The information required by Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the registrant’s Definitive Proxy Statement for its 2020 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

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

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

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

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

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

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

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

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

•	the risks related to our acquisitions of Shellpoint Partners LLC (“Shellpoint”) and certain assets from the bankruptcy estate of Ditech Holding Company and Ditech Financial LLC (“Ditech”), as well as ownership of entities that perform origination and servicing operations;

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

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

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

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

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

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

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

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

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

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•	the availability and terms of capital for future investments;

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

•	competition within the finance and real estate industries;

•	the legislative/regulatory environment, including, but not limited to, the impact of the Dodd-Frank Act, U.S. government programs intended to grow the economy, future changes to tax laws, the federal conservatorship of Fannie Mae and Freddie Mac and legislation that permits modification of the terms of residential mortgage loans;

•	the risk that the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and collectively with Fannie Mae, the Government Sponsored Enterprises (“GSEs”) or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs;

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

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

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

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

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

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•	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.

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Government-Sponsored Enterprise and Government Guaranteed Loans. This category of residential mortgage loans includes “conforming loans,” which are first lien residential mortgage loans that are secured by single-family residences that meet or “conform” to the underwriting standards established by the GSEs. The conforming loan limit is established by statute and currently is $453,100 with certain exceptions for high-priced real estate markets. This category also includes residential mortgage loans issued to borrowers that do not meet conforming loan standards, but who qualify for a loan that is insured or guaranteed by the government through the Government National Mortgage Association (“Ginnie Mae” and, collectively with the GSEs, the “Agencies” (with each of Fannie Mae, Freddie Mac and Ginnie Mae an “Agency”)), primarily through federal programs operated by the Federal Housing Administration (“FHA”) and the Department of Veterans Affairs.

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Non-GSE or Government Guaranteed Loans. Residential mortgage loans that are not guaranteed by the GSEs or the government are generally referred to as “non-conforming loans” and fall into one of the following categories: jumbo, subprime, Alt-A, second lien or non-qualifying loans. The loans may be non-conforming due to various factors, including mortgage balances in excess of Agency underwriting guidelines, borrower characteristics, loan characteristics and level of documentation.

•	Jumbo. Jumbo mortgage loans have original principal amounts that exceed the statutory conforming limit for GSE loans. Jumbo borrowers generally have strong credit histories and provide full loan documentation, including verification of income and assets.

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•	Subprime. Subprime mortgage loans are generally issued to borrowers with weak credit histories, who make low or no down payments on the properties they purchase or have limited documentation of their income or assets. Subprime borrowers generally pay higher interest rates and fees than prime borrowers.

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Alt-A. Alt-A mortgage loans are generally issued to borrowers with risk profiles that fall between prime and subprime. These loans have one or more high-risk features, such as the borrower having a high debt-to-income ratio, limited documentation verifying the borrower’s income or assets, or the option of making monthly payments that are lower than required for a fully amortizing loan. Alt-A mortgage loans generally have interest rates that fall between the interest rates on conforming loans and subprime loans.

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Second Lien. Second mortgages and home equity lines are often referred to as second liens and fall into a separate category of the residential mortgage market. These loans typically have higher interest rates than loans secured by first liens because the lender generally will only receive proceeds from a foreclosure of a property after the first lien holder is paid in full. In addition, these loans often feature higher loan-to-value ratios and are less secure than first lien mortgages.

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Non-QM. Non-QM loans are loans that do not meet the Qualified Mortgage rules per the Consumer Financial Protection Bureau. These loans commonly have features including, but not limited to, debt-to-income ratios exceeding 43%, interest only payment terms, loan terms exceeding 30 years and ability to repay based on stated income and asset verification. Non-QM loans are generally issued to borrowers that are self-employed, have high debt-to-income ratio or have high net worth with liquid assets.

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•	Servicer Advances Receivable. The outstanding servicer advances related to a specified pool of mortgage loans in which we own the MSR.

•	Servicer Advance Investments. These investments are associated with specified pools of mortgage loans and include the related outstanding servicer advances, the requirement to purchase future servicer advances and the rights to the basic fee component of the related MSR. We have purchased Servicer Advance Investments on certain loan pools underlying our Excess MSRs.

•	Principal and Interest Advances: Cash payments made by the servicer to cover scheduled payments of principal of, and interest on, a residential mortgage loan that have not been paid on a timely basis by the borrower.

•	Escrow Advances (Taxes and Insurance Advances): Cash payments made by the servicer to third parties on behalf of the borrower for real estate taxes and insurance premiums on the property that have not been paid on a timely basis by the borrower.

•	Foreclosure Advances: Cash payments made by the servicer to third parties for the costs and expenses incurred in connection with the foreclosure, preservation and sale of the mortgaged property, including attorneys’ and other professional fees.

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•	acquiring bonds issued by the securitization at a discount, prior to initiating the call, such that the portion of the payment we make to the trust, which is returned to us as bondholders when the call is exercised, exceeds our purchase price for the bonds;

•	re-securitizing or selling performing loans for a gain; and

•	retaining distressed loans to modify or liquidate over time at a premium to our basis (which results in increases in our portfolio of residential mortgage loans and REO).

•	Servicing Related Investments

•	Operating Entities (Origination, Servicing)

•	Servicing related businesses

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•	MSRs, including MSR financing receivables (consisting of MSRs owned by NRM or NewRez in which we acquired the legal interest in the MSR, but, solely for accounting purposes, the acquisition was not treated as a sale);

•	Excess MSRs;

•	Servicer Advance Investments (which include servicer advance receivables, the requirement to make future servicer advances, and the rights to receive the base fee portion of the related MSR, in each case relating to the mortgage loans underlying MSRs or Excess MSRs); and

•	Servicer advances receivable related to our MSRs investments;

•	Residential Securities and Loans

•	Real estate securities, or RMBS; and

•	Residential mortgage loans;

•	Consumer Loans

•	Corporate

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•	interest rate swap agreements, interest rate cap agreements, exchange-traded derivatives and swaptions;

•	puts and calls on securities or indices of securities;

•	U.S. Treasury securities and options on U.S. Treasury securities;

•	TBAs; and

•	other similar transactions.

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•	rates of prepayment and repayment of the underlying loans;

•	potential fluctuations in prevailing interest rates and credit spreads;

•	rates of delinquencies and defaults, and related loss severities;

•	costs of engaging a subservicer to service MSRs;

•	market discount rates;

•	in the case of MSRs and Excess MSRs, recapture rates; and

•	in the case of Servicer Advance Investments and servicer advances receivable, the amount and timing of servicer advances and recoveries.

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payments on the servicer advances and the deferred servicing fees depend on the source of repayment, and whether and when the related servicer receives such payment (certain servicer advances are reimbursable only out of late payments and other collections and recoveries on the related residential mortgage loan, while others are also reimbursable out of principal and interest collections with respect to all residential mortgage loans serviced under the related servicing agreement, and as a consequence, the timing of such reimbursement is highly uncertain);

•	the length of time necessary to obtain liquidation proceeds may be affected by conditions in the real estate market or the financial markets generally, the availability of financing for the acquisition of the real estate and other factors, including, but not limited to, government intervention;

•	the length of time necessary to effect a foreclosure may be affected by variations in the laws of the particular jurisdiction in which the related mortgaged property is located, including whether or not foreclosure requires judicial action;

•	the requirements for judicial actions for foreclosure (which can result in substantial delays in reimbursement of servicer advances and payment of deferred servicing fees), which vary from time to time as a result of changes in applicable state law; and

•	the ability of the related servicer to sell delinquent residential mortgage loans to third parties prior to a sale of the underlying real estate, resulting in the early reimbursement of outstanding unreimbursed servicer advances in respect of such residential mortgage loans.

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•	its failure to comply with applicable laws and regulations;

•	its failure to comply with contractual and financing obligations and covenants;

•	a downgrade in, or failure to maintain, any of its servicer ratings;

•	its failure to maintain sufficient liquidity or access to sources of liquidity;

•	its failure to perform its loss mitigation obligations;

•	its failure to perform adequately in its external audits;

•	a failure in or poor performance of its operational systems or infrastructure;

•	regulatory or legal scrutiny or regulatory actions regarding any aspect of a servicer’s operations, including, but not limited to, servicing practices and foreclosure processes lengthening foreclosure timelines;

•	an Agency’s or a whole-loan owner’s transfer of servicing to another party; or

•	any other reason.

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•	By regulatory actions taken against our Servicing Partners;

•	By a default by one of our Servicing Partners under their debt agreements;

•	By downgrades in our Servicing Partners’ servicer ratings;

•	If our Servicing Partners fail to ensure their servicer advances comply with the terms of their Pooling and Servicing Agreements (“PSAs”);

•	If our Servicing Partners were terminated as servicer under certain PSAs;

•	If our Servicing Partners become subject to a bankruptcy proceeding; or

•	If our Servicing Partners fail to meet their obligations or are deemed to be in default under the indenture governing notes issued under any servicer advance facility with respect to which such Servicing Partner is the servicer.

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•	Was made to or for the benefit of a creditor;

•	Was for or on account of an antecedent debt owed by such servicer before that transfer was made;

•	Was made while such servicer was insolvent (a company is presumed to have been insolvent on and during the 90 days preceding the date the company’s bankruptcy petition was filed);

•	Was made on or within 90 days (or if we are determined to be a statutory insider, on or within one year) before such servicer’s bankruptcy filing;

•	Permitted us to receive more than we would have received in a Chapter 7 liquidation case of such servicer under U.S. bankruptcy laws; and

•	Was a payment as to which none of the statutory defenses to a preference action apply.

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•	risks related 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;

•	a general risk in foreclosure rates, which may ultimately reduce the number of mortgages that we service (also see-“The residential mortgage loans underlying the securities we invest in and the loans we directly invest in are subject to delinquency, foreclosure and loss, which could result in losses to us.”);

•	maintaining the size of the related servicing portfolio and the volume of the origination business;

•	compliance with FHA underwriting guidelines; and

•	termination of government mortgage refinancing programs.

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•	the loss or suspension of licenses and approvals necessary to operate our or our subsidiaries’ business;

•	limitations, restrictions or complete bans on our or our subsidiaries’ business or various segments of our business;

•	our or our subsidiaries’ disqualification from participation in governmental programs, including GSE, Ginnie Mae, and VA programs;

•	breaches of covenants and representations under our servicing, debt, or other agreements;

•	negative publicity and damage to our reputation;

•	governmental investigations and enforcement actions;

•	administrative fines and financial penalties;

•	litigation, including class action lawsuits;

•	civil and criminal liability;

•	termination of our servicing and subservicing agreements or other contracts;

•	demands for us to repurchase loans;

•	loss of personnel who are targeted by prosecutions, investigations, enforcement actions or litigation;

•	a significant increase in compliance costs;

•	a significant increase in the resources we and our subsidiaries devote to regulatory compliance and regulatory inquiries;

•	an inability to access new, or a default under or other loss of current, liquidity and funding sources necessary to operate our business;

•	restrictions on our or our subsidiaries’ business activities;

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•	impairment of assets; and

•	an inability to execute on our business strategy.

•	adversely affect NewRez’s ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac;

•	adversely affect NewRez’s and/or New Residential’s ability to finance servicing advance receivables and certain other assets;

•	lead to the early termination of existing advance facilities and affect the terms and availability of advance facilities that we may seek in the future;

•	cause NewRez’s termination as servicer in our servicing agreements that require NewRez to maintain specified servicer ratings; and

•	further impair NewRez’s ability to consummate future servicing transactions.

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•	interest rates and credit spreads;

•	the availability of credit, including the price, terms and conditions under which it can be obtained;

•	the quality, pricing and availability of suitable investments;

•	the ability to obtain accurate market-based valuations;

•	the ability of securities dealers to make markets in relevant securities and loans;

•	loan values relative to the value of the underlying real estate assets;

•	default rates on the loans underlying our investments and the amount of the related losses, and credit losses with respect to our investments;

•	prepayment and repayment rates, delinquency rates and legislative/regulatory changes with respect to our investments, and the timing and amount of servicer advances;

•	the availability and cost of quality Servicing Partners, and advance, recovery and recapture rates;

•	competition;

•	the actual and perceived state of the real estate markets, bond markets, market for dividend-paying stocks and public capital markets generally;

•	unemployment rates; and

•	the attractiveness of other types of investments relative to investments in real estate or REITs generally.

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•	compliance with the terms of the agreements governing the securitized pools of loans, including any indemnification and repurchase provisions;

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reliance on programs administered by the GSEs and Ginnie Mae that facilitate the issuance of mortgage-backed securities in the secondary market and the effect of any changes or modifications thereto (see-“GSE initiatives and other actions, including changes to the minimum servicing amount for GSE loans, could occur at any time and could impact us in significantly negative ways that we are unable to predict or protect against” and -“The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between these agencies and the U.S. government, may adversely affect our business”); and

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•	federal and state legislation in securitizations, such as the risk retention requirements under the Dodd-Frank Act, could result in higher costs of certain lending operations and impose on us additional compliance requirements to meet servicing and origination criteria for securitized mortgage loans.

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•	the integration of the portfolio into our applicable subservicer’s information technology platforms and servicing systems;

•	the quality of servicing during any interim servicing period after we purchase the portfolio but before our applicable subservicer assumes servicing obligations from the seller or its agents;

•	the disruption to our ongoing businesses and distraction of our management teams from ongoing business concerns;

•	incomplete or inaccurate files and records;

•	the retention of existing customers;

•	the creation of uniform standards, controls, procedures, policies and information systems;

•	the occurrence of unanticipated expenses; and

•	potential unknown liabilities associated with the transactions, including legal liability related to origination and servicing prior to the acquisition.

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We have limited experience acquiring MSRs and operating a servicer. Although ownership of MSRs and the operation of a servicer includes many of the same risks as our other target assets and business activities, including risks related to prepayments, borrower credit, defaults, interest rates, hedging, and regulatory changes, there can be no assurance that we will be able to successfully operate a servicer subsidiary and integrate MSR investments into our business operations.

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As of today, we rely on subservicers to subservice the mortgage loans underlying our MSRs on our behalf. We are generally responsible under the applicable Servicing Guidelines for any subservicer’s non-compliance with any such applicable Servicing Guideline. In addition, there is a risk that our current subservicers will be unwilling or unable to continue subservicing on our behalf on terms favorable to us in the future. In such a situation, we may be unable to locate a replacement subservicer on favorable terms.

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NRM’s and NewRez’s existing approvals from government-related entities or federal agencies are subject to compliance with their respective servicing guidelines, minimum capital requirements, reporting requirements and other conditions that they may impose from time to time at their discretion. Failure to satisfy such guidelines or conditions could result in the unilateral termination of NRM’s or NewRez’s existing approvals or pending applications by one or more entities or agencies.

•	NRM and NewRez are presently licensed, approved, or otherwise eligible to hold MSRs in all states within the United States and the District of Columbia. Such state licenses may be suspended or revoked by a state regulatory authority, and we may as a result lose the ability to own MSRs under the regulatory jurisdiction of such state regulatory authority.

•	Changes in minimum servicing compensation for Agency loans could occur at any time and could negatively impact the value of the income derived from any MSRs that we hold or may acquire in the future.

•	Investments in MSRs are highly illiquid and subject to numerous restrictions on transfer and, as a result, there is risk that we would be unable to locate a willing buyer or get approval to sell any MSRs in the future should we desire to do so.

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part of the income and gain recognized by certain qualified employee pension trusts with respect to our stock may be treated as unrelated business taxable income if shares of our stock are predominantly held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;

•	part of the income and gain recognized by a tax-exempt investor with respect to our stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the stock; and

•	to the extent that we are (or a part of us, or a disregarded subsidiary of ours, is) a “taxable mortgage pool,” or if we hold residual interests in a real estate mortgage investment conduit (“REMIC”), a portion of the distributions paid to a tax exempt stockholder that is allocable to excess inclusion income may be treated as unrelated business taxable income.

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•	a shift in our investor base;

•	our quarterly or annual earnings and cash flows, or those of other comparable companies;

•	actual or anticipated fluctuations in our operating results;

•	changes in accounting standards, policies, guidance, interpretations or principles;

•	announcements by us or our competitors of significant investments, acquisitions or dispositions;

•	the failure of securities analysts to cover our common stock;

•	changes in earnings estimates by securities analysts or our ability to meet those estimates;

•	market performance of affiliates and other counterparties with whom we conduct business;

•	the operating and stock price performance of other comparable companies;

•	our failure to qualify as a REIT, maintain our exemption under the 1940 Act or satisfy the NYSE listing requirements;

•	negative public perception of us, our competitors or industry;

•	overall market fluctuations; and

•	general economic conditions.

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•	a classified board of directors with staggered three-year terms;

•	provisions regarding the election of directors, classes of directors, the term of office of directors, the filling of director vacancies and the resignation and removal of directors for cause only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;

•	provisions regarding corporate opportunity only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;

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•	removal of directors only for cause and only with the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote in the election of directors;

•	our board of directors to determine the powers, preferences and rights of our preferred stock and to issue such preferred stock without stockholder approval;

•	advance notice requirements applicable to stockholders for director nominations and actions to be taken at annual meetings;

•	a prohibition, in our certificate of incorporation, stating that no holder of shares of our common stock will have cumulative voting rights in the election of directors, which means that the holders of a majority of the issued and outstanding shares of common stock can elect all the directors standing for election; and

•	a requirement in our bylaws specifically denying the ability of our stockholders to consent in writing to take any action in lieu of taking such action at a duly called annual or special meeting of our stockholders.

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(A)

No award shall be granted on or after May 15, 2023 (but awards granted may extend beyond this date). The number of securities remaining available for future issuance is net of an aggregate of 259,766 shares of our common stock and 7,000 options awarded to our directors, the shares being awarded in lieu of contractual cash compensation. The number of securities remaining available for future issuance is adjusted on the first day of each fiscal year beginning during the ten-year term of the plan and in and after calendar year 2014, by a number of shares of our common stock equal to 10% of the number of shares of our common stock newly issued by us during the immediately preceding fiscal year (and, in the case of fiscal year 2013, after the effective date of the Plan). No adjustment was made on January 1, 2014. On January 1, 2020, 2019, 2018 and 2017, 4,600,000 shares, 5,799,166 shares, 5,654,578 shares and 2,000,000 shares, respectively, were added to the number of securities remaining available for future issuance; all of these amounts have been included in the table above.

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(A)

We have five primary variables that impact our operating performance: (i) the current yield earned on our investments, (ii) the interest expense under the debt incurred to finance our investments, (iii) our operating expenses and taxes, (iv) our realized and unrealized gains or losses, including any impairment, on our investments, and (v) income from our origination and servicing businesses. “Core earnings” is a non-GAAP measure of our operating performance, excluding the fourth variable above and adjusts the earnings from the consumer loan investment to a level yield basis. Core earnings is used by management to evaluate our performance without taking into account: (i) realized and unrealized gains and losses, which although they represent a part of our recurring operations, are subject to significant variability and are generally limited to a potential indicator of future economic performance; (ii) incentive compensation paid to our Manager; (iii) non-capitalized transaction-related expenses; and (iv) deferred taxes, which are not representative of current operations.

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(A)	Includes results from July 3, 2018, the date of acquisition.

(B)	Includes loan origination fees of $421.3 million and $21.8 million in December 31, 2019 and December 31, 2018, respectively.

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

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

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

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(F)	Excludes $78.2 million and $4.0 million of gain on originated mortgage loans, held-for-sale, net for the year ended December 31, 2019 and 2018, respectively, related to the MSR Related Investments, Servicing, and Residential Mortgage Loans segments, as well as intercompany eliminations (Note 4 to our Consolidated Financial Statements).

(G)	Recorded in General and administrative expenses on the Consolidated Statements of Income.

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(A)	Includes results from July 3, 2018, the date of acquisition.

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

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

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

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

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

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

(A)	The MSR is a weighted average as of December 31, 2019, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

(B)	Serviced by Mr. Cooper and SLS, we also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 7 to our Consolidated Financial Statements) on $31.4 billion UPB underlying these Excess MSRs.

(A)	The MSR is a weighted average as of December 31, 2019, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

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

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

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

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

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

(F)	We also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 7 to our Consolidated Financial Statements) on $31.4 billion UPB underlying these Excess MSRs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(B)	Three month average constant prepayment rate, represents the annualized rate of the prepayments during the quarter as a percentage of the total amortized cost basis.

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(A)	The Agency RMBS portfolio consists of 100.0% fixed rate securities (based on amortized cost basis). See table above for details on rate resets of the floating rate securities.

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

(A)	Excludes $25.0 million face amount of bonds backed by consumer loans and $85.0 million face amount of bonds backed by corporate debt.

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

(C)

Ratings provided above were determined by third party rating agencies, represent the most recent credit ratings available as of the reporting date and may not be current. This excludes the ratings of the collateral underlying 340 bonds with a carrying value of $1,129.3 million which either have never been rated or for which rating information is no longer provided. We had no assets that were on negative watch for possible downgrade by at least one rating agency as of December 31, 2019.

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

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(E)	The current amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance for the quarter ended December 31, 2019.

(F)	Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $41.0 million and $3.4 million, respectively, for which no coupon payment is expected.

(G)	The weighted average loan size of the underlying collateral is $214.6 thousand.

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

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

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

(A)	The Non-Agency RMBS portfolio consists of 74.9% floating rate securities and 25.1% fixed rate securities (based on amortized cost basis).

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(A)	The weighted average life is based on the expected timing of the receipt of cash flows.

(B)	LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.

(C)	Represents the percentage of the total principal balance that is 60+ days delinquent.

(D)	The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.

(E)	Represents a 70% participation interest we hold in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB was $0.6 million at December 31, 2019. Approximately 45.6% of these loans outstanding have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.

(F)	FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.

(G)	Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.

(H)	Includes loans with evidence of credit deterioration since origination where it is probable that we will not collect all contractually required principal and interest payments. As of December 31, 2019, we have placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (J) below.

(I)	Includes $36.0 million and $26.9 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

(J)	Includes $107.7 million and $345.1 million UPB of non-agency mortgage loans underlying the SAFT 2013-1 securitization and MDST Trusts, respectively, which are carried at fair value based on New Residential’s election of the fair value option.

(K)	New Residential elected the fair value option to measure these loans at fair value on a recurring basis.

(A)	Weighted average original FICO score represents the FICO score at the time the loan was originated.

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

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(C)	12-Month CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the three months as a percentage of the total principal balance of the pool.

(D)	12-Month CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the three months as a percentage of the total principal balance of the pool.

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1)	Marked to Market Assets (“MTM Assets”): Assets that are marked to market through the statement of income. Changes in the value of these assets (a) are recorded on the statement of income, as unrealized gains or losses that impact net income, and (b) impact our Total New Residential Stockholders’ Equity (net book value).

2)

Other Comprehensive Income Assets (“OCI Assets”): Assets that are marked to market through the statement of comprehensive income. Changes in the value of these assets (a) are recorded on the statement of comprehensive income, as unrealized gains or losses, and therefore do not impact net income on the statement of income, and (b) impact our Total New Residential Stockholders’ Equity (net book value).

3)	Cost Assets: Assets that are not marked to market. Changes in value of these assets do not impact net income on the statement of income nor do they impact our Total New Residential Stockholders’ Equity (net book value).

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Access to Financing from Counterparties – Decisions by investors, counterparties and lenders to enter into transactions with us will depend upon a number of factors, such as our historical and projected financial performance, compliance with the terms of our current credit arrangements, industry and market trends, the availability of capital and our investors’, counterparties’ and lenders’ policies and rates applicable thereto, and the relative attractiveness of alternative investment or lending opportunities. Our business strategy is dependent upon our ability to finance certain of our investments at rates that provide a positive net spread.

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Impact of Expected Repayment or Forecasted Sale on Cash Flows – The timing of and proceeds from the repayment or sale of certain investments may be different than expected or may not occur as expected. Proceeds from sales of assets are unpredictable and may vary materially from their estimated fair value and their carrying value. Further, the availability of investments that provide similar returns to those repaid or sold investments is unpredictable and returns on new investments may vary materially from those on existing investments.

(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 repurchase agreements had approximately $84.1 million of associated accrued interest payable as of December 31, 2019.

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(D)	All of the Agency RMBS repurchase agreements have a fixed rate. Collateral amounts include approximately $5.3 billion of related trade and other receivables.

(E)

$6,788.4 million face amount of the Non-Agency RMBS repurchase agreements have LIBOR-based floating interest rates while the remaining $529.1 million face amount of the Non-Agency RMBS repurchase agreements have a fixed rate. This also includes repurchase agreements and related collateral of $7.5 million and $10.0 million, respectively, on retained consumer loan bonds and of $638.6 million and $744.4 million, respectively, on retained bonds collateralized by Agency MSRs.

(F)	All of these repurchase agreements have LIBOR-based floating interest rates.

(G)	All of these repurchase agreements have LIBOR-based floating interest rates.

(H)	Includes financing collateralized by receivables including claims from FHA on Ginnie Mae EBO loans for which foreclosure has been completed and for which we have made or intend to make a claim on the FHA guarantee.

(I)	Includes $217.3 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.75%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the interests in MSRs that secure these notes.

(J)

Includes: $1,250.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin ranging from 2.25% to 2.75%; $59.5 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.50%; and $1,337.1 million of public notes with fixed interest rates ranging from 3.55% to 4.62%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR financing receivables that secure these notes.

(K)

$1.9 billion face amount of the notes have a fixed rate while the remaining notes bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or a cost of funds rate, as applicable, and (ii) a margin ranging from 1.0% to 2.0%. 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 $5.6 million note payable to Mr. Cooper which includes a $2.1 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.88%, (ii) $105.3 million fair value of SAFT 2013-1 mortgage-backed securities issued with fixed interest rates ranging from 3.50% to 3.76% (see Note 13 for fair value details), (iii) $353.5 million of 2019-RPL 1 asset-backed notes held by third parties which include $0.3 million of REO and bear interest equal to 4.59% (see Note 13 for fair value details), (iv) $202.5 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.58% (see Note 13 for fair value details), and (v) $199.1 million of asset-backed notes held by third parties which include $1.5 million of REO and bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 1.25%.

(M)

Includes the SpringCastle debt, which is comprised of the following classes of asset-backed notes held by third parties: $734.7 million UPB of Class A notes with a coupon of 3.20% and a stated maturity date in May 2036; $70.4 million UPB of Class B notes with a coupon of 3.58% and a stated maturity date in May 2036; and $8.7 million UPB of Class C notes with a coupon of 5.06% and a stated maturity date in May 2036.

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(A)	Represents the average for the period the debt was outstanding.

(A)	Represents the average for the period the debt was outstanding.

