INVESTMENTS IN RESIDENTIAL MORTGAGE 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-Sale


•	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, 2016	Outstanding Face Amount		Carrying Value^(A)		Loan Count	Weighted Average Yield		Weighted Average Life (Years)^(B)	Floating Rate Loans as a % of Face Amount		LTV Ratio^(C)		Weighted Avg. Delinquency^(D)		Weighted Average FICO^(E)
Loan Type
Reverse Mortgage Loans^(F)(G)	$	—	$	—	—	—	%	—	—	%	—	%	—	%	N/A
Performing Loans^(H)	—		—		—	—	%	—	—	%	—	%	—	%	—
Purchased Credit Deteriorated Loans^(I)	203,673		190,761		1,183	5.5	%	2.7	8.7	%	71.5	%	94.9	%	590
Total Residential Mortgage Loans, held-for-investment	$	203,673	$	190,761	1,183	5.5	%	2.7	8.7	%	71.5	%	94.9	%	590

Reverse Mortgage Loans^{(F) (G)}	$	22,645	$	11,468	69	7.2	%	4.5	15.4	%	135.6	%	70.7	%	N/A
Performing Loans^{(H) (J)}	179,983		175,194		1,957	4.3	%	5.9	22.4	%	102.9	%	6.4	%	625
Non-Performing Loans^{(I) (J)}	706,302		510,003		3,759	7.1	%	2.9	20.6	%	105.0	%	75.9	%	575
Total Residential Mortgage Loans, held-for-sale	$	908,930	$	696,665	5,785	6.5	%	3.5	20.8	%	105.4	%	62.0	%	585

December 31, 2015
Loan Type
Reverse Mortgage Loans^{(F) (G)}	$	34,423	$	19,560	136	10.0	%	4.2	21.8	%	112.9	%	71.3	%	N/A
Performing Loans^(H)	21,483		19,964		671	9.1	%	6.7	17.1	%	77.4	%	7.5	%	626
Purchased Credit Deteriorated Loans^(I)	450,229		290,654		2,118	5.5	%	2.5	18.7	%	115.4	%	97.6	%	578
Total Residential Mortgage Loans, held-for-investment	$	506,135	$	330,178	2,925	6.0	%	2.8	18.8	%	113.6	%	92.0	%	580

Performing Loans^(H)	$	270,585	$	277,084	1,838	4.6	%	4.9	4.6	%	57.0	%	—	%	702
Non-Performing Loans^(I)	589,129		499,597		3,428	5.9	%	2.9	14.5	%	104.5	%	81.1	%	580
Total Residential Mortgage Loans, held-for-sale	$	859,714	$	776,681	5,266	5.5	%	3.5	11.4	%	89.6	%	55.6	%	619


(A)	Includes residential mortgage loans with a United States federal income tax basis of $905.7 million and $1,204.2 million as of December 31, 2016 and 2015, respectively.


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


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


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


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

(F)

Represents a 70% participation interest that New Residential holds in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB was $0.5 million and $0.4 million at December 31, 2016 and 2015, respectively. Approximately 60.9% and 71.0% of these loans have reached a termination event at December 31, 2016 and 2015, respectively. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.


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


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


(I)	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, 2016, New Residential has placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (J) below.


(J)	Includes $45.2 million and $87.5 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

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

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



	Percentage of Total Outstanding Unpaid Principal Amount
	December 31,
State Concentration	2016		2015
New York	16.7	%	14.5	%
Florida	11.4	%	10.7	%
California	10.3	%	12.3	%
New Jersey	9.6	%	13.1	%
Maryland	4.7	%	3.5	%
Illinois	4.0	%	4.3	%
Texas	3.9	%	3.3	%
Massachusetts	3.5	%	3.3	%
Pennsylvania	2.9	%	2.8	%
Washington	2.8	%	3.2	%
Other U.S.	30.2	%	29.0	%
	100.0	%	100.0	%

See Note 11 regarding the financing of residential mortgage loans.

Call Rights

New Residential has exercised its call rights with respect to the following 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. The following table summarizes these transactions (dollars in millions).



