FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2015

Schedule of Carrying Values and Fair Values of Financial Assets Recorded at Fair Value on a Recurring Basis

The carrying values and fair values of New Residential’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of June 30, 2015 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)	$	335,643,658	$	1,504,422	$	—	$	—	$	1,504,422	$	1,504,422
Excess mortgage servicing rights, equity method investees, at fair value^(A)	79,731,703		216,112		—		—		216,112		216,112
Servicer advances	8,278,685		8,182,400		—		—		8,182,400		8,182,400
Real estate securities, available-for-sale	3,328,343		1,907,961		—		994,030		913,931		1,907,961
Residential mortgage loans, held-for-investment	62,362		42,741		—		—		43,870		43,870
Residential mortgage loans, held-for-sale	599,610		523,018		—		—		524,105		524,105
Non-hedge derivatives	2,560,000		1,701		—		1,701		—		1,701
Cash and cash equivalents	432,007		432,007		432,007		—		—		432,007
Restricted cash	134,735		134,735		134,735		—		—		134,735
			$	12,945,097	$	566,742	$	995,731	$	11,384,840	$	12,947,313
Liabilities:
Repurchase agreements	$	2,405,851	$	2,404,617	$	—	$	1,831,989	$	573,862	$	2,405,851
Notes payable	7,905,595		7,883,061		—		—		7,908,842		7,908,842
Derivative liabilities	3,298,000		16,124		—		16,124		—		16,124
			$	10,303,802	$	—	$	1,848,113	$	8,482,704	$	10,330,817


(A)	The notional amount represents the total unpaid principal balance of the mortgage loans underlying the Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.

Schedule of Financial Assets Measured at Fair Value on a Recurring Basis using Level 3 Inputs

New Residential’s financial 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			Agency			Non-Agency			Servicer Advances			Non-Agency RMBS			Linked Transactions			Total
Balance at December 31, 2014	$	217,519		$	200,214		$	232,618		$	98,258		$	3,270,839		$	723,000		$	32,402		$	4,774,850
Transfers^(C)
Transfers from Level 3	—			—			—			—			—			—			—			—
Transfers to Level 3	—			—			—			—			—			—			—			—
Transfers from investments in excess mortgage servicing rights, equity method investees, to investments in excess mortgage servicing rights	—			98,258			—			(98,258		)	—			—			—			—
Gains (losses) included in net income
Included in other-than-temporary impairment (“OTTI”) on securities^(D)	—			—			—			—			—			(1,720		)	—			(1,720		)
Included in change in fair value of investments in excess mortgage servicing rights^(D)	5,425			(6,830		)	—			—			—			—			—			(1,405		)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees^(D)	—			—			8,016			—			—			—			—			8,016
Included in change in fair value of investments in servicer advances	—			—			—			—			16,893			—			—			16,893
Included in gain on settlement of investments, net	—			—			—			—			—			3,808			—			3,808
Included in other income^(D)	1,577			—			—			—			—			—			—			1,577
Gains (losses) included in other comprehensive income, net of tax^(E)	—			—			—			—			—			(560		)	—			(560		)
Interest income	13,176			36,221			—			—			150,937			23,196			—			223,530
Purchases, sales, repayments and transfers
Purchases	129,098			919,531			—			—			11,404,992			490,438			—			12,944,059
Proceeds from sales	—			—			—			—			—			(389,719		)	—			(389,719		)
Proceeds from repayments	(25,268		)	(84,499		)	(24,522		)	—			(6,661,261		)	(51,344		)	—			(6,846,894		)
De-linked transactions^(F)	—			—			—			—			—			116,832			(32,402		)	84,430
Balance at June 30, 2015	$	341,527		$	1,162,895		$	216,112		$	—		$	8,182,400		$	913,931		$	—		$	10,816,865


(A)	Includes the Recapture Agreement for each respective pool.


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


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


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


(F)	See Note 10 for a discussion of transactions formerly accounted for as linked transactions.

