fixed rate ranging from 3.23% to 5.00%.
(M)Includes the SpringCastle debt, which is primarily composed of the following classes of asset-backed notes held by third parties: $610.0 million UPB of Class A notes with a coupon of 1.97% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.66% and a stated maturity date in September 2037.

As of September 30, 2020, New Residential had 0 outstanding secured financing 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 secured financing 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.

As of September 30, 2020, New Residential has margin exposure on $14.7 billion of secured financing agreements. To the extent that the value of the collateral underlying these secured financing 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 MSRsMSRs
Servicer Advances(A)
Real Estate SecuritiesResidential Mortgage Loans and REOConsumer LoansTotal
Balance at December 31, 2019$217,300 $2,640,036 $3,181,672 $22,799,196 $5,981,480 $816,689 $35,636,373 
Secured Financing Agreements:
Borrowings101,149,870 39,427,045 140,576,915 
Repayments(113,038,497)(40,782,949)(153,821,446)
Capitalized deferred financing costs, net of amortization(1,487)(3,337)(4,824)
Secured Notes and Bonds Payable:
Borrowings97,173 2,367,635 3,053,589 875,758 663,047 7,057,202 
Repayments(49,493)(2,220,067)(3,328,415)(640,924)(797,904)(7,036,803)
Discount on borrowings, net of amortization1,457 (2,882)(1,425)
Unrealized loss on notes, fair value(2,694)2,159 (535)
Capitalized deferred financing costs, net of amortization(2,917)(2,069)45 (4,941)
Balance at September 30, 2020$264,980 $2,786,144 $2,904,777 $10,909,082 $4,854,424 $681,109 $22,400,516 

(A)New Residential net settles daily borrowings and repayments of the Secured notes and bonds payable on its servicer advances.

43

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
Maturities
 
New Residential’s debt obligations as of September 30, 2020 had contractual maturities as follows:
Year EndingNonrecourseRecourseTotal
October 1 through December 31, 2020$1,296 $11,670,545 $11,671,841 
20211,632,734 3,097,533 4,730,267 
2022119,403 1,691,631 1,811,034 
20231,200,000 321,685 1,521,685 
2024522,589 522,589 
2025 and thereafter919,583 1,802,761 2,722,344 
$3,873,016 $19,106,744 $22,979,760 

Borrowing Capacity

The following table represents New Residential’s borrowing capacity as of September 30, 2020:
Debt Obligations / CollateralBorrowing CapacityBalance Outstanding
Available Financing(A)
Secured Financing Agreements
Residential mortgage loans and REO$5,011,258 $995,151 $4,016,107 
New loan originations5,283,000 2,767,458 2,515,542 
Secured Notes and Bonds Payable
Excess MSRs311,237 264,980 46,257 
MSRs1,750,000 1,296,506 453,494 
Servicer advances4,645,000 2,914,696 1,730,304 
Residential mortgage loans650,000 650,000 
$17,650,495 $8,238,791 $9,411,704 

(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 September 30, 2020.

2020 Term Loan

On May 19, 2020, the Company, as borrower, entered into a three-year senior secured term loan facility agreement (the “2020 Term Loan”) in the principal amount of $600.0 million at a fixed annual rate of 11.0%.

In conjunction with the 2020 Term Loan, the Company issued common stock purchase warrants (the “2020 Warrants”) to the lenders. The 2020 Warrants expire approximately three years after the issuance date. The Company recorded the value of the 2020 Term Loan and 2020 Warrants on a relative fair value basis. The estimated fair value of the 2020 Warrants at the date of issuance was approximately $53.5 million and the Company recognized it as a discount to the 2020 Term Loan. Refer to Note 14, Equity and Earnings Per Share, for further details.

In August 2020, the Company made a $51.0 million prepayment on the 2020 Term Loan. As a result, The Company recorded a $5.7 million loss on extinguishment of debt, representing a write-off of unamortized debt issuance costs and original issue discount.
44

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 

In September 2020, the Company used the net proceeds from a private debt offering, together with cash on hand, to fully retire all of the outstanding principal balance on the 2020 Term Loan. As a result, the Company recorded a $61.1 million loss on extinguishment of debt, primarily representing a write-off of unamortized debt issuance costs and original issue discount.