		Securities Owned Prior				Assets Acquired							Loans Sold^(C)					Retained Bonds			Retained Assets ^(C)
Date of Call ^(A)	Number of Trusts Called	Face Amount		Amortized Cost Basis		Loan UPB		Loan Price ^(B)		REO & Other Price ^(B)		Date of Securitization	UPB		Gain (Loss)			Basis		Type	Loan UPB		Loan Price		REO & Other Price
May 2014	16	$	17.4	$	12.0	$	282.2	$	289.4	$	—	May 2014	$	233.8	$	3.5		N/A		N/A	$	48.4	$	40.1	$	1.3
August 2014	19	15.4		13.1		530.1		536.3		3.0		October 2014	463.0		7.0			$	25.8	Interest-Only	66.4		46.3		3.0
December 2014	25	27.9		24.0		597.1		623.7		—		December 2014	516.1		0.7			28.9		Interest-Only	81.0		71.7		4.3
June 2015	18	13.7		9.1		369.0		388.8		—		June 2015	334.5		(2.8		)	15.0		Interest-Only	34.5		31.7		1.3
September 2015	7	7.4		4.5		216.3		223.1		1.5		N/A^(C)	N/A^(C)		N/A^(C)			N/A^(C)		N/A^(C)	19.4		17.2		1.5
November 2015	14	3.9		3.0		345.4		351.7		1.2		November 2015	511.8		2.4			22.0		Interest-Only	29.8		23.4		1.2
December 2015	14	61.4		48.0		309.1		315.1		3.1		March 2016	261.3		2.1			36.6		Various	35.8		26.6		2.9
March 2016	13	58.0		41.0		167.2		173.3		3.1		N/A^(C)	N/A^(C)		N/A^(C)			N/A^(C)		N/A^(C)	65.0		61.8		3.4
May 2016	12	60.0		44.0		290.6		298.7		0.6		May 2016	306.9		(2.2		)	40.0		Various	85.9		78.2		1.1
August 2016	11	6.2		1.4		312.3		319.2		1.7		September 2016	308.0		8.1			45.7		Various	45.6		41.1		2.3
November 2016	13	41.7		24.2		289.1		286.8		3.7		December 2016	273.6		(5.2		)	43.2		Various	46.2		21.6		4.4
December 2016	1	116.6		102.0		124.4		119.1		0.4		N/A^(C)	N/A^(C)		N/A^(C)			N/A^(C)		N/A^(C)	N/A^(C)		N/A^(C)		N/A^(C)


(A)	Any related securitization may occur on the same or a subsequent date, depending on market conditions and other factors. Except as otherwise noted in (C) below, there was one securitization associated with each call.


(B)	Price includes par amount paid for all underlying residential mortgage loans of the trusts, plus the basis of the exercised call rights, plus advances and costs incurred (including MSR Fund Payments, as defined in Note 15) in exercising such call rights.

(C)

Loans were sold through a securitization which was treated as a sale for accounting purposes. Retained assets are reflected as of the date of the relevant securitization. The securitization that occurred in November 2015 primarily included loans from the September 2015 and November 2015 calls, but also included previously acquired loans. The securitization that occurred in March 2016 primarily included loans from the December 2015 call, but also included previously acquired loans. The securitization that occurred in May 2016 primarily included loans from the March 2016 and May 2016 calls. The securitization that occurred in September 2016 primarily included loans from the August 2016 call, but also included $42.2 million of previously acquired loans. The securitization that occurred in December 2016 primarily included loans from the November 2016 call, but also included $31.2 million of previously acquired loans. No loans from the December 2016 call had been securitized by December 31, 2016.

Loans Held-for-Investment (Non-PCD)

In February 2013, New Residential, through a subsidiary, entered into an agreement to co-invest in reverse mortgage loans. New Residential acquired a 70% interest in the reverse mortgage loans. Nationstar has co-invested on a pari passu basis with New Residential in 30% of the reverse mortgage loans and is the servicer of the loans performing all servicing and advancing functions and retaining the ancillary income, servicing obligations and liabilities as the servicer.