Summary of Certain Information Regarding the Inputs used in Valuing the Servicer Advances

The following table summarizes certain information regarding the weighted average inputs used in valuing the Excess MSRs owned directly and through equity method investees as of June 30, 2015:



	Significant Inputs^(A)
Directly Held (Note 4)	Prepayment Speed^(B)		Delinquency^(C)		Recapture Rate^(D)		Excess Mortgage Servicing Amount (bps)^(E)
Agency
Original and Recaptured Pools	10.6	%	4.2	%	32.7	%	22
Recapture Agreement	7.7	%	4.6	%	20.0	%	24
	10.3	%	4.2	%	31.4	%	22
Non-Agency^(F)
Nationstar and SLS Serviced:
Original and Recaptured Pools	12.7	%	N/A		10.3	%	21
Recapture Agreement	7.5	%	N/A		20.0	%	20
Ocwen Serviced Pools	9.4	%	N/A		—	%	14
	10.0	%	N/A		2.3	%	17
Total/Weighted Average--Directly Held	10.1	%	4.2	%	7.9	%	18

Held through Equity Method Investees (Note 5)
Agency
Original and Recaptured Pools	12.7	%	6.4	%	33.4	%	19
Recapture Agreement	7.7	%	4.5	%	20.0	%	23
Total/Weighted Average--Held through Investees	11.9	%	6.1	%	31.2	%	19

Total/Weighted Average--All Pools	10.4	%	4.6	%	12.4	%	18


(A)	Weighted by amortized cost basis of the mortgage loan portfolio.


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


(C)	Projected percentage of mortgage loans in the pool that will miss their mortgage payments.


(D)	Percentage of voluntarily prepaid loans that are expected to be refinanced by Nationstar.


(E)	Weighted average total mortgage servicing amount in excess of the basic fee.


(F)	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.

Summary of Certain Information Regarding the Inputs used in Valuing the Servicer Advances

The following table summarizes certain information regarding the inputs used in valuing the servicer advances:



	Significant Inputs
	Weighted Average
	Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans		Prepayment Speed		Delinquency		Mortgage Servicing Amount^(A)		Discount Rate
June 30, 2015	2.4	%	10.6	%	14.2	%	19.5	bps	5.5	%


(A)	Mortgage servicing amount excludes the amounts New Residential pays its servicers as a monthly servicing fee.

Schedule of Securities Valuation Methodology and Results

As of June 30, 2015, New Residential’s securities valuation methodology and results are further detailed as follows:



					Fair Value
Asset Type	Outstanding Face Amount		Amortized Cost Basis		Multiple Quotes^(A)		Single Quote^(B)		Total		Level
Agency RMBS	$	958,141	$	991,514	$	994,030	$	—	$	994,030	2
Non-Agency RMBS^(C)	2,370,202		902,005		901,377		12,554		913,931		3
Total	$	3,328,343	$	1,893,519	$	1,895,407	$	12,554	$	1,907,961

(A)

Management 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. Management selected one of the quotes received as being most representative of the fair value and did 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 management believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases there is a wide disparity between the quotes New Residential receives. Management 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, management selects one of the quotes which is believed to more accurately reflect fair value. New Residential never adjusts quotes received. 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.


(B)	Management was unable to obtain quotations from more than one source on these securities. 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.

Schedule of Inputs Used in Valuing Residential Mortgage Loans

The following table summarizes the inputs used in valuing these residential mortgage loans as of June 30, 2015:



June 30, 2015	Fair Value		Discount Rate		Weighted Average Life (Years)^(A)	Prepayment Rate		CDR^(B)	Loss Severity^(C)
Non-performing Loans	$	233,881	5.6	%	3.1	2.1	%	N/A	29.4	%


(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 following table summarizes the inputs used in valuing residential mortgage loans as of June 30, 2015:



	Carrying Value		Fair Value		Valuation Provision/ (Reversal) In Current Year		Discount Rate		Weighted Average Life (Years)^(A)	Prepayment Rate		CDR^(B)		Loss Severity^(C)
Reverse Mortgage Loans^(D)	$	21,601	$	21,601	$	186	10.0	%	4.1	N/A		N/A		6.9	%
Performing Loans	21,140		22,269		118		7.9	%	5.7	5.6	%	2.9	%	56.9	%
Non-performing Loans	289,137		290,224		N/A		5.0	%	3.0	—	%	N/A		—	%
Total/Weighted Average	$	331,878	$	334,094	$	304	5.5	%	3.2					4.1	%


(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.


(D)	Carrying value and fair value represent a 70% interest New Residential holds in the reverse mortgage loans.