The table below summarizes the interest expense on the 2020 Term Loan:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Coupon interest at 11.00%$13,652 $$20,435 $
Amortization of debt discounts and issuance costs3,368 5,006 
Total$17,020 $$25,441 $

The 2020 Term Loan contained certain customary affirmative and negative covenants and also required the Company to maintain compliance with certain financial covenants. The Company was in compliance with all financial covenants through extinguishment of the 2020 Term Loan.

2025 Senior Unsecured Notes

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

The 2025 Senior Notes mature on October 15, 2025 and the Company may redeem some or all of the 2025 Senior Notes at the Company’s option, at any time from time to time, on or after October 15, 2022 at a price equal to the following fixed redemption prices (expressed as a percentage of principal amount of the 2025 Senior Notes to be redeemed):
YearPrice
2022103.125%
2023101.563%
2024 and thereafter100.000%

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

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

The Company incurred fees of approximately $8.3 million in relation to the issuance of the 2025 Senior Notes. These fees were capitalized as debt issuance cost and are grouped and presented as part of Unsecured senior notes, net of issuance costs on the condensed consolidated balance sheets. For both the three and nine months ended September 30, 2020, the Company recognized $1.3 million of interest expense. At September 30, 2020, the unamortized debt issuance costs was approximately $8.2 million.

The 2025 Senior Notes are senior unsecured obligations and rank pari passu in right of payment with all of the Company’s existing and future senior unsecured indebtedness and senior unsecured guarantees. At the time of issuance, the 2025 Senior Notes were not guaranteed by any of the Company’s subsidiaries and none of its subsidiaries are required to guarantee the 2025 Senior Notes in the future, except under limited specified circumstances.

45

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
The 2025 Senior Notes contain financial covenants and other non-financial covenants, including, among other things, limits on the ability of the Company and its restricted subsidiaries to incur certain indebtedness (subject to various exceptions), requires that the Company maintain total unencumbered assets (as defined in the debt agreement) of not less than 120% of the aggregate principal amount of the outstanding unsecured debt, and imposes certain requirements in order for the Company to merge or consolidate with or transfer all or substantially all of its assets to another person, in each case subject to certain qualifications set forth in the debt agreement. If the Company were to fail to comply with these covenants, after the expiration of the applicable cure periods, the debt maturity could be accelerated or other remedies could be sought by the lenders. As of September 30, 2020, the Company was in compliance with all covenants.

In the event of a change of control, each holder of the 2025 Senior Notes will have the right to require the Company to repurchase all or any part of the outstanding balance at a purchase price of 101% of the principal amount of the 2025 Senior Notes repurchased, plus accrued and unpaid interest, if any, to, but not including, the date of such repurchase.
46

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 September 30, 2020 were as follows:
Fair Value
Principal Balance or Notional AmountCarrying ValueLevel 1Level 2Level 3Total
Assets
Investments in:
Excess mortgage servicing rights, at fair value(A)
$77,351,569 $328,623 $$$328,623 $328,623 
Excess mortgage servicing rights, equity method investees, at fair value(A)
30,232,940 107,359 107,359 107,359 
Mortgage servicing rights, at fair value(A)
386,369,641 3,651,805 3,651,805 3,651,805 
Mortgage servicing rights financing receivables, at fair value(A)
75,249,807 1,129,819 — 1,129,819 1,129,819 
Servicer advance investments, at fair
value
434,998 535,760 535,760 535,760 
Real estate and other securities30,311,608 10,830,067 9,420,823 1,409,244 10,830,067 
Residential mortgage loans, held-for-sale719,533 578,353 62,273 516,080 578,353 
Residential mortgage loans, held-for-sale, at fair value4,347,725 4,358,473 3,175,134 1,183,339 4,358,473 
Residential mortgage loans, held-for-investment, at fair value784,838 718,802 718,802 718,802 
Residential mortgage loans subject to repurchase1,458,325 1,458,325 1,458,325 1,458,325 
Consumer loans, held-for-investment, at fair value667,184 722,110 722,110 722,110 
Derivative assets22,562,001 255,496 9,249 246,247 255,496 
Note receivable48,278 48,016 48,016 48,016 
Cash and cash equivalents841,022 841,022 841,022 841,022 
Restricted cash180,554 180,554 180,554 180,554 
Other assets(B)
N/A44,545 8,172 36,373 44,545 
$25,789,129 $1,029,748 $14,125,804 $10,633,577 $25,789,129 
Liabilities
Secured financing agreements$14,673,178 $14,666,868 $$14,673,178 $$14,673,178 
Secured notes and bonds payable(C)
7,756,582 7,733,648 7,718,539 7,718,539 
Unsecured senior notes, net of issuance costs541,758 541,758 541,758 541,758 
Residential mortgage loan repurchase liability1,458,325 1,458,325 1,458,325 1,458,325 
Derivative liabilities9,230,520 37,820 37,537 283 37,820 
Excess spread financing2,416,800 20,129 20,129 20,129 
Contingent considerationN/A13,628 13,628 13,628 
$24,472,176 $$16,169,040 $8,294,337 $24,463,377 
 
