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NRZ New Residential Investment

Filed: 5 May 21, 8:00pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
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: 466,647,263 shares outstanding as of April 30, 2021.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS SUMMARY

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 limited. 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.

Our ability to implement our business strategy is subject to numerous risks, as more fully described under “Risk Factors.” These risks include, among others:

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, as well as the ultimate impact on us, our operations and personnel;
our ability to successfully execute our business and investment strategy;
our ability to deploy capital accretively and the timing of such deployment;
reductions in the value of, cash flows received from, or liquidity surrounding, our investments, which are based on various assumptions that could differ materially from actual results;
our reliance on, and counterparty concentration and default risks in, the servicers and subservicers we engage (“Servicing Partners”) and other third parties;
the impact of current or future legal proceedings and regulatory investigations and inquiries involving us, our Servicing Partners or other business partners;
the risks related to our origination and servicing operations, including, but not limited to, compliance with applicable laws, regulations and other requirements, significant increases in delinquencies for the loans, compliance with the terms of related servicing agreements, financing related servicer advances and the origination business, expenses related to servicing high risk loans, unrecovered or delayed recovery of servicing advances, foreclosure rates, servicer ratings, and termination of government mortgage refinancing programs;
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;
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 or the performance of our investments;
the relative spreads between the yield on the assets in which we invest and the cost of financing;
impairments in the value of the collateral underlying our investments and the relation of any such impairments to the value of our securities or loans;
risks associated with our indebtedness, including our senior unsecured notes, and related restrictive covenants and non-recourse long-term financing structures;
adverse changes in the financing markets we access affecting our ability to finance our investments on attractive terms, or at all;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our 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 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 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;
cybersecurity incidents and technology disruptions or failures;
our dependence on counterparties and vendors to provide certain services, which subjects us to various risks;
our ability to maintain our exclusion from registration under the Investment Company Act of 1940 (the “1940 Act”), and limits on our operations from maintaining such exclusion;
our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, and limits on our operations from maintaining REIT status;
competition within the finance and real estate industries;
our ability to attract and retain highly skilled personnel;
impact from our past and future acquisitions, and our ability to successfully integrate the acquired assets and assumed liabilities;
the impact of any material transactions or relationships with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest;
the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, regulation of corporate governance and public disclosure, changes in accounting rules, 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;
adverse market, regulatory or interest rate environments or our issuance of debt or equity, any of which may negatively affect the market price of our common stock;
our ability to pay distributions on our common stock; and
risks associated with the acquisition of Caliber Home Loans Inc., including the risk that a condition to closing the acquisition may not be satisfied, potential adverse impacts on our business and operations from uncertainties associated with the acquisition and our ability to successfully integrate the businesses and realize the anticipated benefits of the acquisition.

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
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
March 31, 2021
(Unaudited)
December 31, 2020
Assets
Excess mortgage servicing rights assets, at fair value$402,454 $410,855 
Mortgage servicing rights, at fair value4,023,559 3,489,675 
Mortgage servicing rights financing receivables, at fair value1,021,780 1,096,166 
Servicer advance investments, at fair value(A)
517,557 538,056 
Real estate and other securities14,606,157 14,244,558 
Residential loans and variable interest entity consumer loans held-for-investment, at fair value(A)
1,295,738 1,359,754 
Residential mortgage loans, held-for-sale ($5,600,476 and $4,705,816 at fair value, respectively)5,923,555 5,215,703 
Residential mortgage loans subject to repurchase(B)
1,493,449 1,452,005 
Cash and cash equivalents(A)
1,038,482 944,854 
Restricted cash(A)
136,036 135,619 
Servicer advances receivable2,895,073 3,002,267 
Receivable for investments sold4,180 4,180 
Other assets(A)
1,826,109 1,358,422 
$35,184,129 $33,252,114 
Liabilities and Equity
Liabilities
Secured financing agreements$19,522,460 $17,547,680 
Secured notes and bonds payable ($1,260,557 and $1,662,852 at fair value, respectively)(A)
7,107,875 7,644,195 
Residential mortgage loan repurchase liability(B)
1,493,449 1,452,005 
Unsecured senior notes, net of issuance costs541,966 541,516 
Payable for investments purchased154 154 
Due to affiliates8,822 9,450 
Dividends payable90,138 90,128 
Accrued expenses and other liabilities(A)
797,452 537,302 
29,562,316 27,822,430 
Commitments and Contingencies00
Equity
Preferred stock, $0.01 par value, 39,100,000 shares authorized, 33,610,000 issued and outstanding, $840,250 aggregate liquidation preference812,992 812,992 
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 414,797,263 and 414,744,518 issued and outstanding, respectively4,149 4,148 
Additional paid-in capital5,547,607 5,547,108 
Retained earnings (accumulated deficit)(914,304)(1,108,929)
Accumulated other comprehensive income72,385 65,697 
Total New Residential stockholders’ equity5,522,829 5,321,016 
Noncontrolling interests in equity of consolidated subsidiaries98,984 108,668 
  Total equity5,621,813 5,429,684 
$35,184,129 $33,252,114 
(A)The Company's consolidated statements of financial condition include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (New Residential). As of March 31, 2021, and December 31, 2020, total assets of consolidated VIEs were $2.2 billion and $2.7 billion, respectively, and total liabilities of consolidated VIEs were $1.7 billion and $2.1 billion, respectively. See Note 13 for further details.
(B)See Note 5 for details.

See Notes to Consolidated Financial Statements.
1


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share and per share data)
 
Three Months Ended
March 31,
20212020
Revenues
Interest income$253,735 $402,373 
Servicing revenue, net of change in fair value of $217,911 and $(649,375), respectively513,548 (289,115)
Gain on originated mortgage loans, held-for-sale, net403,434 173,577 
1,170,717 286,835 
Expenses
Interest expense118,905 216,855 
General and administrative expenses362,505 275,099 
Management fee to affiliate22,162 21,721 
503,572 513,675 
Other Income (Loss)
Change in fair value of investments(265,566)(566,276)
Gain (loss) on settlement of investments, net1,729 (799,572)
Other income (loss), net(23,320)(36,790)
(287,157)(1,402,638)
Impairment
Provision (reversal) for credit losses on securities(894)44,149 
Valuation and credit loss provision (reversal) on loans and real estate owned(18,713)100,496 
(19,607)144,645 
Income (Loss) Before Income Taxes399,595 (1,774,123)
Income tax expense (benefit)98,259 (166,868)
Net Income (Loss)$301,336 $(1,607,255)
Noncontrolling interests in income of consolidated subsidiaries9,394 (16,162)
Dividends on preferred stock14,358 11,222 
Net Income (Loss) Attributable to Common Stockholders$277,584 $(1,602,315)
Net Income (Loss) Per Share of Common Stock
  Basic$0.67 $(3.86)
  Diluted$0.65 $(3.86)
Weighted Average Number of Shares of Common Stock Outstanding
  Basic414,795,505 415,589,155 
  Diluted429,491,379 415,589,155 
Dividends Declared per Share of Common Stock$0.20 $0.05 
 
See Notes to Consolidated Financial Statements.
2


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
Three Months Ended
March 31,
20212020
Net income (loss)$301,336 $(1,607,255)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities, net8,565 34,375 
Reclassification of realized (gain) loss on available-for-sale securities, net into earnings:
Gain (loss) on settlement of investments, net(983)(754,540)
Provision (reversal) for credit losses on securities(894)44,149 
(1,877)(710,391)
Comprehensive income (loss)308,024 (2,283,271)
Comprehensive income (loss) attributable to noncontrolling interests9,394 (16,162)
Dividends on preferred stock14,358 11,222 
Comprehensive income (loss) attributable to common stockholders$284,272 $(2,278,331)

See Notes to Consolidated Financial Statements.

3


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(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, 202033,610,000 $812,992 414,744,518 $4,148 $5,547,108 $(1,108,929)$65,697 $5,321,016 $108,668 $5,429,684 
Dividends declared on common stock, $0.20 per share— — — — — (82,959)— (82,959)— (82,959)
Dividends declared on preferred stock— — — — — (14,358)— (14,358)— (14,358)
Capital distributions— — — — — — — — (19,078)(19,078)
Director share grants— — 52,745 499 — — 500 — 500 
Comprehensive income (loss)
Net income (loss)— — — — — 291,942 — 291,942 9,394 301,336 
Unrealized gain (loss) on available-for-sale securities, net— — — — — — 8,565 8,565 — 8,565 
Reclassification of realized (gain) loss on available-for-sale securities, net into earnings— — — — — — (1,877)(1,877)— (1,877)
Total comprehensive income (loss)298,630 9,394 308,024 
Balance at March 31, 202133,610,000 $812,992 414,797,263 $4,149 $5,547,607 $(914,304)$72,385 $5,522,829 $98,984 $5,621,813 
 

4


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 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— — — — — 13,658 — 13,658 16,795 30,453 
Dividends declared on common stock, $0.05 per share— — — — — (20,782)— (20,782)— (20,782)
Dividends declared on preferred stock— — — — — (11,222)— (11,222)— (11,222)
Capital distributions— — — — — — — — (12,605)(12,605)
Issuance of common stock— — 97,394 1,582 — — 1,583 — 1,583 
Issuance of preferred stock16,100,000 389,548 — — — — — 389,548 — 389,548 
Director share grants— — 31,040 — 500 — — 500 — 500 
Comprehensive income (loss)
Net income (loss)— — — — — (1,591,093)— (1,591,093)(16,162)(1,607,255)
Unrealized gain (loss) on available-for-sale securities, net— — — — — — 34,375 34,375 — 34,375 
Reclassification of realized (gain) loss on available-for-sale securities, net into earnings— — — — — — (710,391)(710,391)— (710,391)
Total comprehensive income (loss)(2,267,109)(16,162)(2,283,271)
Balance at March 31, 202033,610,000 $812,992 415,649,214 $4,157 $5,500,308 $(1,059,706)$6,135 $5,263,886 $66,578 $5,330,464 

See Notes to Consolidated Financial Statements.
5


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31,
20212020
Cash Flows From Operating Activities
Net income$301,336 $(1,607,255)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of Excess MSRs1,453 11,481 
Change in fair value of MSR financing receivables25,778 104,111
Change in fair value of servicer advance investments371 18,749 
Change in fair value of residential mortgage loans, at fair value(60,174)265,244 
Change in fair value of secured notes and bonds payable4,422 (17,002)
Change in fair value of real estate and other securities498,339 86,792 
Change in fair value of consumer loans6,004 39,917 
(Gain) loss on settlement of investments, net(1,735)801,033 
(Gain) loss on originated mortgage loans, held-for-sale, net(403,434)(173,577)
(Gain) loss on extinguishment of debt(1,461)
Change in fair value of derivative instruments(206,205)39,982 
Change in fair value of contingent consideration408 1,614 
Change in fair value of equity investments2,783 45,023 
(Gain) loss on transfer of loans to REO(1,321)(2,595)
(Gain) loss on transfer of loans to other assets21 241 
(Gain) loss on Ocwen common stock186 5,050 
Accretion and other amortization(26,034)(41,104)
Depreciation of Fixed Assets371 
Provision for credit losses on securities(894)44,149 
Valuation and credit loss provision on loans and real estate owned(18,713)100,496 
Non-cash portions of servicing revenue, net(217,911)649,375 
Non-cash directors’ compensation500 500 
Deferred tax provision85,231 (166,917)
Changes in:
Servicer advances receivable, net107,229 235,685 
Other assets(42,206)(24,112)
Due to affiliates(628)(86,666)
Accrued expenses and other liabilities(93,307)183,185 
Other operating cash flows:
Interest and distributions received from Excess MSRs12,515 13,575 
Interest received from servicer advance investments2,630 5,203 
Interest received from Non-Agency RMBS28,057 66,479 
Interest received from residential mortgage loans, held-for-investment864 
Interest received from consumer loans, held-for-investment6,013 
Distributions of earnings from excess mortgage servicing rights, equity method investees387 
Purchases of residential mortgage loans, held-for-sale(2,090,474)(988,183)
Origination of residential mortgage loans, held-for-sale(26,971,254)(11,456,291)
Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale28,463,406 13,045,107 
Principal repayments from purchased residential mortgage loans, held-for-sale97,023 107,188 
Net cash provided by (used in) operating activities(495,357)1,311,416 
Continued on next page.
6


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
Three Months Ended
March 31,
20212020
Cash Flows From Investing Activities
Purchase of servicer advance investments(332,750)(330,140)
Purchase of MSRs, MSR financing receivables and servicer advances receivable(7,119)(417,861)
Purchase of Agency RMBS(4,203,105)(5,263,722)
Purchase of Non-Agency RMBS(56,520)
Purchase of real estate owned and other assets(74,895)(6,438)
Draws on revolving consumer loans(7,147)(11,002)
Payments for settlement of derivatives(7,272)(60,554)
Return of investments in Excess MSRs6,333 10,077 
Principal repayments from servicer advance investments357,060 354,302 
Principal repayments from Agency RMBS660,105 740,043 
Principal repayments from Non-Agency RMBS37,798 260,221 
Principal repayments from residential mortgage loans24,029 31,272 
Proceeds from sale of residential mortgage loans387 
Principal repayments from consumer loans52,582 55,201 
Proceeds from MSRs and MSR financing receivables638 22,217 
Proceeds from sale of MSRs1,945 8,504 
Proceeds from sale of MSR financing receivables1,047 3,708 
Proceeds from sale of Excess MSRs117 
Proceeds from sale of Agency RMBS2,513,920 20,191,706 
Proceeds from sale of Non-Agency RMBS156,176 1,069,493 
Proceeds from settlement of derivatives3,749 23,899 
Proceeds from sale of real estate owned18,416 35,914 
Net cash provided by (used in) investing activities(798,481)16,660,824 
Continued on next page.
7