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(A)	On the earlier of this date or the occurrence of an early amortization event or a target amortization event.

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(A)	The PLS1 Excess Spread Notes may be paid off on any payment date occurring on or after December 2019 upon 180 days written notice from the Borrowers or Noteholders.

(B)	The Agency MSRs Loan has a loan repayment date of July 11, 2022.

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(A)	Includes repurchase agreements and notes and bonds payable of $1.9 million and $4,724.1 million, respectively.

(B)	Includes repurchase agreements and notes and bonds payable of $27,915.8 million and $3,009.0 million, respectively.

(A)	Our unused borrowing capacity is available to us if we have additional eligible collateral to pledge and meet other borrowing conditions as set forth in the applicable agreements, including any applicable advance rate. We pay a 0.02% fee on the unused borrowing capacity.

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(A)	Interest is included based on the expected LIBOR curve that existed at December 31, 2019 and the scheduled maturities of our debt obligations.

(B)	Amounts reflect management fees and full expense reimbursements for the next 30 years, assuming no change in gross equity. Incentive fee is included for the amount currently outstanding as of December 31, 2019.

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(A)	See Note 14 regarding consolidated VIEs.

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

New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 19 - 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 originates, sells and securitizes 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 completed under their applicable policies and guidelines. New Residential generally retains the right to service the underlying residential mortgage loans sold and securitized by NewRez. NRM and NewRez are required to conduct aspects of their operations in accordance with applicable policies and guidelines published by FHA, Fannie Mae and Freddie Mac in order to maintain those approvals.

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

As of December 31, 2019, 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.

Basis of Accounting — The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP’’ or “US GAAP”). The consolidated financial statements include the accounts of New Residential and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. New Residential consolidates those entities in which it has control over significant operating, financial and investing decisions of the entity, as well as those entities deemed to be variable interest entities (“VIEs”) in which New Residential is determined to be the primary beneficiary. For entities over which New Residential exercises significant influence, but which do not meet the requirements for consolidation, New Residential uses the equity method of accounting whereby it records its share of the underlying income of such entities. Distributions from equity method investees are classified in the Statements of Cash Flows based on the cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

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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. New Residential believes that the carrying values of its investments are reasonable taking into consideration these risks along with estimated prepayments, financings, collateral values, payment histories, and other information. 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.

Additionally, 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 preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income — Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. For New Residential’s purposes, comprehensive income represents net income, as presented in the Consolidated Statements of Income, adjusted for unrealized gains or losses on securities available for sale.

INCOME RECOGNITION

Investments in Excess Mortgage Servicing Rights — Excess MSRs are aggregated into pools as applicable; each pool of Excess MSRs is accounted for in the aggregate. Interest income for Excess MSRs is accreted into interest income on an effective yield or “interest” method, based upon the expected excess mortgage servicing amount through the expected life of the underlying mortgages. Changes to expected cash flows result in a cumulative retrospective adjustment, which will be recorded in the period in which the change in expected cash flows occurs. Under the retrospective method, the interest income recognized for a reporting period is measured as the difference between the amortized cost basis at the end of the period and the amortized cost basis at the beginning of the period, plus any cash received during the period. The amortized cost basis is calculated as the present value of estimated future cash flows using an effective yield, which is the yield that equates all past actual and current estimated future cash flows to the initial investment. In addition, New Residential’s policy is to recognize interest income only on its Excess MSRs in existing eligible underlying mortgages. The difference between the fair value of Excess MSRs and their amortized cost basis is recorded as “Change in fair value of investments in excess mortgage servicing rights.” Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the Excess MSRs, and therefore may differ from their effective yields.

Investments in MSRs — MSRs are aggregated into pools as applicable; each pool of MSRs is accounted for in the aggregate. Income from MSRs is recorded in “Servicing revenue, net” and is comprised of three components: (i) income receivable from the MSRs, less (ii) amortization of the basis of the MSRs, plus or minus (iii) the mark-to-market on the MSRs. Amortization of the basis of the MSRs is based on the remaining UPB of the residential mortgage loans underlying the MSRs relative to their UPB at acquisition. Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the MSRs.

Investments in MSR Financing Receivables — In certain cases, New Residential has legally purchased MSRs or the right to the economic interest in MSRs; however, 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 records an investment in mortgage servicing rights financing receivables. Income from this investment (net of subservicing fees) is recorded as interest income, and New

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Residential has elected to measure the investment at fair value, with changes in fair value flowing through change in fair value of investments in mortgage servicing rights financing receivables in the Consolidated Statements of Income.

Servicer Advance Investments — New Residential accounts for its Servicer Advance Investments similarly to its investments in Excess MSRs. Interest income for Servicer Advance Investments is accreted into interest income on an effective yield or “interest” method, based upon the expected aggregate cash flows of the Servicer Advance Investments, including the basic fee component of the related MSR (but excluding any Excess MSR component) through the expected life of the underlying mortgages, net of a portion of the basic fee component of the MSR that New Residential remits to the servicer as compensation for the servicer’s servicing activities. Changes to expected cash flows result in a cumulative retrospective adjustment, which will be recorded in the period in which the change in expected cash flows occurs. Refer to “—Investments in Excess Mortgage Servicing Rights” for a description of the retrospective method. Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the Servicer Advance Investments, and therefore may differ from their effective yields.

Investments in Real Estate and Other Securities — Discounts or premiums are accreted into interest income on an effective yield or “interest” method, based upon a comparison of actual and expected cash flows, through the expected maturity date of the security. For securities acquired at a discount for credit quality (i.e., where it is probable at acquisition that New Residential will not collect all contractually required interest and principal repayments), the difference between contractual cash flows and expected cash flows at acquisition is not accreted (non-accretable difference). For these securities, the excess of expected cash flows over the carrying value (accretable yield) is recognized as interest income on an effective yield basis.

Depending on the nature of the investment, changes to expected cash flows may result in a prospective change to yield or a retrospective change which would include a catch up adjustment. Deferred fees and costs, if any, are recognized as an adjustment to the interest income over the terms of the securities using the interest method. Upon settlement of securities, the specific identification method is used to determine the excess (or deficiency) of net proceeds over the net carrying value of such security recognized as a realized gain (or loss) in the period of settlement.

Investments in Residential Mortgage Loans, REO and Consumer Loans — New Residential evaluates the credit quality of its loans, as of the acquisition date, for evidence of credit quality deterioration. Loans with evidence of credit deterioration since their origination, and where it is probable that New Residential will not collect all contractually required principal and interest payments, are Purchased Credit Deteriorated (“PCD”) loans. At acquisition, New Residential aggregates PCD loans into pools based on common risk characteristics and the aggregated loans are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows. The excess of the total cash flows (both principal and interest) expected to be collected over the carrying value of the PCD loans is referred to as the accretable yield. This amount is not reported on New Residential’s Consolidated Balance Sheets but is accreted into interest income at a level rate of return over the remaining estimated life of the pool of loans.

Loans where New Residential expects to collect all contractually required principal and interest payments are considered performing loans. Interest income on performing loans is accrued and recognized as interest income at their effective yield, which includes contractual interest and the amortization of purchase price discount or premium and deferred fees or expenses, and considers anticipated prepayment rates.

Loans acquired with the intent to sell and loans not acquired with the intent to sell that New Residential decides to sell are classified as held-for-sale. Loans held-for-sale are measured at the lower of cost or fair value, with valuation changes recorded in impairment. Purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred discounts or premiums are an adjustment to the basis of the loan and are included in the quarterly determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.

Residential mortgage loans, held-for-sale, at fair value are originated or acquired loans for which New Residential has elected to account for at fair value. Accordingly, we estimate the fair value of the residential mortgage loans, held-for-sale, at fair value at each reporting date and reflect the change in the fair value in the Consolidated Statements of Income.

For originated residential mortgage loans measured at fair value, we report the change in the fair value within gain on originated mortgage loans, held-for-sale, net in the consolidated statements of income. Fair value is generally determined using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to

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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.

For acquired residential mortgage loans measured at fair value, we report the change in the fair value within change in fair value of investments in residential mortgage loans in the consolidated statements of income. Fair value is generally determined by discounting the expected future cash flows using inputs such as default rates, prepayment speeds and discount rates.

Interest earned on residential mortgage loans measured at fair value are reported in other income.

Real estate owned (“REO”) assets are those individual properties acquired by New Residential or where New Residential receives the property in satisfaction of a debt (e.g., by taking legal title or physical possession). New Residential measures REO assets at the lower of cost or fair value, with valuation changes recorded in other income or impairment, as applicable.

Impairment of Securities — Securities are considered to be impaired when it is probable that New Residential will be unable to collect all principal or interest when due according to the contractual terms of the original agreements, or for securities purchased at a discount for credit quality or that represent retained beneficial interests in securitizations, when New Residential determines that it is probable that it will be unable to collect as anticipated.

The evaluation of a security’s estimated cash flows includes the following, as applicable: (i) review of the credit of the issuer or borrower, (ii) review of the credit rating of the security, (iii) review of the key terms of the security or underlying loans, (iv) review of the performance of the underlying loans, including debt service coverage and loan to value ratios, (v) analysis of the value of the underlying loans, (vi) analysis of the effect of local, industry and broader economic factors, and (vii) analysis of historical and anticipated trends in defaults, loss severities and prepayments for similar securities or underlying loans. New Residential must record a write down if it has the intent to sell a given security in an unrealized loss position, or if it is more likely than not that it will be required to sell such a security. Upon determination of impairment, New Residential records a direct write down for securities based on the estimated fair value of the security or underlying collateral using a discounted cash flow analysis or based on an observable market value. Subsequent to a determination of impairment, and a related write down, income on securities is accrued on an effective yield method from the new carrying value to the related expected cash flows, with cash received treated as a reduction of basis.

Impairment of Loans — To the extent that they are classified as held-for-investment, New Residential must periodically evaluate each of these loans or loan pools for possible impairment. Impairment is indicated when it is deemed probable that New Residential will be unable to collect all amounts due according to the contractual terms of the loan, or for PCD loans, when it is deemed probable that New Residential will be unable to collect as anticipated. Upon determination of impairment, New Residential establishes an allowance for loan losses with a corresponding charge to earnings.

Performing loans are aggregated into pools for the evaluation of impairment based on like characteristics, such as loan type and acquisition date. Pools of loans are evaluated based on criteria such as an analysis of borrower performance, credit ratings of borrowers, loan to value ratios, the estimated value of the underlying collateral, if any, the key terms of the loans and historical and anticipated trends in defaults and loss severities for the type and seasoning of loans being evaluated. This information is used to estimate provisions for estimated unidentified incurred losses on pools of loans. Significant judgment is required in determining impairment and in estimating the resulting loss allowance.

For PCD loans, New Residential estimates the total cash flows expected to be collected over the remaining life of each pool. Probable decreases in expected cash flows trigger the recognition of impairment. Impairments are recognized through the provision for loans and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated lives of the underlying loans.

A loan is determined to be past due when a monthly payment is due and unpaid for 30 days or more. Loans, other than PCD loans, are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan. New Residential’s ability to recognize

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interest income on nonaccrual loans as cash interest payments are received rather than as a reduction of the carrying value of the loans is based on the recorded loan balance being deemed fully collectible.

Loans held-for-sale are subject to the nonaccrual policy described above, however, as loans held-for-sale are recognized at the lower of cost or fair value, New Residential’s allowance for loan losses and charge-off policies do not apply to these loans.

Accretion and Other Amortization — As reflected on the consolidated statements of cash flows, this item is comprised of the following:

	Year Ended December 31,
	2019				2018				2017
Accretion of net discount on securities and loans(A)	$	323,652			$	452,500			$	398,213
Accretion of servicer advances receivable discount and servicer advance investments	28,094				214,876				542,983
Accretion of excess mortgage servicing rights income	32,647				44,440				103,053
Amortization of deferred financing costs	(4,019		)		(7,795		)		(12,076		)
Amortization of discount on notes and bonds payable	(1,245		)		(2,054		)		(789		)
	$	379,129			$	701,967			$	1,031,384

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

Other Income (Loss), Net — This item is comprised of the following:

	Year Ended December 31,
	2019				2018				2017
Unrealized gain (loss) on other ABS	$	2,101			$	10,283			$	2,883
Unrealized gain (loss) on notes and bonds payable	(1,236		)		(684		)		—
Unrealized gain (loss) on contingent consideration	(10,487		)		(1,581		)		—
Gain (loss) on transfer of loans to REO	11,842				19,519				22,938
Gain (loss) on transfer of loans to other assets	(1,144		)		(1,977		)		488
Gain (loss) on Excess MSR recapture agreements	2,294				979				2,384
Gain (loss) on Ocwen common stock	174				(10,860		)		5,346
Bargain Purchase Gain(A)	49,539				—				—
Rental and Ancillary Revenue	21,181				—				—
Other income (loss)	(30,115		)		(26,457		)		(27,741		)
	$	44,149			$	(10,778	)		$	6,298

(A)    Partly driven by certain transition, integration, relocation and training costs incurred by the Ditech Acquisition (Note 3).

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Gain (Loss) on Settlement of Investments, Net — This item is comprised of the following:

	Year Ended December 31,
	2019				2018				2017
Gain (loss) on sale of real estate securities, net	$	205,989			$	(29,936	)		$	20,642
Gain (loss) on sale of acquired residential mortgage loans, net	153,174				(7,677		)		39,731
Gain (loss) on settlement of derivatives	(129,923		)		54,867				(39,214		)
Gain (loss) on liquidated residential mortgage loans	(4,872		)		(3,734		)		(10,201		)
Gain (loss) on sale of REO	(11,521		)		(12,424		)		(9,215		)
Gains on settlement of investments in excess MSRs and servicer advance investments	—				113,002				11,320
Other gains (losses)	12,840				(19,013		)		(2,753		)
	$	225,687			$	95,085			$	10,310

EXPENSE RECOGNITION

Interest Expense — New Residential finances certain investments using floating rate repurchase agreements and loans. Interest is expensed as incurred.

General and Administrative Expenses, Loan Servicing Expense and Subservicing Expense — General and administrative expense primarily include employee compensation, legal fees, audit fees, insurance premiums, and other costs, as well as loan servicing and subservicing expenses, and are expensed as incurred. General and Administrative Expenses is comprised of the following:

	Year Ended December 31,
	2019				2018				2017
Compensation and benefits expense, servicing	$	121,004			$	47,084			$	184
Compensation and benefits expense, origination	164,485				62,786				—
Legal and professional expense	89,489				45,234				40,182
Loan origination expense	59,418				16,050				—
Occupancy expense	19,388				8,868				—
Other(A)	84,251				51,557				26,793
	$	538,035			$	231,579			$	67,159

(A)    Represents miscellaneous general and administrative expenses.

Management Fee and Incentive Compensation to Affiliate — These represent amounts due to the Manager pursuant to the Management Agreement. For further information on the Management Agreement, see Note 17.

BALANCE SHEET MEASUREMENT

Investments in Servicing Related Assets — Servicing related assets consist of New Residential’s Excess MSRs, MSRs, MSR Financing Receivables, and Servicer Advance Investments. Upon acquisition, New Residential has elected to record each of such investments at fair value. New Residential elected to record its investments at fair value in order to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors on servicing related assets. Under this election, New Residential records a valuation adjustment on its investments in servicing related assets on a quarterly basis to recognize the changes in fair value in net income as described in “Income Recognition — Investments in Excess Mortgage Servicing Rights,” “Income Recognition — Investments in MSRs” and “Income Recognition — Servicer Advance Investments.”

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The Company recognizes MSRs created through the sale of loans it originates. Under the accounting guidance for transfers and servicing, the Company initially measures a mortgage servicing asset that qualifies for separate recognition at fair value on the date of transfer.

Investments in Real Estate and Other Securities — New Residential has classified its investments in real estate and other securities as available for sale. Securities available for sale are carried at market value with the net unrealized gains or losses reported as a separate component of accumulated other comprehensive income, to the extent impairment losses are considered temporary. At disposition, the net realized gain or loss is determined on the basis of the amortized cost of the specific investments and is included in earnings. Unrealized losses on securities are charged to earnings if they reflect a decline in value that is other-than-temporary.

Investments in Residential Mortgage Loans and Consumer Loans — Loans for which New Residential has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified as held-for-investment. Performing loans held-for-investment are presented at the aggregate unpaid principal balance adjusted for any unamortized premium or discount, deferred fees or expenses, an allowance for loan losses, charge-offs and write-down for impaired loans. PCD loans held-for-investment are initially recorded at their purchase price at acquisition and are subsequently measured net of any allowance for loan losses. To the extent that the loans are classified as held-for-investment, New Residential periodically evaluates such loans for possible impairment as described in “—Impairment of Loans.”

Loans which New Residential does not have the intent or the ability to hold into the foreseeable future are considered held-for-sale and are either carried at (i) the lower of their amortized cost basis or fair value or (ii) fair value where elected. New Residential discontinues the accretion of discounts or amortization of premiums on loans if they are reclassified from held-for-investment to held-for-sale.

Mortgage Loan Repurchases — NewRez, as an approved issuer of Ginnie Mae MBS, originates, sells and securitizes government-insured residential mortgage loans into Ginnie Mae guaranteed securitizations and NewRez retains the right to service the underlying residential mortgage loans. As the servicer, NewRez, holds an option to repurchase delinquent loans from the securitization at its discretion (the “Ginnie Mae Buy-Back Option”). In accordance with the accounting guidance in ASC 860, NewRez recognizes any delinquent loans subject to the Ginnie Mae Buy-Back Option and an offsetting repurchase liability on its balance sheet regardless of whether NewRez executes its option to repurchase.

Cash and Cash Equivalents and Restricted Cash — New Residential considers all highly liquid short-term investments with maturities of 90 days or less when purchased to be cash equivalents. Substantially all amounts on deposit with major financial institutions exceed insured limits. As of December 31, 2019 and 2018, New Residential held: (i) $64.0 million and $60.0 million, respectively, of restricted cash related to the financing of servicer advances that has been pledged to the note holders for interest and fees payable, (ii) $0.0 million and $1.9 million, respectively, of restricted cash related to financing requirements of the corporate notes secured by Excess MSRs (Note 12), (iii) $4.7 million and $4.1 million, respectively, of restricted cash related to Ginnie Mae Excess MSRs, (iv) $32.4 million and $37.6 million, respectively, of restricted cash related to the financing of consumer loans, and (v) $61.1 million and $60.4 million, respectively, of restricted cash related to MSRs.

Servicer Advances Receivable — Represents servicer advances due to New Residential’s servicer subsidiary, NRM (Note 6). The servicer advances receivable purchased in conjunction with MSRs are recorded with purchase discounts. Subsequent advances are recorded at cost, subject to impairment. Any related purchase discounts are accreted into servicing revenue, net (MSRs) or interest income (MSR financing receivables) on a straight-line basis over the estimated weighted average life of the advances.

Income Taxes — New Residential operates so as to qualify as a REIT under the requirements of the Internal Revenue Code of 1986, as amended. Requirements for qualification as a REIT include various restrictions on ownership of New Residential’s stock, requirements concerning distribution of taxable income and certain restrictions on the nature of assets and sources of income. A REIT must distribute at least 90% of its taxable income to its stockholders (subject to certain adjustments). Distributions may extend until timely filing of New Residential’s tax return in the subsequent taxable year. Qualifying distributions of taxable income are deductible by a REIT in computing taxable income.

Certain activities of New Residential are conducted through taxable REIT subsidiaries (“TRSs”) and therefore are subject to federal and state income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases upon the change in tax status. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable

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income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

New Residential recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the consolidated statements of operations.

Other Assets and Other Liabilities — Other assets and liabilities are comprised of the following:

	Other Assets									Accrued Expenses and Other Liabilities
	December 31,									December 31,
	2019				2018					2019				2018
Margin receivable, net(A)	$	280,176			$	145,857			MSRs purchase price holdback	75,348				100,593
Servicing fee receivables	159,607				105,563				Interest payable	68,668				49,352
Due from servicers	163,961				95,261				Accounts payable	119,771				75,591
Principal and interest receivable	85,191				76,015				Derivative liabilities (Note 11)	6,885				29,389
Equity investment(B)	114,763				74,323				Due to servicers	127,846				95,419
Other receivables	117,045				23,723				Residential mortgage loan repurchase liability	172,336				121,602
Real Estate Owned	93,672				113,410				Contingent Consideration	55,222				40,842
Single-family rental properties	24,133				—				Accrued Compensation and Benefits	41,228				17,656
Residential mortgage loans subject to repurchase	172,336				121,602				Excess spread financing, at fair value	31,777				39,304
Consumer loans, equity method investees (Note 10)	—				38,294				Operating lease liability	38,520				—
Goodwill	29,737				24,645				Reserve for sales recourse	12,549				5,880
Notes Receivable(D)	37,001				—				Other liabilities	22,976				36,484
Warrants	28,042				—					$	773,126			$	612,112
Recovery asset(E)	23,100				—
Property and equipment	18,018				11,263
Receivable from government agency(C)	19,670				20,795
Intangible assets	40,963				18,708
Prepaid expenses	19,249				29,165
Operating lease right-of-use asset	32,120				—
Derivative assets (Note 11)	41,501				10,893
Ocwen common stock, at fair value	7,952				7,778
Other assets	51,230				44,419
	$	1,559,467			$	961,714

 

(A)	Represents collateral posted primarily as a result of changes in fair value of our 1) real estate securities securing our repurchase agreements and 2) derivative instruments.

(B)	Represents equity investments in funds that invest in 1) a commercial redevelopment project and 2) operating companies in the single family housing industry. The indirect investments are accounted for at fair value based on the net asset value (“NAV”) of New Residential’s investment and as an equity method investment, respectively.

(C)	Represents claims receivable from the FHA on EBO and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.

(D)	Represents a four-year subordinated debt facility to Covius (Note 3).

(E)	Represents post loan charge off deficiency balances acquired through the Ditech Acquisition (Note 3).

Goodwill — As a result of the Shellpoint and Guardian acquisitions, New Residential recorded goodwill for the consideration transferred in excess of the fair value of the net identifiable assets acquired. New Residential performs an annual assessment of

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goodwill on October 1 and in interim periods in case of events or circumstances that make it more likely than not that an impairment may have occurred. New Residential did not recognize any impairment this year.

Intangible Assets — As a result of the Shellpoint, Guardian and Ditech acquisitions, New Residential identified intangible assets in the form of licenses, customer relationships, business relationships, and tradename. New Residential recorded the intangible assets at fair value at the acquisition date and will amortize the value of finite lived intangibles into expense over the expected useful life. The licenses acquired as part of the Shellpoint acquisition and the tradename acquired as part of the Guardian acquisition were deemed to have an indefinite useful life and will be evaluated for impairment on a quarterly basis and the fair value will be assessed annually and in interim periods if indicators of impairment exist. New Residential performs an annual assessment of impairment on October 1 and in interim periods in case of events or circumstances that make it more likely than not that an impairment may have occurred. New Residential did not recognize any impairment this year.

Repurchase Agreements and Notes and Bonds Payable — New Residential’s repurchase agreements are generally short-term debt that expire within one year. Such agreements and notes and bonds payable are carried at their contractual amounts, as specified by each repurchase or financing agreement, and generally treated as collateralized financing transactions.

Mortgage Origination Reserves — NewRez originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. In connection with the transfer of loans to the GSEs or mortgage investors, NewRez provides representations and warranties regarding certain attributes of the loans and, subsequent to the sale, if it is determined that a sold loan is in breach of these representations and warranties, NewRez generally has an obligation to cure the breach. If NewRez is unable to cure the breach, the purchaser may require NewRez to repurchase the loan. New Residential records a reserve for sales recourse at the time of sale to cover all potential recourse obligations based on the outstanding balance of mortgage loans subject to recourse as well as historical and estimated future loss rates. New Residential evaluates the ongoing adequacy of the reserve based on actual experience and changing circumstances, making adjustments to the reserve as deemed necessary.

Recent Accounting Pronouncements

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

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that lessees recognize a right-of-use asset and corresponding lease liability on the balance sheet for most leases. The guidance applied by a lessor under ASU No. 2016-02 is substantially similar to existing GAAP. ASU No. 2016-02 is effective for New Residential in the first quarter of 2019. Early adoption is permitted upon issuance. An entity should apply ASU No. 2016-02 by means of a modified retrospective transition method for all leases existing at, or entered into after, the date of initial application. The adoption of ASU No. 2016-02 did not have a material impact on the consolidated financial statements, and the amount of New Residential future lease commitments has been deemed as immaterial (see Note 16 for details).

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. The standard requires that a financial asset measured at amortized cost basis be presented at the net amount expected to be collected, net of an allowance for all expected (rather than incurred) credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The standard also changes the accounting for purchased credit deteriorated assets and available-for-sale securities, which will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. ASU No. 2016-13 is effective for New Residential in the first quarter of 2020, and early adoption was permitted beginning in 2019. An entity should apply ASU No. 2016-13 by means of a cumulative-effect adjustment to the balance sheet as

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of the beginning of the fiscal year of adoption. New Residential is still evaluating and expects to recognize a cumulative-effect adjustment to the balance sheet upon adoption. The standard provides an option to elect fair value option for certain investments as an alternative to adopting ASU No. 2016-13. New Residential expects to elect fair value option on its residential mortgage and consumer loans portfolios, and expects to record a positive adjustments of $5.9 million to retained earnings, comprised of a decrease of $6.0 million due to the change in fair value of residential mortgage loans, and an increase of $11.9 million due to the change in fair value of consumer loans, net of noncontrolling interests.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other Than Inventory. The standard requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU No. 2016-16 was effective for New Residential in the first quarter of 2018. The adoption of ASU No. 2016-16 did not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (Topic 805). The standard simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment test. Under the new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but it is limited to the carrying value of goodwill. ASU No. 2017-04 is effective for New Residential in the first quarter of 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. New Residential is early adopting the standard for 2019. The adoption of ASU No. 2017-04 did not have a material impact on the financial statements.

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

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

New Residential completed the Shellpoint acquisition in 2018 and the Guardian and Ditech acquisitions in 2019 as part of its strategy to expand its residential origination, servicing and asset management capabilities. New Residential accounted for these transactions using the acquisition method which requires, among other things, that the assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. In a business combination, the initial allocation of the purchase price is considered preliminary and therefore subject to change until the end of the measurement period (up to one year from the acquisition date). Goodwill is calculated as the excess of the purchase price over the net assets recognized and represents synergies and benefits expected to result from combining operations and adding in-house servicing, asset origination and recapture capabilities.