(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 $31.8 million as of September 30, 2020.
(C)Includes the SAFT 2013-1, MDST Trusts, NPL/RPL Securitization Trusts and SCFT 2020-A mortgage backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $1.8 billion as of September 30, 2020.

47

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
New Residential’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 InvestmentsNon-Agency RMBS
Derivatives(C)
Residential Mortgage LoansConsumer Loans
AgencyNon-AgencyTotal
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(715,790)(715,790)
Transfers to Level 3440,168 827,545 1,267,713 
Transfers from investments in mortgage servicing rights financing receivables to investments in mortgage servicing rights320,613 (320,613)
Gains (losses) included in net income
Included in provision (reversal) for credit losses on securities(D)
(15,300)(15,300)
Included in change in fair value of investments in excess mortgage servicing rights(D)
(7,805)(3,968)(11,773)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(D)
(2,902)(2,902)
Included in servicing revenue, net(E)
(1,497,731)(1,497,731)
Included in change in fair value of investments in mortgage servicing rights financing receivables(D)
— (245,906)(245,906)
Included in change in fair value of servicer advance investments431 431 
Included in change in fair value of investments in residential mortgage loans(109,324)(109,324)
Included in gain (loss) on settlement of investments, net14 (944,257)(944,242)
Included in other income (loss), net(D)
(10,817)(1,373)(30,695)206,073 (8,399)(9,634)145,155 
Gains (losses) included in other comprehensive income(F)
(593,130)(6,020)36,472 (562,678)
Interest income12,066 13,110 13,080 95,713 18,844 152,813 
Purchases, sales and repayments
Purchases, net(G)
446,964 (18,227)991,289 575,030 1,917,894 25,008 3,937,958 
Proceeds from sales(56)(5)(10,452)(3,708)(5,139,114)(3,376,461)(8,529,796)
Proceeds from repayments(29,486)(22,805)(15,335)(1,050,817)(495,100)(238,752)(176,125)(2,028,420)
Originations and other424,451 (1,688)422,763 
Balance at September 30, 2020$173,549 $155,074 $107,359 $3,651,805 $1,129,819 $535,760 $1,409,244 $245,964 $1,902,141 $722,110 $10,032,825 
 
(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.
(G)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.

48

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
New Residential’s liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
Level 3
Excess Spread FinancingAsset-Backed Securities IssuedContingent Consideration
Total
Balance at December 31, 2019$31,777 $659,738 $55,222 $746,737 
Transfers
Transfers from Level 3(43,875)(43,875)
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)
(12,259)(12,259)
Included in change in fair value of investments in mortgage servicing rights financing receivables
Included in change in fair value of servicer advance investments
Included in change in fair value of investments in residential mortgage loans(534)(534)
Included in gain (loss) on settlement of investments, net
Included in other income(A)
4,225 4,225 
Gains (losses) included in other comprehensive income, net of tax(C)
Interest income
Purchases, sales and repayments
Purchases1,538,804 1,538,804 
Proceeds from sales
Payments(439,911)(1,944)(441,855)
Other611 (1,465)(854)
Balance at September 30, 2020$20,129 $1,756,632 $13,628 $1,790,389 

(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.