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
Three Months Ended
March 31,
20212020
Cash Flows From Financing Activities
Repayments of secured financing agreements(20,311,180)(93,283,204)
Repayments of warehouse credit facilities(27,461,425)
Margin deposits under secured financing agreements and derivatives(1,701,769)(2,674,807)
Repayments of secured notes and bonds payable(1,952,039)(2,167,435)
Deferred financing fees(118)
Common stock dividends paid(82,949)(207,760)
Preferred stock dividends paid(14,358)(7,943)
Borrowings under secured financing agreements21,192,890 76,181,064 
Borrowings under warehouse credit facilities28,551,939 
Return of margin deposits under secured financing agreements and derivatives1,777,057 2,147,596 
Borrowings under secured notes and bonds payable1,408,913 1,478,677 
Issuance of preferred stock389,548 
Issuance of common stock1,655 
Costs related to issuance of common stock(72)
Noncontrolling interests in equity of consolidated subsidiaries - distributions(19,078)(12,605)
   Net cash provided by (used in) financing activities1,387,883 (18,155,286)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash94,045 (183,046)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period1,080,473 690,934 
Cash, Cash Equivalents, and Restricted Cash, End of Period$1,174,518 $507,888 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$129,490 $198,437 
Cash paid during the period for income taxes134 84 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Common dividends declared but not paid$82,959 $20,782 
Preferred dividends declared but not paid14,358 7,250 
Purchase of investments, primarily Agency and Non-Agency RMBS, settled after quarter-end20,913 
Sale of investments, primarily Non-Agency RMBS, settled after quarter-end3,293,976 
Transfer from residential mortgage loans to real estate owned and other assets8,299 16,304 
MSR purchase price holdback18,534 
Real estate securities retained from loan securitizations38,470 482,444 
Residential mortgage loans subject to repurchase1,493,449 1,452,005 
See Notes to Consolidated Financial Statements.
8


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per 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 17, 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 March 31, 2021, New Residential conducted its business through the following segments: (i) Origination, (ii) Servicing, (iii) MSR Related Investments, (iv) Residential Securities and Loans, (v) Consumer Loans and (vi) Corporate.
 
Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, as of March 31, 2021. In addition, Fortress, through its affiliates, held options and warrants relating to approximately 11.7 million and 21.5 million shares, respectively, of New Residential’s common stock as of March 31, 2021.
 
Interim Financial Statements

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP’’ or “U.S. 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 Consolidated Statements of Cash Flows based on the cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings.
9

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

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.

Risks and Uncertainties

In the normal course of business, New Residential encounters primarily two significant types of economic risk: credit and market. Credit risk 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. Market risk reflects changes in the value of investments due to changes in prepayment rates, interest rates, spreads or other market factors, including risks that impact the value of the collateral underlying New Residential’s investments. Taking into consideration these risks along with estimated prepayments, financings, collateral values, payment histories, and other information, New Residential believes that the carrying values of its investments are reasonable. Furthermore, for each of the periods presented, a significant portion of New Residential’s assets are dependent on its servicers’ and subservicers’ ability to perform their obligations servicing the loans underlying New Residential’s Excess MSRs, MSRs, MSR Financing Receivables, Servicer Advance Investments, Non-Agency RMBS and loans. If a servicer is terminated, New Residential’s right to receive its portion of the cash flows related to interests in servicing related assets may also be terminated.

The outbreak of the novel coronavirus (“COVID-19”) pandemic around the globe continues to adversely impact the U.S. and world economies and has contributed to significant volatility in global financial and credit markets. The impact of the outbreak has evolved rapidly. The major disruptions caused by COVID-19 significantly slowed many commercial activities in the U.S., resulting in a rapid rise in unemployment claims, reduced business revenues and sharp reductions in liquidity and the fair value of many assets, including those in which the Company invests. The ultimate duration and impact of the COVID-19 pandemic and response thereto remain uncertain.

New Residential is subject to significant tax risks. If New Residential were to fail to qualify as a REIT in any taxable year, New Residential would be subject to U.S. federal corporate income tax (including any applicable alternative minimum tax), which could be material. Unless entitled to relief under certain statutory provisions, New Residential would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost.

Use of Estimates

The Company believes the estimates and assumptions underlying its Consolidated Financial Statements are reasonable and supportable based on the information available as of March 31, 2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2021 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 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. While the Company currently does not have any hedge accounting relationships, many of the Company’s debt facilities and loan agreements incorporate LIBOR as the referenced rate. Some of these facilities and loan agreements either mature prior to the phase out of LIBOR or have provisions in place that provide for an alternative to LIBOR upon its phase-out. 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 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
10

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
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 Consolidated Financial Statements.

2.    OTHER ASSETS AND LIABILITIES, GENERAL AND ADMINISTRATIVE, AND OTHER ITEMS
 
Other Assets and Other Liabilities

Other assets and liabilities consists of the following:
Other AssetsAccrued Expenses
and Other Liabilities
March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Margin receivable, net(A)
$612,814 $271,753 Margin payable$238,123 $
Servicing fee receivables122,206 137,426 MSR purchase price holdback22,684 25,121 
Due from servicers22,994 67,854 Interest payable37,345 44,623 
Principal and interest receivable64,758 41,589 Accounts payable95,085 87,406 
Equity investments(B)
47,195 55,504 Derivative liabilities74,735 119,762 
Other receivables92,320 109,111 Due to servicers62,437 59,671 
REO35,984 45,299 Due to agencies19,605 26,748 
Single-family rental properties113,152 41,271 Contingent consideration14,655 14,247 
Goodwill(C)
29,468 29,468 Accrued compensation and benefits54,010 67,025 
Notes receivable(D)
50,411 52,389 Excess spread financing, at fair value13,377 18,420 
Warrants, at fair value24,473 23,218 Operating lease liabilities28,927 31,270 
Recovery asset9,891 13,006 Reserve for sales recourse9,837 9,799 
Property and equipment31,494 27,493 Reserve for servicing losses12,153 9,288 
Receivable from government agency(E)
12,554 14,369 Deferred tax liability93,149 7,859 
Intangible assets33,358 34,125 Other liabilities21,330 16,063 
Prepaid expenses39,811 30,949 $797,452 $537,302 
Operating lease right-of-use assets24,851 26,913 
Derivative assets408,230 290,144 
Ocwen common stock, at fair value11,001 11,187 
Other assets39,144 35,354 
$1,826,109 $1,358,422 
(A)Represents collateral posted as a result of changes in fair value of New Residential’s (i) real estate securities securing its secured financing agreements and (ii) derivative instruments.
(B)Represents equity investments in funds that invest in (i) a commercial redevelopment project, (ii) operating companies in the single-family housing industry. The indirect investments are accounted for at fair value based on the net asset value 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 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.


11

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

Real Estate Owned (REO) and Single-Family Rental Properties (SFR)

The following table presents activity related to the carrying value of New Residential’s investments in REO and SFR:
REOSFR
Balance at December 31, 2020$45,299 $41,271 
Purchases2,644 72,379 
Transfer of loans to REO8,701 
Sales(A)
(23,817)(127)
Depreciation(371)
Valuation (provision) reversal3,157 
Balance at March 31, 2021$35,984 $113,152 
(A)Recognized when control of the property has transferred to the buyer.

As of March 31, 2021, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $302.2 million.

In addition, New Residential has recognized $13.7 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.

Accretion and Other Amortization

As reflected on the Consolidated Statements of Cash Flows, Accretion and Other Amortization consists of the following:
Three Months Ended
March 31,
20212020
Accretion of net discount on securities and loans$12,007 $40,052 
Accretion of servicer advances receivable discount and servicer advance investments6,848 (10,915)
Accretion of excess mortgage servicing rights income12,231 13,226 
Amortization of deferred financing costs(4,601)(1,136)
Amortization of discount on secured notes and bonds payable(1)(123)
Amortization of discount on corporate debt(450)
Total accretion and other amortization$26,034 $41,104 

12

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
General and Administrative Expenses

General and Administrative Expenses consists of the following:
Three Months Ended
March 31,
20212020
Compensation and benefits expense$65,426 $51,341 
Compensation and benefits expense, origination133,218 61,278 
Legal and professional expense18,219 26,037 
Loan origination expense40,245 16,929 
Occupancy expense10,350 8,064 
Subservicing expense49,839 66,981 
Loan servicing expense4,679 7,853 
Property and maintenance expense12,130 7,463 
Other miscellaneous general and administrative
28,399 29,153 
Total general and administrative expenses$362,505 $275,099 

Change in Fair Value of Investments

Change in Fair Value of Investments consists of the following:
Three Months Ended
March 31,
20212020
Excess MSRs$(4,618)$(11,024)
Excess MSRs, equity method investees3,165 (457)
MSR financing receivables(25,778)(104,111)
Servicer advance investments(371)(18,749)
Real estate and other securities(498,339)(86,792)
Residential mortgage loans60,174 (265,244)
Consumer loans held-for-investment(6,004)(39,917)
Derivative instruments206,205 (39,982)
Total change in fair value of investments$(265,566)$(566,276)

Gain (Loss) on Settlement of Investments, Net

Gain (Loss) on Settlement of Investments, Net consists of the following:
Three Months Ended
March 31,
20212020
Gain (loss) on sale of real estate securities$(983)$(754,540)
Gain (loss) on sale of acquired residential mortgage loans30,399 35,236 
Gain (loss) on settlement of derivatives(27,373)(84,712)
Gain (loss) on liquidated residential mortgage loans897 (839)
Gain (loss) on sale of REO(3,946)1,173 
Gain (loss) on extinguishment of debt(6)1,461 
Other gain (loss)2,741 2,649 
Total gain (loss) on settlement of investments, net$1,729 $(799,572)
13

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

Other Income (Loss), Net

Other Income (Loss), Net consists of the following:
Three Months Ended
March 31,
20212020
Unrealized gain (loss) on secured notes and bonds payable$(4,422)$17,002 
Unrealized gain (loss) on contingent consideration(408)(1,614)
Unrealized gain (loss) on equity investments(2,783)(45,023)
Gain (loss) on transfer of loans to REO1,321 2,595 
Gain (loss) on transfer of loans to other assets(21)(241)
Gain (loss) on Ocwen common stock(186)(5,050)
Provision for servicing losses(6,158)(4,781)
Rental and ancillary revenue5,827 6,260 
Property and maintenance revenue19,906 13,347 
Other income (loss)(36,396)(19,285)
Total other income (loss), net$(23,320)$(36,790)

3.    SEGMENT REPORTING
 
At March 31, 2021, New Residential’s reportable segments include (i) Origination, (ii) Servicing, (iii) MSR Related Investments, (iv) Residential Securities and Loans, (v) Consumer Loans and (vi) Corporate. The Corporate segment primarily consists of general and administrative expenses, management fees and incentive compensation related to the Management Agreement, corporate cash and related interest income, unsecured senior notes (Note 11) and related interest expense.

The following tables summarize segment financial information, which in total reconciles 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 March 31, 2021
Interest income$22,852 $474 $78,771 $$102,097 $89,850 $36,322 $25,466 $$253,735 
Servicing revenue, net(8,110)113,515 466,587 (58,444)513,548 513,548 
Gain on originated mortgage loans, held-for-sale, net384,423 809 35,155 (43,499)376,888 13,398 13,148 403,434 
Total revenues399,165 114,798 580,513 (101,943)992,533 103,248 49,470 25,466 1,170,717 
Interest expense18,063 70 51,832 69,965 15,720 21,276 3,018 8,926 118,905 
G&A and other189,926 84,239 119,933 (58,444)335,654 1,156 17,686 3,036 27,135 384,667 
Total operating expenses207,989 84,309 171,765 (58,444)405,619 16,876 38,962 6,054 36,061 503,572 
Change in fair value of investments(27,602)(27,602)(292,134)60,174 (6,004)(265,566)
Gain (loss) on settlement of investments, net644 644 (28,356)29,441 1,729 
Other income (loss), net59 1,102 (6,333)(5,172)(1,686)(13,626)(2,207)(629)(23,320)
Total other income (loss)59 — 1,102 — (33,291)— (32,130)(322,176)— 75,989 — (8,211)— (629)— (287,157)
Impairment(894)(18,713)(19,607)
Income (loss) before income taxes191,235 31,591 — 375,457 — (43,499)554,784 (234,910)105,210 11,201 (36,690)399,595 
Income tax expense (benefit)36,386 7,915 38,596 82,897 15,303 59 98,259 
Net income (loss)154,849 23,676 336,861 (43,499)471,887 (234,910)89,907 11,142 (36,690)301,336 
Noncontrolling interests in income (loss) of consolidated subsidiaries3,525 1,308 4,833 4,561 9,394 
Dividends on preferred stock14,358 14,358 
Net income (loss) attributable to common stockholders$151,324 $23,676 $335,553 $(43,499)$467,054 $(234,910)$89,907 $6,581 $(51,048)$277,584 
14