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Purchase Price Allocation

New Residential has performed an allocation of the total consideration paid to acquire the assets and liabilities of the companies acquired, as set forth below.

		2019												2018
		Ditech				Guardian				Total				Shellpoint
Total Consideration ($ in millions)		$	1,218.2			$	21.5			$	1,239.7			$	425.5
Assets
Mortgage servicing rights, at fair value(A)		$	387.2			$	—			$	387.2			$	286.6
Residential mortgage loans, held-for-investment, at fair value		—				—				—				125.3
Residential mortgage loans, held-for-sale, at fair value		627.4				—				627.4				488.2
Residential mortgage loans subject to repurchase		—				—				—				121.4
Cash and cash equivalents		—				1.8				1.8				79.2
Restricted cash		—				—				—				9.9
Servicer Advance Receivable		238.0				—				238.0				22.4
Intangible assets(B) (C) (D)		10.5				11.7				22.2				18.4
Other assets(E)		64.8				6.6				71.4				59.1
Total Assets Acquired		$	1,327.9			$	20.1			$	1,348.0			$	1,210.5
Liabilities
Repurchase agreements		$	—			$	—			$	—			$	439.6
Notes and bonds payable		—				—				—				20.7
Mortgage-backed securities issued, at fair value		—				—				—				120.7
Residential mortgage loans repurchase liability		—				—				—				121.4
Excess spread financing, at fair value		—				—				—				48.3
Accrued expenses and other liabilities		60.2				3.7				63.9				50.6
Total Liabilities Assumed		$	60.2			$	3.7			$	63.9			$	801.3
Noncontrolling Interest		$	—			$	—			$	—			$	8.3
Net Assets		$	1,267.7			$	16.4			$	1,284.1			$	400.9
Goodwill (Bargain Purchase Gain)		$	(49.5	)		$	5.1			$	(44.4	)		$	24.6

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

(B)	Includes intangible assets acquired as part of the Ditech acquisition in the form of correspondent customer relationships and servicing contracts tied to the recovery of defaulted loans. These intangibles will be amortized over a finite life of three years based on the expected useful life of these intangibles.

(C)

Includes intangible assets acquired as part of the Guardian acquisition in the form of customer relationships and a tradename. Customer relationships will be amortized over a finite life of seven years based on the expected useful life of these intangibles. New Residential has determined that the tradename has an indefinite useful life and will be evaluated for impairment given no legal, regulatory, contractual, competitive or economic factors that would limited useful life.

(D)

Includes intangible assets acquired as part of the Shellpoint acquisition in the form of mortgage origination and servicing licenses, internally developed software and a tradename. New Residential determined that mortgage origination and servicing licenses have an indefinite useful life and will be evaluated for impairment given no legal, regulatory, contractual, competitive or economic factors that would limit the useful life. Internally developed software will be amortized over a

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finite useful life of five years and tradenames were fully amortized over six months, respectively, based on the expected software development timeline and New Residential’s determination of the time to change a tradename with limited value.

(E)	Includes post loan charge off deficiency balances acquired through the Ditech Acquisition.

Throughout the measurement period for the Ditech and Guardian acquisitions, the allocation of total consideration may differ from the amounts included herein to reflect new information obtained, primarily related to the valuation of intangible assets acquired as part of both acquisitions. Any measurement period adjustments that New Residential identifies and determines to be material will be applied retrospectively to the period of acquisition, as well as any applicable subsequent periods.

Acquisition of select Assets and Liabilities from Ditech Holding Corporation

On June 17, 2019, New Residential, entered into a “stalking-horse” Asset Purchase Agreement (the “APA”) with Ditech Holding Corporation, a Maryland corporation (“Holding”), and Ditech Financial LLC, a Delaware limited liability company (“Financial” and together with Holding, the “Sellers” or “Ditech”) to acquire certain assets and assume certain liabilities under the APA based on the value of the acquired assets and assumed liabilities as calculated in accordance with the terms of the APA, subject to certain adjustments. Ditech filed voluntary petitions for relief under Chapter 11 of the Bankruptcy code, in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”).

The proposed sale was conducted through a Bankruptcy Court-supervised process, subject to Bankruptcy Court-approved bidding procedures, with the potential receipt of higher or better offers from competing bidders at auction, the approval of the sale by the Bankruptcy Court, and the satisfaction of certain conditions. As the stalking horse bidder, the Company’s offer to acquire the assets and assume the liabilities, as set forth in the APA, set the standard by which any other qualifying bids would be evaluated. Upon conclusion of the competitive bidding process, Ditech decided to proceed with New Residential’s stalking horse bid, as amended and sought the Bankruptcy Court’s approval.

On October 1, 2019, New Residential Investment Corp (“Ditech Purchaser”) completed the acquisition (“Ditech Acquisition”) contemplated by the APA dated June 17, 2019, as amended, by and among the Ditech Purchaser and Ditech. Pursuant to the APA, Ditech sold, transferred, and assigned to the Ditech Purchaser (and its certain designated subsidiaries) the acquired assets, as defined in the APA, and the Ditech Purchaser (and its certain designated subsidiaries) assumed the liabilities, as defined in the APA, for cash consideration of $1.2 billion.

The acquisition included certain Fannie Mae, Ginnie Mae and non-agency MSRs, the servicer advance receivables relating to such MSRs and other assets core to certain origination and servicing businesses at Ditech. Additionally, New Residential assumed certain Ditech office spaces and added approximately 1,100 Ditech employees to support the increase in volume to its existing origination and servicing operations.

The acquisition of assets from the bankruptcy estate of Ditech along with the subsequent hiring of Ditech employees was accounted for as a business acquisition rather than an asset acquisition. Upon completing the Ditech Acquisition, the consideration transferred by the Ditech Purchaser for the acquired assets and assumed liabilities was determined to be less than the net assets acquired from Ditech resulting in an economic gain (“Bargain Purchase”). New Residential completed the required reassessment to validate that all assets acquired and liabilities assumed on the acquisition date had been identified and appropriately measured in accordance with ASC 805. Based on the reassessment, the transaction resulted in a Bargain Purchase gain of $49.5 million, which has been included in Other income (loss), net within the Consolidated Statements of Income for the year ended December 31, 2019. The Bargain Purchase gain resulted from certain transition, integration, relocation and training costs that were factored into the purchase price and identified as future liabilities, of which approximately $22.9 million were incurred during the year ended December 31, 2019. The results of Ditech’s operations have been included in New Residential’s Consolidated Statements of Income for the year ended December 31, 2019 from the date of acquisition and represent $134.5 million and $104.7 million of revenue and net income, respectively.

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The acquisition date fair value of the consideration transferred includes $1.2 billion in cash consideration and $4.9 million in effective settlement of preexisting relationships. The total consideration is summarized as follows:

Total Consideration (in millions)		Amount
Cash Consideration		$	1,213.3
Effective Settlement of Preexisting Relationships(A)		4.9
Total Consideration		$	1,218.2

(A)

Represents the effective settlement of preexisting relationships between New Residential and Ditech related to operating accounts receivable and payable existing prior to the acquisition date. The effective settlement of these preexisting relationships had no impact to New Residential’s Consolidated Statements of Income. New Residential recognized the effective settlement of preexisting relationships separately from the acquisition of assets and assumption of liabilities in the business combination.

Unaudited Supplemental Pro Forma Financial Information — The following table presents unaudited pro forma combined Servicing and Origination Revenue, which is comprised of 1) servicing revenue, net and 2) gain on originated mortgage loans, held-for-sale, net, and Income Before Income Taxes for the years ended December 31, 2019 and 2018 prepared as if the Ditech Acquisition had been consummated on January 1, 2018.

		Years Ended December 31,
		2019				2018
Pro Forma (in millions)
Servicing and Origination Revenue		$	1,104.0			$	1,238.1
Income Before Income Taxes		552.8				923.3

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

Acquisition of Guardian Asset Management

On August 19, 2019, NRZ Guardian Purchaser LLC (“Guardian Purchaser”), entered into an agreement to acquire 100% of the shares of DDG RE Investments LLC d/b/a Guardian Asset Management (“Guardian”).

On September 3, 2019, the Guardian Purchaser acquired 100% of the outstanding interests of Guardian for cash consideration of $7.6 million (“Guardian Acquisition”). As additional consideration for the Guardian Acquisition, the Guardian Purchaser may make up to four cash earnout payments, which will be calculated as the amount of cumulative Guardian earnings on specified contracts in excess of certain thresholds up to a maximum of $17.5 million (the “Guardian Earnout Payments”). The Guardian Earnout Payments are classified as contingent consideration recorded at fair value at the acquisition date and included in the total consideration transferred for the Guardian Acquisition. The contingent consideration is subsequently measured at fair value on a quarterly basis with changes in fair value recorded in Other income (loss), net.

Guardian is a field services and asset management business and provides New Residential with in-house property management, inspection and repair service capabilities. The results of Guardian's operations have been included in New Residential's Consolidated Statements of Income for the year ended December 31, 2019 from the date of acquisition and represent $14.4 million and $2.9 million of revenue and net income, respectively.

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The acquisition date fair value of the consideration transferred includes $7.6 million in cash consideration and $13.9 million in contingent consideration. The total consideration is summarized as follows:

Total Consideration (in millions)		Amount
Cash Consideration		$	7.6
Earnout Payment(A)		13.9
Total Consideration		$	21.5

(A)	The range of outcomes for this contingent consideration is from $0 to $17.5 million dependent on the performance of Guardian.

The goodwill of $5.1 million primarily includes the benefits expected to result from adding in-house property management and repair services has been allocated to the Servicing reporting segment. The full amount of goodwill of $5.1 million is expected to be deductible for tax purposes. New Residential will assess the goodwill annually on October 1 and in interim periods in case of events or circumstances make it more likely than not that an impairment may have occurred. Based on New Residential’s assessment performed, there were no indicators of impairment as of December 31, 2019.

Unaudited Supplemental Pro Forma Financial Information — The following table presents unaudited pro forma combined Income Before Income Taxes for the years ended December 31, 2019 and 2018 prepared as if the Guardian Acquisition had been consummated on January 1, 2018.

		Years Ended December 31,
		2019				2018
Pro Forma (in millions)
Income Before Income Taxes		$	651.5			$	932.2

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

Acquisition of Shellpoint Partners LLC

On November 29, 2017, NRM Acquisition LLC (the “Shellpoint Purchaser”), a Delaware limited liability company and a wholly owned subsidiary of New Residential, entered into a Securities Purchase Agreement (the “Shellpoint SPA”) to acquire Shellpoint Partners LLC, a Delaware limited liability company (“Shellpoint”). Shellpoint is a vertically integrated mortgage platform with established origination and servicing capabilities and provides New Residential with in-house servicing, asset origination and recapture capabilities.

On July 3, 2018, the Shellpoint Purchaser acquired 100% of the outstanding equity interests of Shellpoint for a cash purchase price of $212.3 million (the “Shellpoint Acquisition”). As additional consideration for the Shellpoint Acquisition, the Shellpoint Purchaser may make up to three cash earnout payments, which will be calculated following each of the first three anniversaries of the Shellpoint closing as a percentage of the amount by which the pre-tax income of certain of Shellpoint’s businesses exceeds certain specified thresholds, up to an aggregate maximum amount of $60.0 million (the “Shellpoint Earnout Payments”). The Shellpoint Earnout Payments are classified as contingent consideration recorded at fair value at the acquisition date and included in the total consideration transferred for the Shellpoint Acquisition. The contingent consideration is subsequently measured at fair value on a quarterly basis with changes in fair value recorded in Other income (loss), net. As of December 31, 2019, New Residential had paid out $10.0 million of the Shellpoint Earnout Payments and is expected to pay the remaining amounts by September 2021. Once a payment has been made the sellers have no requirement to refund the payment even if the business does not exceed the specified thresholds in subsequent periods.

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The results of Shellpoint’s operations have been included in the Company’s Consolidated Statements of Income for the years ended December 31, 2019 and 2018 and represent $780.7 million and $177.4 million of revenue and $359.0 million and $26.8 million of net income, respectively.

The acquisition date fair value of the consideration transferred includes $212.3 million in cash consideration, $39.3 million in contingent consideration and $173.9 million in effective settlement of preexisting relationships. The total consideration is summarized as follows:

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

(A)

The range of outcomes for this contingent consideration is from $0 to $60.0 million, dependent on the performance of Shellpoint. At acquisition date, New Residential derived a fair value of the remaining contingent consideration payment in three years of $39.3 million. This amount excludes contingent payments to the long-term employee incentive plans that require continuing employment and are recognized as compensation expense within General and Administrative expenses in the post-acquisition consolidated financial statements separate from New Residential’s acquisition of assets and assumption of liabilities in the business combination. As of December 31, 2019, the contingent consideration had a fair value of $40.9 million.

(B)	Represents the effective settlement of preexisting relationships between New Residential and Shellpoint. The effective settlement of these preexisting relationships had no impact to New Residential’s Consolidated Statements of Income.

The final amount and allocation of total consideration reflects certain measurement period adjustments identified during the fourth quarter of 2018, including the effect on earnings that would have been recorded during the third quarter of 2018 had the accounting been completed at the acquisition date. Such measurement period adjustments included 1) a decrease of $3.5 million in the amount of contingent consideration based upon finalization of the internal valuation, 2) a decrease of $6.4 million to consideration transferred for the effective settlement of existing relationships, 3) an increase of $14.1 million to the fair value of identifiable intangible assets based upon receipt of the final valuation report from a third-party valuation firm, and 4) an increase of $0.3 million to other assets due to a decrease in the fair value discount on certain servicing advance receivables. These measurement period adjustments resulted in a corresponding decrease to goodwill in the amount of $24.3 million.

The goodwill of $24.6 million primarily includes the synergies and benefits expected to result from combining operations with Shellpoint and adding in-house servicing, asset origination and recapture capabilities and has been allocated to the Servicing and Origination reporting segment. The full amount of goodwill for tax purposes of $24.6 million is expected to be deductible. New Residential will assess the goodwill annually on October 1 and in interim periods in case of events or circumstances make it more likely than not that an impairment may have occurred. Based on New Residential’s assessment performed, there were no indicators of impairment as of December 31, 2019.

Certain transactions were recognized separately from New Residential’s acquisition of assets and assumption of liabilities in the business combination. These separately recognized transactions include 1) contingent payments to Shellpoint’s employees and 2) effective settlement of preexisting relationships discussed above, including 1) MSR acquisitions, 2) a note payable and 3) operating accounts receivable and payable existing prior to the acquisition date.

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Unaudited Supplemental Pro Forma Financial Information — The following table presents unaudited pro forma combined Servicing and Origination Revenue, which is comprised of 1) servicing revenue, net and 2) gain on originated mortgage loans, held-for-sale, net, and Income Before Income Taxes for the years ended December 31, 2018 and 2017 prepared as if the Shellpoint Acquisition had been consummated on January 1, 2017.

		Years Ended December 31,
		2018				2017
Pro Forma (in millions)
Servicing and Origination Revenue		$	767.0			$	749.0
Income Before Income Taxes		948.1				1,197.5

The unaudited supplemental pro forma financial information has not been adjusted for transactions other than the Shellpoint Acquisition, or for the conforming of accounting policies. The unaudited supplemental pro forma financial information does not include any anticipated synergies or other anticipated benefits of the Shellpoint Acquisition and, accordingly, the unaudited supplemental pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the Shellpoint Acquisition occurred on January 1, 2017.

Strategic Investment in Covius Holdings Inc.

On May 1, 2019, New Residential made a strategic investment in Covius, a leading provider of technology-enabled services to the mortgage industry. Covius provides settlement and title, document and letter fulfillment, regulatory compliance, quality assurance, commercial and residential loan due diligence and business process automation services. New Residential invested $27.3 million in common stock for a non-controlling interest in Covius, with an option to increase its ownership position through specified future investments and $35.0 million in a four-year subordinated debt facility.

New Residential determined that the investment should be accounted for under the equity method of accounting since it has the ability to exercise significant influence over the investee’s operating and financial policies. As the consideration transferred for the investment was greater than the net equity of the investment (“basis differences”), the company allocated the basis difference in a manner consistent with business combination accounting resulting in goodwill of $11.8 million, and intangible assets primarily in the form of customer backlog and tradename of $3.6 million. Goodwill and intangibles are included as part of Equity investments within Other assets on the Consolidated Balance Sheets. The results of the investment have been included in New Residential's Consolidated Statements of Income for the year ended December 31, 2019 from the date of the Company’s investment.

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

 

During the fourth quarter of 2019, due to the acquisition of select assets and liabilities from Ditech Holding Corporation that are core to the forward origination and servicing businesses of NewRez, New Residential reevaluated the composition of its reportable segments based on the significance of certain business activities to its operations and performance evaluation, which drive resource allocation. The change to reportable segments is primarily the disaggregation of the origination and servicing businesses from the MSR Related Investments. The new Origination segment includes the origination activities of NewRez and its related title and appraisal ancillary businesses, Avenue 365 and eStreet. The new Servicing segment includes the servicing activities of NewRez. The MSR Related Investments segment includes MSRs, MSR Financing Receivables, Excess MSRs, Servicer Advances Receivable and Servicer Advance Investments, as well as investments in servicing related businesses, including Covius and Guardian. Segment

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information for prior periods have been restated to reflect this change. Securities owned by New Residential that are collateralized by servicer advances and consumer loans are included in the MSR Related Investments and Consumer Loans segments, respectively. Secured corporate loans effectively collateralized by Excess MSRs are included in the MSR Related Investments segment.

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

		Servicing and Origination																				Residential Securities and Loans
		Origination				Servicing				MSR Related Investments				Elimination(A)				Total Servicing and Origination				Real Estate Securities				Residential Mortgage Loans				Consumer Loans				Corporate				Total
Year Ended December 31, 2019
Interest income		$	42,166			$	34,013			$	530,225			$	—			$	606,404			$	744,145			$	249,673			$	165,877			$	31			$	1,766,130
Interest expense		41,949				1,043				246,294				—				289,286				453,609				158,298				32,558				—				933,751
Net interest income (expense)		217				32,970				283,931				—				317,118				290,536				91,375				133,319				31				832,379
Impairment		—				—				—				—				—				25,174				(20,607		)		31,010				—				35,577
Servicing revenue, net		(1,605		)		184,763				250,580				(48,579		)		385,159				—				—				—				—				385,159
Gain on originated mortgage loans, held-for-sale, net		397,252				1,029				52,991				(51,360		)		399,912				—				75,543				—				—				475,455
Other income (loss)		9,340				5,859				(144,231		)		—				(129,032		)		20,929				75,385				(9,999		)		1,618				(41,099		)
Operating expenses		258,729				145,813				344,430				(48,579		)		700,393				3,160				52,745				22,540				189,780				968,618
Income (Loss) Before Income Taxes		146,475				78,808				98,841				(51,360		)		272,764				283,131				210,165				69,770				(188,131		)		647,699
Income tax (benefit) expense		39,768				21,396				23,744				(14,179		)		70,729				—				(28,461		)		(502		)		—				41,766
Net Income (Loss)		$	106,707			$	57,412			$	75,097			$	(37,181	)		$	202,035			$	283,131			$	238,626			$	70,272			$	(188,131	)		$	605,933
Noncontrolling interests in income (loss) of consolidated subsidiaries		$	6,231			$	—			$	4,255			$	—			$	10,486			$	—			$	—			$	32,151			$	—			$	42,637
Dividends on Preferred Stock		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	13,281			$	13,281
Net income (loss) attributable to common stockholders		$	100,476			$	57,412			$	70,842			$	(37,181	)		$	191,549			$	283,131			$	238,626			$	38,121			$	(201,412	)		$	550,015

		Servicing and Origination																				Residential Securities and Loans
		Origination				Servicing				MSR Related Investments				Elimination(A)				Total Servicing and Origination				Real Estate Securities				Residential Mortgage Loans				Consumer Loans				Corporate				Total
December 31, 2019
Investments		$	1,414,528			$	—			$	6,773,353			$	—			$	8,187,881			$	19,477,728			$	5,843,983			$	827,545			$	—			$	34,337,137
Cash and cash equivalents		77,237				32,225				318,714				—				428,176				87,359				1,180				6,514				5,508				528,737
Restricted cash		6,730				15,769				107,328				—				129,827				—				—				32,370				—				162,197
Other assets		250,709				204,723				3,420,122				—				3,875,554				5,590,456				174,940				78,740				85,956				9,805,646
Goodwill		11,836				12,809				5,092				—				29,737				—				—				—				—				29,737
Total assets		$	1,761,040			$	265,526			$	10,624,609			$	—			$	12,651,175			$	25,155,543			$	6,020,103			$	945,169			$	91,464			$	44,863,454
Debt		$	1,304,621			$	33,412			$	6,646,159			$	—			$	7,984,192			$	22,151,110			$	4,676,849			$	824,222			$	—			$	35,636,373
Other liabilities		117,328				51,264				451,629				—				620,221				980,415				55,121				16,795				318,269				1,990,821
Total liabilities		1,421,949				84,676				7,097,788				—				8,604,413				23,131,525				4,731,970				841,017				318,269				37,627,194
Total equity		339,091				180,850				3,526,821				—				4,046,762				2,024,018				1,288,133				104,152				(226,805		)		7,236,260
Noncontrolling interests in equity of consolidated subsidiaries		11,354				—				45,025				—				56,379				—				—				22,171				—				78,550
Total New Residential stockholders’ equity		$	327,737			$	180,850			$	3,481,796			$	—			$	3,990,383			$	2,024,018			$	1,288,133			$	81,981			$	(226,805	)		$	7,157,710
Investments in equity method investees		$	—			$	—			$	165,848			$	—			$	165,848			$	—			$	—			$	—			$	—			$	165,848

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		Servicing and Origination(B)																				Residential Securities and Loans
		Origination				Servicing				MSR Related Investments				Elimination(A)				Total Servicing and Origination				Real Estate Securities				Residential Mortgage Loans				Consumer Loans				Corporate				Total
Year Ended December 31, 2018
Interest income		$	12,430			$	8,148			$	703,387			$	—			$	723,965			$	573,539			$	158,892			$	206,321			$	1,506			$	1,664,223
Interest expense		10,018				264				232,063				—				242,345				240,615				80,910				42,563				—				606,433
Net interest income (expense)		2,412				7,884				471,324				—				481,620				332,924				77,982				163,758				1,506				1,057,790
Impairment		—				—				—				—				—				30,017				12,061				48,563				—				90,641
Servicing revenue, net		(450		)		63,006				476,224				(10,185		)		528,595				—				—				—				—				528,595
Gain on originated mortgage loans, held-for-sale, net		100,160				—				4,396				(17,168		)		87,388				—				8,757				—				—				96,145
Other income (loss)		2,067				—				12,216				—				14,283				(72,926		)		7,699				9,965				(10,406		)		(51,385		)
Operating expenses		96,724				52,251				222,099				(10,185		)		360,889				1,554				32,424				35,230				179,307				609,404
Income (Loss) Before Income Taxes		7,465				18,639				742,061				(17,168		)		750,997				228,427				49,953				89,930				(188,207		)		931,100
Income tax (benefit) expense		—				—				(8,364		)		—				(8,364		)		—				(65,279		)		212				—				(73,431		)
Net Income (Loss)		$	7,465			$	18,639			$	750,425			$	(17,168	)		$	759,361			$	228,427			$	115,232			$	89,718			$	(188,207	)		$	1,004,531
Noncontrolling interests in income (loss) of consolidated subsidiaries		$	1,599			$	—			$	1,978			$	—			$	3,577			$	—			$	—			$	36,987			$	—			$	40,564
Dividends on Preferred Stock		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Net income (loss) attributable to common stockholders		$	5,866			$	18,639			$	748,447			$	(17,168	)		$	755,784			$	228,427			$	115,232			$	52,731			$	(188,207	)		$	963,967

		Servicing and Origination																				Residential Securities and Loans
		Origination				Servicing				MSR Related Investments				Elimination(A)				Total Servicing and Origination				Real Estate Securities				Residential Mortgage Loans				Consumer Loans				Corporate				Total
December 31, 2018
Investments		$	608,701			$	—			$	5,860,274			$	—			$	6,468,975			$	11,636,581			$	4,102,649			$	1,110,496			$	—			$	23,318,701
Cash and cash equivalents		40,741				35,886				160,244				—				236,871				49				927				8,279				4,932				251,058
Restricted cash		4,292				2,416				119,693				—				126,401				—				—				37,619				—				164,020
Other assets		43,412				84,432				3,382,348				—				3,510,192				4,080,202				131,282				64,802				146,111				7,932,589
Goodwill		11,836				12,809				—				—				24,645				—				—				—				—				24,645
Total assets		$	708,982			$	135,543			$	9,522,559			$	—			$	10,367,084			$	15,716,832			$	4,234,858			$	1,221,196			$	151,043			$	31,691,013
Debt		$	555,423			$	28,639			$	6,080,273			$	—			$	6,664,335			$	11,615,364			$	3,342,636			$	1,033,900			$	—			$	22,656,235
Other liabilities		468				4,591				515,156				—				520,215				2,111,868				8,916				13,572				291,912				2,946,483
Total liabilities		555,891				33,230				6,595,429				—				7,184,550				13,727,232				3,351,552				1,047,472				291,912				25,602,718
Total equity		153,091				102,313				2,927,130				—				3,182,534				1,989,600				883,306				173,724				(140,869		)		6,088,295
Noncontrolling interests in equity of consolidated subsidiaries		7,998				—				52,066				—				60,064				—				—				30,561				—				90,625
Total New Residential stockholders’ equity		$	145,093			$	102,313			$	2,875,064			$	—			$	3,122,470			$	1,989,600			$	883,306			$	143,163			$	(140,869	)		$	5,997,670
Investments in equity method investees		$	—			$	—			$	147,964			$	—			$	147,964			$	—			$	—			$	38,294			$	—			$	186,258

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

(B)	Includes results from July 3, 2018, the date of Shellpoint Acquisition (Note 3).