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



	Reverse Mortgage Loans			Performing Loans
Balance at December 31, 2014	$	24,965		$	22,873
Purchases/additional fundings	988			—
Proceeds from repayments	(687		)	(2,918		)
Accretion of loan discount and other amortization^(A)	5,904			52
Provision for loan losses	(35		)	(43		)
Transfer of loans to other assets^(B)	(11,574		)	—
Transfer of loans to real estate owned	(1		)	—
Balance at December 31, 2015	$	19,560		$	19,964
Purchases/additional fundings	319			—
Proceeds from repayments	(1,352		)	(811		)
Accretion of loan discount (premium) and other amortization^(A)	2,002			123
Provision for loan losses	(73		)	(4		)
Transfer of loans to other assets^(B)	(4,203		)	—
Sales	(1,795		)	—
Transfer of loans to held-for-sale^(C)	(14,458		)	(19,272		)
Balance at December 31, 2016	$	—		$	—


(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.


(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.

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



	Reverse Mortgage Loans			Performing Loans
Balance at December 31, 2014	$	1,518		$	1,447
Provision for loan losses^(A)	35			43
Charge-offs^(B)	—			(1,371		)
Balance at December 31, 2015	$	1,553		$	119
Provision for loan losses^(A)	73			4
Charge-offs^(B)	—			—
Sales	(171		)	—
Transfer of loans to held-for-sale^(C)	(1,455		)	(123		)
Balance at December 31, 2016	$	—		$	—


(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.


(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.

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, 2014	$	—
Purchases/additional fundings	289,664
Accretion of loan discount and other amortization	990
Balance at December 31, 2015	$	290,654
Purchases/additional fundings	190,761
Sales	—
Proceeds from repayments	(8,897		)
Accretion of loan discount and other amortization	8,295
Transfer of loans to real estate owned	(7,583		)
Transfer of loans to held-for-sale	(282,469		)
Balance at December 31, 2016	$	190,761

The following is the contractually required payments receivable, cash flows expected to be collected, and fair value at acquisition date for PCD loans acquired during the year ended December 31, 2016:



	Contractually Required Payments Receivable	Cash Flows Expected to be Collected	Fair Value
As of Acquisition Date	337,374	214,449	190,343

The following is the unpaid principal balance and carrying value for 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, 2016	$	203,673	$	190,761
December 31, 2015	450,229		290,654

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



Balance at December 31, 2014	$	—
Additions	72,053
Accretion	(990		)
Balance at December 31, 2015	$	71,063
Additions	23,688
Accretion	(8,876		)
Reclassifications from non-accretable difference^(A)	29,569
Disposals^(B)	(2,680		)
Transfer of loans to held-for-sale^(C)	(89,076		)
Balance at December 31, 2016	$	23,688


(A)	Represents a probable and significant increase 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

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



Balance at December 31, 2014	$	1,126,439
Purchases^(A)	1,695,124
Sales	(1,871,054		)
Transfer of loans to other assets^(B)	(41,752		)
Transfer of loans to real estate owned	(34,139		)
Adoption of ASU No. 2014-11^(C)	1,831
Proceeds from repayments	(85,698		)
Valuation (provision) reversal on loans^(D)	(14,070		)
Balance at December 31, 2015	$	776,681
Purchases^(A)	1,196,018
Transfer of loans from held-for-investment^(E)	316,199
Sales	(1,274,707		)
Transfer of loans to other assets^(B)	(158,807		)
Transfer of loans to real estate owned	(56,001		)
Proceeds from repayments	(91,339		)
Valuation (provision) reversal on loans^(D)	(11,379		)
Balance at December 31, 2016	$	696,665


(A)	Represents loans acquired with the intent to sell, including loans acquired in the HLSS Acquisition (Note 1).


(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)	Represents loans financed with the selling counterparty that were previously accounted for as linked transactions (Note 10).


(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 $10.5 million, $2.6 million, $3.6 million, $13.8 million and $10.2 million of provision related to the call transactions executed in December 2015, March 2016, May 2016, November 2016 and December 2016, respectively.


(E)	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.

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, 2014	$	61,933
Purchases	26,208
Transfer of loans to real estate owned	35,322
Sales	(68,441		)
Valuation provision on REO	(4,448		)
Balance at December 31, 2015	$	50,574
Purchases	11,283
Transfer of loans to real estate owned	81,940
Sales	(66,880		)
Valuation provision on REO	(17,326		)
Balance at December 31, 2016	$	59,591

As of December 31, 2016, New Residential had non-performing residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $447.0 million.

In addition, New Residential has recognized $55.3 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.