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
March 31, 2021
Investments$3,465,886 $$5,965,350 $$9,431,236 $14,606,157 $3,263,557 $638,986 $$27,939,936 
Cash and cash equivalents187,233 97,057 485,627 769,917 210,745 17,678 8,889 31,253 1,038,482 
Restricted cash12,679 39,926 34,448 87,053 17,409 96 31,478 136,036 
Other assets987,931 167,445 4,060,339 5,215,715 660,267 81,295 36,644 46,286 6,040,207 
Goodwill11,836 12,540 5,092 29,468 29,468 
Total assets$4,665,565 $316,968 $10,550,856 $$15,533,389 $15,494,578 $3,362,626 $715,997 $77,539 $35,184,129 
Debt$3,300,495 $5,391 $5,861,546 $$9,167,432 $14,356,673 $2,515,219 $591,011 $541,966 $27,172,301 
Other liabilities546,295 51,504 1,498,685 2,096,484 7,283 146,637 3,251 136,360 2,390,015 
Total liabilities3,846,790 56,895 7,360,231 11,263,916 14,363,956 2,661,856 594,262 678,326 29,562,316 
Total equity818,775 260,073 3,190,625 4,269,473 1,130,622 700,770 121,735 (600,787)5,621,813 
Noncontrolling interests in equity of consolidated subsidiaries17,187 39,834 57,021 41,963 98,984 
Total New Residential stockholders’ equity$801,588 $260,073 $3,150,791 $$4,212,452 $1,130,622 $700,770 $79,772 $(600,787)$5,522,829 
Investments in equity method investees$$$126,095 $$126,095 $$$$$126,095 
 
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
Three Months Ended March 31, 2020
Interest income$16,735 $7,487 $99,353 $$123,575 $184,005 $59,921 $34,872 $$402,373 
Servicing revenue, net(1,078)86,742 (350,587)(24,192)(289,115)(289,115)
Gain on originated mortgage loans, held-for-sale, net158,215 259 15,967 (9,375)165,066 8,511 173,577 
Total revenues173,872 — 94,488 — (235,267)— (33,567)— (474)— 184,005 — 68,432 — 34,872 — — 286,835 
Interest expense13,427 196 57,783 71,406 108,009 30,773 6,667 216,855 
G&A and other100,212 64,352 101,974 (24,192)242,346 6,854 16,756 3,883 26,981 296,820 
Total operating expenses113,639 64,548 159,757 (24,192)313,752 114,863 47,529 10,550 26,981 513,675 
Change in fair value of investments(134,341)(134,341)(126,774)(265,244)(39,917)(566,276)
Gain (loss) on settlement of investments, net(3,281)(3,281)(839,252)42,961 (799,572)
Other income (loss), net(16)499 (19,288)(18,805)(13)30,012 (834)(47,150)(36,790)
Total other income (loss)(16)0499 0(156,910)0(156,427)(966,039)0(192,271)0(40,751)0(47,150)(1,402,638)
Impairment44,149 100,496 144,645 
Income (loss) before income taxes(B)
60,217 — 30,439 — (551,934)— (9,375)— (470,653)— (941,046)— (271,864)— (16,429)— (74,131)— (1,774,123)
Income tax expense (benefit)16,714 8,449 (116,945)(91,782)(75,201)115 (166,868)
Net income (loss)43,503 21,990 (434,989)(9,375)(378,871)(941,046)(196,663)(16,544)(74,131)(1,607,255)
Noncontrolling interests in income (loss) of consolidated subsidiaries1,283 (11,247)(9,964)(6,198)(16,162)
Dividends on preferred stock11,222 11,222 
Net income (loss) attributable to common stockholders$42,220 $21,990 $(423,742)$(9,375)$(368,907)$(941,046)$(196,663)$(10,346)$(85,353)$(1,602,315)
(A)Elimination of intercompany transactions primarily relate to servicing fees, loan sales, and MSR recaptures.
(B)Beginning in Q3 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.


15

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
4.    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 Consolidated Balance Sheets:
March 31,
2021
December 31, 2020
Direct investments in Excess MSRs$303,568 $310,938 
Excess MSR Joint Ventures98,886 99,917 
Excess mortgage servicing rights assets, at fair value$402,454 $410,855 

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, 2020$309,009 $1,929 $310,938 
Interest income12,499 (268)12,231 
Other income(325)(322)
Proceeds from repayments(14,563)(89)(14,652)
Proceeds from sales(9)(9)
Change in fair value(5,090)472 (4,618)
Balance as of March 31, 2021$301,849 $1,719 $303,568 
(A)Specialized Loan Servicing LLC (“SLS”).

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

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

The following is a summary of New Residential’s direct investments in Excess MSRs:
March 31, 2021December 31, 2020
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$32,373,398 
32.5% - 66.7%
(53.3%)
0.0% - 40%20.0% - 35.0%6.1$139,870 $157,633 $162,645 
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools35,993,960 
33.3% - 100.0%
(59.4%)
0.0% - 50%0.0% - 33.3%6.7108,277 145,935 148,293 
Total$68,367,358 6.4$248,147 $303,568 $310,938 
16

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(D)Amounts in parentheses represent weighted averages.
(E)New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of March 31, 2021 (Note 6) on $24.4 billion UPB underlying these Excess MSRs.

Changes in fair value of investments consists of the following:
Three Months Ended
March 31,
20212020
Original and Recaptured Pools$(4,618)$(11,024)

As of March 31, 2021, 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.

The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:
March 31,
2021
December 31,
2020
Excess MSR assets$177,408$179,762
Other assets21,05120,759
Other liabilities(687)(687)
Equity$197,772$199,834
New Residential’s investment$98,886$99,917
New Residential’s percentage ownership50.0 %50.0 %

Three Months Ended
March 31,
20212020
Interest income$9,158 $7,313 
Other income (loss)(2,820)(8,219)
Expenses(8)(8)
Net income (loss)$6,330 $(914)

The following table summarizes the activity of New Residential’s investments in equity method investees:
Balance at December 31, 2020$99,917 
Distributions of capital from equity method investees(4,196)
Change in fair value of investments in equity method investees3,165 
Balance at March 31, 2021$98,886 

17

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
March 31, 2021
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$27,025,920 66.7 %50.0 %$139,722 $177,408 5.8
(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.    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. MSRs are composed of servicing rights of both Agency and Non-Agency loans. In certain cases where New Residential has legally purchased MSRs or the right to the economic interest in MSRs, New Residential has determined that the purchase agreement would not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, New Residential has recorded an investment in MSR Financing Receivables. Income from MSR Financing Receivables, net of subservicing fees, are recorded as Interest Income with changes in fair value flowing through Change in Fair Value of Investments in the 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 and reflected as part of General and Administrative Expenses in New Residential’s Consolidated Statements of Income. As of March 31, 2021, these subservicers include LoanCare, LLC (“LoanCare”), PHH Mortgage Corporation (“PHH”), Mr. Cooper, and Flagstar Bank, FSB (“Flagstar”), which subservice 15.7%, 15.4%, 15.3%, and 0.6% of the underlying UPB of the related mortgages, respectively (includes both MSRs and MSR Financing Receivables). The remaining 53.0% 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 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.

18

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following table presents activity related to the carrying value of New Residential’s MSRs and MSR Financing Receivables:
MSRsMSR Financing ReceivablesTotal
Balance as of December 31, 2020$3,489,675 $1,096,166 $4,585,841 
Purchases, net(A)
4,044 4,044 
Transfers(B)
47,831 (47,831)
Originations(C)
255,473 255,473 
Proceeds from sales(1,016)(777)(1,793)
Change in fair value due to:
    Realization of cash flow(D)
(319,029)(21,954)(340,983)
    Change in valuation inputs and assumptions(E)
547,510 (3,554)543,956 
    (Gain) loss realized(929)(270)(1,199)
Balance as of March 31, 2021$4,023,559 $1,021,780 $5,045,339 
(A)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.    
(B)Represents MSRs previously accounted for as MSR Financing Receivables. As a result of the length of the initial term of the related subservicing agreement between NRM and Mr. Cooper, although the MSRs were legally sold, solely for accounting purposes, the purchase agreement was not treated as a sale under GAAP through January 31, 2021.
(C)Represents MSRs retained on the sale of originated mortgage loans.
(D)Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.
(E)Includes changes in inputs or assumptions used in the valuation model.

Servicing Revenue, Net recognized by New Residential related to its MSRs consists of the following:
Three Months Ended
March 31,
20212020
Servicing fee revenue$263,743 $328,122 
Ancillary and other fees31,894 32,138 
Servicing fee revenue and fees295,637 360,260 
Change in fair value due to:
Realization of cash flows(A)
(317,716)(191,367)
Change in valuation inputs and assumptions(B)(C)
545,379 (463,711)
Change in fair value of derivative instruments(8,823)
(Gain) loss realized(929)5,703 
Servicing revenue, net$513,548 $(289,115)
(A)Includes $1.3 million and $1.9 million of fair value adjustment due to realization of cash flows to Excess spread financing for the three months ended March 31, 2021 and 2020, respectively.
(B)Includes changes in inputs or assumptions used in the valuation model.
(C)Includes $2.1 million and $4.5 million for the three months ended March 31, 2021 and 2020, respectively, of fair value adjustment to Excess spread financing.

19

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Interest Income from MSR Financing Receivables consists of the following:
Three Months Ended
March 31,
20212020
Servicing fee revenue$76,733 $113,582 
Ancillary and other fees8,699 26,000 
Less: subservicing expense(32,644)(41,903)
Interest income, MSR financing receivables$52,788 $97,679 

Change in Fair Value of MSR Financing Receivables consists of the following:
Three Months Ended
March 31,
20212020
Realization of cash flows$(21,954)$(68,752)
Change in valuation inputs and assumptions(A)
(3,554)(33,610)
(Gain) loss realized(270)(1,749)
Change in fair value of MSR financing receivables$(25,778)$(104,111)
(A)Includes changes in inputs or assumptions used in the valuation model and other changes due to the realization of expected cash flows.

The following is a summary of New Residential’s MSRs and MSR Financing Receivables as of March 31, 2021:
UPB of Underlying Mortgages
Weighted Average Life (Years)(A)
Carrying Value(B)
MSRs:
Agency(C)
$290,005,816 5.9$3,199,914 
Non-Agency6,124,672 3.915,409 
Ginnie Mae(D)
57,996,508 4.8808,236 
354,126,996 5.74,023,559 
MSR Financing Receivables:
Non-Agency64,387,370 8.11,021,780 
Total$418,514,366 6.1$5,045,339 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying value represents fair value. As of March 31, 2021, weighted average discount rates of 7.7% (range 7.4% - 13.0%) and 9.5% were used to value New Residential’s MSRs and MSR Financing Receivables, respectively.
(C)Represents Fannie Mae and Freddie Mac MSRs.
(D)As of March 31, 2021, New Residential holds approximately $1.5 billion in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its 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 March 31, 2021, New Residential holds approximately $1.5 billion in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Consolidated Balance Sheets. New Residential may re-pool reacquired loans into new Ginnie Mae securitizations
20

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
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 March 31, 2021, New Residential holds approximately $843.8 million of reacquired residential mortgage loans on its Consolidated Balance Sheets.

Ocwen MSR Financing Receivable Transactions

In July 2017, Ocwen Loan Servicing, LLC (collectively with certain affiliates, “Ocwen”) and New Residential entered into an agreement in which both parties agreed to undertake certain actions to facilitate the transfer from Ocwen to New Residential of Ocwen’s remaining interests in the 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.

As of March 31, 2021, 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 MSRs and MSR Financing Receivables:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationMarch 31, 2021December 31, 2020
California20.6 %21.2 %
Florida7.6 %7.4 %
New York7.1 %7.0 %
Texas5.8 %5.6 %
New Jersey4.8 %4.8 %
Illinois3.6 %3.6 %
Massachusetts3.4 %3.4 %
Georgia3.4 %3.3 %
Pennsylvania3.2 %3.1 %
Maryland3.1 %3.1 %
Other U.S.37.4 %37.5 %
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
21

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per 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 Consolidated Balance Sheets. The UPB of residential mortgage loans subserviced for others as of March 31, 2021 and 2020 was $74.6 billion and $74.0 billion, respectively. New Residential earned subservicing revenue of $43.5 million and $41.2 million for the three months ended March 31, 2021 and 2020, respectively, related to subserviced UPB which is included within Servicing Revenue, Net in the Consolidated Statements of Income.

Servicer Advances Receivable

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 Consolidated Balance Sheets.

The following types of advances are included in the Servicer Advances Receivable:
March 31,
2021
December 31,
2020
Principal and interest advances$609,948 $665,538 
Escrow advances (taxes and insurance advances)1,485,409 1,547,796 
Foreclosure advances821,519 816,400 
Total(A)(B)(C)
$2,916,876 $3,029,734 
(A)Includes $603.3 million and $583.9 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.
(B)Includes $176.3 million and $181.2 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 $21.8 million and $27.5 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries. These reserves relate to inactive loans in the foreclosure or liquidation process.

New Residential’s Servicer Advances Receivable related to Non-Agency MSRs generally have the highest reimbursement priority pursuant to the underlying servicing agreements (i.e., “top of the waterfall”) and New Residential is generally entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by New Residential as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, New Residential has a contractual right to be reimbursed by the subservicer. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has reserved $27.5 million and $22.9 million for expected non-recovery of advances as of March 31, 2021 and December 31, 2020, respectively.