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		Servicing and Origination																				Residential Securities and Loans
		Origination				Servicing				MSR Related Investments				Elimination				Total Servicing and Origination				Real Estate Securities				Residential Mortgage Loans				Consumer Loans				Corporate				Total
Year Ended December 31, 2017
Interest income		$	—			$	—			$	713,413			$	—			$	713,413			$	431,706			$	110,087			$	263,844			$	629			$	1,519,679
Interest expense		—				—				233,587				—				233,587				122,997				51,473				52,808				—				460,865
Net interest income (expense)		—				—				479,826				—				479,826				308,709				58,614				211,036				629				1,058,814
Impairment		—				—				—				—				—				10,334				12,593				63,165				—				86,092
Servicing revenue, net		—				—				424,349				—				424,349				—				—				—				—				424,349
Gain on originated mortgage loans, held-for-sale, net		—				—				—				—				—				—				—				—				—				—
Other income (loss)		—				—				174,561				—				174,561				(16,371		)		16,175				28,075				5,346				207,786
Operating expenses		—				—				186,330				—				186,330				1,471				31,529				43,552				159,695				422,577
Income (Loss) Before Income Taxes		—				—				892,406				—				892,406				280,533				30,667				132,394				(153,720		)		1,182,280
Income tax (benefit) expense		—				—				166,186				—				166,186				—				1,272				170				—				167,628
Net Income (Loss)		$	—			$	—			$	726,220			$	—			$	726,220			$	280,533			$	29,395			$	132,224			$	(153,720	)		$	1,014,652
Noncontrolling interests in income of consolidated subsidiaries		$	—			$	—			$	11,227			$	—			$	11,227			$	—			$	—			$	45,892			$	—			$	57,119
Dividends on Preferred Stock		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Net income (loss) attributable to common stockholders		$	—			$	—			$	714,993			$	—			$	714,993			$	280,533			$	29,395			$	86,332			$	(153,720	)		$	957,533

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)				Ocwen(B)				Total
Balance as of December 31, 2017		$	532,233			$	2,913			$	638,567			$	1,173,713
Purchases		—				—				—				—
Interest income		44,386				54				—				44,440
Other income		6,444				—				40,417				46,861
Proceeds from repayments		(100,215		)		(632		)		(26,946		)		(127,793		)
Proceeds from sales		(19,084		)		—				—				(19,084		)
Change in fair value		(18,436		)		197				(40,417		)		(58,656		)
Ocwen Transaction (Note 6)		—				—				(611,621		)		(611,621		)
Balance as of December 31, 2018		445,328				2,532				—				447,860
Purchases		—				—				—				—
Interest income		32,587				60				—				32,647
Other income		3,851				—				—				3,851
Proceeds from repayments		(83,612		)		(419		)		—				(84,031		)
Proceeds from sales		(10,075		)		—				—				(10,075		)
Change in fair value		(10,387		)		(118		)		—				(10,505		)
Balance as of December 31, 2019		$	377,692			$	2,055			$	—			$	379,747

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

(B)	Ocwen Loan Servicing LLC, a subsidiary of Ocwen Financial Corporation (together with its subsidiaries, including Ocwen Loan Servicing LLC, “Ocwen”), services the loans underlying the Excess MSRs and Servicer Advance Investments.

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 7).

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

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

	December 31, 2019
	UPB of Underlying Mortgages				Interest in Excess MSR						Weighted Average Life Years(A)		Amortized Cost Basis(B)				Carrying Value(C)
					New Residential(D)		Fortress-managed funds		Mr. Cooper
Agency
Original and Recaptured Pools	$	43,310,917			32.5% - 66.7% (53.3%)		0.0% - 40.0%		20.0% - 35.0%		5.5		$	178,603			$	209,633
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools	$	45,034,320			33.3% - 100.0% (59.4%)		0.0% - 50.0%		0.0% - 33.3%		6.5		$	124,875			$	170,114
Total	$	88,345,237									5.9		$	303,478			$	379,747

	December 31, 2018
	UPB of Underlying Mortgages				Interest in Excess MSR						Weighted Average Life Years(A)		Amortized Cost Basis(B)				Carrying Value(C)
					New Residential(D)		Fortress-managed funds		Mr. Cooper
Agency
Original and Recaptured Pools	$	52,368,290			32.5% - 66.7% (53.3%)		0.0% - 40.0%		20.0% - 35.0%		5.6		$	218,797			$	257,387
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools	$	54,058,073			33.3% - 100.0% (59.4%)		0.0% - 50.0%		0.0% - 33.3%		5.8		$	142,530			$	190,473
Total	$	106,426,363									6.1		$	361,327			$	447,860

(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 December 31, 2019 and 2018 (Note 7) on $31.4 billion and $40.1 billion UPB, respectively, underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:

	Year Ended December 31,
	2019				2018				2017
Original and Recaptured Pools	$	(10,505	)		$	(58,656	)		$	4,322

As of December 31, 2019 and 2018, weighted average discount rates of 7.8% and 8.8%, respectively, were used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).

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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:

	December 31,
	2019				2018
Excess MSR assets	$	226,843			$	269,203
Other assets	25,035				27,411
Other liabilities	(687		)		(687		)
Equity	$	251,191			$	295,927
New Residential’s investment	$	125,596			$	147,964
New Residential’s ownership	50.0		%		50.0		%

	Year Ended December 31,
	2019				2018				2017
Interest income	$	23,872			$	26,363			$	27,450
Other income (loss)	(10,208		)		(9,649		)		(2,149		)
Expenses	(64		)		—				(68		)
Net income	$	13,600			$	16,714			$	25,233

New Residential’s investments in equity method investees changed during the years ended December 31, 2019 and 2018 as follows:

	2019				2018
Balance at beginning of period	$	147,964			$	171,765
Contributions to equity method investees	—				—
Distributions of earnings from equity method investees	(8,999		)		(11,059		)
Distributions of capital from equity method investees	(20,169		)		(21,099		)
Change in fair value of investments in equity method investees	6,800				8,357
Balance at end of period	$	125,596			$	147,964

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

	December 31, 2019
	Unpaid Principal Balance				Investee Interest in Excess MSR(A)		New Residential Interest in Investees		Amortized Cost Basis(B)				Carrying Value(C)				Weighted Average Life (Years)(D)
Agency
Original and Recaptured Pools	$	33,592,554			66.7%		50.0%		$	168,807			$	226,843			5.4

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	December 31, 2018
	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	$	41,707,963			66.7%		50.0%		$	198,261			$	269,203			5.5

(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.

A subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), engages third party licensed mortgage servicers as 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” on New Residential’s Consolidated Statements of Income. As of December 31, 2019, these subservicers include PHH, Mr. Cooper, LoanCare, Ditech and Flagstar, which subservice 23.5%, 19.9%, 17.9%, 9.1%, and 1.0% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and MSR Financing Receivables). The remaining 28.6% of the underlying UPB of the related mortgages is subserviced by the servicing division of NewRez.

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

In certain cases where New Residential has legally purchased MSRs or the right to the economic interest in MSRs, New Residential has determined that the purchase agreement would not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, New Residential has recorded an investment in MSR financing receivables (“MSR Financing Receivables”). Income from these investments, net of subservicing fees, are recorded as Interest income with changes in fair value flowing through Change in fair value of investments in MSR financing receivables in the Consolidated Statements of Income.

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

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The following table presents activity related to the carrying value of New Residential’s investments in MSRs and MSR Financing Receivables:

		MSRs				MSR Financing Receivables				Total
Balance as of December 31, 2017		$	1,735,504			$	598,728			$	2,334,232
Purchases, net(A)		1,042,933				128,357				1,171,290
Transfers(B)		124,652				(124,652		)		—
New Ocwen Agreements		—				1,017,993				1,017,993
Shellpoint Acquisition (Note 3)(C)		151,312				—				151,312
Originations(D)		35,311				—				35,311
Proceeds from sales		(5,776		)		(7,472		)		(13,248		)
Amortization of servicing rights(F)		(258,068		)		(197,703		)		(455,771		)
Change in valuation inputs and assumptions(G)		61,149				230,036				291,185
(Gain)/loss on sales		(2,917		)		(783		)		(3,700		)
Balance as of December 31, 2018		$	2,884,100			$	1,644,504			$	4,528,604
Purchases, net(A)		690,049				735,152				1,425,201
Transfers(B)		367,121				(367,121		)		—
Other transfers(H)		(410		)		—				(410		)
Ditech Acquisition (Note 3)		387,170				—				387,170
Originations(D)		374,450				—				374,450
Prepayments(E)		(11,625		)		(82,250		)		(93,875		)
Proceeds from sales		(1,539		)		(22,989		)		(24,528		)
Amortization of servicing rights(F)		(537,111		)		(203,732		)		(740,843		)
Change in valuation inputs and assumptions(G)		(187,530		)		21,094				(166,436		)
(Gain)/loss on sales		3,285				(6,385		)		(3,100		)
Balance as of December 31, 2019		$	3,967,960			$	1,718,273			$	5,686,233

(A)	Net of purchase price adjustments.

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

(C)	Includes $48.3 million of MSRs legally sold by NewRez treated as a secured borrowing as it did not meet the criteria for sale treatment. New Residential elected to record the excess spread financing liability at fair value pursuant to the fair value option.

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

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

(F)	Based on the ratio of the current UPB of the underlying residential mortgage loans relative to the original UPB of the underlying residential mortgage loans.

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

(H)	Represents Ginnie Mae MSRs repurchased.

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

	Year Ended December 31,
	2019				2018				2017
Servicing fee revenue	$	899,623			$	589,546			$	412,971
Ancillary and other fees	198,486				130,294				79,050
Servicing fee revenue and fees	1,098,109				719,840				492,021
Amortization of servicing rights(A)	(530,031		)		(256,915		)		(223,167		)
Change in valuation inputs and assumptions(B) (C)	(186,204		)		68,587				155,495
(Gain)/loss on sales(D)	3,285				(2,917		)		—
Servicing revenue, net	$	385,159			$	528,595			$	424,349

(A)	Includes $7.1 million, $1.2 million and $0.0 million of amortization to Excess spread financing for the years ended December 31, 2019, 2018, and 2017, respectively.

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

(C)	Includes $1.3 million, $7.4 million and $0.0 million of fair value adjustment to Excess spread financing for the years ended December 31, 2019, 2018, and 2017, respectively.

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

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

	Year Ended December 31,
	2019				2018				2017
Servicing fee revenue	$	513,172			$	705,812			$	94,945
Ancillary and other fees	119,570				146,829				17,313
Less: subservicing expense	(196,726		)		(251,184		)		(33,686		)
Interest income, investments in MSR financing receivables	$	436,016			$	601,457			$	78,572

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

	Year Ended December 31,
	2019				2018				2017
Amortization of servicing rights	$	(203,732	)		$	(197,703	)		$	(43,190	)
Change in valuation inputs and assumptions(A)	21,094				230,036				109,584
(Gain)/loss on sales(B)	(6,385		)		(783		)		—
Change in fair value of investments in MSR financing receivables	$	(189,023	)		$	31,550			$	66,394

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

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

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The following is a summary of New Residential’s investments in MSRs and MSR Financing Receivables as of December 31, 2019 and 2018:

	UPB of Underlying Mortgages				Weighted Average Life (Years)(A)		Amortized Cost Basis				Carrying Value(B)
2019
MSRs:
Agency(C)	$	315,427,933			5.1		$	3,179,556			$	3,319,035
Non-Agency	6,402,833				5.4		12,437				20,283
Ginnie Mae(D)	52,019,295				4.6		614,855				628,642
MSR Financing Receivables:
Agency(C)	54,866,978				4.7		582,600				547,351
Non-Agency	76,117,892				7.6		808,149				1,170,922
Total	$	504,834,931			5.4		$	5,197,597			$	5,686,233
2018
MSRs:
Agency(C)	$	226,295,778			6.4		$	2,189,039			$	2,506,676
Non-Agency	2,143,212				6.6		19,982				22,438
Ginnie Mae(D)	30,023,713				7.4		357,673				354,986
MSR Financing Receivables:
Agency(C)	42,265,547				5.9		366,946				434,110
Non-Agency	88,251,018				7.2		936,792				1,210,394
Total	$	388,979,268			6.6		$	3,870,432			$	4,528,604

(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 December 31, 2019 and 2018, weighted average discount rates of 7.8% and 8.7%, respectively, were used to value New Residential’s investments in MSRs, respectively. As of December 31, 2019 and 2018, weighted average discount rates of 8.9% and 10.3%, respectively, were used to value New Residential’s investments in MSR financing receivables.

(C)	Represents Fannie Mae and Freddie Mac MSRs.

(D)

NewRez, as an approved issuer of Ginnie Mae MBS, originates, sells and securitizes government-insured residential mortgage loans into Ginnie Mae guaranteed securitizations and NewRez retains the right to service the underlying residential mortgage loans. As the servicer, NewRez holds an option to repurchase delinquent loans from the securitization at its discretion. As of December 31, 2019 and 2018, New Residential holds approximately $172.3 million and $121.6 million in residential mortgage loans subject to repurchase and residential mortgage loans repurchase liability on its Consolidated Balance Sheets.

Ocwen MSR Financing Receivable Transactions

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

On January 18, 2018, New Residential entered into a new agreement regarding the rights to MSRs (the “New Ocwen RMSR Agreement”) including a servicing addendum thereto (the “Ocwen Servicing Addendum”), Amendment No. 1 to Transfer

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Agreement (the “New Ocwen Transfer Agreement”) and a Brokerage Services Agreement (the “Ocwen Brokerage Services Agreement” and, collectively, the “New Ocwen Agreements”) with Ocwen. The New Ocwen Agreements amend and supplement the arrangements among the parties set forth in the Original Ocwen Agreements, the Ocwen Master Agreement, the Ocwen Transfer Agreement, and the Ocwen Subservicing Agreement (together with the Original Ocwen Agreements, the Ocwen Master Agreement, and the Ocwen Transfer Agreement, the “Existing Ocwen Agreements”). NRM made a lump-sum “Fee Restructuring Payment” of $279.6 million to Ocwen on January 18, 2018, the date of the New Ocwen RMSR Agreement, with respect to such Existing Ocwen Subject MSRs.

Under the Existing Ocwen Agreements, Ocwen sold and transferred to New Residential certain “Rights to MSRs” and other assets related to mortgage servicing rights for loans with an unpaid principal balance of approximately $86.8 billion as of the opening balances in January 2018 (the “Existing Ocwen Subject MSRs”). The New Ocwen Agreements and NRM’s Fee Restructuring Payment resulted in a new investment structured as a transfer of the full interests and economics of the Ocwen subject MSRs.

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

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

As of December 31, 2019, MSRs representing approximately $66.7 billion UPB of underlying loans have been transferred to NRM and NewRez pursuant to the Ocwen Transaction. Economics related to the remaining MSRs subject to the Ocwen Transaction were transferred pursuant to the New Ocwen Agreements. As a result of the length of the initial term of the related subservicing agreement between NRM, NewRez and Ocwen, although the MSRs transferred pursuant to the Ocwen Transaction were legally sold, solely for accounting purposes, New Residential determined that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to NRM or NewRez, and that the purchase agreement would not be treated as a sale under GAAP.

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

Mr. Cooper MSR Financing Receivable Transaction

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

United Shore MSR Financing Receivable Transactions

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

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Quicken MSR Financing Receivable Transaction

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

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

		Percentage of Total Outstanding Unpaid Principal Amount
State Concentration		December 31, 2019			December 31, 2018
California		21.9	%		21.7	%
Florida		6.9	%		6.9	%
New York		6.4	%		7.8	%
Texas		5.5	%		5.3	%
New Jersey		4.9	%		5.0	%
Illinois		3.6	%		3.7	%
Massachusetts		3.4	%		3.5	%
Washington		3.3	%		2.3	%
Georgia		3.1	%		3.0	%
Maryland		3.0	%		3.4	%
Other U.S.		38.0	%		37.4	%
		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

NewRez performs servicing of residential mortgage loans for third parties under subservicing agreements. Mortgage subservicing does not meet the criteria to be recognized as a servicing right asset and, therefore, is not recognized on New Residential’s consolidated balance sheets. The UPB of residential mortgage loans subserviced for others as of December 31, 2019 was $71.2 billion and subservicing revenue of $137.4 million is included within Servicing revenue, net in the Consolidated Statements of Income.

Servicer Advances Receivable

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

In addition to receiving cash flows from the MSRs, NRM and NewRez, as servicers, have the obligation to fund future servicer advances on the underlying pool of mortgages (Note 16). These servicer advances are recorded when advanced and are included in Servicer Advances Receivable on the Consolidated Balance Sheets.

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

		December 31,
		2019				2018
Principal and interest advances		$	660,807			$	793,790
Escrow advances (taxes and insurance advances)		2,427,384				2,186,831
Foreclosure advances		163,054				199,203
Total(A) (B) (C)		$	3,251,245			$	3,179,824

(A)	Includes $562.2 million and $231.2 million of servicer advances receivable related to Agency MSRs, respectively, recoverable from the Agencies.

(B)	Includes $166.5 million and $41.6 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from Ginnie Mae. Reserves for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a nonreimbursable advance loss assumption.

(C)	Net of $50.1 million and $98.0 million, respectively, in accruals for advance recoveries.

New Residential’s Servicer Advances Receivable related to Non-Agency MSRs generally have the highest reimbursement priority (i.e., “top of the waterfall”) and New Residential is generally entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by New Residential as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, New Residential has a contractual right to be reimbursed by the subservicer. New Residential assesses the recoverability of Servicer Advance Receivables periodically and as of December 31, 2019 and December 31, 2018, expected full recovery of the Servicer Advance Receivables.

See Note 12 regarding the financing of MSRs.

All of New Residential’s Servicer Advance Investments are comprised 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 December 31, 2019. As of December 31, 2019, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of December 31, 2019, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $327.8 million and $305.2 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 Buyer has purchased servicer advances from Mr. Cooper, is required to purchase all future servicer advances made with respect to this portfolio of loans from Mr. Cooper, and receives cash flows from advance recoveries and the basic fee component of the related MSRs, net of compensation paid back to Mr. Cooper in consideration of Mr. Cooper’s servicing activities. The compensation paid to Mr. Cooper as of December 31, 2019 was approximately 9.2% of the basic fee component of the related MSRs plus a performance fee that represents a portion (up to 100%) of the cash flows in excess of those required for the Buyer to obtain a specified return on its equity.

New Residential has determined that the Buyer is a VIE. See Note 14 for information on the assets and liabilities related to this consolidated VIE.

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New Residential also acquired a portion of the call rights related to this portfolio of loans.

In December 2014, New Residential agreed to acquire (the “SLS Transaction”) 50% of the Excess MSRs and all of the servicer advances and related basic fee portion of the MSR, and a portion of the call rights related to a portfolio of residential mortgage loans which is serviced by SLS. Fortress-managed funds acquired the other 50% of the Excess MSRs. SLS services the loans in exchange for a servicing fee of 10.75 basis points (“bps”) and an incentive fee (the “SLS Incentive Fee”) which is based on the ratio of the outstanding servicer advances to the UPB of the underlying loans.

In April 2015, New Residential acquired Servicer Advance Investments and Excess MSRs in connection with the acquisition of HLSS. Through January 1, 2018, Ocwen serviced the underlying loans in exchange for a servicing fee of 12% times the servicing fee collections of the underlying loans, which as of December 31, 2017 and December 31, 2016 was equal to 6.1 bps and 5.9 bps times the UPB of the underlying loans, respectively, and an incentive fee which was reduced by LIBOR plus 2.75% per annum of the amount, if any, of servicer advances outstanding in excess of a defined target. In July 2017, New Residential entered into the Ocwen Transaction as described in Note 6. Subsequent to the Ocwen Transaction, the Servicer Advance Investments (including the related basic fee portion of the MSR) formerly serviced by Ocwen became reclassified, as described in Note 6, as the underlying MSRs are transferred to NRM.

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

	Amortized Cost Basis				Carrying Value(A)				Weighted Average Discount Rate			Weighted Average Yield			Weighted Average Life (Years)(B)		Change in Fair Value Recorded in Other Income for Year then Ended
December 31, 2019
Servicer Advance Investments	$	557,444			$	581,777			5.3	%		5.7	%		6.3		$	10,288
December 31, 2018
Servicer Advance Investments	$	721,801			$	735,846			5.9	%		5.8	%		5.7		$	(89,332	)

(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:

																Loan-to-Value (“LTV”)(A)						Cost of Funds(C)
	UPB of Underlying Residential Mortgage Loans				Outstanding Servicer Advances				Servicer Advances to UPB of Underlying Residential Mortgage Loans			Face Amount of Notes and Bonds Payable				Gross			Net(B)			Gross			Net
December 31, 2019
Servicer Advance Investments(D)	$	31,442,267			$	462,843			1.5	%		$	443,248			88.3	%		87.2	%		3.4	%		2.8	%
December 31, 2018
Servicer Advance Investments(D)	$	40,096,998			$	620,050			1.5	%		$	574,117			88.3	%		87.2	%		3.7	%		3.1	%

(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.

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

    

	December 31,
	2019				2018
Principal and interest advances	$	71,574			$	108,317
Escrow advances (taxes and insurance advances)	180,047				238,349
Foreclosure advances	211,222				273,384
Total	$	462,843			$	620,050

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

	Year Ended December 31,
	2019				2018				2017
Interest income, gross of amounts attributable to servicer compensation	$	51,940			$	83,807			$	871,506
Amounts attributable to base servicer compensation	(6,209		)		(8,491		)		(227,585		)
Amounts attributable to incentive servicer compensation	(18,065		)		(25,098		)		(115,565		)
Interest income from Servicer Advance Investments	$	27,666			$	50,218			$	528,356

See Note 12 regarding the financing of Servicer Advance Investments.

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

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

	Year Ended December 31, 2019												Year Ended December 31, 2018
	(in millions)												(in millions)
	Treasury				Agency				Non-Agency				Treasury				Agency				Non-Agency
Purchases
Face	$	—			$	33,573.5			$	14,960.4			$	—			$	11,006.7			$	9,194.8
Purchase Price	—				34,335.5				2,059.0				—				11,121.6				3,854.4
Sales
Face	$	—			$	22,746.3			$	2,936.2			$	862.0			$	9,485.0			$	115.0
Amortized Cost	—				23,337.8				1,852.1				858.0				9,590.6				87.7
Sale Price	—				23,449.2				1,949.3				849.8				9,569.2				86.4
Gain (Loss) on Sale	—				111.4				97.2				(8.2		)		(21.4		)		(1.3		)

As of December 31, 2019, New Residential had sold and purchased $5.1 billion and $0.9 billion face amount of Agency RMBS for $5.2 billion and $0.9 billion, respectively, which had not yet been settled. These unsettled sales and purchases were recorded on the balance sheet on trade date as Trades Receivable and Trades Payable.

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

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Residential received par on the securities issued by the called trusts which it owned prior to such trusts’ termination. Refer to Note 9 for further details on these transactions.

The following is a summary of New Residential’s real estate and other securities, all of which are classified as available-for-sale and are, therefore, reported at fair value with changes in fair value recorded in other comprehensive income, except for securities that are other-than-temporarily impaired and except for securities which New Residential elected to carry at fair value and record changes to valuation through the income statement.

										Gross Unrealized															Weighted Average
Asset Type		Outstanding Face Amount				Amortized Cost Basis				Gains				Losses				Carrying Value(A)				Number of Securities			Rating(B)		Coupon(C)			Yield			Life (Years)(D)		Principal Subordination(E)
December 31, 2019
Agency RMBS(F)(G)		$	11,301,603			$	11,474,338			$	57,221			$	(11,616	)		$	11,519,943			43			AAA		3.17	%		2.78	%		6.0		N/A
Non-Agency RMBS(H) (I)		24,857,988				7,307,837				689,158				(39,210		)		7,957,785				997			B+		2.90	%		4.70	%		7.0		11.0	%
Total/Weighted Average		$	36,159,591			$	18,782,175			$	746,379			$	(50,826	)		$	19,477,728			1,040			A+		3.03	%		3.53	%		6.4
December 31, 2018
Agency RMBS(F)(G)		2,613,395				2,657,917				7,744				(43		)		2,665,618				31			AAA		4.01	%		3.70	%		8.1		N/A
Non-Agency RMBS(H) (I)		19,539,450				8,554,511				517,861				(101,409		)		8,970,963				897			B+		3.40	%		5.63	%		6.9		12.4	%
Total/Weighted Average		$	22,152,845			$	11,212,428			$	525,605			$	(101,452	)		$	11,636,581			928			BB+		3.53	%		5.17	%		7.2

(A)	Fair value, which is equal to carrying value for all securities. See Note 13 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 340 bonds with a carrying value of $1,129.3 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 $41.0 million and $3.4 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 $11.3 billion and $2.6 billion for fixed rate securities and $0.0 billion and $0.0 billion for floating rate securities as of December 31, 2019 and 2018, respectively.

(H)

The total outstanding face amount was $5.4 billion (including $3.2 billion of residual and fair value option notional amount) and $3.8 billion (including $1.5 billion of residual and fair value option notional amount) for fixed rate securities and $19.5 billion (including $12.2 billion of residual and fair value option notional amount) and $15.7 billion (including $7.4 billion of residual and fair value option notional amount) for floating rate securities as of December 31, 2019 and 2018, respectively.

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

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										Gross Unrealized															Weighted Average
Asset Type		Outstanding Face Amount				Amortized Cost Basis				Gains				Losses				Carrying Value				Number of Securities			Rating		Coupon			Yield			Life (Years)		Principal Subordination
December 31, 2019
Corporate debt		$	85,000			$	85,000			$	—			$	(1,262	)		$	83,738			1			B-		8.25	%		8.25	%		5.3		N/A
Consumer loan bonds		25,029				25,688				521				(6,190		)		20,019				6			N/A		N/A			N/A			1.6		N/A
MSR bond		—				—				—				—				—				—			N/A		—	%		—	%		—		N/A
Fair Value Option Securities
Interest-only Securities		11,201,646				308,714				35,882				(19,459		)		325,137				124			AA+		1.37	%		10.49	%		2.9		N/A
Servicing Strips		4,073,792				40,043				2,431				(4,562		)		37,912				46			N/A		0.38	%		4.01	%		5.7		N/A
December 31, 2018
Corporate debt		$	85,000			$	85,000			$	—			$	(12,325	)		$	72,675			1			B-		8.25	%		8.25	%		6.3		N/A
Consumer loan bonds		56,846				57,480				33				(7,075		)		50,438				6			B		5.50	%		20.26	%		1.6		N/A
MSR bond		228,000				228,000				—				(400		)		227,600				2			BBB-		5.24	%		4.89	%		8.8		N/A
Fair Value Option Securities
Interest-only Securities		6,832,353				259,725				23,694				(13,025		)		270,394				79			AA+		1.38	%		6.58	%		3.0		N/A
Servicing Strips		975,048				8,588				1,720				(198		)		10,110				31			N/A		0.21	%		13.23	%		6.0		N/A

Unrealized losses that are considered other-than-temporary and are attributable to credit losses are recognized currently in earnings. During the year ended December 31, 2019, New Residential recorded OTTI charges of $25.2 million with respect to real estate securities. During the year ended December 31, 2018, New Residential recorded OTTI of $30.0 million. During the year ended December 31, 2017, New Residential recorded OTTI of $10.3 million. Any remaining unrealized losses on New Residential’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. New Residential performed analyses in relation to such securities, using its best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. New Residential has no intent to sell, and is not more likely than not to be required to sell, these securities.