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 September 30, 2020:
49

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
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
7.1% - 10.1%
(8.3%)
0% - 2.8%
(1.2%)
4.4% - 23.3%
(10.4%)
15 - 32 (21)14 - 22 (19)
Recaptured Pools
7.9% - 11.5%
(10.2%)
0.1% - 3.6%
(0.8%)
0% - 33.9%
(21.6%)
21 - 29 (24)19 - 24 (22)
7.1% - 11.5%
(8.9%)
0% - 3.6%
(1.1%)
0% - 33.9%
(14.1%)
15 - 32 (22)14 - 24 (20)
Non-Agency(G)
Mr. Cooper and SLS Serviced:
Original Pools
7.4% - 12.5%
(8.8%)
3.2% - 15.0%
(11.1%)
0% - 13.1%
(8.4%)
5 - 25 (15)18 - 28 (23)
Recaptured Pools
5.6% - 7.1%
(6.3%)
0.2% - 0.5%
(0.4%)
12.0% - 22.4%
(14.1%)
23 - 28 (25)21 - 24 (23)
5.6% - 12.5%
(8.4%)
0.2% - 15.0%
(11.1%)
0% - 22.4%
(9.3%)
5 - 28 (17)18 - 28 (23)
Total/Weighted AverageExcess MSRs Directly Held
5.6% - 12.5%
(8.7%)
—% - 15.0%
(5.1%)
0% - 33.9%
(11.8%)
5 - 32 (19)14 - 28 (21)
Excess MSRs Held through Equity Method Investees (Note 4)
Agency
Original Pools
7.5% - 10.1%
(8.3%)
0.9% - 2.2%
(1.4%)
5.5% - 23.3%
(9.6%)
15 - 25 (19)18 - 19 (18)
Recaptured Pools
9.2% - 10.5%
(9.6%)
0.6% - 1.4%
(1.1%)
12.3% - 29.8%
(16.1%)
22 - 28 (25)20 - 23 (22)
Total/Weighted AverageExcess MSRs Held through Investees
7.5% - 10.7%
(9.0%)
0.6% - 2.2%
(1.2%)
5.5% - 29.8%
(12.9%)
15 - 28 (22)18 - 23 (20)
Total/Weighted AverageExcess MSRs All Pools
5.6% - 12.5%
(8.8%)
—% - 15.0%
(3.7%)
0% - 33.9%
(12.2%)
5 - 32 (20)14 - 28 (21)
MSRs
Agency(H)
Mortgage Servicing Rights(I) (J)
7.5% - 18.9%
(12.1%)
0.4% - 2.7%
(0.9%)
2.7% - 25.5%
(15.9%)
25 - 33 (28)0 - 30 (22)
MSR Financing Receivables(I)
11.1%0.7%14.7%250 - 30 (23)
7.5% - 18.9%
(12.0%)
0.4% - 2.7%
(0.9%)
2.7% - 25.5%
(15.9%)
25 - 33 (28)0 - 30 (22)
Non-Agency
Mortgage Servicing Rights(I)
9.9% - 15.4%
(13.5%)
1.0% - 10.2%
(4.3%)
3.8% - 25.0%
(17.5%)
26 - 88 (48)0 - 30 (16)
MSR Financing Receivables(I)
8.0%14.4%8.2%480 - 30 (25)
8.0% - 15.4%
(8.1%)
1.0% - 10.2%
(14.2%)
3.8% - 25.0%
(8.3%)
26 - 88 (48)0 - 30 (25)
Ginnie Mae
Mortgage Servicing Rights(I) (J)
9.4% - 24.0%
(20.1%)
1.6% - 8.4%
(6.5%)
15.9% - 35.0%
(22.1%)
32 - 52 (45)0 - 30 (27)
Total/Weighted AverageMSRs
7.5% - 24.0%
(12.2%)
0.4% - 10.2%
(4.7%)
2.7% - 35.0%
(10.0%)
25 - 88 (35)0 - 30 (23)

(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.
50

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2020
(dollars in tables in thousands, except share data) 
 
(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 $6.20 - $7.70 ($6.90) per loan per month was used to value the agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $11.00 per loan per month was used to value the Non-Agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $9.30 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 2.1%.

As of September 30, 2020, a weighted average discount rate of 7.8% (range 7.5% - 8.0%) was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees). As of September 30, 2020, a weighted average discount rate of 7.7% (range 7.4% - 13.0%) was used to value New Residential’s investments in MSRs and a weighted average discount rate of 9.4% (range 7.4% - 9.5%) 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)
September 30, 20201.0% - 1.6% (1.6%)8.9% - 9.9% (9.9%)7.2% - 17.4% (17.1%)16.5 - 19.7 (19.7)bps5.2% - 5.7% (5.2%)22 - 23 (22)

(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)Mortgage servicing amount is net of 10.2 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.
 
Real Estate and Other Securities Valuation
 
As of September 30, 2020, New Residential’s securities valuation methodology and results are further detailed as follows:
Fair Value
Asset TypeOutstanding Face AmountAmortized Cost Basis
Multiple Quotes(A)
Single Quote(B)
TotalLevel
Agency RMBS$9,035,433 $9,362,556 $9,420,823 $$9,420,823 
Non-Agency RMBS(C)