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 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 March 31, 2021. 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 March 31, 2021, 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
22

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of March 31, 2021, the noncontrolling third-party co-investors and New Residential had previously funded their commitments; however, the Buyer may recall $329.0 million and $308.5 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)
March 31, 2021
Servicer advance investments$492,831 $517,557 5.2 %5.7 %6.3
December 31, 2020
Servicer advance investments$512,958 $538,056 5.2 %5.7 %6.0
(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
March 31, 2021
Servicer Advance Investments(D)
$24,439,045 $440,306 1.8 %$403,570 88.9 %88.2 %1.4 %1.3 %
December 31, 2020
Servicer Advance Investments(D)
$26,061,499 $449,150 1.7 %$423,144 88.4 %88.6 %1.5 %1.3 %
(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)Annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees.
(D)The following types of advances are included in the Servicer Advance Investments:
March 31, 2021December 31, 2020
Principal and interest advances$79,423 $84,976 
Escrow advances (taxes and insurance advances)186,275 186,426 
Foreclosure advances174,608 177,748 
Total$440,306 $449,150 
 
23

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Interest Income recognized by New Residential related to its Servicer Advance Investments consists of the following:
Three Months Ended
March 31,
20212020
Interest income, gross of amounts attributable to servicer compensation$13,961 $(10,250)
Amounts attributable to base servicer compensation(1,156)882 
Amounts attributable to incentive servicer compensation(5,993)(8,721)
Interest income from servicer advance investments$6,812 $(18,089)

7.    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.

Activities related to New Residential’s Real Estate and Other Securities were as follows:
Three Months Ended March 31,
20212020
(in millions)AgencyNon-AgencyAgencyNon-Agency
Purchases
Face$4,027.2 $808.1 $7,140.0 $4,563.2 
Purchase price4,203.1 38.5 7,290.0 539.0 
Sales
Face$2,414.6 $1,133.6 $17,395.0 $7,200.0 
Amortized cost2,513.4 157.7 17,679.3 5,283.8 
Sale price2,522.2 147.9 17,869.1 4,358.9 
Gain (loss) on sale8.9 (9.9)189.8 (924.9)

As of March 31, 2021 and December 31, 2020, there were no unsettled trades. Unsettled sales and purchases are recorded on the Consolidated Balance Sheets on trade date as Receivable for Investments Sold and Payable for Investments Purchased.

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.

24

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following is a summary of New Residential’s Real Estate and Other Securities:
March 31, 2021December 31, 2020
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$106,175 $106,935 $8,955 $$115,890 AAA3.5 %3.5 %6.4— $121,761 
Agency RMBS at FVO13,337,418 13,849,334 252 (407,245)13,442,341 58 AAA2.2 %2.2 %7.4— 12,941,873 
Total Agency
  RMBS(F)(G)
13,443,593 13,956,269 9,207 (407,245)13,558,231 59 AAA2.2 %2.2 %7.4— 13,063,634 
Non-Agency
  RMBS(H)(I)
18,045,244 977,194 105,302 (34,569)1,047,926 579 AA2.6 %3.6 %3.623.2 %1,180,924 
Total/
   Weighted
    Average
$31,488,837 $14,933,463 $114,509 $(441,814)$14,606,157 638 AAA2.4 %3.0 %5.3$14,244,558 
(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 287 bonds with a carrying value of $324.5 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 $27.9 million and $2.4 million, respectively, for which no coupon payment is expected.
(D)The weighted average life is based on the timing of expected principal reduction on the assets.
(E)Percentage of the amortized cost basis of securities that is subordinate to New Residential’s investments, excluding fair value option securities.
(F)Includes securities issued or guaranteed by U.S. Government agencies such as Fannie Mae or Freddie Mac.
(G)The total outstanding face amount was $13.4 billion for fixed rate securities as of March 31, 2021.
(H)The total outstanding face amount was $11.0 billion (including $10.1 billion of residual and fair value option notional amount) for fixed rate securities and $7.0 billion (including $6.9 billion of residual and fair value option notional amount) for floating rate securities as of March 31, 2021.
(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 earnings, (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 $21 $$521 B-8.3 %8.3 %4.0N/A
Consumer loan bonds12,664 12,731 740 13,471 N/AN/AN/AN/A
Fair value option securities:
Interest-only securities9,000,110 237,469 21,764 (26,383)232,850 123 AA+1.3 %2.8 %2.0N/A
Servicing strips4,444,047 42,122 5,281 (6,369)41,035 56 N/A0.4 %14.9 %4.0N/A

The following table summarizes New Residential’s securities in an unrealized loss position as of March 31, 2021:
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$15,641,371 $13,904,964 $(583)$13,904,381 $(417,210)$13,487,171 60 AAA2.2 %2.2 %7.4
12 or More Months5,468,704 142,858 (7,195)135,662 (24,604)111,058 88 AA+1.5 %1.4 %3.0
Total/Weighted Average$21,110,075 $14,047,822 $(7,778)$14,040,043 $(441,814)$13,598,229 148 AAA2.2 %2.2 %7.4
(A)Represents credit impairment on securities in an unrealized loss position as of March 31, 2021.

25

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
New Residential performed an assessment of all debt securities that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of credit impairment, exceeds its fair value) and determined the following:
March 31, 2021December 31, 2020
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$$$$$$$$
Securities New Residential is more likely than not to be required to sell(C)
N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities22,166 22,166 (7,778)21,326 21,326 (8,672)
Non-credit impaired securities13,576,063 14,017,877 (441,814)270,821 331,638 (60,817)
Total debt securities in an unrealized loss position$13,598,229 $14,040,043 $(7,778)$(441,814)$292,147 $352,964 $(8,672)$(60,817)
(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.
(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 not accounted for under the fair value election (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, 2020$8,672 $$8,672 
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration
Reductions for securities sold during the period
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis
Additional increases (decreases) to the allowance for credit losses on securities that had credit losses or an allowance recorded in a previous period(894)(894)
Write-offs charged against the allowance
Recoveries of amounts previously written off
Allowance for credit losses on available-for-sale debt securities at March 31, 2021$7,778 $$7,778 
 
26

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
March 31, 2021December 31, 2020
Geographic Location(A)
Outstanding Face AmountPercentage of Total OutstandingOutstanding Face AmountPercentage of Total Outstanding
Western U.S.$5,952,955 33.0 %$6,543,524 33.7 %
Southeastern U.S.4,815,659 26.7 %5,089,592 26.3 %
Northeastern U.S.4,198,169 23.3 %4,484,340 23.2 %
Midwestern U.S.2,083,293 11.6 %2,207,783 11.4 %
Southwestern U.S.977,400 5.4 %1,025,637 5.3 %
Other(B)
4,604 %14,132 0.1 %
$18,032,080 100.0 %$19,365,008 100.0 %
 
(A)Excludes $12.7 million and $13.0 million face amount of bonds backed by consumer loans and $0.5 million and $0.5 million face amount of bonds backed by corporate debt as of March 31, 2021 and December 31, 2020, 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
March 31, 2021$522,553 $163,304 
December 31, 2020727,216 280,876 

The following is a summary of the changes in accretable yield for these securities:
Three Months Ended March 31, 2021
Balance at December 31, 2020$189,562 
Additions
Accretion(2,790)
Reclassifications from (to) non-accretable difference(5,162)
Disposals(149,058)
Balance at March 31, 2021$32,552 
See Note 11 regarding the financing of Real Estate and Other Securities.

27

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
8.    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.

Loans are accounted for based on New Residential’s strategy for the loan and on whether the loan was credit-impaired at the date of acquisition. As of March 31, 2021, 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:
March 31, 2021December 31, 2020
Loan TypeOutstanding Face AmountCarrying
Value
Loan
Count
Weighted Average Yield
Weighted Average Life (Years)(A)
Carrying Value
Total residential mortgage loans, held-for-investment, at fair value(B)
$708,746 $656,752 11,806 6.0 %5.5$674,179 
Acquired reverse mortgage loans(C)
$12,228 $5,675 28 7.6 %4.3$5,884 
Acquired performing loans(D)(F)
132,431 126,814 3,155 5.5 %4.4129,345 
Acquired non-performing loans(E)(F)
234,527 190,590 1,536 5.5 %3.3374,658 
Total residential mortgage loans, held-for-sale, at lower of cost or market$379,186 $323,079 4,719 5.6 %3.7$509,887 
Acquired performing loans(D)(F)
$1,706,522 $1,728,490 8,569 3.7 %10.0$1,423,159 
Acquired non-performing loans455,723 406,100 2,325 5.2 %3.0335,544 
Originated loans3,420,363 3,465,886 12,919 2.9 %27.52,947,113 
Total residential mortgage loans, held-for-sale, at fair value$5,582,608 $5,600,476 23,813 3.3 %20.2$4,705,816 
Total residential mortgage loans, held-for-sale, at fair value/lower of cost or market$5,961,794 $5,923,555 $5,215,703 
(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 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 52% 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 March 31, 2021, New Residential has placed non-performing loans, held-for-sale on nonaccrual status, except as described in (F) below.
(F)Includes $553.9 million and $289.9 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

28

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The table below summarizes the geographic distribution of the underlying residential mortgage loans:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationMarch 31, 2021December 31, 2020
California12.0 %11.9 %
Texas10.3 %10.1 %
New York7.1 %7.1 %
Florida7.0 %7.1 %
Georgia5.9 %5.8 %
New Jersey4.1 %4.2 %
Pennsylvania3.5 %3.5 %
North Carolina3.3 %3.5 %
Massachusetts3.3 %3.4 %
Virginia2.9 %2.5 %
Other U.S.40.6 %40.9 %
100.0 %100.0 %

See Note 11 regarding the financing of residential mortgage loans.

The following table summarizes the difference between the aggregate unpaid principal balance and the aggregate fair value of loans:
March 31, 2021December 31, 2020
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal BalanceUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
90 to 119$51,073 $44,588 $(6,484)$71,567 $59,679 $(11,888)
120+703,274 614,742 (88,532)950,564 790,788 (159,776)
$754,347 $659,330 $(95,016)$1,022,131 $850,467 $(171,664)

Call Rights

New Residential has executed calls with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO assets contained in such trusts prior to their termination. In certain cases, New Residential sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, New Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. For the three months ended March 31, 2021, New Residential executed calls on a total of 18 trusts and recognized $2.2 million of interest income on securities held in the collapsed trusts and $12.1 million of gain on securitizations accounted for as sales. For the three months ended March 31, 2020, New Residential executed calls on a total of 15 trusts and recognized $12.0 million of interest income on securities held in the collapsed trusts and $42.6 million of gain on securitizations accounted for as sales. Refer to Note 16 for transactions with affiliates.

29

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
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, 2020$674,179 $509,887 $4,705,816 $5,889,882 
Originations27,119,215 27,119,215 
Sales(188,855)(28,278,209)(28,467,064)
Purchases/additional fundings2,090,474 2,090,474 
Proceeds from repayments(26,212)(10,194)(86,828)(123,234)
Transfer of loans to other assets(A)
199 1,031 1,230 
Transfer of loans to real estate owned(1,441)(3,514)(971)(5,926)
Valuation (provision) reversal on loans15,556 15,556 
Fair value adjustments due to:
Changes in instrument-specific credit risk13,919 37,265 51,184 
Other factors(3,693)12,683 8,990 
Balance at March 31, 2021$656,752 $323,079 $5,600,476 $6,580,307 
(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).

Net interest income

The following table summarizes the net interest income for residential mortgage loans:
Three Months Ended
March 31,
20212020
Interest income:
Loans held-for-investment, at fair value$11,060 $15,109 
Loans held-for-sale, at lower of cost or fair value9,651 17,780 
Loans held-for-sale, at fair value38,463 43,767 
Total interest income59,174 76,656 
Interest expense:
Loans held-for-investment, at fair value4,811 5,200 
Loans held-for-sale, at lower of cost or fair value5,806 8,530 
Loans held-for-sale, at fair value28,722 30,470 
Total interest expense39,339 44,200 
Net interest income$19,835 $32,456 

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
30

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
GSEs or mortgage investors, New Residential reports Gain on Originated Mortgage Loans, Held-for-Sale, Net in the Consolidated Statements of Income.

Gain on Originated Mortgage Loans, Held-for-Sale, Net is summarized below:
Three Months Ended
March 31,
20212020
Gain on loans originated and sold, net(A)
$1,087 $39,289 
Gain (loss) on settlement of mortgage loan origination derivative instruments(B)
40,121 (46,314)
MSRs retained on transfer of loans(C)
255,473 195,896 
Other(D)
23,683 10,506 
Realized gain on sale of originated mortgage loans, net$320,364 $199,377 
Change in fair value of loans(89,963)22,275 
Change in fair value of interest rate lock commitments (Note 10)(234,982)91,249 
Change in fair value of derivative instruments (Note 10)408,015 (139,324)
Gain on originated mortgage loans, held-for-sale, net$403,434 $173,577 
(A)Includes loan origination fees of $658.3 million and $277.0 million for the three months ended March 31, 2021 and 2020, 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.

9.    CONSUMER LOANS

New Residential, through limited liability companies (together, the “Consumer Loan Companies”), has a co-investment in a portfolio of consumer loans. The portfolio includes personal unsecured loans and personal homeowner loans. OneMain is the servicer of the loans and provides all servicing and advancing functions for the portfolio. As of March 31, 2021, 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 Consolidated Balance Sheets. In addition, see “Equity Method Investees” below.