The following table summarizes New Residential’s securities in an unrealized loss position as of December 31, 2019.

						Amortized Cost Basis																							Weighted Average
Securities in an Unrealized Loss Position		Outstanding Face Amount				Before Impairment				Other-Than- Temporary Impairment(A)				After Impairment				Gross Unrealized Losses				Carrying Value				Number of Securities			Rating(B)		Coupon			Yield			Life (Years)
Less than 12 Months		$	10,805,953			$	4,798,637			$	(1,208	)		$	4,797,429			$	(32,342	)		$	4,765,087			124			AA+		3.02	%		2.86	%		6.8
12 or More Months		1,704,469				210,058				(2,024		)		208,034				(18,484		)		189,550				64			BB+		4.20	%		6.50	%		4.7
Total/Weighted Average		$	12,510,422			$	5,008,695			$	(3,232	)		$	5,005,463			$	(50,826	)		$	4,954,637			188			AA		3.07	%		3.01	%		6.8

(A)	This amount represents OTTI recorded on securities that are in an unrealized loss position as of December 31, 2019.

(B)

The weighted average rating of securities in an unrealized loss position for less than 12 months excludes the rating of 51 bonds which either have never been rated or for which rating information is no longer provided. The weighted average rating of securities in an unrealized loss position for 12 or more months excludes the rating of 15 bonds which either have never been rated or for which rating information is no longer provided.

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

	December 31, 2019
									Gross Unrealized Losses
	Fair Value				Amortized Cost Basis After Impairment				Credit(A)				Non-Credit(B)
Securities New Residential intends to sell(C)	$	—			$	—			$	—			$	—
Securities New Residential is more likely than not to be required to sell(D)	—				—				—				N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities	228,228				237,626				(3,232		)		(9,398		)
Non-credit impaired securities	4,726,409				4,767,837				—				(41,428		)
Total debt securities in an unrealized loss position	$	4,954,637			$	5,005,463			$	(3,232	)		$	(50,826	)

(A)

This amount is required to be recorded as OTTI through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation includes a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows include New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses are measured as the decline in the present value of the expected future cash flows discounted at the investment’s effective interest rate.

(B)	This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.

(C)	A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment, and, therefore do not have unrealized losses reflected in other comprehensive income as of December 31, 2019.

(D)

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 credit losses on debt securities:

	Year Ended December 31,
	2019				2018
Beginning balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	52,803			$	23,821
Increases to credit losses on securities for which an OTTI was previously recognized and a portion of an OTTI was recognized in other comprehensive income	23,059				16,924
Additions for credit losses on securities for which an OTTI was not previously recognized	2,115				13,093
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis	—				—
Reduction for credit losses on securities for which no OTTI was recognized in other comprehensive income at the current measurement date	—				—
Reduction for securities sold/paid off during the period	(18,914		)		(1,035		)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized in other comprehensive income	$	59,063			$	52,803

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The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:

		December 31,
		2019							2018
Geographic Location(A)		Outstanding Face Amount				Percentage of Total Outstanding			Outstanding Face Amount				Percentage of Total Outstanding
Western U.S.		$	9,048,847			36.6	%		$	7,318,616			37.7	%
Southeastern U.S.		5,983,966				24.2	%		4,613,314				23.8	%
Northeastern U.S.		5,416,137				21.9	%		3,829,725				19.7	%
Midwestern U.S.		2,562,269				10.4	%		2,063,263				10.6	%
Southwestern U.S.		1,440,467				5.8	%		1,321,853				6.8	%
Other(B)		296,273				1.1	%		250,833				1.4	%
		$	24,747,959			100.0	%		$	19,397,604			100.0	%

(A)	Excludes $25.0 million and $56.8 million face amount of bonds backed by consumer loans and $85.0 million and $85.0 million face amount of bonds backed by corporate debt as of December 31, 2019 and December 31, 2018, 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. For securities acquired during the year ended December 31, 2019, excluding residual and fair value option securities, the face amount of these real estate securities was $1,045.4 million, with total expected cash flows of $1,020.2 million and a fair value of $612.3 million on the dates that New Residential purchased the respective securities. For those securities acquired during the year ended December 31, 2018, excluding residual and fair value option securities, the face amount was $1,723.6 million, the total expected cash flows were $1,546.6 million and the fair value was $1,148.7 million on the dates that New Residential purchased the respective securities.

The following is the outstanding face amount and carrying value for securities, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments, excluding residual and fair value option securities:

	Outstanding Face Amount				Carrying Value
December 31, 2019	$	5,701,736			$	3,830,369
December 31, 2018	6,385,306				4,217,242

 

The following is a summary of the changes in accretable yield for these securities:

	Year Ended December 31,
	2019				2018
Beginning Balance	$	2,245,983			$	2,000,266
Additions	407,864				397,934
Accretion	(239,682		)		(290,014		)
Reclassifications from (to) non-accretable difference	(233,683		)		156,070
Disposals	(298,006		)		(18,273		)
Ending Balance	$	1,882,476			$	2,245,983

See Note 12 regarding the financing of real estate securities.

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New Residential accumulated its residential mortgage loan portfolio through various bulk acquisitions and the execution of call rights. As a result of the Shellpoint Acquisition, 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. New Residential accounts for loans based on the following categories:

•	Loans Held-for-Investment (which may include PCD Loans)

•	Loans Held-for-Investment, at fair value

•	Loans Held-for-Sale, at lower of cost or fair value

•	Loans Held-for-Sale, at fair value

•	Real Estate Owned (“REO”)

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

December 31, 2019	Outstanding Face Amount				Carrying Value				Loan Count			Weighted Average Yield			Weighted Average Life (Years)(A)		Floating Rate Loans as a % of Face Amount			LTV Ratio(B)			Weighted Avg. Delinquency(C)			Weighted Average FICO(D)
Loan Type
Performing Loans(G) (J)	$	858,703			$	859,428			13,627			6.9	%		5.3		8.8	%		76.1	%		15.8	%		646
Purchased Credit Deteriorated Loans(H)	96,420				66,278				945			8.5	%		3.2		21.8	%		91.1	%		60.0	%		588
Total Residential Mortgage Loans, held-for-investment	$	955,123			$	925,706			14,572			7.1	%		5.1		10.1	%		77.6	%		20.2	%		641
Reverse Mortgage Loans(E) (F)	$	11,628			$	5,844			28			7.9	%		4.6		5.7	%		149.9	%		69.5	%		N/A
Performing Loans(G) (I)	839,141				857,821				12,808			4.5	%		4.0		62.7	%		50.1	%		7.8	%		688
Non-Performing Loans(H) (I)	680,736				565,387				5,032			5.2	%		3.1		11.8	%		73.8	%		77.3	%		587
Total Residential Mortgage Loans, held-for-sale	$	1,531,505			$	1,429,052			17,868			4.9	%		3.6		39.7	%		61.4	%		39.2	%		643
Acquired Loans	3,132,007				3,024,288				19,204			4.0	%		7.0		3.3	%		62.2	%		23.1	%		626
Originated Loans	1,543,799				1,589,324				5,806			3.8	%		28.6		3.5	%		79.0	%		8.2	%		674
Total Residential Mortgage Loans, held-for-sale, at fair value(K)	$	4,675,806			$	4,613,612			25,010			4.0	%		14.1		3.4	%		67.8	%		18.2	%		642
December 31, 2018
Loan Type
Performing Loans(G) (J)	$	636,874			$	591,264			8,424			8.0	%		4.8		20.3	%		77.7	%		8.9	%		649
Purchased Credit Deteriorated Loans(H)	191,497				144,065				1,556			7.6	%		3.1		16.4	%		84.6	%		71.5	%		596
Total Residential Mortgage Loans, held-for-investment	$	828,371			$	735,329			9,980			7.9	%		4.4		19.4	%		79.3	%		23.3	%		637
Reverse Mortgage Loans(E) (F)	$	13,807			$	6,557			37			8.1	%		4.8		10.6	%		142.5	%		67.8	%		N/A
Performing Loans(G) (I)	408,724				413,883				7,144			4.4	%		3.9		56.6	%		61.3	%		9.0	%		670
Non-Performing Loans(H) (I)	621,700				512,040				5,029			5.5	%		3.0		14.9	%		88.1	%		72.6	%		588
Total Residential Mortgage Loans, held-for-sale	$	1,044,231			$	932,480			12,210			5.1	%		3.4		31.2	%		78.3	%		47.6	%		621
Acquired Loans	2,295,340				2,153,269				12,873			4.5	%		8.0		7.7	%		75.7	%		14.0	%		626
Originated Loans	638,173				655,260				2,307			5.2	%		28.5		96.3	%		80.0	%		3.8	%		714
Total Residential Mortgage Loans, held-for-sale, at fair value(K)	$	2,933,513			$	2,808,529			15,180			4.6	%		12.5		27.0	%		76.6	%		11.8	%		645

(A)	The weighted average life is based on the expected timing of the receipt of cash flows.

(B)	LTV refers to the ratio comparing the loan’s unpaid principal balance to the value of the collateral property.

(C)	Represents the percentage of the total principal balance that is 60+ days delinquent.

(D)	The weighted average FICO score is based on the weighted average of information updated and provided by the loan servicer on a monthly basis.

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(E)

Represents a 70% participation interest that New Residential holds in a portfolio of reverse mortgage loans. Mr. Cooper holds the other 30% interest and services the loans. The average loan balance outstanding based on total UPB was $0.6 million and $0.5 million at December 31, 2019 and 2018, respectively. Approximately 45.6% and 54.9% of these loans have reached a termination event at December 31, 2019 and 2018, respectively. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.

(F)	FICO scores are not used in determining how much a borrower can access via a reverse mortgage loan.

(G)	Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.

(H)	Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments. As of December 31, 2019, New Residential has placed Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (J) below.

(I)	Includes $36.0 million and $26.9 million UPB of Ginnie Mae EBO performing and non-performing loans as of December 31, 2019, respectively, on accrual status as contractual cash flows are guaranteed by the FHA. As of December 31, 2018, these amounts were $24.3 million and $51.9 million, respectively.

(J)	Includes $107.7 million and $345.1 million UPB of non-agency mortgage loans underlying the SAFT 2013-1 securitization and MDST Trusts, respectively, which are carried at fair value based on New Residential’s election of the fair value option. Interest earned on loans measured at fair value are reported in other income.

(K)	New Residential elected the fair value option to measure these loans at fair value on a recurring basis. Interest earned on loans measured at fair value are reported in other income.

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

The table below summarizes the geographic distribution of the underlying residential mortgage loans:

		Percentage of Total Outstanding Unpaid Principal Amount
		December 31,
State Concentration		2019			2018
California		16.1	%		16.7	%
New York		9.0	%		11.7	%
Florida		8.4	%		8.8	%
Texas		7.1	%		4.7	%
Georgia		4.8	%		2.7	%
New Jersey		4.2	%		5.3	%
Illinois		3.6	%		4.0	%
Maryland		3.3	%		3.6	%
Massachusetts		3.3	%		3.1	%
Pennsylvania		2.9	%		3.1	%
Other U.S.		37.3	%		36.3	%
		100.0	%		100.0	%

See Note 12 regarding the financing of residential mortgage loans and related assets.

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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 year ended December 31, 2019, New Residential executed calls on a total of 140 trusts and recognized $54.4 million of interest income on securities held in the collapsed trusts and $156.2 million of gain on securitizations accounted for as sales.

Performing Loans

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

December 31, 2019
Days Past Due		Delinquency Status(A)
Current		86.5	%
30-59		7.0	%
60-89		2.7	%
90-119(B)		0.7	%
120+(C)		3.1	%
		100.0	%

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

(B)	Includes loans 90-119 days past due and still accruing interest because they are generally placed on nonaccrual status at 120 days or more past due.

(C)	Represents nonaccrual loans.

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Activities related to the carrying value of performing residential mortgage loans held-for-investment were as follows:

		Performing Loans
Balance at December 31, 2017		$	507,615
Shellpoint Acquisition		125,350
Purchases/additional fundings		55,993
Proceeds from repayments		(106,236		)
Accretion of loan discount (premium) and other amortization(A)		15,773
Provision for loan losses		(1,028		)
Transfer of loans to other assets(B)		—
Transfer of loans to real estate owned		(5,131		)
Transfers of loans to held for sale		(1,555		)
Fair value adjustment		472
Balance at December 31, 2018		$	591,253
Ditech Acquisition(C)		381,039
Purchases/additional fundings		—
Proceeds from repayments		(102,340		)
Accretion of loan discount (premium) and other amortization(A)		12,661
Provision for loan losses		(595		)
Transfer of loans to other assets(B)		—
Transfer of loans to real estate owned		(6,223		)
Transfers of loans to held for sale		(20,505		)
Fair value adjustment		4,138
Balance at December 31, 2019		$	859,428

(A)	Includes accelerated accretion of discount on loans paid in full and on loans transferred to other assets.

(B)	Represents loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are now recognized as claims receivable in Other Assets (Note 2).

(C)	As a result of the Ditech Acquisition, New Residential acquired the servicing on certain residual tranches of Non-Agency RMBS it already owned, and now consolidates the trusts.

Activities related to the valuation and loss provision on reverse mortgage loans and allowance for loan losses on performing loans held-for-investment were as follows:

		Performing Loans
Balance at December 31, 2017		$	196
Provision for loan losses(A)		1,028
Charge-offs(B)		(1,224		)
Balance at December 31, 2018		$	—
Provision for loan losses(A)		595
Charge-offs(B)		(595		)
Balance at December 31, 2019		$	—

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(A)	Based on an analysis of collective borrower performance, credit ratings of borrowers, loan-to-value ratios, estimated value of the underlying collateral, key terms of the loans and historical and anticipated trends in defaults and loss severities at a pool level.

(B)	Loans, other than PCD loans, are generally charged off or charged down to the net realizable value of the collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, when available information confirms that loans are uncollectible.

Purchased Credit Deteriorated Loans

New Residential determined at acquisition that the PCD loans acquired would be aggregated into pools based on common risk characteristics (FICO score, delinquency status, collateral type, loan-to-value ratio). Loans aggregated into pools are accounted for as if each pool were a single loan with a single composite interest rate and an aggregate expectation of cash flows, including consideration of involuntary prepayments.

Activities related to the carrying value of PCD loans held-for-investment were as follows:

Balance at December 31, 2017	$	183,540
Purchases/additional fundings	29,785
Sales	—
Proceeds from repayments	(38,276		)
Accretion of loan discount and other amortization	24,124
(Allowance) reversal for loan losses(A)	—
Transfer of loans to real estate owned	(28,060		)
Transfer of loans to held-for-sale	(27,048		)
Balance at December 31, 2018	$	144,065
Purchases/additional fundings	—
Sales	—
Proceeds from repayments	(16,855		)
Accretion of loan discount and other amortization	16,041
(Allowance) reversal for loan losses	(2,332		)
Transfer of loans to real estate owned	(14,487		)
Transfer of loans to held-for-sale	(60,154		)
Balance at December 31, 2019	$	66,278

(A)	An allowance represents the present value of cash flows expected at acquisition that are no longer expected to be collected. A reversal results from an increase to expected cash flows that reverses a prior allowance.

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The following is a summary of the changes in accretable yield for these loans:

Balance at December 31, 2017	$	88,631
Additions	15,644
Accretion	(24,124		)
Reclassifications from non-accretable difference(A)	5,493
Disposals(B)	(7,257		)
Transfer of loans to held-for-sale(C)	(9,755		)
Balance at December 31, 2018	$	68,632
Additions	—
Accretion	(16,041		)
Reclassifications from (to) non-accretable difference(A)	9,361
Disposals(B)	(11,515		)
Transfer of loans to held-for-sale(C)	(13,415		)
Balance at December 31, 2019	$	37,022

(A)	Represents a probable and significant increase (decrease) in cash flows previously expected to be uncollectible.

(B)	Includes sales of loans or foreclosures, which result in removal of the loan from the PCD loan pool at its carrying amount.

(C)	Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.

Loans Held-for-Sale, at Lower of Cost or Fair Value

Activities related to the carrying value of loans held-for-sale, at lower of cost or fair value were as follows:

Balance at December 31, 2017	$	1,725,534
Purchases(A)	3,653,608
Transfer of loans from held-for-investment(B)	28,603
Sales	(4,205,375		)
Transfer of loans to other assets(C)	(9,811		)
Transfer of loans to real estate owned	(54,114		)
Proceeds from repayments	(195,797		)
Valuation (provision) reversal on loans(D)	(10,168		)
Balance at December 31, 2018	$	932,480
Purchases(A)	1,124,099
Ditech Acquisition	9,136
Transfer of loans from held-for-investment(B)	80,659
Sales	(495,925		)
Transfer of loans to other assets(C)	(10,154		)
Transfer of loans to real estate owned	(49,459		)
Proceeds from repayments	(184,683		)
Valuation (provision) reversal on loans(D)	22,899
Balance at December 31, 2019	$	1,429,052

(A)	Represents loans acquired with the intent to sell.

(B)	Represents loans not initially acquired with the intent to sell for which New Residential determined that it no longer has the intent to hold for the foreseeable future, or until maturity or payoff.

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(C)	Represents loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim with the governmental agency that has guaranteed the loans that are now recognized as claims receivable in Other Assets (Note 2).

(D)	Represents the fair value adjustments to loans upon transfer to held-for-sale and provision recorded on certain purchased held-for-sale loans, including an aggregate of $5.2 million and $59.2 million of provision related to the call transactions executed during the years ended December 31, 2019 and 2018, respectively.

Loans Held-for-Sale, at Fair Value

Activities related to the carrying value of originated loans held-for-sale, at fair value were as follows:

Balance at December 31, 2018		$	655,260
Originations		19,512,072
Ditech Acquisition		618,297
Sales		(19,176,028		)
Proceeds from repayments		(48,626		)
Transfer of loans to other assets		(412		)
Change in fair value		28,761
Balance at December 31, 2019		$	1,589,324

Activities related to the carrying value of acquired loans held-for-sale, at fair value were as follows:

Balance at December 31, 2018		$	2,153,269
Purchases(A)		7,499,614
Sales		(6,362,077		)
Proceeds from repayments		(187,311		)
Transfer of loans to real estate owned		(4,155		)
Accretion of loan discount and other amortization		—
Change in fair value		(75,052		)
Balance at December 31, 2019		$	3,024,288

(A)	Includes an acquisition date fair value adjustment increase of $13.3 million on loans acquired through call transactions executed during the twelve months ending December 31, 2019.

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Net Interest Income

		December 31,
		2019				2018
Interest Income:
Acquired Residential Mortgage Loans, held-for-investment		$	60,301			$	76,129
Acquired Residential Mortgage Loans, held-for-sale		65,926				45,653
Acquired Residential Mortgage Loans, held-for-sale, at fair value		123,446				35,904
Originated Residential Mortgage Loans, held-for-sale, at fair value		52,480				15,658
Total Interest Income on Residential Mortgage Loans		302,153				173,344
Interest Expense:
Acquired Residential Mortgage Loans, held-for-investment		19,381				23,618
Acquired Residential Mortgage Loans, held-for-sale		40,067				35,796
Acquired Residential Mortgage Loans, held-for-sale, at fair value		98,850				21,496
Originated Residential Mortgage Loans, held-for-sale,at fair value		10,873				2,690
Total Interest Expense on Residential Mortgage Loans		169,171				83,600
Total Net Interest Income on Residential Mortgage Loans		$	132,982			$	89,744

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

NewRez, a wholly owned subsidiary of New Residential, originates conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government-insured mortgage securitizations and mortgage investors issue nonconforming private label mortgage securitizations while NewRez generally retains the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, New Residential reports gain on originated mortgage loans, held-for-sale, net in its Consolidated Statements of Income.

Gain on originated mortgage loans, held-for-sale, net is summarized below:

		Year Ended December 31,
		2019				2018(A)
Gain on loans originated and sold, net(B)		$	53,554			$	47,172
Gain (loss) on settlement of mortgage loan origination derivative instruments(C)		(53,374		)		1,234
MSRs retained on transfer of loans(D)		374,450				35,311
Other(E)		42,912				14,057
Realized gain on sale of originated mortgage loans, net		$	417,542			$	97,774
Change in fair value of loans		28,761				3,695
Change in fair value of interest rate lock commitments (Note 11)		26,151				23
Change in fair value of derivative instruments (Note 11)		3,001				(5,347		)
Gain on originated mortgage loans, held-for-sale, net		$	475,455			$	96,145

(A)	Includes results from July 3, 2018, the date of acquisition.

(B)	Includes loan origination fees of $421.3 million and $21.8 million in the years ended December 31, 2019 and December 31, 2018, respectively.

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

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

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

Real estate owned (REO)

New Residential recognizes REO assets at the completion of the foreclosure process or upon execution of a deed in lieu of foreclosure with the borrower. REO assets are managed for prompt sale and disposition at the best possible economic value.

		Real Estate Owned
Balance at December 31, 2017		$	128,295
Purchases		33,377
Transfer of loans to real estate owned		107,577
Sales(A)		(152,725		)
Valuation provision on REO		(3,114		)
Balance at December 31, 2018		$	113,410
Purchases		68,024
Transfer of loans to real estate owned		86,167
Sales(A)		(150,431		)
Valuation (provision) reversal on REO		635
Balance at December 31, 2019		$	117,805

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

As of December 31, 2019, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $433.1 million.

In addition, New Residential has recognized $19.1 million in unpaid claims receivable from FHA on Ginnie Mae EBO loans and reverse mortgage loans for which foreclosure has been completed and for which New Residential has made, or intends to make, a claim.

During the first quarter of 2018, New Residential formed entities (the “RPL Borrowers”) that issued securitized debt collateralized by reperforming residential mortgage loans. New Residential evaluated these entities under the VIE model and concluded them to be VIEs. See Note 14 for information on the analysis and assets and liabilities related to these consolidated VIEs.

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 December 31, 2019, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

On June 4, 2019, the Consumer Loan Companies refinanced the outstanding asset-backed notes with an asset-backed securitization for approximately $938.7 million. The proceeds in excess of the refinanced debt of $13.4 million were distributed to the respective co-investors of which New Residential received approximately $7.8 million.

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

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The following table summarizes the investment in consumer loans, held-for-investment held by New Residential:

	Unpaid Principal Balance				Interest in Consumer Loans			Carrying Value				Weighted Average Coupon			Weighted Average Expected Life (Years)(A)		Weighted Average Delinquency(B)
December 31, 2019
Consumer Loan Companies
Performing Loans	$	644,676			53.5	%		$	682,310			18.8	%		4.0		4.7	%
Purchased Credit Deteriorated Loans(C)	170,083				53.5	%		136,633				15.5	%		3.7		10.1	%
Other - Performing Loans	9,158				100.0	%		8,602				15.1	%		0.7		6.1	%
Total Consumer Loans, held-for-investment	$	823,917						$	827,545			18.0	%		3.9		5.9	%
December 31, 2018
Consumer Loan Companies
Performing Loans	$	815,341			53.5	%		$	856,563			18.8	%		3.6		5.4	%
Purchased Credit Deteriorated Loans(C)	221,910				53.5	%		182,917				16.0	%		3.4		11.6	%
Other - Performing Loans	35,326				100.0	%		32,722				14.2	%		0.8		5.6	%
Total Consumer Loans, held-for-investment	$	1,072,577						$	1,072,202			18.1	%		3.5		6.7	%

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

(B)	Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.

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

See Note 12 regarding the financing of consumer loans.

Performing Loans

The following table provides past due information regarding New Residential’s performing consumer loans, held-for-investment, which is an important indicator of credit quality and the establishment of the allowance for loan losses:

December 31, 2019
Days Past Due		Delinquency Status(A)
Current		95.3	%
30-59		1.8	%
60-89		1.2	%
90-119(B)		0.7	%
120+(B) (C)		1.0	%
		100.0	%

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

(B)	Includes loans more than 90 days past due and still accruing interest.

(C)	Interest is accrued up to the date of charge-off at 180 days past due.

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Activities related to the carrying value of performing consumer loans, held-for-investment were as follows:

		Performing Loans
Balance at December 31, 2017		$	1,137,814
Purchases		—
Additional fundings(A)		63,971
Proceeds from repayments		(257,182		)
Accretion of loan discount and premium amortization, net		1,940
Gross charge-offs		(56,870		)
Additions to the allowance for loan losses, net		(388		)
Balance at December 31, 2018		$	889,285
Purchases		—
Additional fundings(A)		54,375
Proceeds from repayments		(213,525		)
Accretion of loan discount and premium amortization, net		186
Gross charge-offs		(38,563		)
Additions to the allowance for loan losses, net		(846		)
Balance at December 31, 2019		$	690,912

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

Activities related to the allowance for loan losses on performing consumer loans, held-for-investment were as follows:

		Collectively Evaluated(A)				Individually Impaired(B)				Total
Balance at December 31, 2017		$	4,429			$	1,676			$	6,105
Provision (reversal) for loan losses		47,839				388				48,227
Net charge-offs(C)		(49,664		)		—				(49,664		)
Balance at December 31, 2018		$	2,604			$	2,064			$	4,668
Provision (reversal) for loan losses		30,008				846				30,854
Net charge-offs(C)		(32,057		)		—				(32,057		)
Balance at December 31, 2019		$	555			$	2,910			$	3,465

(A)	Represents smaller-balance homogeneous loans that are not individually considered impaired and are evaluated based on an analysis of collective borrower performance, key terms of the loans and historical and anticipated trends in defaults and loss severities, and consideration of the unamortized acquisition discount.

(B)	Represents consumer loan modifications considered to be troubled debt restructurings (“TDRs”) as they provide concessions to borrowers, primarily in the form of interest rate reductions, who are experiencing financial difficulty. As of December 31, 2019, there are $18.0 million in UPB and $15.9 million in carrying value of consumer loans classified as TDRs.

(C)	Consumer loans, other than PCD loans, are charged off when available information confirms that loans are uncollectible, which is generally when they become 180 days past due. Charge-offs are presented net of $8.6 million and $9.0 million in recoveries of previously charged-off UPB in 2019 and 2018, respectively.

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Purchased Credit Deteriorated Loans

A portion of the consumer loans are considered PCD loans. Activities related to the carrying value of PCD consumer loans, held-for-investment were as follows:

Balance at December 31, 2017		$	236,449
(Allowance) reversal for loan losses(A)		(31		)
Proceeds from repayments		(90,700		)
Accretion of loan discount and other amortization		37,199
Balance at December 31, 2018		$	182,917
(Allowance) reversal for loan losses(A)		31
Proceeds from repayments		(78,519		)
Accretion of loan discount and other amortization		32,204
Balance at December 31, 2019		$	136,633

(A)	An allowance represents the present value of cash flows expected at acquisition that are no longer expected to be collected. A reversal results from an increase to expected cash flows that reverses a prior allowance.

The following is the unpaid principal balance and carrying value for consumer loans, for which, as of the acquisition date, it was probable that New Residential would be unable to collect all contractually required payments:

	Unpaid Principal Balance				Carrying Value
December 31, 2019	$	170,083			$	136,633
December 31, 2018	221,910				182,917

The following is a summary of the changes in accretable yield for these loans:

Balance at December 31, 2017		$	132,291
Accretion		(37,199		)
Reclassifications from (to) non-accretable difference(A)		31,426
Balance at December 31, 2018		$	126,518
Accretion		(32,204		)
Reclassifications from (to) non-accretable difference(A)		10,949
Balance at December 31, 2019		$	105,263

(A)	Represents a probable and significant increase (decrease) in cash flows previously expected to be uncollectible.

Equity Method Investees

In February 2017, New Residential completed a co-investment, through a newly formed entity, PF LoanCo Funding LLC (“LoanCo”), to purchase up to $5.0 billion worth of newly originated consumer loans from Consumer Loan Seller over a two year term. New Residential, along with three co-investors, each acquired 25% membership interests in LoanCo. New Residential accounts for its investment in LoanCo pursuant to the equity method of accounting because it can exercise significant influence over LoanCo but the requirements for consolidation are not met. As of December 31, 2019, LoanCo has distributed all net assets to New Residential and LoanCo co-investors and New Residential’s investment in LoanCo carried a $0.0 balance. The final distribution resulted in a gain of $3.6 million on the investment to New Residential.

In addition, New Residential and the LoanCo co-investors agreed to purchase warrants to purchase up to 177.7 million shares of Series F convertible preferred stock in the Consumer Loan Seller’s parent company (“ParentCo”), which were valued at approximately $75.0 million in the aggregate as of February 2017, through a newly formed entity, PF WarrantCo Holdings, LP

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(“WarrantCo”). New Residential acquired a 23.57% interest in WarrantCo, the remaining interest being acquired by three co-investors. WarrantCo has agreed to purchase a pro rata portion of the warrants each time LoanCo closes on a portion of its consumer loan purchase agreement from Consumer Loan Seller. The holder of the warrants has the option to purchase an equivalent number of shares of Series F convertible preferred stock in ParentCo at a price of $0.01 per share. New Residential and LoanCo co-investors are vested in the warrants to purchase an aggregate of 177.7 million Series F convertible preferred stock in ParentCo as of December 31, 2019. The Series F convertible preferred stock holders have the right to convert such preferred stock to common stock at any time, are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted, and will have liquidation rights in the event of liquidation. As of December 31, 2019, WarrantCo has distributed all warrants to New Residential and WarrantCo co-investors. The warrants are now held on New Residential’s balance sheet in Other Assets and carried at a $28.0 million. New Residential accounted for its investment in WarrantCo pursuant to the equity method of accounting because it could exercise significant influence over WarrantCo but the requirements for consolidation were not met.

The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:

	December 31, 2019				December 31, 2018(A)
Consumer loans, at fair value	$	—			$	231,560
Warrants, at fair value	—				103,067
Other assets	—				25,971
Warehouse financing	—				(182,065		)
Other liabilities	—				(1,142		)
Equity	$	—			$	177,391
Undistributed retained earnings	$	—			$	—
New Residential’s investment	$	—			$	42,875
New Residential’s ownership	24.3		%		24.2		%

	Year Ended December 31,
	2019				2018(A)
Interest income	$	19,912			$	42,920
Interest expense	(6,487		)		(12,258		)
Change in fair value of consumer loans and warrants	(4,596		)		17,491
Gain on sale of consumer loans(B)	(10,711		)		2,697
Other expenses	(3,871		)		(7,257		)
Net income	$	(5,753	)		$	43,593
New Residential’s equity in net income	$	(1,438	)		$	10,803
New Residential’s ownership	25.0		%		24.8		%

(A)	Data as of, and for the periods ended, November 30, 2018, as a result of the one month reporting lag.

(B)	During the year ended December 31, 2019, LoanCo sold, through securitizations which were treated as sales for accounting purposes, $406.1 million in UPB of consumer loans. LoanCo retained $83.9 million of residual interest in the securitizations and distributed them to the LoanCo co-investors, including New Residential.

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New Residential’s investment in LoanCo and WarrantCo changed as follows:

Balance at December 31, 2018	$	38,294
Contributions to equity method investees	64,499
Distributions of earnings from equity method investees	(8,607		)
Distributions of capital from equity method investees	(92,748		)
Earnings from investments in consumer loans, equity method investees	(1,438		)
Balance at December 31, 2019	$	—

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.

As of December 31, 2019, New Residential held to-be-announced forward contract positions (“TBAs”) which were entered into as an economic hedge in order to mitigate New Residential’s interest rate risk on certain specified mortgage backed securities and any amounts or obligations owed by or to New Residential are subject to the right of set-off with the TBA counterparty. As part of executing these trades, New Residential has entered into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements, and various other provisions. New Residential has fulfilled all obligations and requirements entered into under these agreements.

As of December 31, 2019, 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.

In addition, as of December 31, 2019, New Residential held 42.0 million in warrants to acquire Series F convertible preferred stock in the Consumer Loan Seller, which were valued at $28.0 million and are reported in Other Assets (Note 2) on the balance sheet.

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New Residential’s derivatives are recorded at fair value on the Consolidated Balance Sheets as follows:

			December 31,
	Balance Sheet Location		2019				2018
Derivative assets
Interest Rate Caps	Other assets		$	—			$	3
Interest Rate Swaps	Other assets		155				—
Interest Rate Lock Commitments	Other assets		41,346				10,851
Forward Loan Sale Commitments	Other assets		—				39
TBAs	Other assets		—				—
			$	41,501			$	10,893
Derivative liabilities
Interest Rate Swaps(A)	Accrued expenses and other liabilities		$	—			$	5,245
Interest Rate Lock Commitments	Accrued expenses and other liabilities		1,455				223
Forward Loan Sale Commitments	Accrued expenses and other liabilities		27				—
TBAs	Accrued expenses and other liabilities		5,403				23,921
			$	6,885			$	29,389

(A)	Net of $171.8 million and $106.1 million of related variation margin accounts as of December 31, 2019 and December 31, 2018, respectively.

The following table summarizes notional amounts related to derivatives:

	December 31,
	2019					2018
Interest Rate Caps(A)	$	12,500				$	50,000
Interest Rate Swaps(B)	4,900,000					4,725,000
Interest Rate Lock Commitments	4,043,935					823,187
Forward Loan Sale Commitments	43,654					30,274
TBAs, short position(C)	5,048,000					5,904,300
TBAs, long position(C)	11,692,212			—		5,067,200

(A)	As of December 31, 2019, caps LIBOR at 4.00% for $12.5 million of notional. The weighted average maturity of the interest rate caps as of December 31, 2019 was 11 months.

(B)	Includes $4.0 billion notional of Receive LIBOR/Pay Fixed of 3.2% and $0.9 billion notional of Receive Fixed of 1.9%/Pay LIBOR with weighted average maturities of 36 months and 87 months, respectively, as of December 31, 2019. Includes $4.7 billion notional of Receive LIBOR/Pay Fixed of 3.21% with weighted average maturities of 52 months, as of December 31, 2018.

(C)	Represents the notional amount of Agency RMBS, classified as derivatives.

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The following table summarizes all income (losses) recorded in relation to derivatives:

	Year Ended December 31,
	2019				2018				2017
Change in fair value of derivative investments(A)
Interest Rate Caps	$	(3	)		$	431			$	323
Interest Rate Swaps	(58,918		)		(108,098		)		(720		)
Unrealized gains(losses) on Interest Rate Lock Commitments	—				—				—
Forward Loan Sale Commitments	—				—				—
TBAs	2,778				(567		)		(1,793		)
	(56,143		)		(108,234		)		(2,190		)
Gain (loss) on settlement of investments, net
Interest Rate Caps	$	—			$	(603	)		$	(1,911	)
Interest Rate Swaps	(8,671		)		65,823				6,921
TBAs(B)	(121,252		)		(10,353		)		(44,224		)
	(129,923		)		54,867				(39,214		)
Gain on originated mortgage loans, held for sale, net(A)
Interest Rate Lock Commitments	$	26,151			$	23			$	—
TBAs	3,067				(5,064		)		—
Forward Loan Sale Commitments	(66		)		(283		)		—
	29,152				(5,324		)		—
Total income (losses)	$	(156,914	)		$	(58,691	)		$	(41,404	)

(A)	Represents unrealized gains (losses).

(B)	Excludes $53.4 million and $1.2 million in loss on settlement included within gain on originated mortgage loans, held-for-sale, net (Note 9) for the years ended December 31, 2019 and 2018, respectively.

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The following table presents certain information regarding New Residential’s debt obligations:

		December 31, 2019																													December 31, 2018
																	Collateral
Debt Obligations/Collateral		Outstanding Face Amount				Carrying Value(A)				Final Stated Maturity(B)		Weighted Average Funding Cost			Weighted Average Life (Years)		Outstanding Face				Amortized Cost Basis				Carrying Value				Weighted Average Life (Years)		Carrying Value(A)
Repurchase Agreements(C)
Agency RMBS(D)		$	15,481,677			$	15,481,677			Jan-20 to May-20		1.99	%		0.1		$	15,499,156			$	15,810,728			$	15,862,218			4.0		$	4,346,070
Non-Agency RMBS(E)		7,317,519				7,317,519				Jan-20 to Sep-20		2.76	%		0.1		25,220,620				8,014,409				8,661,349				7.0		7,434,785
Residential Mortgage Loans(F)		5,054,667				5,053,207				Feb-20 to May-21		3.48	%		0.6		5,778,009				5,847,650				5,577,297				15.4		3,678,246
Real Estate Owned(G) (H)		63,846				63,822				Feb-20 to May-21		3.53	%		0.7		N/A				N/A				77,556				N/A		94,868
Total Repurchase Agreements		27,917,709				27,916,225						2.47	%		0.2																15,553,969
Notes and Bonds Payable
Excess MSRs(I)		217,300				217,300				Feb-20 to Jul-22		4.45	%		2.6		97,846,949				306,803				394,644				5.9		297,563
MSRs(J)		2,646,540				2,640,036				Mar-20 to Jul-24		4.16	%		1.6		394,098,370				3,998,060				4,446,855				5.7		2,360,856
Servicer Advances(K)		3,189,486				3,181,672				Jan-20 to Aug-23		2.90	%		2.1		3,587,593				3,858,818				3,883,151				1.4		3,382,455
Residential Mortgage Loans(L)		866,001				864,451				Apr-20 to Dec-45		4.63	%		8.3		1,183,625				1,199,326				1,171,201				7.1		124,945
Consumer Loans(M)		813,808				816,689				Dec-21 to May-36		3.25	%		3.9		823,806				830,900				827,434				3.9		936,447
Total Notes and Bonds Payable		7,733,135				7,720,148						3.60	%		2.8																7,102,266
Total/Weighted Average		$	35,650,844			$	35,636,373					2.71	%		0.8																$	22,656,235

(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 repurchase agreements had approximately $84.1 million of associated accrued interest payable as of December 31, 2019.

(D)	All of the Agency RMBS repurchase agreements have a fixed rate. Collateral amounts include approximately $5.3 billion of related trade and other receivables.

(E)

$6,788.4 million face amount of the Non-Agency RMBS repurchase agreements have LIBOR-based floating interest rates while the remaining $529.1 million face amount of the Non-Agency RMBS repurchase agreements have a fixed rate. This also includes repurchase agreements and related collateral of $7.5 million and $10.0 million, respectively, on retained consumer loan bonds and of $638.6 million and $744.4 million, respectively, on retained bonds collateralized by Agency MSRs.

(F)	All of these repurchase agreements have LIBOR-based floating interest rates.

(G)	All of these repurchase agreements have LIBOR-based floating interest rates.

(H)	Includes financing collateralized by receivables including claims from FHA on Ginnie Mae EBO loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee.

(I)	Includes $217.3 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.75%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the interests in MSRs that secure these notes.

(J)

Includes: $1,250.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin ranging from 2.25% to 2.75%; $59.5 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 2.50%; and $1,337.1 million of public notes with fixed interest rates ranging from 3.55% to 4.62%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR financing receivables that secure these notes.

(K)

$1.9 billion face amount of the notes have a fixed rate while the remaining notes bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR or a cost of funds rate, as applicable, and (ii) a margin ranging from 1.0% to 2.0%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and MSR financing receivables owned by NRM.

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(L)

Represents: (i) a $5.6 million note payable to Mr. Cooper which includes a $2.1 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.88%, (ii) $105.3 million of SAFT 2013-1 mortgage-backed securities issued with fixed interest rates ranging from 3.50% to 3.76% (see Note 13 for fair value details), (iii) $353.5 million of 2019-RPL1 asset-backed notes held by third parties which include $0.3 million of REO and bear interest equal to 4.59% (see Note 13 for fair value details), (iv) $202.5 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.58% (see Note 13 for fair value details), and (v) $199.1 million of asset-backed notes held by third parties which include $1.5 million of REO and bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 1.25%.

(M)

Includes the SpringCastle debt, which is comprised of the following classes of asset-backed notes held by third parties: $734.7 million UPB of Class A notes with a coupon of 3.20% and a stated maturity date in May 2036; $70.4 million UPB of Class B notes with a coupon of 3.58% and a stated maturity date in May 2036; and $8.7 million UPB of Class C notes with a coupon of 5.06% and a stated maturity date in May 2036.

As of December 31, 2019, New Residential had no outstanding repurchase agreements where the amount at risk with any individual counterparty or group of related counterparties exceeded 10% of New Residential’s stockholders' equity. The amount at risk under repurchase agreements is defined as the excess of carrying amount (or market value, if higher than the carrying amount) of the securities or other assets sold under agreement to repurchase, including accrued interest plus any cash or other assets on deposit to secure the repurchase obligation, over the amount of the repurchase liability (adjusted for accrued interest).

General

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

New Residential has margin exposure on $27.9 billion of repurchase agreements as of December 31, 2019. To the extent that the value of the collateral underlying these repurchase agreements declines, New Residential may be required to post margin, which could significantly impact its liquidity.

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Activities related to the carrying value of New Residential’s debt obligations were as follows:

		Excess MSRs				MSRs				Servicer Advances(A)				Real Estate Securities				Residential Mortgage Loans and REO				Consumer Loans				Total
Balance at December 31, 2017		$	483,978			$	1,157,179			$	4,060,156			$	6,694,454			$	2,108,007			$	1,242,756			$	15,746,530
Repurchase Agreements:
Shellpoint Acquisition		—				—				—				1,957				437,675				—				439,632
Borrowings		—				—				—				90,996,778				8,665,900				—				99,662,678
Repayments		—				—				—				(85,912,169		)		(7,298,734		)		—				(93,210,903		)
Capitalized deferred financing costs, net of amortization		—				—				—				(165		)		589				—				424
Notes and Bonds Payable:
Shellpoint Acquisition		—				20,731				—				—				120,702				—				141,433
Borrowings		350,787				4,212,855				5,207,084				—				183				—				9,770,909
Repayments		(537,227		)		(3,022,785		)		(5,887,384		)		—				(136,947		)		(308,316		)		(9,892,659		)
Discount on borrowings, net of amortization		—				—				41				—				—				1,633				1,674
Unrealized loss on notes, fair value		—				—				—				—				684				—				684
Capitalized deferred financing costs, net of amortization		25				(7,124		)		2,558				—				—				374				(4,167		)
Balance at December 31, 2018		$	297,563			$	2,360,856			$	3,382,455			$	11,780,855			$	3,898,059			$	936,447			$	22,656,235
Repurchase Agreements:
Borrowings		—				—				—				207,138,969				36,177,659				—				243,316,628
Repayments		—				—				—				(196,120,793		)		(34,833,314		)		—				(230,954,107		)
Capitalized deferred financing costs, net of amortization		—				—				—				165				(429		)		—				(264		)
Notes and Bonds Payable:
Ditech Acquisition(B)		—				—				—				—				209,459				—				209,459
Borrowings		456,741				2,456,410				4,952,585				—				912,445				928,683				9,706,864
Repayments		(537,200		)		(2,178,755		)		(5,149,327		)		—				(383,635		)		(1,054,610		)		(9,303,527		)
Discount on borrowings, net of amortization		—				—				102				—				—				6,169				6,271
Unrealized loss on notes, fair value		—				—				—				—				1,236				—				1,236
Capitalized deferred financing costs, net of amortization		196				1,525				(4,143		)		—				—				—				(2,422		)
Balance at December 31, 2019		$	217,300			$	2,640,036			$	3,181,672			$	22,799,196			$	5,981,480			$	816,689			$	35,636,373

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

(B)	As a result of the Ditech Acquisition, New Residential acquired the servicing on certain residual tranches of Non-Agency RMBS it already owned, and now consolidates the respective securities.  See Note 9 for the associated loans.

Maturities

New Residential’s debt obligations as of December 31, 2019 had contractual maturities as follows:

Year		Nonrecourse				Recourse				Total
2020		$	527,231			$	29,183,656			$	29,710,887
2021		1,030,932				752,496				1,783,428
2022		1,646,318				217,300				1,863,618
2023		400,000				382,215				782,215
2024		—				389,177				389,177
2025 and thereafter		1,121,519				—				1,121,519
		$	4,726,000			$	30,924,844			$	35,650,844

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Borrowing Capacity

The following table represents New Residential’s borrowing capacity as of December 31, 2019:

Debt Obligations/ Collateral		Borrowing Capacity				Balance Outstanding				Available Financing
Repurchase Agreements
Residential mortgage loans and REO		$	6,296,106			$	3,685,133			$	2,610,973
New Loan Originations		4,433,000				1,433,380				2,999,620
Non-Agency RMBS		650,000				529,096				120,904
Notes and Bonds Payable
Excess MSRs		150,000				—				150,000
MSRs		1,575,000				1,309,484				265,516
Servicer advances(A)		1,645,000				1,289,521				355,479
Residential Mortgage Loans		650,000				199,132				450,868
Consumer loans		150,000				—				150,000
		$	15,549,106			$	8,445,746			$	7,103,360

(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. New Residential pays a 0.02% fee on the unused borrowing capacity.

U.S. GAAP requires the categorization of fair value measurement into three broad levels which form a hierarchy based on the transparency of inputs to the valuation.

Level 1 - Quoted prices in active markets for identical instruments.

Level 2 - Valuations based principally on other observable market parameters, including:

•	Quoted prices in active markets for similar instruments,

•	Quoted prices in less active or inactive markets for identical or similar instruments,

•	Other observable inputs (such as interest rates, yield curves, volatilities, prepayment rates, loss severities, credit risks and default rates), and

•	Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3 - Valuations based significantly on unobservable inputs.

New Residential follows this hierarchy for its fair value measurements. The classifications are based on the lowest level of input that is significant to the fair value measurement.

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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 December 31, 2019 were as follows:

									Fair Value
	Principal Balance or Notional Amount				Carrying Value				Level 1				Level 2				Level 3				Total
Assets:
Investments in:
Excess mortgage servicing rights, at fair value(A)	$	88,345,237			$	379,747			$	—			$	—			$	379,747			$	379,747
Excess mortgage servicing rights, equity method investees, at fair value(A)	33,592,554				125,596				—				—				125,596				125,596
Mortgage servicing rights, at fair value(A)	373,850,061				3,967,960				—				—				3,967,960				3,967,960
Mortgage servicing rights financing receivables, at fair value(A)	130,984,870				1,718,273				—				—				1,718,273				1,718,273
Servicer advance investments, at fair value	462,843				581,777				—				—				581,777				581,777
Real estate and other securities, available-for-sale	36,159,591				19,477,728				—				11,519,943				7,957,785				19,477,728
Residential mortgage loans, held-for-investment	502,352				441,263				—				—				435,234				435,234
Residential mortgage loans, held-for-sale	1,531,505				1,429,052				—				—				1,438,302				1,438,302
Residential mortgage loans, held-for-sale, at fair value(B)	4,675,806				4,613,612				—				1,099,230				3,514,382				4,613,612
Residential mortgage loans, held-for-investment, at fair value(C)	452,771				484,443				—				—				484,443				484,443
Residential mortgage loans subject to repurchase	172,336				172,336				—				172,336				—				172,336
Consumer loans, held-for-investment	823,917				827,545				—				—				849,739				849,739
Derivative assets	8,360,894				41,501				—				155				41,346				41,501
Cash and cash equivalents	528,737				528,737				528,737				—				—				528,737
Restricted cash	162,197				162,197				162,197				—				—				162,197
Other assets(D)	N/A				60,654				7,952				—				52,703				60,655
					$	35,012,421			$	698,886			$	12,791,664			$	21,547,287			$	35,037,837
Liabilities:
Repurchase agreements	$	27,917,709			$	27,916,225			$	—			$	27,917,709			$	—			$	27,917,709
Notes and bonds payable(E)	7,733,135				7,720,148				—				—				7,779,060				7,779,060
Residential mortgage loan repurchase liability	172,336				172,336				—				172,336				—				172,336
Derivative liabilities	17,379,407				6,885				—				5,430				1,455				6,885
Excess spread financing	2,962,629				31,777				—				—				31,777				31,777
Contingent consideration	N/A				55,222				—				—				55,222				55,222
					$	35,902,593			$	—			$	28,095,475			$	7,867,514			$	35,962,989

 

(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)	Includes $267.7 million in fair value of loans that are 90 days or more past due.

(C)	Includes $21.6 million in fair value of loans that are 90 days or more past due.

(D)	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 $74.0 million as of December 31, 2019.

(E)	Includes the MDST Trusts, SAFT 2013-1 mortgage-backed securities and the 2019-RPL1 asset-backed notes issued for which the fair value option for financial instruments was elected and resulted in a fair value of $659.7 million as of December 31, 2019.

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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 December 31, 2018 were as follows:

									Fair Value
	Principal Balance or Notional Amount				Carrying Value				Level 1				Level 2				Level 3				Total
Assets
Investments in:
Excess mortgage servicing rights, at fair value(A)	$	106,426,363			$	447,860			$	—			$	—			$	447,860			$	447,860
Excess mortgage servicing rights, equity method investees, at fair value(A)	41,707,963				147,964				—				—				147,964				147,964
Mortgage servicing rights, at fair value(A)	258,462,703				2,884,100				—				—				2,884,100				2,884,100
Mortgage servicing rights financing receivables, at fair value(A)	130,516,565				1,644,504				—				—				1,644,504				1,644,504
Servicer advance investments, at fair value	620,050				735,846				—				—				735,846				735,846
Real estate and other securities, available-for-sale	22,152,845				11,636,581				—				2,665,618				8,970,963				11,636,581
Residential mortgage loans, held-for-investment	706,111				614,241				—				—				625,321				625,321
Residential mortgage loans, held-for-sale	1,043,550				932,480				—				—				958,970				958,970
Residential mortgage loans, held-for-sale, at fair value(B)	2,934,727				2,808,529				—				213,882				2,594,647				2,808,529
Residential mortgage loans, held-for-investment, at fair value(C)	122,260				121,088				—				—				121,088				121,088
Residential mortgage loans subject to repurchase	121,602				121,602				—				121,602				—				121,602
Consumer loans, held-for-investment	1,072,577				1,072,202				—				—				1,054,820				1,054,820
Derivative assets	840,179				10,893				—				42				10,851				10,893
Cash and cash equivalents	251,058				251,058				251,058				—				—				251,058
Restricted cash	164,020				164,020				164,020				—				—				164,020
Other assets(D)	N/A				16,991				7,778				—				9,213				16,991
					$	23,609,959			$	422,856			$	3,001,144			$	20,206,147			$	23,630,147
Liabilities:
Repurchase agreements	$	15,555,156			$	15,553,969			$	—			$	15,555,156			$	—			$	15,555,156
Notes and bonds payable	7,117,909				7,102,266				—				—				7,076,400				7,076,400
Residential mortgage loans repurchase liability	121,602				121,602				—				121,602				—				121,602
Derivative liabilities	15,759,782				29,389				—				29,166				223				29,389
Excess spread financing	3,492,587				39,304				—				—				39,304				39,304
Contingent consideration	N/A				40,842				—				—				40,842				40,842
					$	22,887,372			$	—			$	15,705,924			$	7,156,769			$	22,862,693

 

(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)	Includes $88.7 million in fair value of loans that are 90 days or more past due.

(C)	Includes $0.4 million in fair value of loans that are 90 days or more past due.

(D)	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 $74.3 million as of December 31, 2018.

New Residential has various processes and controls in place to ensure that fair value is reasonably estimated. With respect to the broker and pricing service quotations, to ensure these quotes represent a reasonable estimate of fair value, New Residential’s quarterly procedures include a comparison to quotations from different sources, outputs generated from its internal pricing models and transactions New Residential has completed with respect to these or similar assets or liabilities, as well as on its knowledge

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and experience of these markets. With respect to fair value estimates generated based on New Residential’s internal pricing models, New Residential corroborates the inputs and outputs of the internal pricing models by comparing them to available independent third party market parameters, where available, and models for reasonableness. New Residential believes its valuation methods and the assumptions used are appropriate and consistent with other market participants.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.