31

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following table summarizes consumer loans, held-for-investment, at fair value held by New Residential:
Unpaid Principal BalanceInterest in Consumer LoansCarrying ValueWeighted Average Coupon
Weighted Average Expected Life (Years)(A)
Weighted Average Delinquency(B)
March 31, 2021
Consumer Loan Companies
Performing Loans$456,572 53.5 %$516,597 18.5 %3.53.7 %
Purchased Credit Deteriorated Loans(C)
118,758 53.5 %120,731 14.3 %3.57.4 %
Other - Performing Loans1,794 100.0 %1,658 15.5 %0.35.7 %
Total Consumer Loans$577,124 $638,986 17.6 %3.44.5 %
December 31, 2020
Consumer Loan Companies
Performing Loans$490,222 53.5 %$553,419 18.3 %3.63.7 %
Purchased Credit Deteriorated Loans(C)
127,899 53.5 %129,513 14.1 %3.57.4 %
Other - Performing Loans2,862 100.0 %2,643 15.3 %0.44.3 %
Total Consumer Loans$620,983 $685,575 17.4 %3.64.4 %
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)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.

See Note 11 regarding the financing of consumer loans.

The following table summarizes the past due status and difference between the aggregate unpaid principal balance and the aggregate fair value of consumer loans:
March 31, 2021December 31, 2020
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal BalanceUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
Under 90 days$567,518 $628,462 $60,944 $611,978 $675,691 $63,713 
90+9,606 10,524 918 9,005 9,884 879 
$577,124 $638,986 $61,862 $620,983 $685,575 $64,592 

Activities related to consumer loans were as follows:
Balance at December 31, 2020$685,575 
Additional fundings(A)
7,147 
Proceeds from repayments(52,581)
Accretion of loan discount and premium amortization, net4,849 
Fair value adjustment due to:
Changes in instrument-specific credit risk6,362 
Other factors(12,366)
Balance at March 31, 2021$638,986 
(A)Represents draws on consumer loans with revolving privileges.

32

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
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 MSRs. 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. Changes in the value of derivatives designed to protect against mortgage backed securities and MSR fair value fluctuations, or hedging gains and losses, are reflected in the tables below.

As of March 31, 2021, 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 Consolidated Balance Sheets as follows:
Balance Sheet LocationMarch 31, 2021December 31, 2020
Derivative assets
Interest rate swaps(A)
Other assets$51 $
Interest rate lock commitmentsOther assets92,514 289,355 
Forward Loan Sale CommitmentsOther assets315,665 
TBAsOther assets789 
$408,230 $290,144 
Derivative liabilities
Interest rate swaps(A)
Accrued expenses and other liabilities$$25 
Interest rate lock commitmentsAccrued expenses and other liabilities38,422 281 
TBAsAccrued expenses and other liabilities36,313 119,456 
$74,735 $119,762 
(A)Net of $68.4 million and $237.7 million of related variation margin accounts as of March 31, 2021 and December 31, 2020, respectively.

The following table summarizes notional amounts related to derivatives:
March 31, 2021December 31, 2020
Interest rate swaps(A)
$10,045,000 $6,515,000 
Interest rate lock commitments14,266,506 15,031,345 
TBAs, short position(B)
37,712,279 23,529,408 
(A)Includes $10.0 billion notional of receive LIBOR/pay fixed of 1.46% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 38 months and 0 months, respectively, as of March 31, 2021. Includes $6.5 billion notional of receive LIBOR/pay fixed of 2.21% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 47 months and 0 months, respectively, as of December 31, 2020.
(B)Represents the notional amount of Agency RMBS, classified as derivatives.

33

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following table summarizes all income (losses) recorded in relation to derivatives:
Three Months Ended
March 31,
20212020
Servicing revenue, net
TBAs$(8,823)$
(8,823)
Gain on originated mortgage loans, held-for-sale, net(A)
Interest rate lock commitments(234,982)91,249 
TBAs408,015 (139,351)
Forward loan sale commitments27 
173,033 (48,075)
Change in fair value of derivative investments(A)
Interest rate swaps206,205 (39,982)
206,205 (39,982)
Gain (loss) on settlement of investments, net
Interest rate swaps(33,826)(13,652)
TBAs(B)
6,453 (71,060)
(27,373)(84,712)
Total income (loss)$343,042 $(172,769)
(A)Represents unrealized gain (loss).
(B)Excludes $40.1 million gain and $46.3 million loss for the three months ended March 31, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net (Note 8).

34

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
11.    DEBT OBLIGATIONS
 
The following table presents certain information regarding New Residential’s Secured Financing Agreements and Secured Notes and Bonds Payable debt obligations:
March 31, 2021December 31, 2020
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)
$5,133,435 $5,131,682 May-21 to Dec-222.18 %0.6$5,539,834 $5,601,036 $5,562,750 20.0$4,039,564 
Agency RMBS(D)
13,641,520 13,641,520 Apr-21 to Jan-220.23 %0.413,443,593 13,956,269 13,558,231 1.012,682,427 
Non-Agency RMBS(E)
740,770 740,544 Apr-21 to Jun-213.33 %0.515,722,106 1,247,027 1,304,584 0.7817,209 
Real Estate Owned(G)(H)
8,714 8,714 May-21 to Dec-222.60 %1.8N/AN/A11,580 N/A8,480 
Total Secured Financing Agreements19,524,439 19,522,460 0.86 %0.517,547,680 
Secured Notes and Bonds Payable
Excess MSRs(I)
265,899 265,899  Aug-244.36 %3.495,393,278 315,399 390,631 6.2275,088 
MSRs(J)
2,696,137 2,685,492 Jul-22 to Mar-264.25 %3.3385,377,861 4,240,151 4,717,694 6.22,691,791 
Servicer Advance Investments(K)
403,570 402,691 Apr-21 to Dec-221.42 %1.3440,306 492,831 517,558 6.3423,144 
Servicer Advances(K)
2,494,763 2,487,465 Apr-21 to Sep-232.43 %1.62,898,656 2,895,073 2,895,073 0.72,585,575 
Residential Mortgage Loans(L)
682,847 675,317 Sep-22 to Aug-604.18 %20.41,019,812 998,328 934,291 4.21,039,838 
Consumer Loans(M)
583,948 591,011 Sep-372.03 %3.4575,267 584,632 637,264 3.6628,759 
Total Secured Notes and Bonds Payable7,127,164 7,107,875 3.27 %4.37,644,195 
Total/ Weighted Average$26,651,603 $26,630,335 1.50 %1.5$25,191,875 
(A)Net of deferred financing costs.
(B)All debt obligations with a stated maturity through the date of issuance were refinanced, extended or repaid.
(C)These secured financing agreements had approximately $56.4 million of associated accrued interest payable as of March 31, 2021.
(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 $24.1 million and $33.1 million, respectively, on retained bonds collateralized by Agency MSRs.
(F)Includes $247.7 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 $265.9 million of corporate loans which bear interest at a fixed rate of 4.4%.
(J)Includes $373.9 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.3%; $394.9 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.9%; and $1,927.3 million of capital markets notes with fixed interest rates ranging 3.0% to 5.4%. 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)$2.0 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 1.4% to 3.9%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and MSR financing receivables owned by NRM.
(L)Represents (i) a $5.8 million note payable to Mr. Cooper which includes a $1.6 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.9%, (ii) $50.7 million face amount of SAFT 2013-1
35

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
mortgage-backed securities issued with fixed interest rate of 3.7% (see Note 12 for fair value details), (iii) $139.2 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.6% (see Note 12 for fair value details), and (iv) $466.5 million of bonds held by third parties which bear interest at a fixed rate ranging from 3.2% to 5.0%.
(M)Includes the SpringCastle debt, which is primarily composed of the following classes of asset-backed notes held by third parties: $530.9 million UPB of Class A notes with a coupon of 2.0% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.7% and a stated maturity date in September 2037.

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 March 31, 2021, New Residential has margin exposure on $19.5 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, 2020$275,088 $2,691,791 $3,008,719 $13,499,636 $5,087,882 $628,759 $25,191,875 
Secured Financing Agreements
Borrowings21,192,890 28,551,939 49,744,829 
Repayments(20,311,180)(27,461,425)(47,772,605)
Capitalized deferred financing costs, net of amortization717 1,839 2,556 
Secured Notes and Bonds Payable
Borrowings684,030 724,883 1,408,913 
Repayments(9,189)(692,816)(843,337)(365,473)(41,218)(1,952,033)
Discount on borrowings, net of amortization
Unrealized loss on notes, fair value952 3,470 4,422 
Capitalized deferred financing costs, net of amortization2,487 (109)2,378 
Balance at March 31, 2021$265,899 $2,685,492 $2,890,156 $14,382,063 $5,815,714 $591,011 $26,630,335 
(A)New Residential net settles daily borrowings and repayments of the Secured Notes and Bonds Payable on its servicer advances.

Maturities
 
New Residential’s debt obligations as of March 31, 2021 had contractual maturities as follows:
Year Ending
Nonrecourse(A)
Recourse(B)
Total
April 1 through December 31, 2021$648,882 $18,103,159 $18,752,041 
2022917,384 2,327,985 3,245,369 
20231,200,000 285,676 1,485,676 
2024557,251 557,251 
2025250,450 1,789,849 2,040,299 
2026 and thereafter1,010,573 110,400 1,120,973 
$4,027,289 $23,174,320 $27,201,609 
(A)Includes secured notes and bonds payable of $4.0 billion.
(B)Includes secured financing agreements and secured notes and bonds payable of $19.5 billion and $3.7 billion, respectively.
36

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

Borrowing Capacity

The following table represents New Residential’s borrowing capacity as of March 31, 2021:
Debt Obligations / CollateralBorrowing CapacityBalance Outstanding
Available Financing(A)
Secured Financing Agreements
Residential mortgage loans and REO$4,553,745 $1,503,861 $3,049,884 
New loan originations7,823,000 3,638,280 4,184,720 
Secured Notes and Bonds Payable
Excess MSRs286,380 265,899 20,481 
MSRs3,667,277 2,696,137 971,140 
Servicer advances4,315,000 2,898,333 1,416,667 
$20,645,402 $11,002,510 $9,642,892 
(A)New Residential’s unused borrowing capacity is available if New Residential has additional eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements, including any applicable advance rate.

Certain of the debt obligations are subject to customary loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in New Residential’s equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. New Residential was in compliance with all of its debt covenants as of March 31, 2021.

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 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.

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 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.

37

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
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 Consolidated Balance Sheets. For the three months ended March 31, 2021, the Company recognized $8.5 million of interest expense. At March 31, 2021, the unamortized debt issuance costs was approximately $8.0 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.

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 March 31, 2021, 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.

38

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
12.    FAIR VALUE MEASUREMENT

The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of March 31, 2021 were as follows:
Fair Value
Principal Balance or Notional AmountCarrying ValueLevel 1Level 2Level 3Total
Assets
Excess MSRs(A)
$68,367,358 $303,568 $$$303,568 $303,568 
Excess MSRs, equity method investees(A)
27,025,920 98,886 98,886 98,886 
MSRs(A)
354,126,996 4,023,559 4,023,559 4,023,559 
MSR financing receivables(A)
64,387,370 1,021,780 1,021,780 1,021,780 
Servicer advance investments440,306 517,557 517,557 517,557 
Real estate and other securities31,488,837 14,606,157 13,558,231 1,047,926 14,606,157 
Residential mortgage loans, held-for-sale379,186 323,079 324,599 324,599 
Residential mortgage loans, held-for-sale, at fair value5,582,608 5,600,476 3,855,552 1,744,924 5,600,476 
Residential mortgage loans, held-for-investment, at fair value708,746 656,752 656,752 656,752 
Residential mortgage loans subject to repurchase1,493,449 1,493,449 1,493,449 1,493,449 
Consumer loans577,124 638,986 638,986 638,986 
Derivative assets18,741,429 408,230 315,716 92,514 408,230 
Note receivable50,425 47,911 47,911 47,911 
Cash and cash equivalents1,038,482 1,038,482 1,038,482 1,038,482 
Restricted cash135,470 135,470 135,470 135,470 
Other assets(B)
N/A47,168 11,001 36,167 47,168 
$30,961,510 $1,184,953 $19,222,948 $10,555,129 $30,963,030 
Liabilities
Secured financing agreements$19,524,439 $19,522,460 $$19,524,439 $$19,524,439 
Secured notes and bonds payable(C)
7,127,164 7,107,875 7,121,508 7,121,508 
Unsecured senior notes, net of issuance costs541,966 541,966 541,966 541,966 
Residential mortgage loan repurchase liability1,493,449 1,493,449 1,493,449 1,493,449 
Derivative liabilities43,282,356 74,735 36,313 38,422 74,735 
Excess spread financing1,203,709 13,377 13,377 13,377 
Contingent considerationN/A14,655 14,655 14,655 
$28,768,517 $$21,054,201 $7,729,928 $28,784,129 
(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 $31.7 million as of March 31, 2021.
(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 $1.3 billion as of March 31, 2021.

39

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per 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, 2020$162,645 $148,293 $99,917 $3,489,675 $1,096,166 $538,056 $1,180,924 $289,074 $2,320,384 $685,575 $10,010,709 
Transfers
Transfers from Level 3(1,190)(1,190)
Transfers from MSR financing receivables to MSRs47,831 (47,831)
Gain (loss) included in net income
Provision (reversal) for credit losses on securities(D)
894 894 
Change in fair value of excess MSRs(D)
(3,822)(796)(4,618)
Change in fair value of excess MSRs, equity method investees(D)
3,165 3,165 
Servicing revenue, net(E)
227,552 227,552 
Change in fair value of MSR financing receivables(D)
(25,778)(25,778)
Change in fair value of servicer advance investments(371)(371)
Change in fair value of residential mortgage loans60,174 60,174 
Change in fair value of investments in consumer loans(6,004)(6,004)
Gain (loss) on settlement of investments, net(9,850)(9,847)
Other income (loss), net(D)
(325)35,018 (234,982)(321)(200,610)
Gains (losses) included in other comprehensive income(F)
8,434 8,434 
Interest income6,689 5,542 6,812 7,157 4,849 31,049 
Purchases, sales and repayments
Purchases, net(G)
4,044 332,750 38,470 1,160,764 7,147 1,543,175 
Proceeds from sales(8)(1)(1,016)(777)0(147,870)(1,051,986)(1,201,658)
Proceeds from repayments(7,874)(6,778)(4,196)(359,690)(65,251)(86,149)(52,581)(582,519)
Originations and other255,473 255,473 
Balance at March 31, 2021$157,633 $145,935 $98,886 $4,023,559 $1,021,780 $517,557 $1,047,926 $54,092 $2,401,676 $638,986 $10,108,030 
(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)Gain (loss) recorded in earnings during the period are attributable to the change in unrealized gain (loss) relating to Level 3 assets still held at the reporting dates and realized gain (loss) recorded during the period.
(E)The components of Servicing Revenue, Net are disclosed in Note 5.
(F)Gain (loss) included in Unrealized Gain (Loss) on Available-for-Sale Securities, Net in the 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.

40

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per 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, 2020$18,420 $1,662,852 $14,247 $1,695,519 
Transfers
Gains (losses) included in net income
Servicing revenue, net(B)
818 818 
Other income(A)
4,422 408 4,830 
Purchases, sales and repayments
Proceeds from sales(6,064)(320,214)(326,278)
Payments(86,503)(86,503)
Other203 203 
Balance at March 31, 2021$13,377 $1,260,557 $14,655 $1,288,589 
(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 Consolidated Statements of Comprehensive Income.

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

The following table summarizes certain information regarding the ranges and weighted averages of inputs used as of March 31, 2021:
41

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per 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
5.7% - 8.9%
(6.8%)
0% - 2.6%
(1.0%)
4.6% - 21.1%
(8.5%)
15 - 31 (21)12 - 21 (19)
Recaptured Pools
5.1% - 8.9%
(7.1%)
0% - 2.8%
(0.6%)
0% - 24.6%
(13.8%)
21 - 29 (23)19- 24 (22)
5.1% - 8.9%
(6.9%)
0% - 2.8%
(0.9%)
0% - 24.6%
(10.3%)
15 - 31 (22)12 - 24 (20)
Non-Agency(G)
Mr. Cooper and SLS Serviced:
Original Pools
6.1% - 11.6%
(7.9%)
2.1% - 12.5%
(9.0%)
0% - 11.8%
(8.0%)
6 - 25 (15)17 - 27 (23)
Recaptured Pools
4.9% - 6.5%
(5.7%)
0.2% - 0.5%
(0.4%)
11.2% - 21.5%
(12.9%)
23 - 27 (25)21 - 23 (23)
4.9% - 11.6%
(7.5%)
0.2% - 12.5%
(9.0%)
0% - 21.5%
(8.8%)
6 - 27 (17)17 - 27 (23)
Total/Weighted AverageExcess MSRs Directly Held
4.9% - 11.6%
(7.2%)
0% - 12.5%
(4.1%)
0% - 24.6%
(9.6%)
6 - 31 (19)12 - 27 (21)
Excess MSRs Held through Equity Method Investees (Note 4)
Agency
Original Pools
6.5% - 8.9%
(7.1%)
0.9% - 1.9%
(1.2%)
4.6% - 19.3%
(7.7%)
15 - 25 (19)17- 19 (18)
Recaptured Pools
6.2% - 8.0%
(7.1%)
0.4% - 1.2%
(0.9%)
7.8% - 20.8%
(10.4%)
22 - 28 (25)20 - 23 (22)
Total/Weighted AverageExcess MSRs Held through Investees
6.2% - 8.9%
(7.1%)
0.4% - 1.9%
(1.0%)
4.6% - 20.8%
(9.1%)
15 - 28 (22)17 - 23 (20)
Total/Weighted AverageExcess MSRs All Pools
4.9% - 11.6%
(7.2%)
0% - 12.5%
(3.0%)
0% - 35.0%
(9.4%)
6 - 31 (20)12 - 27 (21)
MSRs
Agency(H)
Mortgage Servicing Rights(I)
6.0% - 13.5%
(9.2%)
0.4% - 1.3%
(0.8%)
1.8% - 29.0%
(15.2%)
25 - 30 (28)0 - 30 (22)
6.0% - 13.5%
(9.2%)
0.4% - 1.3%
(0.8%)
1.8% - 29.0%
(15.2%)
25 - 30 (28)0 - 30 (22)
Non-Agency
Mortgage Servicing Rights(I)
9.5% - 25.6%
(17.8%)
1.4% - 7.6%
(4.4%)
4.0% - 40.6%
(22.7%)
26 - 79 (52)0 - 30 (16)
MSR Financing Receivables(I)
7.2%11.3%7.6%480 - 30 (25)
7.2% - 25.6%
(7.4%)
1.4% - 11.3%
(11.2%)
4.0% - 40.6%
(7.8%)
26 - 79 (48)0 - 30 (25)
Ginnie Mae
Mortgage Servicing Rights(I)(J)
7.6% - 16.8%
(14.9%)
2.2% - 5.0%
(3.9%)
15.1% - 35.0%
(20.7%)
32 - 48 (44)0 - 30 (27)
Total/Weighted AverageMSRs
6.0% - 25.6%
(9.7%)
0.4% - 11.3%
(3.4%)
1.8% - 40.6%
(10.0%)
25 - 79 (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.
(D)Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.
42

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
(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 - $7.50 ($7.10) per loan per month was used to value the agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $10.90 per loan per month was used to value the Non-Agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $8.90 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 PHH-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 March 31, 2021, a weighted average discount rate of 7.8% (range 7.5% - 8.0%) was used to value New Residential’s Excess MSRs (directly and through equity method investees). As of March 31, 2021, a weighted average discount rate of 7.7% (range 7.4% - 13.0%) was used to value New Residential’s MSRs and a weighted average discount rate of 9.5% was used to value New Residential’s MSR Financing Receivables.

Servicer Advance Investments Valuation

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:
Significant Inputs
Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans
Prepayment Rate(A)
Delinquency
Mortgage Servicing Amount(B)
Discount Rate
Collateral Weighted Average Maturity (Years)(C)
March 31, 20211.1% - 1.8% (1.8%)8.1% - 8.2% (8.2%)5.7% - 7.8% (7.8%)16.6 - 19.7 (19.7)bps5.2% - 5.7% (5.2%)19 - 22 (22)
(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)Mortgage servicing amount is net of 10.1 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 March 31, 2021, 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$13,443,593 $13,956,269 $13,558,231 $$13,558,231 2
Non-Agency RMBS(C)
18,045,244 977,194 1,047,926 1,047,926 3
Total$31,488,837 $14,933,463 $14,606,157 $$14,606,157 
(A)New Residential generally obtained pricing service quotations or broker quotations from 2 sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. New Residential evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling
43

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
brokers or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for Non-Agency RMBS, there is a wide disparity between the quotes New Residential receives. New Residential believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, it selects one of the quotes which is believed to more accurately reflect fair value. New Residential has not adjusted any of the quotes received in the periods presented. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” — meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price. New Residential’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.

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

For 95.2% of New Residential’s Non-Agency RMBS, the ranges and weighted averages of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
Fair ValueDiscount Rate
Prepayment Rate(a)
CDR(b)
Loss Severity(c)
Non-Agency RMBS$997,828 3.5% to 15.0% (4.4%)7.0% to 25.0% (14.0%)0.5% to 12.0% (1.4%)20.0% to 88.0% (29.5%)
(a)Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.

(B)New Residential was unable to obtain quotations from more than one source on these securities.
(C)Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.

Residential Mortgage Loans Valuation

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

44

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Residential mortgage loans held-for-sale, at fair value also includes certain nonconforming mortgage loans originated for sale to private investors, which are valued using internal pricing models to forecast loan level cash flows using inputs such as default rates, prepayments speeds and discount rates. As the internal pricing model is based on certain unobservable inputs, New Residential classifies these valuations as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:
Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Acquired loans$1,731,794 
3.0% - 7.5%
(4.1%)
2.0% - 25.0%
(15.5%)
0% - 3.1%
(1.3%)
0% -50.0%
(15.0%)
Originated loans13,130 4.3%5.5%3.0%50.0%
Residential mortgage loans held-for-sale, at fair value$1,744,924 

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

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:
Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Residential mortgage loans held-for-investment, at fair value$656,752 
5.8% - 8.0%
(6.0%)
2.0% - 6.4%
(6.0%)
1.4% - 2.9%
(1.5%)
30.0% - 60.9%
(58.1%)

Consumer Loans Valuation

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing consumer loans held-for-investment, at fair value, classified as Level 3:
Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Consumer loans, held-for-investment, at fair value$638,986 
7.5% - 9.7%
(7.5%)
20.4% - 34.1%
(20.4%)
4.8% - 23.6%
(4.8%)
78.8% - 92.4%
(78.8%)


Derivatives Valuation

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

As a part of the mortgage loan origination business, New Residential enters into forward loan sale and securities delivery commitments, which are valued based on observed market pricing for similar instruments and therefore, are classified as Level 2. In addition, New Residential enters into IRLCs, which are valued using internal pricing models (i) incorporating market pricing for instruments with similar characteristics, (ii) estimating the fair value of the servicing rights expected to be recorded at sale of the loan and (iii) adjusting for anticipated loan funding probability. Both the fair value of servicing rights expected to be recorded at the date of sale of the loan and anticipated loan funding probability are significant unobservable inputs and therefore, IRLCs are classified as Level 3 in the fair value hierarchy.

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing IRLCs:
45

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Fair ValueLoan Funding ProbabilityFair Value of Initial Servicing Rights (Bps)
IRLCs, net$54,092 
0.0% - 100.0%
(83.2%)
4.0 - 283.4
(102.8)

Asset-Backed Securities Issued

New Residential and NewRez, a wholly owned subsidiary of New Residential, were deemed to be the primary beneficiaries of the MDST Trusts, SAFT 2013-1 securitization entity, NPL/RPL Securitization Trusts and SCFT 2020-A, and therefore, New Residential’s Consolidated Balance Sheets include the asset-backed securities issued by the MDST Trusts, SAFT 2013-1, NPL/RPL Securitization Trusts and SCFT 2020-A, respectively. New Residential elected the fair value option for these financial instruments and the asset-backed securities issued were valued consistently with New Residential’s Non-Agency RMBS described above.

The following table summarizes certain information regards the ranges and weighted averages of inputs used in valuing Asset-Backed Securities Issued:
Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Asset-backed securities issued$1,260,557 
1.6% - 4.9%
(3.2%)
3.6% - 30.0%
(12.5%)
1.0% - 4.8%
(3.5%)
20.0% - 90.0%
(63.2%)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

At March 31, 2021, assets measured at fair value on a nonrecurring basis were $322.6 million. The $322.6 million of assets include approximately $302.1 million of residential mortgage loans held-for-sale and $20.5 million of REO. The fair value of New Residential’s residential mortgage loans, held-for-sale is estimated based on a discounted cash flow model analysis using internal pricing models and is categorized within Level 3 of the fair value hierarchy. The following table summarizes the inputs used in valuing these residential mortgage loans as of March 31, 2021:
Fair Value and Carrying ValueDiscount Rate
Weighted Average Life (Years)(A)
Prepayment Rate
CDR(B)
Loss Severity(C)
Performing loans$105,863 
4.3% - 7.5%
(5.4%)
4.3 - 9.0
(4.7)
5.1% - 9.9%
(9.1%)
0.9% - 2.2%
(1.1%)
28.6% - 100.0%
(47.0%)
Non-performing loans196,265 
5.5% - 9.0%
(5.7%)
3.1 - 4.3
(3.4)
2.0% - 2.0%
(2.0%)
2.9% - 2.9%
(2.9%)
8.5% - 30.0%
(28.9%)
Total/weighted average$302,128 5.6%3.84.5%2.3%35.2%
(A)The weighted average life is based on the expected timing of the receipt of cash flows.
(B)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance.
(C)Loss severity is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance.

The fair value of REO is estimated using a broker’s price opinion discounted based upon New Residential’s experience with actual liquidation values and, therefore, is categorized within Level 3 of the fair value hierarchy. These discounts to the broker price opinion generally range from 10% - 25% (weighted average of 17%), depending on the information available to the broker.

The total change in the recorded value of assets for which a fair value adjustment has been included in the Consolidated Statements of Income for the three months ended March 31, 2021 consisted of a reversal of valuation allowance of $15.6 million for residential mortgage loans and a reversal of valuation allowance of $3.1 million for REO.