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)
	Agency				Non-Agency								MSRs(A)				Mortgage Servicing Rights Financing Receivables(A)				Servicer Advance Investments				Non-Agency RMBS				Derivatives(C)				Residential Mortgage Loans				Total
Balance at December 31, 2017	$	324,636			$	849,077			$	171,765			$	1,735,504			$	598,728			$	4,027,379			$	5,974,789			$	—			$	—			$	13,681,878
Transfers(D)
Transfers from Level 3	—				—				—				—				—				—				—				—				—				—
Transfers to Level 3	—				—				—				—				—				—				—				—				—				—
Shellpoint Acquisition	—				—				—				275,964				(124,652		)		—				—				10,604				179,644				341,560
Gains (losses) included in net income
Included in other-than-temporary impairment on securities(E)	—				—				—				—				—				—				(24,940		)		—				—				(24,940		)
Included in change in fair value of investments in excess mortgage servicing rights(E)	(18,099		)		(40,557		)		—				—				—				—				—				—				—				(58,656		)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(E)	—				—				8,357				—				—				—				—				—				—				8,357
Included in servicing revenue, net(F)	—				—				—				(199,836		)		—				—				—				—				—				(199,836		)
Included in change in fair value of investments in mortgage servicing rights financing receivable(E)	—				—				—				—				31,550				—				—				—				—				31,550
Included in change in fair value of servicer advance investments	—				—				—				—				—				(89,332		)		—				—				—				(89,332		)
Included in change in fair value of investments in residential mortgage loans	—				—				—				—				—				—				—				—				46,065				46,065
Included in gain (loss) on settlement of investments, net	—				40,417				—				—				—				72,585				(1,288		)		—				—				111,714
Included in other income (loss), net(E)	6,137				307				—				—				—				—				10,283				24				(175		)		16,576
Gains (losses) included in other comprehensive income(G)	—				—				—				—				—				—				31,031				—				—				31,031
Interest income	21,936				22,504				—				—				—				50,218				377,018				—				—				471,676
Purchases, sales and repayments
Purchases	—				—				—				1,042,933				128,357				2,332,989				3,854,439				—				2,107,204				9,465,922
Proceeds from sales	(19,084		)		—				—				(5,776		)		(7,472		)		—				(86,448		)		—				—				(118,780		)
Proceeds from repayments	(58,139		)		(69,654		)		(32,158		)		—				—				(2,455,155		)		(1,163,921		)		—				(2,111		)		(3,781,138		)
Originations	—				—				—				35,311				—				—				—				—				—				35,311
Ocwen Transaction (Note 6)	—				(611,621		)		—				—				1,017,993				(3,202,838		)		—				—				—				(2,796,466		)
Balance at December 31, 2018	$	257,387			$	190,473			$	147,964			$	2,884,100			$	1,644,504			$	735,846			$	8,970,963			$	10,628			$	2,330,627			$	17,172,492

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	Level 3
	Excess MSRs(A)								Excess MSRs in Equity Method Investees(A)(B)
	Agency				Non-Agency								MSRs(A)				Mortgage Servicing Rights Financing Receivables(A)				Servicer Advance Investments				Non-Agency RMBS				Derivatives(C)				Residential Mortgage Loans				Total
(continued)
Transfers(D)
Transfers from Level 3	—				—				—				—				—				—				—				—				(32,806		)		(32,806		)
Transfers to Level 3	—				—				—				—				—				—				—				—				315,577				315,577
Ditech Acquisition	—				—				—				387,170				—				—				(178,435		)		—				381,039				589,774
Transfers from investments in mortgage servicing rights financing receivables to investments in mortgage servicing rights	—				—				—				367,121				(367,121		)		—				—				—				—				—
Gains (losses) included in net income
Included in other-than-temporary impairment on securities(E)	—				—				—				—				—				—				(25,174		)		—				—				(25,174		)
Included in change in fair value of investments in excess mortgage servicing rights(E)	(7,559		)		(2,946		)		—				—				—				—				—				—				—				(10,505		)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(E)	—				—				6,800				—				—				—				—				—				—				6,800
Included in servicing revenue, net(F)	—				—				—				(721,356		)		—				—				—				—				—				(721,356		)
Included in change in fair value of investments in mortgage servicing rights financing receivable(E)	—				—				—				—				(189,023		)		—				—				—				—				(189,023		)
Included in change in fair value of servicer advance investments	—				—				—				—				—				10,288				—				—				—				10,288
Included in change in fair value of investments in residential mortgage loans	—				—				—				—				—				—				—				—				(63,347		)		(63,347		)
Included in gain (loss) on settlement of investments, net	1,479				30				—				—				—				—				97,191				—				—				98,700
Included in other income (loss), net(E)	1,523				819				—				—				—								2,101				29,263				—				33,706
Gains (losses) included in other comprehensive income(G)	—				—				—				—				—								238,217				—				—				238,217
Interest income	14,895				17,752				—				—				—				27,666				302,705				—				—				363,018
Purchases, sales and repayments
Purchases	—				—				—				690,049				735,152				1,622,808				2,058,953				—				11,110,245				16,217,207
Proceeds from sales	(10,018		)		(57		)		—				(1,539		)		(22,989		)		—				(1,949,300		)		—				(10,638,483		)		(12,622,386		)
Proceeds from repayments	(48,074		)		(35,957		)		(29,168		)		(11,625		)		(82,250		)		(1,814,831		)		(1,559,436		)		—				(248,503		)		(3,829,844		)
Originations and other	—				—				—				374,040				—				—								—				844,476				1,218,516
Balance at December 31, 2019	$	209,633			$	170,114			$	125,596			$	3,967,960			$	1,718,273			$	581,777			$	7,957,785			$	39,891			$	3,998,825			$	18,769,854

 

(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)	Transfers are assumed to occur at the beginning of the respective period.

(E)	The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates and realized gains (losses) recorded during the period.

(F)	The components of Servicing revenue, net are disclosed in Note 6.

(G)	These gains (losses) were included in net unrealized gain (loss) on securities in the Consolidated Statements of Comprehensive Income.

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New Residential’s liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:

		Level 3
		Excess Spread Financing				Mortgage-Backed Securities Issued				Contingent Consideration
														Total
Balance at December 31, 2017		$	—			$	—			$	—			$	—
Transfers(A)
Transfers from Level 3		—				—				—				—
Transfers to Level 3		—				—				—				—
Shellpoint Acquisition		48,262				120,702				39,262				208,226
Gains (losses) included in net income
Included in other-than-temporary impairment on securities(B)		—				—				—				—
Included in change in fair value of investments in excess mortgage servicing rights		—				—				—				—
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(B)		—				—				—				—
Included in servicing revenue, net(C)		(8,591		)		—				—				(8,591		)
Included in change in fair value of investments in notes receivable - rights to MSRs		—				—				—				—
Included in change in fair value of servicer advance investments		—				—				—				—
Included in gain (loss) on settlement of investments, net		—				—				—				—
Included in other income(B)		—				684				1,580				2,264
Gains (losses) included in other comprehensive income, net of tax(D)		—				—				—				—
Interest income		—				—				—				—
Purchases, sales and payments
Purchases		—				—				—				—
Proceeds from sales		—				—				—				—
Payments		—				(4,338		)		—				(4,338		)
Other		(367		)		—				—				(367		)
Balance at December 31, 2018		$	39,304			$	117,048			$	40,842			$	197,194
Transfers(A)
Transfers from Level 3		—				—				—				—
Transfers to Level 3		—				—				—				—
Acquisitions		—				—				13,893				13,893
Ditech Acquisition(E)		—				209,459				—				209,459
Gains (losses) included in net income
Included in other-than-temporary impairment on securities(B)		—				—				—				—
Included in change in fair value of investments in excess mortgage servicing rights		—				—				—				—
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(B)		—				—				—				—
Included in servicing revenue, net(C)		(8,406		)		—				—				(8,406		)
Included in change in fair value of investments in notes receivable - rights to MSRs		—				—				—				—
Included in change in fair value of servicer advance investments		—				—				—				—
Included in change in fair value of investments in residential mortgage loans		—				—				—				—
Included in gain (loss) on settlement of investments, net		—				—				—				—
Included in other income(B)		—				1,236				10,487				11,723
Gains (losses) included in other comprehensive income, net of tax(D)		—				—				—				—
Interest income		—				—				—				—
Purchases, sales and payments
Purchases		—				378,569				—				378,569
Proceeds from sales		—				—				—				—
Payments		—				(46,574		)		(10,000		)		(56,574		)
Other		879				—				—				879
Balance at December 31, 2019		$	31,777			$	659,738			$	55,222			$	746,737

(A)	Transfers are assumed to occur at the beginning of the respective period.

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(B)	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.

(C)	The components of Servicing revenue, net are disclosed in Note 6.

(D)	These gains (losses) were included in net unrealized gain (loss) on securities in the Consolidated Statements of Comprehensive Income.

(E)	As a result of the Ditech Acquisition, New Residential acquired MSRs and the servicing on certain residual tranches of Non-Agency RMBS it already owned, and now consolidates the respective securities. See Note 12 for the associated liability.

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

Fair value estimates of New Residential’s investments in MSRs and Excess MSRs were based on internal pricing models. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included expectations of prepayment rates, delinquency rates, recapture rates, the mortgage servicing amount or excess mortgage servicing amount of the underlying residential mortgage loans, as applicable, and discount rates that market participants would use in determining the fair values of mortgage servicing rights on similar pools of residential mortgage loans. In addition, for investments in MSRs, significant inputs included the market-level estimated cost of servicing.

In order to evaluate the reasonableness of its fair value determinations, New Residential engages an independent valuation firm to separately measure the fair value of its investments in MSRs and Excess MSRs. The independent valuation firm determines an estimated fair value range of each pool based on its own models and issues a “fairness opinion” with this range. New Residential compares the range included in the opinion to the value generated by its internal models. To date, New Residential has not made any significant valuation adjustments as a result of these fairness opinions.

Significant increases (decreases) in the discount rates, prepayment or delinquency rates, or costs of servicing, in isolation would result in a significantly lower (higher) fair value measurement, whereas significant increases (decreases) in the recapture rates or mortgage servicing amount or excess mortgage servicing amount, as applicable, in isolation would result in a significantly higher (lower) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the prepayment rate.

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The following tables summarize certain information regarding the weighted average inputs used:

	December 31, 2019
	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 5)
Agency
Original Pools	8.6	%		1.1	%		20.3	%		21			20
Recaptured Pools	10.7	%		0.5	%		27.8	%		23			23
	9.2	%		0.9	%		22.3	%		22			21
Non-Agency(G)
Mr. Cooper and SLS Serviced:
Original Pools	9.7	%		N/A			15.5	%		15			24
Recaptured Pools	7.5	%		N/A			17.4	%		24			23
	9.4	%		N/A			15.8	%		16			24
Total/Weighted Average--Excess MSRs Directly Held	9.3	%		0.9	%		19.4	%		19			22
Excess MSRs Held through Equity Method Investees (Note 5)
Agency
Original Pools	9.3	%		1.4	%		23.7	%		19			19
Recaptured Pools	10.3	%		0.8	%		26.7	%		24			22
Total/Weighted Average--Excess MSRs Held through Investees	9.8	%		1.1	%		25.1	%		21			20
Total/Weighted Average--Excess MSRs All Pools	9.5	%		1.0	%		21.4	%		20			21
MSRs (Note 6)
Agency(H)
Mortgage Servicing Rights(I)	12.5	%		1.0	%		23.3	%		28			22
MSR Financing Receivables(I)	15.4	%		0.4	%		15.8	%		27			25
Non-Agency
Mortgage Servicing Rights	11.6	%		1.2	%		22.1	%		31			16
MSR Financing Receivables(I)	8.3	%		14.4	%		9.3	%		47			25
Ginnie Mae
Mortgage Servicing Rights(J)	16.2	%		4.4	%		28.1	%		42			27

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	December 31, 2018
	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 5)
Agency
Original Pools	9.8	%		2.5	%		26.3	%		21			21
Recaptured Pools	8.0	%		2.1	%		23.6	%		22			24
Recapture Agreement	7.9	%		2.2	%		24.8	%		22			—
	9.1	%		2.4	%		25.4	%		21			22
Non-Agency(G)
Mr. Cooper and SLS Serviced:
Original Pools	10.4	%		N/A			15.4	%		15			24
Recaptured Pools	8.0	%		N/A			19.9	%		23			24
Recapture Agreement	7.9	%		N/A			19.8	%		20			—
	9.9	%		N/A			16.3	%		16			24
Total/Weighted Average--Excess MSRs Directly Held	9.4	%		2.4	%		21.5	%		19			23
Excess MSRs Held through Equity Method Investees (Note 5)
Agency
Original Pools	10.9	%		3.9	%		29.6	%		19			20
Recaptured Pools	8.5	%		2.6	%		28.8	%		23			23
Recapture Agreement	8.6	%		2.7	%		30.4	%		23			—
Total/Weighted Average--Excess MSRs Held through Investees	9.6	%		3.2	%		29.4	%		21			21
Total/Weighted Average--Excess MSRs All Pools	9.5	%		2.7	%		24.5	%		20			22
MSRs (Note 6)
Agency(H)
Mortgage Servicing Rights(I)	9.4	%		1.0	%		22.2	%		26			22
MSR Financing Receivables(I)	9.5	%		0.9	%		14.7	%		27			20
Non-Agency
Mortgage Servicing Rights(I)	13.2	%		0.9	%		10.0	%		25			25
MSR Financing Receivables(I)	8.2	%		17.2	%		5.0	%		45			26
Ginnie Mae
Mortgage Servicing Rights(J)	11.2	%		3.9	%		24.2	%		33			27

(A)	Weighted by fair value of the portfolio.

(B)	Projected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.

(C)	Projected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.

(D)	Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.

(E)

Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in bps. As of December 31, 2019 and 2018, weighted average costs of subservicing of $7.18 and $7.30, respectively, per loan per month was used to value the agency MSRs, including MSR Financing Receivables. Weighted average costs of subservicing of $11.28 and $11.45, respectively, per loan per month was used to value the non-agency MSRs, including MSR Financing Receivables. Weighted average cost of subservicing of $9.20 and $10.06, respectively, per loan per month was used to value the Ginnie Mae MSRs.

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(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 6).

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

As of December 31, 2019 and 2018, weighted average discount rates of 7.8% and 8.8%, respectively, were used to value New Residential’s investments in Excess MSRs (directly and through equity method investees). As of December 31, 2019 and 2018, weighted average discount rates of 7.8% and 8.7% were used to value New Residential’s investments in MSRs, respectively. As of December 31, 2019 and 2018, weighted average discount rates of 8.9% and 10.3%, respectively, were used to value New Residential’s investments in MSR financing receivables.

All of the assumptions listed have some degree of market observability, based on New Residential’s knowledge of the market, relationships with market participants, and use of common market data sources. New Residential uses assumptions that generate its best estimate of future cash flows for each investment in MSRs and Excess MSRs.

When valuing investments in MSRs and Excess MSRs, New Residential uses the following criteria to determine the significant inputs:

 

•

Prepayment Rate: Prepayment rate projections are in the form of a “vector” that varies over the expected life of the pool. The prepayment vector specifies the percentage of the collateral balance that is expected to prepay voluntarily (i.e., pay off) and involuntarily (i.e., default) at each point in the future. The prepayment vector is based on assumptions that reflect macroeconomic conditions like home price appreciation, current level of interest rates as well as loan level factors such as the borrower’s interest rate, FICO score, loan-to-value ratio, debt-to-income ratio, vintage on a loan level basis. New Residential considers historical prepayment experience associated with the collateral when determining this vector and also reviews industry research on the prepayment experience of similar loan pools. This data is obtained from remittance reports, market data services and other market sources.

•

Delinquency Rates: For existing mortgage pools, delinquency rates are based on the recent pool-specific experience of loans that missed their latest mortgage payments. Delinquency rate projections are in the form of a “vector” that varies over the expected life of the pool. The delinquency vector specifies the percentage of the unpaid principal balance that is expected to be delinquent each month. The delinquency vector is based on assumptions that reflect macroeconomic conditions, the historical delinquency rates for the pools and the underlying borrower characteristics such as the FICO score and loan-to-value ratio. For the recapture agreements and recaptured loans, delinquency rates are based on the experience of similar loan pools originated by New Residential’s servicers and subservicers, and delinquency experience over the past year. New Residential believes this time period provides a reasonable sample for projecting future delinquency rates while taking into account current market conditions. Additional consideration is given to loans that are expected to become 30 or more days delinquent.

•

Recapture Rates: Recapture rates are based on actual average recapture rates experienced by New Residential’s servicers and subservicers on similar residential mortgage loan pools. Generally, New Residential looks to three to six months’ worth of actual recapture rates, which it believes provides a reasonable sample for projecting future recapture rates while taking into account current market conditions. Recapture rate projections are in the form of a “vector” that varies over the expected life of the pool. The recapture vector specifies the percentage of the refinanced loans that have been recaptured within the pool by the servicer or subservicer. The recapture vector takes into account the nature and timeline of the relationship between the borrowers in the pool and the servicer or subservicer, the customer retention programs offered by the servicer or subservicer and the historical recapture rates.

•

Mortgage Servicing Amount or Excess Mortgage Servicing Amount: For existing mortgage pools, mortgage servicing amount and excess mortgage servicing amount projections are based on the actual total mortgage servicing amount, in excess of a base fee as applicable. For loans expected to be refinanced by the related servicer or subservicer and subject to a recapture agreement, New Residential considers the mortgage servicing amount or excess mortgage servicing amount on loans recently originated by the related servicer over the past three months and other general market considerations. New

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Residential believes this time period provides a reasonable sample for projecting future mortgage servicing amounts and excess mortgage servicing amounts while taking into account current market conditions.

•	Discount Rate: The discount rates used by New Residential are derived from market data on pricing of mortgage servicing rights backed by similar collateral.

•	Cost of subservicing: The costs of subservicing used by New Residential are based on available market data for various loan types and delinquency statuses.

New Residential uses different prepayment and delinquency assumptions in valuing the MSRs and Excess MSRs relating to the original loan pools, the recapture agreements and the MSRs and Excess MSRs relating to recaptured loans. The prepayment rate and delinquency rate assumptions differ because of differences in the collateral characteristics, refinance potential and expected borrower behavior for original loans and loans which have been refinanced. The assumptions for recapture and discount rates when valuing investments in MSRs and Excess MSRs and recapture agreements are based on historical recapture experience and market pricing.

Servicer Advance Investments Valuation

New Residential uses internal pricing models to estimate the future cash flows related to the Servicer Advance Investments that incorporate significant unobservable inputs and include assumptions that are inherently subjective and imprecise. New Residential’s estimations of future cash flows include the combined cash flows of all of the components that comprise the Servicer Advance Investments: existing advances, the requirement to purchase future advances, the recovery of advances and the right to the basic fee component of the related MSR. The factors that most significantly impact the fair value include (i) the rate at which the servicer advance balance changes over the term of the investment, (ii) the UPB of the underlying loans with respect to which New Residential has the obligation to make advances and owns the basic fee component of the related MSR which, in turn, is driven by prepayment rates and (iii) the percentage of delinquent loans with respect to which New Residential owns the basic fee component of the related MSR. The valuation technique is based on discounted cash flows. Significant inputs used in the valuations included the assumptions used to establish the aforementioned cash flows and discount rates that market participants would use in determining the fair values of Servicer Advance Investments.

In order to evaluate the reasonableness of its fair value determinations, New Residential engages an independent valuation firm to separately measure the fair value of its Servicer Advance Investments. The independent valuation firm determines an estimated fair value range based on its own models and issues a “fairness opinion” with this range. New Residential compares the range included in the opinion to the value generated by its internal models. To date, New Residential has not made any significant valuation adjustments as a result of these fairness opinions.

Significant increases (decreases) in the advance balance-to-UPB ratio, prepayment rate, delinquency rate, or discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. Generally, a change in the delinquency rate assumption is accompanied by a directionally similar change in the assumption used for the advance balance-to-UPB ratio.

The following table summarizes certain information regarding the inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:

	Significant Inputs
	Weighted Average
	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)
December 31, 2019	1.4	%		10.6	%		15.7	%		19.6	bps		5.3	%		22.9
December 31, 2018	1.4	%		10.9	%		17.7	%		19.6	bps		5.9	%		23.4

(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 and 9.6 bps which represent the amounts New Residential paid its servicers as a monthly servicing fee as of December 31, 2019 and 2018, respectively.

(C)	Weighted average maturity of the underlying residential mortgage loans in the pool.

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The valuation of the Servicer Advance Investments also takes into account the performance fee paid to the servicer, which in the case of the Buyer is based on its equity returns and therefore is impacted by relevant financing assumptions such as loan-to-value ratio and interest rate as well as advance-to-UPB ratio. All of the assumptions listed have some degree of market observability, based on New Residential’s knowledge of the market, relationships with market participants, and use of common market data sources. The prepayment rate, the delinquency rate and the advance-to-UPB ratio projections are in the form of “curves” or “vectors” that vary over the expected life of the underlying mortgages and related servicer advances. New Residential uses assumptions that generate its best estimate of future cash flows for each Servicer Advance Investment, including the basic fee component of the related MSR.

When valuing Servicer Advance Investments, New Residential uses the following criteria to determine the significant inputs:

 

•

Servicer advance balance: Servicer advance balance projections are in the form of a “vector” that varies over the expected life of the residential mortgage loan pool. The servicer advance balance projection is based on assumptions that reflect factors such as the borrower’s expected delinquency status, the rate at which delinquent borrowers re-perform or become current again, servicer modification offer and acceptance rates, liquidation timelines and the servicers’ stop advance and clawback policies.

•

Prepayment Rate: Prepayment rate projections are in the form of a “vector” that varies over the expected life of the pool. The prepayment vector specifies the percentage of the collateral balance that is expected to prepay voluntarily (i.e., pay off) and involuntarily (i.e., default) at each point in the future. The prepayment vector is based on assumptions that reflect macroeconomic conditions and factors such as the borrower’s FICO score, loan-to-value ratio, debt-to-income ratio, and vintage on a loan level basis. New Residential considers collateral-specific prepayment experience when determining this vector.

•

Delinquency Rates: For existing mortgage pools, delinquency rates are based on the recent pool-specific experience of loans that missed recent mortgage payment(s) as well as loan- and borrower-specific characteristics such as the borrower’s FICO score, the loan-to-value ratio, debt-to-income ratio, occupancy status, loan documentation, payment history and previous loan modifications. New Residential believes the time period utilized provides a reasonable sample for projecting future delinquency rates while taking into account current market conditions.

•	Mortgage Servicing Amount: Mortgage servicing amounts are contractually determined on a pool-by-pool basis. New Residential projects the weighted average mortgage servicing amount based on its projections for prepayment rates.

•	LIBOR: The performance-based incentive fees on Mr. Cooper-serviced Servicer Advance Investments portfolios are driven by LIBOR-based factors. The LIBOR curves used are widely used by market participants as reference rates for many financial instruments.

•	Discount Rate: The discount rates used by New Residential are derived from market data on pricing of mortgage servicing rights backed by similar collateral and the advances made thereon.

Real Estate and Other Securities Valuation

New Residential’s securities valuation methodology and results are further detailed as follows:

										Fair Value
Asset Type		Outstanding Face Amount				Amortized Cost Basis				Multiple Quotes(A)				Single Quote(B)				Total				Level
December 31, 2019
Agency RMBS		$	11,301,603			$	11,474,338			$	11,519,943			$	—			$	11,519,943			2
Non-Agency RMBS(C)		24,857,988				7,307,837				7,953,573				4,212				7,957,785				3
Total		$	36,159,591			$	18,782,175			$	19,473,516			$	4,212			$	19,477,728
December 31, 2018
Agency RMBS		$	2,613,395			$	2,657,917			$	2,665,618			$	—			$	2,665,618			2
Non-Agency RMBS(C)		19,539,450				8,554,511				8,959,845				11,118				8,970,963				3
Total		$	22,152,845			$	11,212,428			$	11,625,463			$	11,118			$	11,636,581

 

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(A)

New Residential generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. New Residential evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because it believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases, for non-agency RMBS, there is a wide disparity between the quotes New Residential receives. New Residential believes using an average of the quotes in these cases would not represent the fair value of the asset. Based on New Residential’s own fair value analysis, it selects one of the quotes which is believed to more accurately reflect fair value. New Residential has not adjusted any of the quotes received in the periods presented. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price. New Residential’s investments in Agency RMBS are classified within Level 2 of the fair value hierarchy because the market for these securities is very active and market prices are readily observable.

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

For 67.7% of New Residential’s Non-Agency RMBS, the ranges of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.

Fair Value

Discount Rate

Prepayment Rate(a)

CDR(b)

Loss Severity(c)

Non-Agency RMBS

$

5,389,502

1.82% to 17.84%

0.5% to 23.0%

0.2% to 7.00%

15.0% to 100%

(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. For approximately $0.7 million in 2019 and $11.1 million in 2018, the one source was the party that sold New Residential the security.

(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

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trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, New Residential classifies these valuations as Level 2 in the fair value hierarchy.

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

The following table summarizes certain information regarding the inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:

		Fair Value				Discount Rate		Prepayment Rate		CDR		Loss Severity
Acquired Loans		$	3,024,288			4.0%		7.5%		2.7%		27.6%
Originated Loans		490,094				3.0-4.5%		6.0-17.0%		0.0-2.5%		0.0% - 60.0%
Residential Mortgage Loans Held-for-Sale, at Fair Value		$	3,514,382

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 inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:

		Fair Value				Discount Rate		Prepayment Rate		CDR		Loss Severity
Residential Mortgage Loans Held-for-Investment, at Fair Value		$	484,443			5.5%		6.2%		4.0%		35.5%

Derivative Valuation

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

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

		Fair Value				Loan Funding Probability		Fair Value of initial servicing rights (bps)
IRLCs (net)		$	39,891			43% to 100%		6.25 to 327

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Mortgage-Backed Securities Issued

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

The following table summarizes certain information regards the inputs used in valuing Mortgage-Backed Securities Issued:

Fair Value

Discount Rate

Prepayment Rate

CDR

Loss Severity

Mortgage-Backed Securities Issued

$

659,738

2.58% to 7.5%

4.5% to 15%

0% to 4%

30% to 95%

Contingent Consideration Valuation

New Residential, as additional consideration for the Shellpoint Acquisition, may make up to three cash earnout payments, which will be calculated following each of the first three anniversaries of the Shellpoint Closing as a percentage of the amount by which the pre-tax income of certain of Shellpoint’s businesses exceeds certain specified thresholds, up to an aggregate maximum amount of $60.0 million (the “Shellpoint Earnout Payments”). On September 5, 2019, New Residential paid $10.0 million as the first of three potential earnout payments. In accordance with ASC 805, New Residential measures its contingent consideration at fair value on a recurring basis using a scenario-based method to weigh the probability of multiple outcomes to arrive at an expected payment cash flow and then discounts the expected cash flow. The inputs utilized in valuing the contingent consideration include a discount rate of 11% and the application of probability weighting of income scenarios, which are significant unobservable inputs and therefore, contingent consideration is classified as Level 3 in the fair value hierarchy.