46

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
13. VARIABLE INTEREST ENTITIES

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

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

Servicer Advance Investment

New Residential, through a taxable wholly owned subsidiary, is the managing member of the Buyer and owned approximately 73.2% of the Buyer as of March 31, 2021. In 2013, New Residential created the Buyer to acquire the then outstanding servicing advance receivables related to a portfolio of residential mortgage loans from a third party. The Buyer is required to purchase all future servicer advances made with respect to this portfolio of mortgage loans and is entitled to receive cash flows from advance recoveries and a basic fee component of the related MSRs, net of subservicing compensation paid.

The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of March 31, 2021, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $329.0 million and $308.5 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.

Shelter Joint Ventures

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

Residential Mortgage Loans

During the third quarter of 2020, New Residential formed entities, (collectively, the “NPL/RPL Securitizations”) that separately issued securitized debt collateralized by non-performing and reperforming residential mortgage loans. New Residential determined that the NPL/RPL Securitizations should be evaluated for consolidation under the VIE model rather than the voting interest entity model as the equity holders as a group lack the characteristics of a controlling financial interest. Under the VIE model, New Residential’s consolidated subsidiaries had both 1) the power to direct the most significant activities of the NPL/RPL Securitizations and 2) significant variable interests in each of the NPL/RPL Securitizations, through their control of the related optional redemption feature and their ownership of certain notes issued by the NPL/RPL Securitizations and, therefore, met the primary beneficiary criterion and, accordingly, the Company consolidated the NPL/RPL Securitizations.

On October 1, 2019, as a result of New Residential’s acquisition of servicing assets from the bankruptcy estate of Ditech Holding Company and Ditech Financial LLC (“Ditech”) and its pre-existing ownership of the equity, New Residential consolidated the MDST Trusts. New Residential’s determination to consolidate the MDST Trusts is a result of its ownership of the equity in these trusts in conjunction with the ability to direct activities that most significantly impact the economic performance of the entities with the acquisition of the servicing by NewRez.
47

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following table comprises bonds held in unconsolidated VIEs and retained pursuant to required risk retention regulations:
As of and for the
Three Months Ended
March 31,
20212020
Residential mortgage loan UPB$12,950,052 $14,932,876 
Weighted average delinquency(A)
7.93 %2.45 %
Net credit losses$96,172 $13,898 
Face amount of debt held by third parties(B)
$11,850,796 $12,907,495 
Carrying value of bonds retained by New Residential(C)(D)
$1,121,761 $1,814,333 
Cash flows received by New Residential on these bonds$288,481 $79,250 
(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by New Residential.
(C)Includes bonds retained pursuant to required risk retention regulations.
(D)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 12 for details on unobservable inputs.

Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of March 31, 2021, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

The Consumer Loan Companies consolidate certain entities that issued securitization debt collateralized by the consumer loans (the “Consumer Loan SPVs”). The Consumer Loan SPVs are VIEs of which the Consumer Loan Companies are the primary beneficiaries.

48

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on New Residential’s Consolidated Balance Sheets:
The BuyerShelter Joint VenturesResidential Mortgage LoansConsumer Loan SPVsTotal
March 31, 2021
Assets
Servicer advance investments, at fair value$501,483 $$$$501,483 
Residential mortgage loans, held-for-investment, at fair value336,175 336,175 
Residential mortgage loans, held-for-sale163,271 163,271 
Residential mortgage loans, held-for-sale, at fair value413,576 413,576 
Consumer loans, held-for-investment, at fair value637,328 637,328 
Cash and cash equivalents39,030 36,625 75,655 
Restricted cash2,601 7,877 10,478 
Other assets5,575 41,497 8,447 55,528 
Total Assets$543,123 $42,200 $954,519 $653,652 $2,193,494 
Liabilities
Secured notes and bonds payable(A)
$393,361 $$669,544 $591,011 $1,653,916 
Accrued expenses and other liabilities944 7,195 23 718 8,880 
Total Liabilities$394,305 $7,195 $669,567 $591,729 $1,662,796 
December 31, 2020
Assets
Servicer advance investments, at fair value$522,901 $$$$522,901 
Residential mortgage loans, held-for-investment, at fair value358,629 358,629 
Residential mortgage loans, held-for-sale346,250 346,250 
Residential mortgage loans, held-for-sale, at fair value614,868 614,868 
Consumer loans, held-for-investment682,932 682,932 
Cash and cash equivalents53,012 39,031 92,043 
Restricted cash2,808 8,090 10,898 
Other assets891 9,151 30,621 9,201 49,864 
Total Assets$579,612 $48,182 $1,350,368 $700,223 $2,678,385 
Liabilities
Secured notes and bonds payable(A)
$414,576 $$1,034,093 $628,759 $2,077,428 
Accrued expenses and other liabilities1,092 9,455 1,661 764 12,972 
Total Liabilities$415,668 $9,455 $1,035,754 $629,523 $2,090,400 
(A)The creditors of the VIEs do not have recourse to the general credit of New Residential, and the assets of the VIEs are not directly available to satisfy New Residential’s obligations.

Noncontrolling Interests

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

49

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Others’ interests in the equity of New Residential’s consolidated subsidiaries is computed as follows:
March 31, 2021December 31, 2020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$148,818 $35,005 $89,066 $163,944 $38,727 $96,418 
Others’ ownership interest26.8 %49.1 %46.5 %26.8 %50.1 %46.5 %
Others’ interest in equity of consolidated subsidiary$39,834 $17,187 $41,963 $43,882 $19,402 $45,384 

Others’ interests in the New Residential’s net income (loss) is computed as follows:
Three Months Ended March 31,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$4,885 $7,180 $9,809 $(42,015)$2,571 $(13,330)
Others’ ownership interest26.8 %49.1 %46.5 %26.8 %49.9 %46.5 %
Others’ interest in net income of consolidated subsidiary$1,308 $3,525 $4,561 $(11,247)$1,283 $(6,198)
(A)As a result, New Residential owned 73.2% and 73.2% of the Buyer, on average during the three months ended March 31, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

14.    EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends

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

On February 16, 2021, New Residential announced that its board of directors had authorized the repurchase of up to $200.0 million of its common stock through December 31, 2021. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases will depend on a number of factors including the price and availability of New Residential’s shares, trading volume, capital availability, New Residential’s performance and general economic and market conditions. No share repurchases have been made as of the date of issuance of these Consolidated Financial Statements. The share repurchase program may be suspended or discontinued at any time.

The table below summarizes preferred stock:
Dividends Declared per Share
Number of SharesThree Months Ended
March 31,
SeriesMarch 31, 2021December 31, 2020
Liquidation Preference(A)
Issuance DiscountCarrying Value20212020
Fixed-to-floating rate cumulative redeemable preferred:
Series A, 7.50% issued July 20196,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 
Series B, 7.125% issued August 201911,300 11,300 282,500 3.15 %273,418 0.45 0.45 
Series C, 6.375% issued February 202016,100 16,100 402,500 3.15 %389,548 0.40 0.40 
Total33,610 33,610 $840,250 $812,992 $1.32 $1.32 
(A)Each series has a liquidation preference of $25.00 per share.
50

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

On March 24, 2021, New Residential’s board of directors declared first quarter 2021 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, and $0.40 per share of Preferred Series C or $2.9 million, $5.0 million, and $6.4 million, respectively.

Common dividends have been declared as follows:
Declaration DatePayment DatePer ShareTotal Amounts Distributed (millions)
Quarterly Dividend
March 31, 2020April 2020$0.05 $20.8 
June 22, 2020July 2020$0.10 $41.6 
September 23, 2020October 2020$0.15 $62.4 
December 16, 2020January 2021$0.20 $82.9 
March 24, 2021April 2021$0.20 $82.9 

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at March 31, 2021.

Common Stock Purchase Warrants

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

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

The table below summarizes the 2020 Warrants at March 31, 2021:
Number of Warrants
(in millions)
Weighted Average Exercise Price
(per share)
Outstanding warrants - December 31, 202043.4 $6.79 
Granted
Exercised
Expired
Outstanding warrants - March 31, 202143.4 $6.73 (A)
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

Option Plan
51

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 

As of March 31, 2021, New Residential’s outstanding options were summarized as follows:
Held by the Manager11,667,675 
Issued to the Manager and subsequently assigned to certain of the Manager’s employees2,753,980 
Issued to the independent directors7,000 
Total14,428,655 

The following table summarizes New Residential’s outstanding options as of March 31, 2021. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended March 31, 2021 was $11.25 per share.
Recipient
Date of
Grant/
Exercise(A)
Number of Unexercised
Options
Options
Exercisable
as of
March 31, 2021
Weighted
Average
Exercise
Price(B)
Intrinsic Value of Exercisable Options as of
March 31, 2021
(millions)
DirectorsVarious7,000 7,000 $13.30 $
Manager(C)
20171,130,916 1,130,916 13.78 
Manager(C)
20185,320,000 4,745,000 16.49 
Manager(C)
20196,351,000 4,809,667 15.93 
Manager(C)
20201,619,739 701,887 17.23 0
Outstanding14,428,655 11,394,470 
(A)Options expire on the tenth anniversary from date of grant.
(B)The exercise prices are subject to adjustment in connection with return of capital dividends.
(C)The Manager assigned certain of its options to its employees as follows:
Date of Grant to ManagerRange of Exercise
Prices
Total Unexercised
Inception to Date
2018$16.37 to $17.841,159,833 
2019    $14.96 to $16.501,270,200 
2020$16.84 to $17.23323,947 
Total2,753,980 
 
The following table summarizes activity in New Residential’s outstanding options:
AmountWeighted Average Exercise Price
Outstanding options - December 31, 202014,428,655 
Granted$
Exercised
Expired
Outstanding options - March 31, 202114,428,655 See table above

Earnings Per Share

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

52

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
The following table summarizes the basic and diluted earnings per share calculations:
Three Months Ended
March 31,
20212020
Net income (loss)$301,336 $(1,607,255)
Noncontrolling interests in income of consolidated subsidiaries9,394 (16,162)
Dividends on preferred stock14,358 11,222 
Net income (loss) attributable to common stockholders$277,584 $(1,602,315)
Basic weighted average shares of common stock outstanding414,795,505 415,589,155 
Dilutive effect of stock options(A)
Dilutive effect of common stock purchase warrants(A)
14,695,874 
Diluted weighted average shares of common stock outstanding429,491,379 415,589,155 
Basic earnings per share attributable to common stockholders$0.67 $(3.86)
Diluted earnings per share attributable to common stockholders$0.65 $(3.86)
(A)Stock options and common stock purchase warrants that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share for the periods where a loss has been recorded because they would have been anti-dilutive for the period presented.

The Company excluded the following weighted-average potential common shares from the calculation of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:
Three Months Ended
March 31,
20212020
Stock options174,720 
Common stock purchase warrants$

Noncontrolling Interests

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

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

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

Indemnifications — In the normal course of business, New Residential and its subsidiaries enter into contracts that contain a variety of representations and warranties and that provide general indemnifications. New Residential’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against New Residential that have not yet occurred. However, based on its experience, New Residential expects the risk of material loss to be remote.
 
53

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Capital Commitments — As of March 31, 2021, New Residential had outstanding capital commitments related to investments in the following investment types (also refer to Note 5 for MSR investment commitments and to Note 18 for additional capital commitments entered into subsequent to March 31, 2021, if any):

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

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

In addition, as the issuer of Ginnie Mae guaranteed securitizations, NewRez holds the right to repurchase loans that are at least 90 days’ delinquent from the securitizations at its discretion. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. While NewRez is not obligated to repurchase the delinquent loans, NewRez generally exercises its option to repurchase loans that will result in an economic benefit. As of March 31, 2021, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $9.8 million and $1.5 billion, respectively. See Note 5 for information on NewRez’s right to repurchase delinquent loans from Ginnie Mae securities and mortgage origination.

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

Consumer Loans — The Consumer Loan Companies have invested in loans with an aggregate of $256.8 million of unfunded and available revolving credit privileges as of March 31, 2021. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at New Residential’s discretion.

Leases — Operating lease right-of-use (“ROU”) assets and Operating lease liabilities are grouped and presented as part of Other Assets and Accrued Expenses and Other Liabilities, respectively, on New Residential’s Consolidated Balance Sheets.

New Residential, through its wholly-owned subsidiary, Shellpoint, has leases on office space expiring through 2025. Rent expense, net of sublease income for the three months ended March 31, 2021 and 2020 totaled $3.4 million and $3.4 million, respectively. The Company has leases that include renewal options and escalation clauses. The terms of the leases do not impose any financial restrictions or covenants.

As of March 31, 2021, future commitments under the non-cancelable leases are as follows:
54

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
Year EndingAmount
April 1 through December 31, 2021$9,843 
202210,121 
20235,854 
20242,734 
20252,116 
2026 and thereafter
Total remaining undiscounted lease payments30,668 
Less: imputed interest1,741 
Total remaining discounted lease payments$28,927 

The future commitments under the non-cancelable leases have not been reduced by the sublease rentals of $0.9 million due in the future periods.

Other information related to operating leases is summarized below:
March 31, 2021December 31, 2020
Weighted-average remaining lease term (years)3.03.2
Weighted-average discount rate4.5 %4.5 %

Environmental Costs — As a residential real estate owner, New Residential is subject to potential environmental costs. At March 31, 2021, New Residential is not aware of any environmental concerns that would have a material adverse effect on its consolidated financial position or results of operations.

Debt Covenants — Certain of the Company’s debt obligations are subject to loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in New Residential’s equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. Refer to Note 11.
 
Certain Tax-Related Covenants — If New Residential is treated as a successor to Drive Shack Inc. (“Drive Shack”) under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2014, New Residential could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement executed in connection with New Residential’s spin-off from Drive Shack, Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause New Residential to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Residential as necessary to enable New Residential to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to New Residential and its tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders, and its operation as a REIT; and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2014 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the U.S. Internal Revenue Service (“IRS”) to the effect that Drive Shack’s failure to maintain its REIT status will not cause New Residential to fail to qualify as a REIT under the successor REIT rule referred to above). Additionally, New Residential covenanted to use its reasonable best efforts to qualify for taxation as a REIT for its taxable year ended December 31, 2013.

55

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

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

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

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

In March 2020, the Company and certain of its subsidiaries sold (collectively, the “Sale”) through a broker-dealer to 6 purchasers (collectively, “the Purchasers”) of a portfolio consisting of non-agency residential mortgage-backed securities with an aggregate face value of approximately $6.1 billion (the “Securities”). The Sale generated proceeds of approximately $3.3 billion in the aggregate, excluding any unpaid but accrued interest. The Purchasers included an entity affiliated with funds managed by an affiliate of the Manager (the “Fortress Purchaser”), which purchased approximately $1.85 billion of Securities in aggregate face value for approximately $1.0 billion. In connection with the sale of the Securities to the Fortress Purchaser, the Company agreed to exercise certain rights, including call rights, that the Company holds under the securitization transactions with respect to the Securities sold to the Fortress Purchaser solely upon written direction by the Fortress Purchaser. Such rights include the rights, if any, to (i) amend and/or terminate the transactions contemplated by certain related residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements, (ii) acquire certain of the related residential mortgage loans, real estate owned and certain other assets in the trust subject to such
56

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements in connection with such amendment or termination against delivery of the applicable termination payment, and (iii) if applicable, direct certain related servicers, holders of subordinate securities and/or other applicable parties, to exercise the rights in (i) and (ii). Pursuant to such agreement, the Company and the Fortress Purchaser would share equally in any profits or losses arising from the exercise of any such rights, other than if the Company elects not to participate in the related transaction, in which case the Fortress Purchaser would realize all of the profits and bear all of the losses with respect thereto. 

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

Due to affiliates consists of the following:
March 31, 2021December 31, 2020
Management fees$7,393 $7,478 
Incentive compensation
Expense reimbursements and other1,429 1,972 
Total$8,822 $9,450 
 
Affiliate expenses and fees consists of the following:
Three Months Ended
March 31,
20212020
Management fees$22,162 $21,721 
Incentive compensation
Expense reimbursements(A)
125 125 
Total$22,287 $21,846 
(A)Included in General and administrative expenses in the Consolidated Statements of Income.
 
See Note 4 regarding co-investments with Fortress-managed funds.

See Note 14 regarding options granted to the Manager.

17.    INCOME TAXES
 
Income tax expense (benefit) consists of the following:
Three Months Ended
March 31,
20212020
Current:
Federal$10,813 $
State and local2,216 49 
Total current income tax expense (benefit)13,029 49 
Deferred:
Federal71,309 (127,526)
State and local13,921 (39,391)
Total deferred income tax expense (benefit)85,230 (166,917)
Total income tax expense (benefit)$98,259 $(166,868)
57

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
 
 
New Residential intends to qualify as a REIT for each of its tax years through December 31, 2021. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.
 
New Residential operates various business segments, including servicing, origination, and MSR related investments, through taxable REIT subsidiaries (“TRSs”) that are subject to regular corporate income taxes, which have been provided for in the provision for income taxes, as applicable. Refer to Note 3 for further details.

As of March 31, 2021, New Residential recorded a net deferred tax liability of $93.1 million primarily related to MSRs.

18.    SUBSEQUENT EVENTS
 
These financial statements include a discussion of material events that have occurred subsequent to March 31, 2021 through the issuance of these Consolidated Financial Statements. Events subsequent to that date have not been considered in these financial statements.

Corporate Activities

On April 14, 2021, New Residential entered into a Stock Purchase Agreement (the “SPA”) with LSF Pickens Holdings, LLC, a Delaware limited liability company (“LSF”) and an affiliate of Lone Star Funds, and Caliber Home Loans Inc., a Delaware corporation and wholly owned subsidiary of LSF (“Caliber”). The SPA provides that, upon the terms and subject to the conditions set forth therein, the Company or one of its subsidiaries will purchase all of the issued and outstanding equity interests of Caliber (the “Transaction”) from LSF for a purchase price of $1.675 billion, subject to certain downward adjustments for among other things, any Leakage Amount (as defined in the SPA to include certain cash dividends and other payments out of Caliber and its subsidiaries) since December 31, 2020. The Transaction is targeted to close in the third quarter of 2021, subject to various approvals and customary closing conditions.

On April 14, 2021, the Company priced its underwritten public offering of 45,000,000 shares of its common stock at a public offering price of $10.10 per share. The offering closed on April 19, 2021. In connection with the offering, the Company granted the underwriters an option for a period of 30 days to purchase up to an additional 6,750,000 shares of common stock at a price of $10.10 per share. On April 16, 2021, the underwriters exercised their option, in part, to purchase an additional 6,725,000 shares of common stock. Additionally, in connection with the offering, to compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to 5.2 million shares of New Residential’s common stock at $10.10 per share.

The Company intends to use the net proceeds of approximately $512.0 million from the offering, along with cash on hand and other sources of liquidity, to finance the acquisition of Caliber. In the event that the Caliber acquisition does not occur, the Company intends to use the net proceeds from the offering for general corporate purposes.


58


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of New Residential. The following should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto, and with “Risk Factors.”

Management’s discussion and analysis of financial condition and results of operations is intended to allow readers to view our business from management’s perspective by (i) providing material information relevant to an assessment of our financial condition and results of operations, including an evaluation of the amount and certainty of cash flows from operations and from outside sources, (ii) focusing the discussion on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or future financial condition, including descriptions and amounts of matters that are reasonably likely, based on management’s assessment, to have a material impact on future operations, and (iii) discussing the financial statements and other statistical data management believes will enhance the reader’s understanding of our financial condition, changes in financial condition, cash flows and results of operations.

As permitted by SEC Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, this section discusses our results of operations for the current quarter ended March 31, 2021 compared to the immediately preceding prior quarter ended December 31, 2020 as well as the corresponding quarter of the prior year ended March 31, 2020. In this report, we are changing the basis of comparison from the corresponding quarter of the prior year to the immediately preceding prior quarter, in order to provide readers greater insight into our quarterly performance. For our future Quarterly Reports on Form 10-Q, we will present a discussion of our results of operations for the current quarter compared to the immediately preceding prior quarter only.
 
GENERAL
 
New Residential is a publicly traded REIT primarily focused on opportunistically investing in, and actively managing, investments related to the residential real estate market. We seek to generate long-term value for our investors by using our investment expertise to identify and invest primarily in mortgage related assets, including operating companies, that offer attractive risk-adjusted returns. Our investment strategy also involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of the mortgage loans we originate and service by offering products and services to customers, servicers, and other parties through the lifecycle of transactions that affect each mortgage loan and underlying residential property. For more information about our investment guidelines, see “Item 1. Business — Investment Guidelines” of our annual report on Form 10-K for the year ended December 31, 2020.

As of March 31, 2021, we had $35 billion in total assets and 6,086 employees within our operating entities.

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

OUR MANAGER

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

CAPITAL ACTIVITIES

On February 16, 2021, we announced that our board of directors had authorized the repurchase of up to $200.0 million of our common stock through December 31, 2021. Repurchases may be made at any time and from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act, by means of one or more tender offers, or otherwise, in each case, as permitted by securities laws and other legal and contractual requirements. The amount and timing of the purchases will depend on a number of factors including the price and availability of our shares, trading volume, capital availability, our performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time. No share repurchases have been made as of the filing of this report. Repurchases may impact our financial results, including fees paid to our Manager.

MARKET CONSIDERATIONS

59


The COVID-19 pandemic and the measures undertaken to contain its spread continued to affect economic activity in the U.S. and abroad during the first quarter of 2021. Importantly, indicators of economic recovery demonstrated progress, especially as vaccination options for Americans evolved. The U.S. real gross domestic product (“GDP”) continued to expand in the first quarter of 2021 at a faster pace than in the fourth quarter of 2020, although the level of real GDP has likely not yet returned to the level seen before the onset of the pandemic. Labor market conditions improved during the quarter, but employment was still well below its level at the start of 2020. Total employment increased solidly during the quarter after softening at the end of last year. The unemployment rate fell to 6.0% at the end of March 2021. This was the lowest level since the onset of the COVID-19 pandemic and compared to 6.7% at the end of December 2020 and a peak of 14.7% in April 2020. Consumer price inflation—as measured by the 12-month percentage change in the price index for personal consumption expenditures (“PCE”)—remained below 2%.

Consumer spending appeared to be increasing in the first quarter at a pace considerably faster, on balance, than in the fourth quarter of last year. Real PCE expanded strongly in January after declining over the preceding two months, with spending likely boosted by federal stimulus payments sent out in early January. The PCE pointed to a step-down in spending in February but spending in March was boosted by additional federal stimulus payments from the $1.9 trillion American Rescue Plan (“ARP”), which started to be distributed around the middle of the month. In addition, the personal saving rate jumped to an even higher level in January, and ongoing gains in labor earnings along with further fiscal support pointed to additional increases in accumulated household savings. Moreover, the preliminary reading of consumer sentiment moved up notably in early March to its highest level over the past year, reflecting the growing number of vaccinations and the enactment of the ARP, although consumer sentiment remained below its levels from just before the onset of the pandemic.

The trend toward higher longer-term yields observed in recent months continued to accelerate during the first quarter of 2021. Investors appeared to have become more optimistic about an improving economic outlook against the backdrop of progress on COVID-19 vaccinations, bolstered by passage of the ARP, signs of stronger domestic spending, as well as accommodative monetary policy and additional fiscal stimulus. The Treasury yield curve steepened during the first quarter of 2021, with 5- and 10-year yields rising markedly. Measures of inflation compensation increased moderately, on balance, continuing the trend observed over recent months. Markets attributed the increases in longer-term yields in part to increased investor optimism about the economic outlook and expectations of higher Treasury debt issuance. Despite the spikes in equity market volatility early in the quarter, spurred by heavy trading concentrated in a few specific stocks and subsequent concerns over the rapid rise in longer-term interest rates, broad equity price indexes rose on balance. Additionally, consistent with the stronger economic outlook, spreads on high-yield corporate bonds narrowed.

Financing conditions in the residential mortgage market tightened during the quarter as mortgage rates moved off of their 2020 lows but remained accommodative for stronger borrowers. Conventional 30-year rates moved to 3.361% as of March 31, 2021 compared to 2.92% as of December 31, 2020. Mortgage Bankers Association forecasts for origination volume remained elevated relative to historical levels. March estimates for full year 2021 production volume grew to $3.2 trillion, up from the December estimate of $2.8 trillion but down from full year 2020 volume of $3.8 trillion. 48% of 2021 volume is estimated to be refinance volume compared to 63% in 2020. Credit was broadly available to higher-score borrowers meeting standard conforming loan criteria but tightened further for borrowers with lower credit scores. Signaling further improvement in consumer strength was the decline in industry forbearance rates in the first quarter to 4.9% from 5.3% at the end of 2020 as homeowners continued to successfully find permanent solutions such as repayment plans, deferments, and loan modifications.

Construction of single-family homes and home sales remained well above their pre-pandemic levels. However, the incoming data for this sector were mixed. Starts of single-family homes moved down notably during the quarter, in part likely reflecting severe winter weather in February. Starts of multifamily units also fell in February but by less than the strong increase seen in January. Construction permits for single-family homes moved down, on balance, during the quarter, pointing to some slowing in construction in coming months. Sales of both new and existing homes increased further in January, and home prices continued to rise briskly.

Financing conditions for businesses in capital markets remained broadly accommodative during the quarter, supported by low interest rates and high equity valuations. Gross and net corporate bond issuances were solid. Equity raised through traditional initial public offerings and seasoned equity offerings continued to be strong, and initial equity offerings by special purpose acquisition companies remained exceptionally high.

Corporate earnings continued to recover while the credit quality of corporations improved further. Corporate bond defaults declined in December and January and reached levels substantially below their 2019 average. In addition, the volume of corporate credit rating upgrades modestly outpaced downgrades during the quarter. Market indicators of future default expectations moved lower.

60


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

The market conditions discussed above significantly influence our investment strategy and results, many of which have been significantly impacted since mid-March 2020 by the ongoing COVID-19 pandemic. While the health of the overall economy continued to show signs of improvement during the first quarter of 2021, economic progress may stall due to the ongoing uncertainty regarding the sustainability of reopening plans, fears regarding any additional COVID-19 waves and uncertainty regarding additional federal stimulus.

The following table summarizes the U.S. gross domestic product:
Three Months Ended
March 31,
2021
December 31, 2020September 30, 2020June 30,
2020
March 31,
2020
(Percent change from the preceding quarter)
Real GDP6.4 %4.3 %33.4 %(31.4)%(5.0)%

The following table summarizes the U.S. unemployment rate according to the U.S. Department of Labor:
March 31,
2021
December 31, 2020September 30,
2020
June 30,
2020
March 31,
2020
Unemployment rate6.00 %6.70 %7.90 %11.10 %4.40 %

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