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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At December 31, 2019 and 2018, assets measured at fair value on a nonrecurring basis were $1,242.2 million and $764.1 million, respectively. The $1,242.2 million of assets at December 31, 2019 include approximately $1,189.5 million of residential mortgage loans held-for-sale and $52.7 million of REO. The $764.1 million of assets at December 31, 2018 include approximately $689.1 million of residential mortgage loans held-for-sale and $75.0 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:

		Fair Value and Carrying Value				Discount Rate			Weighted Average Life (Years)(A)		Prepayment Rate			CDR(B)			Loss Severity(C)
December 31, 2019
Performing Loans		$	707,106			4.2	%		4.1		11.7	%		2.6	%		27.3	%
Non-Performing Loans		482,401				5.5	%		3.1		3.0	%		2.9	%		30.0	%
Total/Weighted Average		$	1,189,507			4.7	%		3.7		8.2	%					28.4	%
December 31, 2018
Performing Loans		$	307,135			4.4	%		4.0		10.5	%		3.0	%		33.2	%
Non-Performing Loans		381,940				5.5	%		3.1		2.9	%		2.8	%		30.0	%
Total/Weighted Average		$	689,075			5.0	%		3.5		6.3	%					31.4	%

(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% to 25%, 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 year ended December 31, 2019 consisted of a reversal of prior valuation allowance of $20.0 million for residential mortgage loans and a reversal of prior valuation allowance of $0.6 million for REO.

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.

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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 December 31, 2019. 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 December 31, 2019, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $327.8 million and $305.2 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 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 first quarter of 2019, New Residential formed entities (the “RPL Borrowers”) that issued securitized debt collateralized by reperforming residential mortgage loans. New Residential determined that the RPL Borrowers 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 RPL Borrowers and 2) significant variable interests in each of the RPL Borrowers, through their control of the related optional redemption feature and their ownership of certain notes issued by the RPL Borrowers and, therefore, met the primary beneficiary criterion and consolidated the RPL Borrowers.

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

 

NewRez was deemed to be the primary beneficiary of the SAFT 2013-1 securitization entity as a result of its ability to direct activities that most significantly impact the economic performance of the entity in its role as servicer and its ownership of subordinated retained interests. The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations as of December 31, 2019:

		December 31,
		2019				2018
Residential mortgage loan UPB		$	19,590,978			$	7,818,221
Weighted average delinquency(A)		1.25		%		1.97		%
Net credit losses		$	9,354			$	9,101
Face amount of debt held by third parties(B)		$	17,946,939			$	6,783,187
Carrying value of bonds retained by New Residential(C) (D)		$	1,656,712			$	1,206,402
Cash flows received by New Residential on these bonds		$	270,739			$	178,301

(A)	Represents the percentage of the UPB that is 60+ days delinquent.

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(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 13 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 December 31, 2019, 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.

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

		The Buyer				Shelter Joint Ventures				Residential Mortgage Loans				Consumer Loan SPVs				Total
December 31, 2019
Assets
Servicer advance investments, at fair value		$	565,271			$	—			$	—			$	—			$	565,271
Residential mortgage loans, held-for-investment, at fair value		—				—				913,030				—				913,030
Consumer loans, held-for-investment		—				—				—				818,943				818,943
Cash and cash equivalents		30,065				23,802				—				—				53,867
Restricted cash		5,350				—				—				9,073				14,423
Other assets		2,414				3,556				4,534				12,409				22,913
Total Assets		$	603,100			$	27,358			$	917,564			$	840,425			$	2,388,447
Liabilities
Notes and bonds payable(A)		$	433,300			$	—			$	659,738			$	820,658			$	1,913,696
Accrued expenses and other liabilities		1,593				4,187				10,132				4,126				20,038
Total Liabilities		$	434,893			$	4,187			$	669,870			$	824,784			$	1,933,734
December 31, 2018
Assets
Servicer advance investments, at fair value		$	713,239			$	—			$	—			$	—			$	713,239
Residential mortgage loans, held-for-investment		—				—				121,319				—				121,319
Consumer loans, held-for-investments		—				—				—				1,039,480				1,039,480
Cash and cash equivalents		29,833				17,346				—				—				47,179
Restricted cash		7,809				—				—				10,186				17,995
Servicer advances receivable		—				—				—				—				—
Other assets		2,414				618				—				15,627				18,659
Total Assets		$	753,295			$	17,964			$	121,319			$	1,065,293			$	1,957,871
Liabilities
Notes and bonds payable(A)		$	556,340			$	—			$	117,048			$	1,030,096			$	1,703,484
Accrued expenses and other liabilities		2,442				2,282				—				3,814				8,538
Total Liabilities		$	558,782			$	2,282			$	117,048			$	1,033,910			$	1,712,022

(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.

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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 7), the Shelter JVs, (Note 9), Residential Mortgage Loan trusts (Note 9), and Consumer Loans (Note 10).

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

	December 31, 2019												December 31, 2018
	The Buyer(A)				Shelter Joint Ventures				Consumer Loan Companies				The Buyer(A)				Shelter Joint Ventures				Consumer Loan Companies
Total consolidated equity	$	168,207			$	23,171			$	46,510			$	194,513			$	15,682			$	66,105
Others’ ownership interest	26.8		%		49.0		%		46.5		%		26.8		%		51.0		%		46.5		%
Others’ interest in equity of consolidated subsidiary	$	45,025			$	11,354			$	22,171			$	52,066			$	7,998			$	30,561

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

	Year Ended December 31, 2019												Year Ended December 31, 2018												Year Ended December 31, 2017
	The Buyer(A)				Shelter Joint Ventures				Consumer Loan Companies				The Buyer(A)				Shelter Joint Ventures				Consumer Loan Companies				The Buyer(A)				Shelter Joint Ventures				Consumer Loan Companies
Net income	$	15,892			$	12,717			$	69,143			$	7,209			$	3,135			$	79,539			$	23,604			$	—			$	98,692
Others’ ownership interest as a percent of total	26.8		%		49.0		%		46.5		%		27.4		%		51.0		%		46.5		%		47.6		%		—		%		46.5		%
Others’ interest in net income of consolidated subsidiaries	$	4,255			$	6,231			$	32,151			$	1,978			$	1,599			$	36,987			$	11,227			$	—			$	45,892

(A)	As a result, New Residential owned 73.2%, 72.6% and 52.4% of the Buyer, on average during the years ended December 31, 2019, 2018 and 2017, respectively. See Note 12 regarding the financing of Servicer Advance Investments.

Equity and Dividends

New Residential’s certificate of incorporation authorizes 2,000,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share.

In February 2017, New Residential issued 56.5 million shares of its common stock in a public offering at a price to the public of $15.00 per share for net proceeds of approximately $834.5 million. One of New Residential’s executive officers participated in this offering and purchased 18,600 shares at the public offering price. 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 5.7 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $8.1 million as of the grant date. The assumptions used in valuing the options were: a 2.38% risk-free rate, a 10.82% dividend yield, 28.64% volatility and a 10-year term.

In January 2018, New Residential issued 28.8 million shares of its common stock in a public offering at a price to the public of $17.10 per share for net proceeds of approximately $482.3 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 2.9 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 2.58% risk-free rate, a 9.86% dividend yield, 23.16% volatility and a 10-year term.

On July 30, 2018, New Residential entered into a Distribution Agreement to sell shares of its common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price of up to $500.0 million, from time to time, through an “at-the-market” equity offering program (the “ATM Program”). During the year ended December 31, 2018, New Residential sold 0.5

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million ATM Shares for aggregate proceeds of $9.1 million. In connection with the shares sold under the ATM program, New Residential granted options to the Manager relating to 0.05 million shares of New Residential’s common stock at the offering prices, which had fair value of approximately $0.1 million as of the grant dates. On August 1, 2019, the Distribution Agreement was amended to, among other things, (i) add additional sales agents under the ATM Program, and (ii) restore the aggregate offering price under the ATM Program to the original amount of $500.0 million. During the year ended December 31, 2019, New Residential did not sell any ATM Shares.

In November 2018, New Residential issued 28.8 million shares of its common stock in a public offering at a price to the public of $17.32 per share for net proceeds of approximately $489.2 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 2.9 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 3.25% risk-free rate, a 8.61% dividend yield, 17.50% volatility and a 10-year term.

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

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

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

On September 23, 2019, New Residential’s board of directors declared third quarter 2019 preferred dividends of $0.69 per share of Preferred Series A and $0.45 per share of Preferred Series B, or $4.3 million and $5.0 million, respectively.

On December 16, 2019, New Residential’s board of directors declared fourth quarter 2019 preferred dividends of $0.47 per share of Preferred Series A and $0.45 per share of Preferred Series B, or $2.9 million and $5.0 million, respectively.

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Common dividends have been declared as follows:

				Per Share
Declaration Date		Payment Date		Quarterly Dividend			Total Amounts Distributed (millions)
January 26, 2017		April 2017		0.48			147.5
June 21, 2017		July 2017		0.50			153.7
September 22, 2017		October 2017		0.50			153.7
December 18, 2017		January 2018		0.50			153.7
March 22, 2018		April 2018		0.50			168.1
June 21, 2018		July 2018		0.50			169.9
September 20, 2018		October 2018		0.50			170.2
December 20, 2018		January 2019		0.50			184.6
March 25, 2019		April 2019		0.50			207.7
June 18, 2019		July 2019		0.50			207.8
September 23, 2019		October 2019		0.50			207.8
December 16, 2019		January 2020		0.50			207.8

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at December 31, 2019.

On August 20, 2019, New Residential announced that its board of directors had authorized the repurchase of up to $200.0 million of its common stock through December 31, 2020. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases will depend on a number of factors including the price and availability of New Residential’s shares, trading volume, capital availability, New Residential’s performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time. No share repurchases have been made as of the date of issuance of these Consolidated Financial Statements.

Option Plan

New Residential has a Nonqualified Stock Option and Incentive Award Plan, as amended (the “Plan”) which provides for the grant of equity-based awards, including restricted stock, options, stock appreciation rights, performance awards, tandem awards and other equity-based and non-equity based awards, in each case to the Manager, and to the directors, officers, employees, service providers, consultants and advisor of the Manager who perform services for New Residential, and to New Residential’s directors, officers, service providers, consultants and advisors. New Residential initially reserved 15,000,000 shares of its common stock for issuance under the Plan; on the first day of each fiscal year beginning during the 10-year term of the Plan in and after calendar year 2014, that number will be increased by a number of shares of New Residential’s common stock equal to 10% of the number of shares of common stock newly issued by New Residential during the immediately preceding fiscal year (and, in the case of fiscal year 2013, after the effective date of the Plan). No adjustment was made on January 1, 2014. Increases of 4,600,000, 5,799,166, 5,654,578 and 2,000,000 were made on January 1, 2020, 2019, 2018 and 2017, respectively. New Residential’s board of directors may also determine to issue options to the Manager that are not subject to the Plan, provided that the number of shares underlying any options granted to the Manager in connection with capital raising efforts would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules. Upon exercise, all options will be settled in an amount of cash equal to the excess of the fair market value of a share of common stock on the date of exercise over the exercise price per share unless advance approval is made to settle options in shares of common stock.

Upon joining the board, non-employee directors were, in accordance with the Plan, granted options relating to an aggregate of 7,000 shares of common stock. The fair value of such options was not material at the date of grant.

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New Residential’s outstanding options were summarized as follows:

	December 31,
	2019			2018
Held by the Manager	10,511,167			6,961,222
Issued to the Manager and subsequently assigned to certain of the Manager’s employees	2,290,749			1,530,916
Issued to the independent directors	7,000			6,000
Total	12,808,916			8,498,138

The following table summarizes New Residential’s outstanding options as of December 31, 2019. The last sales price on the New York Stock Exchange for New Residential’s common stock in the year ended December 31, 2019 was $16.11per share.

Recipient	Date of Grant/ Exercise(A)		Number of Unexercised Options			Options Exercisable as of December 31, 2019			Weighted Average Exercise Price(B)				Intrinsic Value of Exercisable Options as of December 31, 2019 (millions)
Directors	Various		7,000			7,000			$	13.61			$	—
Manager(C)	2017		1,130,916			—			14.09				2.3
Manager(C)	2018		5,320,000			2,996,715			16.79				—
Manager(C)	2019		6,351,000			1,787,500			16.35				—
Outstanding			12,808,916			4,791,215

 

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

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

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

Date of Grant to Manager		Range of Exercise Prices		Total Unexercised Inception to Date
2017		$14.09		1,130,916
2018		$16.68 to $18.15		1,159,833
Total				2,290,749

 

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

		Amount			Weighted Average Exercise Price
December 31, 2017 outstanding options		18,502,188
Options granted		5,799,166			$	17.23
Options exercised		(15,803,216	)		$	14.30
Options expired unexercised		—
December 31, 2018 outstanding options		8,498,138
Options granted		6,352,000			$	16.20
Options exercised		(2,041,222	)		$	13.88
Options expired unexercised		—
December 31, 2019 outstanding options		12,808,916			See table above

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Income and Earnings Per Share

New Residential is required to present both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period. New Residential’s common stock equivalents are its outstanding options. During the years ended December 31, 2019, 2018 and 2017, based on the treasury stock method, New Residential had 200,465, 1,868,438 and 2,143,323 dilutive common stock equivalents, respectively, outstanding.

Noncontrolling Interests

Noncontrolling interests is comprised of the interests held by third parties in consolidated entities that hold New Residential’s Servicer Advance Investments (Note 7), Shelter JVs (Note 9) and Consumer Loans (Note 10).

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

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

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

Capital Commitments — As of December 31, 2019, New Residential had outstanding capital commitments related to investments in the following investment types (also refer to Note 6 for MSR investment commitments and to Note 20 for additional capital commitments entered into subsequent to December 31, 2019, 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 it is obligated to service. The actual amount of future advances purchased will be based on: (a) the credit and prepayment performance of the underlying loans, (b) the amount of advances recoverable prior to liquidation of the related collateral and (c) the percentage of the loans with respect to which no additional advance obligations are made. The actual amount of future advances is subject to significant uncertainty. See Notes 5 and 6 for information on New Residential’s Investments in MSRs and Servicer Advance Investments, respectively.

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

In addition, for Ginnie Mae guaranteed securitizations, NewRez holds the Ginnie Mae Buy-Back Option to repurchase delinquent loans from the securitization at its discretion. While NewRez is not obligated to repurchase the delinquent loans, NewRez generally executes its option to repurchase that will result in an economic benefit. As of December 31, 2019, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $12.5 million and $172.3 million,

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respectively. See Notes 6 and 9 for information on New Residential’s Ginnie Mae Buy-Back Option and mortgage origination, respectively.

Mortgage Origination Unfunded Commitments — As of December 31, 2019, NewRez was committed to fund approximately $4,043.9 million of mortgage loans and had forward loan sale commitments of $43.7 million. The forward sales are expected to close during the first quarter of 2020.

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 9 for information on New Residential’s investments in residential mortgage loans.

Consumer Loans — The Consumer Loan Companies have invested in loans with an aggregate of $272.1 million of unfunded and available revolving credit privileges as of December 31, 2019. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at New Residential’s discretion.

Leases — New Residential, through its wholly owned subsidiary, Shellpoint, has leases on office space expiring through 2025 with future commitments under non-cancelable leases of approximately $46.2 million, held on the balance sheet discounted between 4 - 5%. Included in its future commitments is $20.4 million of leases at market expiring through 2023 acquired as part of the Ditech acquisition. The future commitments under non-cancelable leases have not been reduced by the sublease rentals of approximately $1.9 million due in the future periods. The terms of the leases do not impose any financial restrictions or covenants.

Environmental Costs — As a residential real estate owner, New Residential is subject to potential environmental costs. At December 31, 2019, New Residential is not aware of any environmental concerns that would have a material adverse effect on its consolidated financial position or results of operations.

Debt Covenants — New Residential’s debt obligations contain various customary loan covenants (Note 12).

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.

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.

Due to affiliates is comprised of the following amounts:

	December 31,
	2019				2018
Management fees	$	7,076			$	5,779
Incentive compensation	91,892				94,900
Expense reimbursements and other	4,914				792
Total	$	103,882			$	101,471

Affiliate expenses and fees were comprised of:

	Year Ended December 31,
	2019				2018				2017
Management fees	$	79,472			$	62,594			$	55,634
Incentive compensation	91,892				94,900				81,373
Expense reimbursements(A)	500				500				500
Total	$	171,864			$	157,994			$	137,507

(A)    Included in General and Administrative Expenses in the Consolidated Statements of Income.

See Note 5 regarding co-investments with Fortress-managed funds.

See Note 15 regarding options granted to the Manager.

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

Accumulated Other Comprehensive Income Components		Statement of Income Location		Year Ended December 31,
				2019				2018				2017
Reclassification of net realized (gain) loss on securities into earnings		Gain (loss) on settlement of investments, net		$	(205,989	)		$	29,936			$	(20,642	)
Reclassification of net realized (gain) loss on securities into earnings		Other-than-temporary impairment on securities		25,174				30,017				10,334
Total reclassifications				$	(180,815	)		$	59,953			$	(10,308	)

New Residential allocated $4.2 million of income tax expense to other comprehensive income for the year ended December 31, 2019.

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Income tax (benefit) expense consists of the following:

	Year Ended December 31,
	2019				2018				2017
Current:
Federal	$	148			$	6,146			$	(1,250	)
State and Local	3,411				477				360
Total Current Income Tax Expense (Benefit)	3,559				6,623				(890		)
Deferred:
Federal	28,939				(68,907		)		148,997
State and Local	9,268				(11,147		)		19,521
Total Deferred Income Tax Expense (Benefit)	38,207				(80,054		)		168,518
Total Income Tax (Benefit) Expense	$	41,766			$	(73,431	)		$	167,628

New Residential intends to qualify as a REIT for each of its tax years through December 31, 2019. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.

New Residential operates various securitization vehicles and has made certain investments, particularly its investments in MSRs (Note 6), Servicer Advance Investments (Note 7) and REO (Note 9), 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.

The increase in the expense for income taxes for the year ended December 31, 2019 is primarily due to deferred tax expense generated by MSR income and loan origination income attributable to New Residential TRSs.

The increase in the benefit for income taxes for the year ended December 31, 2018 is primarily due to the release of valuation allowances on deferred tax assets and increase in other deferred tax benefits attributable to New Residential’s TRSs.

The difference between New Residential’s reported provision for income taxes and the U.S. federal statutory rate of 21% is as follows:

	December 31,
	2019			2018			2017
Provision at the statutory rate	21.00	%		21.00	%		35.00	%
Non-taxable REIT income	(16.26	)%		(25.44	)%		(21.72	)%
State and local taxes	2.36	%		(1.19	)%		1.76	%
Change in valuation allowance	—	%		(2.31	)%		0.85	%
Change in federal tax rate	—	%		—	%		(0.92	)%
Other	0.66	%		(0.30	)%		(0.17	)%
Total provision	7.76	%		(8.24	)%		14.80	%

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liability are presented below:

	December 31,
	2019				2018
Deferred tax assets:
Net operating losses and tax credit carryforwards(A)	$	79,897			$	41,713
Basis differences for REO and other assets	16,279				8,453
Unrealized mark to market	10,084				36,758
Other	1,194				3,087
Total deferred tax assets	107,454				90,011
Less valuation allowance	—				—
Net deferred tax assets	$	107,454			$	90,011
Deferred tax liabilities:
Mortgage servicing rights	$	(65,582	)		$	—
Basis difference for partnership and other investments	(29,022		)		(24,179		)
Fixed asset depreciation	(4,181		)		—
Total deferred tax (liability)	$	(98,785	)		$	(24,179	)
Net deferred tax assets (liability)	$	8,669			$	65,832

(A)

As of December 31, 2019, New Residential’s TRSs had approximately $328.0 million of net operating loss carryforwards for federal and state income tax purposes which may be available to offset future taxable income, if and when it arises. Approximately, $9.1 million of these federal and state net operating loss carryforwards will begin to expire in 2034. The utilization of the net operating loss carryforwards to reduce future income taxes will depend on the TRSs ability to generate sufficient taxable income prior to the expiration of the carryforward period.

In assessing the realizability of deferred tax assets, New Residential considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As of December 31, 2019, we believe it is more likely than not that we will fully realize our deferred tax assets.

New Residential and its TRSs file income tax returns with the U.S. federal government and various state and local jurisdictions. Generally, New Residential is no longer subject to tax examinations by tax authorities for tax years ended prior to December 31, 2016. New Residential recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the consolidated statements of operations. As of December 31, 2019, New Residential has no material uncertainties to be recognized. New Residential does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date.

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Common stock distributions were taxable as follows:

Year	Dividends per Share				Ordinary Income			Long-term Capital Gain			Return of Capital
2019(A)	$	1.87			77.53	%		15.82	%		6.65	%
2018(B)	1.60				78.03	%		1.03	%		20.94	%
2017(C)	1.94				66.64	%		7.83	%		25.53	%

(A)	The entire $0.50 per share dividend declared in December 2019 and paid in January 2020 is treated as received by stockholders in 2020.

(B)	The entire $0.50 per share dividend declared in December 2018 and paid in January 2019 is treated as received by stockholders in 2019.

(C)	The entire $0.50 per share dividend declared in December 2017 and paid in January 2018 is treated as received by stockholders in 2018.

Series A Preferred stock distributions were as follows:

Year	Dividends per Share				Ordinary Income			Long-term Capital Gain			Return of Capital
2019	$	0.69			84.18	%		15.82	%		—	%

Series B Preferred stock distributions were as follows:

Year	Dividends per Share				Ordinary Income			Long-term Capital Gain			Return of Capital
2019	$	0.45			84.18	%		15.82	%		—	%

These financial statements include a discussion of material events that have occurred subsequent to December 31, 2019 (referred to as “subsequent events”) through the issuance of these consolidated financial statements. Events subsequent to that date have not been considered in these financial statements.

Corporate Activities

On December 16, 2019, New Residential’s board of directors declared a fourth quarter 2019 dividend of $0.50 per common share or $207.8 million, which was paid on January 31, 2020 to stockholders of record as of December 31, 2019.

On February 14, 2020, in a public offering, New Residential issued 14.0 million shares 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 $338.7 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.4 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.

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The following is an unaudited summary information on New Residential’s quarterly operations.

2019	Quarter Ended																Year Ended December 31
	March 31				June 30				September 30				December 31
Interest income	$	438,867			$	416,047			$	448,127			$	463,089			$	1,766,130
Interest expense	212,832				228,004				245,902				247,013				933,751
Net interest income	226,035				188,043				202,225				216,076				832,379
Impairment
Other-than-temporary impairment (OTTI) on securities	7,516				8,859				5,567				3,232				25,174
Valuation and loss provision (reversal) on loans and real estate owned	5,280				13,452				(10,690		)		2,361				10,403
	12,796				22,311				(5,123		)		5,593				35,577
Net interest income after impairment	213,239				165,732				207,348				210,483				796,802
Servicing revenue, net	165,853				(85,537		)		53,050				251,793				385,159
Gain on originated mortgage loans, held-for-sale, net	67,170				101,018				126,747				180,520				475,455
Other income (loss)(A)	(63,966		)		(25,947		)		102,640				(53,826		)		(41,099		)
Operating Expenses	180,387				201,863				250,565				335,803				968,618
Income (Loss) Before Income Taxes	201,909				(46,597		)		239,220				253,167				647,699
Income tax (benefit) expense	45,997				(21,577		)		(5,440		)		22,786				41,766
Net Income (Loss)	$	155,912			$	(25,020	)		$	244,660			$	230,381			$	605,933
Noncontrolling Interests in Income of Consolidated Subsidiaries	$	10,318			$	6,923			$	14,738			$	10,658			$	42,637
Dividends on Preferred Stock	$	—			$	—			$	5,338			$	7,943			$	13,281
Net Income (Loss) Attributable to Common Stockholders	$	145,594			$	(31,943	)		$	224,584			$	211,780			$	550,015
Net Income (Loss) Per Share of Common Stock
Basic	$	0.37			$	(0.08	)		$	0.54			$	0.51			$	1.35
Diluted	$	0.37			$	(0.08	)		$	0.54			$	0.51			$	1.34
Weighted Average Number of Shares of Common Stock Outstanding
Basic	388,279,931				415,463,757				415,520,780				415,520,780				408,789,642
Diluted	388,601,075				415,665,460				415,588,238				415,673,185				408,990,107
Dividends Declared per Share of Common Stock	$	0.50			$	0.50			$	0.50			$	0.50			$	2.00

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2018	Quarter Ended																Year Ended December 31
	March 31				June 30				September 30				December 31
Interest income	$	383,573			$	403,805			$	425,524			$	451,321			$	1,664,223
Interest expense	124,387				133,916				162,806				185,324				606,433
Net interest income	259,186				269,889				262,718				265,997				1,057,790
Impairment
Other-than-temporary impairment (OTTI) on securities	6,670				12,631				3,889				6,827				30,017
Valuation and loss provision (reversal) on loans and real estate owned	19,007				3,658				5,471				32,488				60,624
	25,677				16,289				9,360				39,315				90,641
Net interest income after impairment	233,509				253,600				253,358				226,682				967,149
Servicing revenue, net	217,236				146,193				175,355				(10,189		)		528,595
Gain on originated mortgage loans, held-for-sale, net	—				—				47,054				49,091				96,145
Other income (loss)(A)	264,524				(96,812		)		(84,620		)		(134,477		)		(51,385		)
Operating Expenses	107,817				119,753				192,107				189,727				609,404
Income (Loss) Before Income Taxes	607,452				183,228				199,040				(58,620		)		931,100
Income tax (benefit) expense	(6,912		)		(2,608		)		3,563				(67,474		)		(73,431		)
Net Income	$	614,364			$	185,836			$	195,477			$	8,854			$	1,004,531
Noncontrolling Interests in Income of Consolidated Subsidiaries	$	10,111			$	11,078			$	10,869			$	8,506			$	40,564
Net Income Attributable to Common Stockholders	$	604,253			$	174,758			$	184,608			$	348			$	963,967
Net Income Per Share of Common Stock
Basic	$	1.83			$	0.52			$	0.54			$	—			$	2.82
Diluted	$	1.81			$	0.51			$	0.54			$	—			$	2.81
Weighted Average Number of Shares of Common Stock Outstanding
Basic	330,384,856				336,311,253				340,044,440				358,044,646				341,268,923
Diluted	333,380,436				339,538,503				340,868,403				358,509,094				343,137,361
Dividends Declared per Share of Common Stock	$	0.50			$	0.50			$	0.50			$	0.50			$	2.00

 

(A)	Earnings from investments in equity method investees is included in other income.

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•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

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•	Second Amended and Restated Limited Liability Company Agreement of SpringCastle America, LLC, dated as of March 31, 2016.

•	Second Amended and Restated Limited Liability Company Agreement of SpringCastle Credit, LLC, dated as of March 31, 2016.

•	Second Amended and Restated Limited Liability Company Agreement of SpringCastle Finance, LLC, dated as of March 31, 2016.

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•	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.

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